STRATEGY MANAGEMENT

GMSI581

SUBMITTED BY RAHUL YADAV 100163

SUBMITTED TO MR. ASHWINI GOEL

TABLE OF CONTENTS
1. 2. History3-5 Porters five forces..5-6

3.

Generic Strategies...7-8

4.

Matrix Analysis.9-11

5. 6.

Financial view..12 Conclusion12

7.

Bibliography.13

History
1960s The Beginning Wal-Mart was founded by Sam Walton in 1962. He opened his first store in Rogers, Ark. Sam was traveling different places to learn whole about discount retailing before finally opening his store. After traveling, he came to know that people want different kind of stores. Based on his research, he and his wife invest 95% of their savings in their first store. (History, 2011) 1970s - Expansion In 1972, Wal-Mart becomes public and its stock was listed on New York Stock Exchange. Wal-Mart became successful and in 1975 it has more than 125 stores and their sales were around 340 million dollars. With expansion and increase in inventory, they lease an IBM 370/135 computer system in order to properly manage inventory and maintain proper income statement for each and every store. Electronic cash registers were also introduced in many stores. They also develop their network of computers (companywide). By the end of 1979, their sales reach upto 1 billion dollars and they develop their computer centre and install an IBM 3774 in their stores. (45 Years of Wal-Mart History, 2011) 1980s Comes Of Age In 1983, company started using bar codes and opened first Sams club. In 1984, Bob Martin becomes Chief Information Officer of Wal-Mart. In 1987, Wal-Mart was the first company to have largest private satellite network in US. This network is connecting all headquarters and operating centres of company. (45 Years of Wal-Mart History, 2011). Wal-Mart opens its first Supercentre in 1988. It includes all kinds of grocery and general merchandise. By the end of 1989, company had expanded to 1402 stores and 123 Sams club. Sales and employment had increased and sales had increased to 26 billion dollars. (History, 2011) 1990s Goes Online In 1990, to store and manage past sales data warehouse prototype was developed by WalMart. In the mid 0f 1992, a retail link system was developed by Wal-Mart to strengthen their relationship with their suppliers. This system was very effective and also provides information about sales and the levels of inventory. In 1993, Randy Mott becomes the Chief Information Officer of Wal-Mart. In 1995, Wal-Mart has spread around 50 states. It has a total of around 1995 Wal-Mart stores, 239 supercentres, 433 Sams Club and 276 international stores and its sales reaches around 94 billion dollars. In 1996, Wal-Mart goes online and makes its retail link system online. (45 Years of Wal-Mart History, 2011). 2000s Successful Retailer In 2002, Wal-Mart starts contacting with its worldwide suppliers online. Wal-Mart had record of highest sales in one day of 1.43 billion dollars just the day after thanks giving. Wal-Mart introduced the technology of radio identification frequency in 2005. In 2006, Rollin Ford
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becomes Chief Information Officer and company has 2 million employees, 6775 stores worldwide and had huge sales of 349 billion dollars. (45 Years of Wal-Mart History, 2011) Sams Secret Satisfaction of Customers In his autobiography, Sam said, "if you think about it from the point of view of the customer, you want everything: a wide assortment of quality merchandise; the lowest possible prices; guaranteed satisfaction; friendly, knowledgeable service; convenient hours; and a pleasant shopping experience. You love it when a store exceeds your expectations, and you hate it when a store inconveniences you, gives you a hard time, or pretends you're invisible." (History, 2011)

Product Divisional Structure

Wal-Mart basically includes Wal-Mart stores (US), Sams Club (US) and International stores. Wal-Mart Stores Wal-Mart stores include Wal-Mart Discount stores, Wal-Mart Supercentres, Wal-Mart Neighbourhood Markets, Wal-Mart Express Stores, Marketside and Walmart.com. In US, there are about 647 Discount stores and each store has about 225 employees. These stores include all kinds of general merchandize at low price such as electronics, toys, hardware, jewellery etc. There are about 3002 supercentres across US and are 24 hours open. They have an area of 185000 square feet and have about 350 employees. They include all kind of groceries and also include speciality shops. First neighbourhood market was opened in 1998 and today there are about 164 Wal-Mart neighbourhood markets. They have an area of 42000 square feet and have about 95 employees. First Wal-Mart express was opened in 2011 and opened especially in area where people easily dont have access to stores and includes all kinds of products. First marketside was opened in 2008. They basically specialize in fresh and delicious foods at low prices. Walmart.com was founded in 2000 to give convenience to customers to shop online. It has almost 1000000 products at low prices. (Wal-Mart, 2011) Sams Club First opened in Midwest City, Oklahoma in 1983, today there are about 610 Sams Club in US. They have an area of about 132000 square feet and have almost 175 employees. They also have 100 international branches. Their annual membership fee is affordable and this keeps their prices low. They also help small businesses. (Sams Club, 2011) International Stores In 1991, Wal-Mart goes global. It had opened its stores in many parts of the world. They had opened stores in different formats according to the needs and desires of local consumers. Internationally, they dont operate under banner Wal-Mart. Today, there are about 5336 international stores and have about 740000 employees in 27 countries. (International, 2011)

Purpose
According to Sam Walton - If we work together, well lower the cost of living for everyonewell give the world an opportunity to see what its like to save and have a better life. Sams main aim was to save the money of the people which they earn by doing hard work and can have better life with their saved money. His main focus was on people and not on money. It is the basic principle on which all the Wal-Mart stores work. Wal-Mart is only helping people around the world save money. Because of its principles, Wal-Mart had greatly affected the retail industry and changed the way how the business should work and focus on increasing customer satisfaction. (Our Purpose, 2011)

Porters Five Force Analysis

1. Bargaining Power of Customers Wal-Mart has always focused on its customers. Sam Waltons main dream was not to make money but to save the money of the people which they earn by working hard by selling goods at low and convenient price and also at place convenient to most people. With this saved money, people can have good life. Walt-Mart takes care of its customers like family. So, Wal-Mart has very little pressure from its customers as customers are already happy with the prices and the facilities of Wal-Mart. Wal-Mart has also been opened at the places where dont easily get access to the big stores. Very few people have complained about Wal-Marts prices. Customers can buy from other competitors having same prices but they will not provide as good facilities as Wal-Mart does.
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2. Threat of Substitutes In case of threat of substitutes, pressure on Wal-Mart is very low. This is mainly because Wal-Mart provides very large varieties of products which mostly covers everything i.e. groceries, electronics, toys, general merchandises, hardware, jewellery etc. The main thing is that Wal-Mart provides these entire products at low prices as compared to other competitors and they provide these products under one roof and is opened at convenient places. So, Wal-Mart left no place for the substitutes. Others have low prices but they are not as convenient as Wal-Mart. So, customers will mostly prefer to buy from Wal-Mart only. So, there is no place for substitutes. 3. Bargaining Power of Suppliers Wal-Mart is a very big organization and is spread all over the world. It is one the most successful retailers of the world. They have very huge customer base. In case of bargaining power of suppliers, Wal-Mart faces low to medium pressure. Wal-Mart is the leader of the retail industry. They have been in industry for long and have developed strong position in the industry over the years. With this, they have also got some power. They have contact with many manufacturers and wholesalers. Wal-Mart can easily force its supplier to cut down price and supplier has no other way but to do it. They have big suppliers like Coca Cola and Procter and Gamble but they also listen to the Wal-Mart as they have strong position in retail industry. 4. Threat of New Entrants In case of threat of new entrants, Wal-Mart faces low pressure. In this, it is very difficult to enter as there are many entry barriers. Wal-Mart has been in the retail industry for very long and developed very good position in the market. Wal-Mart dominates the market. It has contact with large number of manufactures and wholesalers. Wal-Mart is better than others in terms of brand name, convenience, financial position etc. They also sell the products at the lowest prices and have cost advantage over other in the industry. So, there is very little or no possibility of any new company giving them competition. New entrants would not be able to survive for long in the industry. 5. Competitive Rivalry In case of competitive rivalry, Wal-Mart is facing medium pressure from its established competitors. Wal-Mart basically faces biggest competition from Sears, Target and KMart. Among them, their biggest competitor is Target. Target like Wal-Mart had been able to develop themselves and also develop strong position in the industry. Wal-Mart faces competition from others but still it has competitive advantage over other. Wal-Mart is oldest and has been able to establish better strong hold in the industry. It is still a cost leader and sells at lesser price than its competitors. Wal-Mart was among the first companies to establish largest private satellite communication in the US. It is the first company to introduce the technology of bar codes and computers for inventory management. So, technologically Wal-Mart has always been better than its competitors.
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Generic Strategies

(Three Generic Competitive Strategies, 2011) Cost Leadership Over the years, Wal-Mart has become one of the biggest and most successful retailers in the world. The strategy which had helped them over the time and become leader in the industry is cost leadership strategy. Wal-Mart has always focused on people and not on money. Even the Sam Waltons dream of founding Wal-Mart is to help the people to save their money by selling the products at least possible prices and with that saved money people can have a good life. Wal-Mart has always focused on selling the products at the reduced price. Thats why their customers never complain about Wal-Mart and their customers are increasing day by day. Wal-Mart has very good strong hold in the retail industry and so they dominate the industry. Their main slogan is Always Low Prices. They always find some or the other way to reduce their overall costs so that they can sell the products to customers at the lowest prices. As dominant force in industry, they can easily force their suppliers to cut down costs and sell them at low prices. They have big suppliers like Coca Cola and Procter and Gamble but they also have to sell according to the Wal-Mart. They also use other concepts like Every Day Lower Prices (EDLP) which helps to provide the customers with quality goods at lowest prices. Wal-Mart has maintained its cost leadership position over many years and will also continue to maintain it in future. Whenever any of its employees travels for the work of the company, he/she always travels in the economy class rather than the first. This is also one of their ways of saving cost. Wal-Mart has always been technologically advanced than others. It uses
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computers for proper management of inventory and also maintain past records. This helps them in the proper utilization of inventory and helps them reduce cost. Focus Strategy Wal-Mart has also undertaken focus strategy. The main aim of Wal-Mart always has been to take care of the people i.e. customers. Wal-Mart focuses on all kinds of people whether the live in urban areas or they live in rural areas. Wal-Mart has always focused on the people. They target all kinds of customers i.e. rich as well as poor. They have opened their stores in urban areas but they have also opened its stores in places where people dont easily get access to the big stores. Wal-Mart was the first retailer to focus on this area. Their competitors like Target and KMart have targeted this area and have always focused on urban areas. Prices are low as compared to others in the industry and these people have no complaints about the price as they have more convenience buying from Wal-Mart rather than buying from others. Differentiation Strategy Wal-Mart has not only adopted cost leadership and focus strategy, they have also focused on differentiation strategy. Differentiation strategy means they are different from their competitors and are unique in their way. Not only cost leadership strategy had helped them become leader of the leader but differentiation strategy had also helped them in achieving success and become best retailers in the world. Wal-Mart has always differentiated itself from its competitors. Wal-Mart was the first retailer to come up with the idea of one roof. They have huge stores and their each store contains all kinds of goods like electronic, toy, hardware, jewellery etc. and these products were sold at lesser price as compared to their competitors in the industry. This idea was not undertaken by any of its competitors. Customers not only get all kinds of products at lesser price but it is also very convenient for them. Thats why more consumers are attracted. Use of the concept like Every Day Low Price (EDLP) which helps them to sell the quality products to customers at low price also differentiates them from their competitors in the market. They have opened different kinds of stores like neighbourhood stores, supercentres, WalMart express stores, Marketside etc. according to the different needs of customers. They have also opened Sams Club warehousing which is very cheap and helps small businesses. They were the first company to focus more on the needs of the people rather than making money and they were also the first one to target on the place where people find it difficult to find big stores. They were the first one to open online stores and online they have around 1000000 products at lowest price. Wal-Mart was the first one to develop the network of computers with their suppliers and work stations to strengthen their relationship with the suppliers. They were also the first to have the largest private satellite communication in US to have contact with its operators all over the world. They lease a computer system to manage inventory.

Matrix Analysis
Competitive Profile Matrix Wal-Mart Target ShopKo Weight Rating Weighted Rating Weighted Rating Weighted Score Score Score 0.15 3 0.45 2 0.30 2 0.30 0.17 4 0.68 3 0.51 2 0.34 0.09 0.17 0.20 0.10 0.12 1.00 4 3 4 3 2 0.36 0.51 0.80 0.30 0.24 3.34 3 2 2 3 2 0.27 0.34 0.40 0.30 0.24 2.36 3 2 2 2 1 0.27 0.34 0.40 0.20 0.12 1.97

Critical Success Factors 1. Market share 2. Price Competitiveness 3. Financial position 4. Product Quality 5. Consumer Loyalty 6. Expansion 7. Advertisements Total

1-Major weakness, 2-Minor weakness, 3-Minor strength, 4-Major strength The total weight obtained by Wal-Mart is 3.34, Target is 2.36 and ShopKo is 1.97. Since Wal-Mart has the highest total, we can clearly state that Wal-Mart has more competitive advantage than Target and ShopKo. The second highest total is of Target and the last is ShopKo. Internal Factor Evaluation Matrix Strengths: 1. 2. 3. 4. 5. Strong financial position Easy shopping Good working culture Online shopping Customer centred stores

Weaknesses: 1. 2. 3. 4. Poor R&D Outdated store policies Less women employees No mission statement

Key Internal Factors 1. Strong financial position 2. Easy shopping 3. Good working culture 4. Online shopping 5. Customer centred stores

Weight Strengths 0.13 0.12 0.11 0.11 0.12 Weaknesses 0.12 0.10 0.10 0.09 1.00

Rating 4 4 3 3 4

Weighted score 0.52 0.48 0.33 0.33 0.48

1. Poor R&D 2. Outdated store policies 3. Less women employees 4. No mission statement Total

3 2 2 3

0.36 0.20 0.20 0.27 3.17

1-Poor, 2-Average, 3-Above average, 4-Good and score of 2.5 is considered average. The total score of Wal-Mart in Internal Factor Evaluation Matrix is 3.17. The score is more than 2.5 (which is average) which means that Wal-Mart is very strong internally and is working effectively. External Factor Evaluation Matrix Opportunities: 1. 2. 3. 4. 5. Facility of online shopping Using its brand image Want easy shopping Increasing retail sales Untouched Asian market

Threats: 1. 2. 3. 4. Competition from local stores in rural areas Easy availability of substitutes Wal-Mart haters affecting company Government intervention

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Key External Factors 1. Facility of online shopping 2. Using its brand image 3. Want easy shopping 4. Increasing retail sales 5. Untouched Asian market

Weight Opportunities 0.12 0.11 0.10 0.13 0.12

Rating 3 3 4 4 4

Weighted score 0.36 0.33 0.40 0.52 0.48

1. Competition from local stores in rural areas 2. Easy availability of substitutes 3. Wal-Mart haters affecting company 4. Government intervention Total

Threats 0.09 0.11 0.10 0.12 1.00

4 4 3 2

0.36 0.44 0.30 0.24 3.43

1-Poor, 2-Average, 3-Above Average, 4-Good and 2.5 is considered as an average score. The total score of Wal-Mart in External Factor Evaluation Matrix is 3.43. The score is more than 2.5 (which is average) which means that Wal-Mart is externally strong as well. WalMart takes full advantage of the opportunities and also minimizes risk. In other words, WalMart has more opportunities than threats. Strong(3.0 to 4.0) High (3.0 to 3.99) Medium (2.00 to 2.99) Low (1.0 to 1.99) I WALMART IV V VI Average (2.0 to 2.99) II Weak (1.0 to 1.99) 111

VII

VIII

IX

From Internal and External Factor Evaluation Matrix, we came to the conclusion that WalMart falls in the first quadrant which means strategy of grow and build is being followed by Wal-Mart. In both Internal and External Factor Evaluation Matrix, Wal-Mart has value between 3 and 4 i.e. 3.17 and 3.43.

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Financial View
Wal-Mart is traded in New York Stock Exchange. Wal-Mart is a huge company. It has more than 9700 retail stores and globally it has almost 2 million employees. In 2011, Wal-Mart has total sales of 419 billion dollars. In 2010, its net sales were 405 billion dollars. Its sales have increased but it has not increased at good rate. Wal-Mart always keeps control on its cost and tries its best to control its overall cost. Its overheads were just increasing at the rate of 1.7% per annum last five years. Wal-Mart sells its quality products to the customers at the lowest possible cost. (Investors, 2011) Ratios 1. Current ratio Current ratio means ability of firm to pay its current liability with the help of current assets. Current ratio of Wal-Mart in 2009 is 0.88 and in 2010 is 0.86. It is almost same. Ratio is low so company should try to improve the ratio. 2. Inventory turnover ratio Inventory turnover ratio means how quickly is the inventory with the company is turning into sales. More the inventory turnover, more efficiently is company performing. In 2010, Wal-Marts inventory turnover ratio has increased by 5%. Wal-Mart is quickly turning its inventory into sales. 3. Return on net sales Return on net sales means each percentage of sales that has been converted into income. In 2009, Wal-Marts return on net sales is 3.46% and in 2010 it is 3.66%. It is increasing but at very low rate. (Annual report, 2010)

Conclusion
Wal-Mart is one of the most successful retailers till date. Wal-Mart is considered as the dominant force and leader of the retail industry. It has been able to reach such high position mainly because of its cost leadership and differentiation strategies. It has been able to maintain cost advantage over its competitors over the years. The main aim of Wal-Mart has been able to sell quality goods to its customers at lowest possible price. Wal-Mart has always worked differently from its competitors.

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Bibliography

History, 2011. History of Wal-Mart. (Hitting the headlines)[Online]. Available at

http://walmartstores.com/aboutus/297.aspx

45 years of Wal-Mart history, 2011. History of Wal-Mart. (Hitting the headlines)[Online]. Available at http://www.cio.com/article/147005/45_Years_of_Wal_Mart_History_A_Technology_ Time_Line Wal-Mart, 2011. Structure of Wal-Mart. (Hitting the headlines)[Online]. Available at
http://walmartstores.com/AboutUs/7606.aspx

Three generic competitive strategies, 2011. Generic strategies. (Hitting the headlines)[Online]. Available at
http://tatler.typepad.com/nose/2005/04/three_generic_c.html

Annual report, 2010. Wal-Mart financial analysis. (Hitting the headlines)[Online]. Available at
http://cdn.walmartstores.com/sites/AnnualReport/2010/PDF/01_WMT%202010_Financials. pdf

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