Case 1–3: Walmart Stores, Inc. In November of 2013, Doug McMillon had just been

Question

Case 1–3: Walmart Stores, Inc.

In November of 2013, Doug McMillon had just been named the CEO of Walmart Stores, Inc. effective February 1, 2014. McMillon had unique preparation for the job. He had held senior executive positions in Walmart’s domestic operations and had presided over both the company’s international operations and Sam’s Club, Walmart’s discount club chain. McMillon would likely need to draw upon his diverse experiences to successfully lead the company in the face of mounting challenges.

As recently as 1979, Walmart had been a regional retailer little known outside the South with 229 discount stores compared to the industry leader Kmart’s 1,891 stores. In less than 25 years, Walmart had risen to become the largest U.S. corporation in sales. With more than $469 billion in revenues (seeExhibits 1 and 2), Walmart had far eclipsed not only Kmart but all retail competitors. Yet another measure of Walmart’s dominance was that it accounted for approximately 45 percent of general merchandise, 30 percent of health and beauty aids, and 29 percent of non-food grocery sales1 in the United States. Forbes put Walmart’s success into perspective:

. . . all that’s left for Walmart is mop-up. It already sells more toys than Toys “R” Us, more clothes than the Gap and Limited combined, and more food than Kroger. If it were its own economy, Walmart Stores would rank 30th in the world, right behind Saudi Arabia. Growing at 11 percent a year, Walmart would hit half a trillion dollars in sales by early in the next decade.

Walmart’s History

Walmart was started in 1962 by Sam Walton. The discount retail industry was then in its infancy. Of the four new ventures in discount retailing started that year, Walmart seemed the least likely to succeed. Most Walmart stores were in northwestern Arkansas and adjacent areas of Oklahoma, Missouri, and Kansas. Walton had started his retailing career with Ben Franklin in small towns because his wife Helen did not want to live in any city with a population of more than 10,000 people. He had chosen northwestern Arkansas as a base because it allowed him to take advantage of the quail-hunting season in four states. Walmart was, in Sam Walton’s words, “underfinanced and undercapitalized”8 in the beginning. Nevertheless, Walton sought to grow Walmart as fast as he could, because he feared new competitors would preempt growth opportunities if Walmart did not open stores in new towns. After five years, Walmart had 19 stores and sales of $9 million. In contrast, Kmart had 250 stores and $800 million in sales.

Walton retained many of the practices regarding customer service and satisfaction that he had learned in the variety stores business. The central focus of Walmart, however, was on price. Walton sought to make Walmart the low-priced provider of any product it sold. As Walton said,

What we were obsessed with was keeping our prices below everybody else’s. Our dedication to that idea was total. Everybody worked like crazy to keep the expenses down. We didn’t have systems. We didn’t have ordering programs. We didn’t have a basic merchandise assortment. We certainly didn’t have any sort of computers. In fact, when I look at it today, I realize that so much of what we did in the beginning was really poorly done. But we managed to sell our merchandise as low as we possibly could and that kept us right-side up for the first ten years . . . . The idea was simple: when customers thought of Walmart, they should think of low prices and satisfaction guaranteed. They could be pretty sure they wouldn’t find it any cheaper anywhere else, and if they didn’t like it, they could bring it back.9

The other problem that plagued Walmart in its early years was finding a way to keep its costs down. Large vendors were reluctant to call on Walmart and, when they did do business with the company, they would dictate the price and quantity of what they sold. Walton described the situation, “I don’t mind saying that we were the victims of a good bit of arrogance from a lot of vendors in those days. They didn’t need us, and they acted that way.”10 Another problem that contributed to high costs was distribution. Distributors did not service Walmart with the same care that they did its larger competitors. Walton saw that “the only alternative was to build our own warehouse so we could buy in volume at attractive prices and store the merchandise.”11

Walmart increased from 32 stores in 1970 to 859 stores 15 years later. For much of that time, Walmart retained its small-town focus. More than half its stores were in towns with populations of less than 25,000. Because of its small-town operations, Walmart was not highly visible to many others in the retail industry. By 1985, though, that had changed.Forbes named Sam Walton the richest man in America. Furthermore, Walmart had begun to expand from its small-town base in the South and had established a strong presence in several large cities. By the 1990s, it had spread throughout the United States in both large cities and small towns.

Walmart in 2013

By the beginning of 2013, Walmart’s activities had spread beyond its historical roots in domestic discount centers. The number of domestic discount centers had declined to 561 from a high of 1,995 in 1996. Many discount centers had been converted to supercenters, which had increased to 3,158 stores. Walmart Supercenters combined full-line supermarkets and discount centers into one store. Walmart also operated 620 Sam’s Clubs, which were warehouse membership clubs. In 1999, Walmart opened its first Neighborhood Markets, which were supermarkets, and it expanded to 286 in operation by 2013.

Operations

From its beginning, Walmart had focused on EDLP. EDLP saved on advertising costs and on labor costs because employees did not have to rearrange stock before and after sales. The company changed its traditional slogan, “Always the Lowest Price,” in the 1990s to “Always Low Prices. Always.” In late 2007, Walmart changed its tagline to “Save Money, Live Better.” Despite the changes in slogan, however, Walmart continued to price goods lower than its competitors (see Exhibit 5). When faced with a decline in profits in the late 1990s, Walmart considered raising margins.12 Instead of pricing 7 to 8 percent below competitors, some managers believed that pricing only about 6 percent below would raise gross margins without jeopardizing sales. Some managers and board members, however, were skeptical that price hikes would work at Walmart. They reasoned that Walmart’s culture and identity were so closely attached to low prices that broad price increases would clash with the company’s bedrock beliefs. Another concern was that competitors might seize any opportunity to narrow the gap with Walmart. While the reason was unclear, it appeared that some narrowing on price was occurring by 2008. One study showed that the price gap between Walmart and Kroger had shrunk to 7.5 percent in 2007 from 15 percent a few years earlier.13Some analysts worried that many shoppers would switch to other retailers as the gap narrowed. Walmart’s low prices were at least partly due to its aggressive use of technology. Walmart had pioneered the use of technology in retail operations for many years and still possessed significant advantages over its competitors. It was the leader in forging EDI links with suppliers. Its Retail Link technology gave over 3,200 vendors POS data and authorization to replace inventory for more than 3,000 stores.14 Competitors had responded to Walmart’s advantage in logistics and EDI by forming cooperative exchanges, but despite their efforts, a large gap remained between Walmart and its competitors.15 As a result, Walmart possessed a substantial advantage in information about supply and demand, which reduced both the number of items that were either overstocked or out of stock.

Technology was only one area where Walmart exploited advantages through its relationships with suppliers. Walmart’s clout was clearly evident in the payment terms it had with its suppliers. Suppliers frequently offered two percent discounts to customers who paid their bills within 15 days. Walmart typically paid its bills at close to 30 days from the time of purchase but still usually received a two percent discount on the gross amount of an invoice rather than the net amount.16 Several suppliers had attributed performance problems to Walmart’s actions. Rubbermaid, for example, experienced higher raw materials costs in the 1990s that Walmart did not allow it to pass along in the form of higher prices. At the same time, Walmart gave more shelf space to Rubbermaid’s lower-cost competitors. As a result, Rubbermaid’s profits dropped by 30 percent and it was forced to cut its workforce by more than 1,000 employees.17 Besides pushing for low prices, the large discounters also required suppliers to pick up an increasing amount of inventory and merchandising costs. Walmart required large suppliers such as Procter & Gamble to place large contingents of employees at its Bentonville, Arkansas, headquarters in order to service its account.

Although several companies such as Rubbermaid and the pickle vendor Vlasic had experienced dramatic downfalls largely through being squeezed by Walmart, other companies suggested that their relationship with Walmart had made them much more efficient.18 Some critics suggested, however, that these extreme efficiency pressures had driven many suppliers to move production from the United States to nations such as China that had much lower wages. Walmart set standards for all of its suppliers in areas such as child labor and safety. A 2001 audit, however, revealed that as many as one-third of Walmart’s international suppliers were in “serious violation” of the standards.19 Walmart pursued steps to help suppliers address the violations, but it was unclear how successful these efforts were.

A Fast Company article on Walmart interviewed several former suppliers of the company and concluded, “To a person, all those interviewed credit Walmart with a fundamental integrity in its dealings that’s unusual in the world of consumer goods, retailing, and groceries. Walmart does not cheat its suppliers, it keeps its word, it pays its bills briskly. ‘They are tough people but very honest; they treat you honestly,’ says Peter Campanella, a former Corning manager.”20

At the heart of Walmart’s success was its distribution system. To a large extent, it had been born out of the necessity of servicing so many stores in small towns while trying to maintain low prices. Walmart used distribution centers to achieve efficiencies in logistics. Initially, distribution centers were large facilities—the first were 72,000 square feet—that served 80 to 100 Walmart stores within a 250-mile radius. Newer distribution centers were considerably larger than the early ones and in some cases served a wider geographical radius. Walmart had far more distribution centers than any of its competitors. Cross-docking was a particularly important practice of these centers.21 In cross-docking, goods were delivered to distribution centers and often simply loaded from one dock to another or even from one truck to another without ever sitting in inventory. Cross-docking reduced Walmart’s cost of sales by 2 to 3 percent compared to competitors. Cross-docking was receiving a great deal of attention among retailers with most attempting to implement it for a greater proportion of goods. It was extremely difficult to manage, however, because of the close coordination and timing required between the store, manufacturer, and warehouse. As one supplier noted, “Everyone from the forklift driver on up to me, the CEO, knew we had to deliver on time. Not 10 minutes late. And not 45 minutes early, either . . . . The message came through clearly: you have this 30-second delivery window. Either you’re there or you’re out.”22 Because of the close coordination needed, cross-docking required an information system that effectively linked stores, warehouses, and manufacturers. Most major retailers were finding it difficult to duplicate Walmart’s success at cross-docking.

Walmart’s focus on logistics manifested itself in other ways. Before 2006, the company essentially employed two distribution networks, one for general merchandise and one for groceries. The company created High Velocity Distribution Centers in 2006 that distributed both grocery and general merchandise goods that needed more frequent replenishment. Walmart’s logistics system also included a fleet of more than 2,000 company-owned trucks. It was able to routinely ship goods from distribution centers to stores within 48 hours of receiving an order. Store shelves were replenished twice a week on average in contrast to the industry average of once every two weeks.23

Walmart stores typically included many departments in areas such as soft goods, domestics, hard goods, stationery and candy, pharmaceuticals, records and electronics, sporting goods, toys, shoes, and jewelry. The selection of products varied from one region to another. Department managers and in some cases associates (or employees) had the authority to change prices in response to competitors. This was in stark contrast to the traditional practice of many chains where prices were centrally set at a company’s headquarters. Walmart’s use of technology was particularly useful in determining the mix of goods in each store. The company used historical selling data and complex models that included many variables such as local demographics to decide what items should be placed in each store.

Unlike many of its competitors, Walmart had no regional offices until 2006. Instead, regional vice presidents maintained their offices at company headquarters in Bentonville, Arkansas. The absence of regional offices was estimated to save Walmart as much as one percent of sales. Regional managers visited stores from Monday to Thursday of each week. Each Saturday at 7:30 a.m., regional vice presidents and a few hundred other managers and employees met with the firm’s top managers to discuss the previous week’s results and discuss different directions for the next week. Regional managers then conveyed information from the meeting to managers in the field via the videoconferencing links that were present in each store. In 2006, Walmart shifted this policy by requiring many of its 27 regional managers to live in the areas they supervised.

Aside from Walmart’s impact on suppliers, it was frequently criticized for its employment practices, which critics characterized as being low in both wages and benefits. Charles Fishman acknowledged that Walmart saved customers $30 billion on groceries alone and possibly as much as $150 billion overall when its effect on competitor pricing was considered, but he estimated that while Walmart created 125,000 jobs in 2005, it destroyed 127,500.24Others agreed that Walmart’s employment and supplier practices resulted in negative externalities on employees, communities, and taxpayers. Harvard professor Pankaj Ghemawat responded to Fishman by calculating that—based on Fishman’s numbers—Walmart created customer savings ranging from $12 million to $60 million for each job lost.25 He also argued that, because Walmart operated more heavily in lower-income areas of the poorest one-third of the United States, low-income customers were much more likely to benefit from Walmart’s lower prices. Another criticism of Walmart was that it consistently drove small local retailers out of business when it introduced new stores in small towns and that employees in such rural areas were increasingly at the mercy of Walmart, essentially redistributing wealth from these areas to Bentonville. Jack and Suzy Welch defended Walmart by pointing out that employees in these areas were better off after a Walmart opened:

In most small towns the storeowner drove the best car, lived in the fanciest house, and belonged to the country club. Meanwhile, employees weren’t exactly sharing the wealth. They rarely had life insurance or health benefits and certainly did not receive much in the way of training or big salaries. And few of these storeowners had plans for growth or expansion. . . a killer for employees seeking life-changing careers.26

Sam’s Club

A notable exception to Walmart’s dominance in discount retailing was in the warehouse club segment. Despite significant efforts by Walmart’s Sam’s Club, Costco was the established leader. Sam’s Club had almost exactly the same number of stores as Costco—620 to 622—yet, Costco still reported almost twice the sales—$105 billion versus $54 billion for Sam’s. Costco stores averaged considerably more revenue per store than Sam’s Club (see Exhibit 6).

Looking Ahead

Walmart CEO Doug McMillon faced the daunting challenge of achieving the company’s accustomed growth rates despite its enormous size. A five percent organic growth rate would require the firm to add the equivalent of a firm ranking 129th in the Fortune 500 each year. To put that into perspective, the company’s growth in revenues would need to nearly equal the total sales of Nike and exceed the sales of companies as large as Xerox and Kimberly Clark. What strategic priorities would allow Walmart to achieve that amount of growth? Or would the company need to adjust its aspirations?

Explanation / Answer

Walmart is a retail giant in the industry operating across the seas and creating a big furtune out of it. Its the worlds largest and the most influencing retailer.

Some terms that followed to build its empire are as follows.

Efficient Supply Chain
Walmart's supply chain is one of the world's most efficient supply chain, Walmart uses very less break in between from the warehouse to their store reducing the costs and enhancing the overall profit.
By having an effective supply chain Walmart has successfully developed it advantage over its competitors and in providing different materials to the different places at a very standard time.
Sometimes it would be less than official for the company to have a supply chain dependent organisation because the whole system is depending on the supply chain if a part breaks down then there is a little delay in doing the business.

Strategic partnership
Strategic partnership is one of main reasons of Walmart's success , Walmart find the best price supplier and ask them if they can fullfil the demand then a long term partnership program is offer which reduces the prices.
Strategic partnerships also provides a solid base walmart. By having different strategic partnerships Walmart at successfully integrated itself into market and merge into the competitors as well.
Sometimes is strategic partnerships also create a problem for the organisation as the partners start to show different characteristics rather than implementing the strategies with the Walmart.

Intuitive inventory storage
Walmart uses very intuitive way of storing the inventory, It keep its inventory in truck and then later the inventory is loaded to the semi truck without moving them to the warehouse , this broadly increases the efficiency of the transportation and time.
Dependency on the too much Technology and totally depending on the intuitive storage system sometimes leads to failure as they can be technological as well as mechanical error.

Using latest technology
Walmart uses state of the art sorting and transporting technologies to ensure the required quality and speed it requires and to obtain high profits and and super efficient system.
Technology based environment is always in fear of getting hacked, being misused and being operated by some other person rather than the companies official employees. Depending on too much Technology Kelly Walmart failure in terms of the technological errors.

Walmart used the terms listed above to build an environment for the low cost industry. It focused on the largest group of middle class people and the idea was to provide low cost product with great quality. Walmart provided the best supply and management system which cut down the costs thus customers were getting the products in best price with higher quality.

Walmart is a centralised organisation. All of the employees inside the workplace are required to follow the companies policies which is usually called the 10 rules of Sam Walton which is closely implemented in to the organisation. All of these approaches are directly signature of a centralised Organisation in which everything is streamlined according to the origination of the core idea of the organisation.

Definitely Walmart has their own differentiation strategy by lowering down the prices. Walmart uses low price cost differentiation technique for improving the overall availability among their competitors. This low pricing approach enables Walmart to get more of the market revenue by improving its overall availability of market range products as well as providing new products for lesser prices. As Walmart is very enormous in size maintaining this type of structure following down the cost and increasing the overall profit of the organisation by selling the maximum amount of products has always been beneficial for the company. Different forecasting tools as well as availability of best available suppliers using the electronic management system is one of the main ideas which is implemented into the Walmart for improving the overall cost revenue from the specific market segment in which they are operating.

Market behaviour of Walmart case not specifically standardized. Mutual adjustment according to the region and situation where the walmart is opening its supermarket store is the most essential part of creating a more effective marketing strategy for improving the available resources as well as products. Company is heavily relying on human resources and creating more of the organic approach rather than focusing on machinist 1 model of the organisational structure. Walmart does have state of the art sorting and managing facility but their approach of getting more and more human resources into the organisational structure as always pushed them towards
Being an organic structure.

For improving the overall operational structure of the organisation, walmart can implement better strategy of treating its employees by improving the overall available sources for the employees as well as providing adequate pay scale for their employees as well.

Walmart's strategy kept evolving according to the time and needsbthus Walmart's low cost strategy is very well suited for the industry.

Improving the Walmart current situation in Walmart has to apply their strategies to the different part of the world. Walmart should focus on the developing countries like India and China as well as smaller developing countries like Bangladesh. Buy directly focusing on these countries Walmart can widely increase the level of sales as well as can be easily getting resources at a better price in these a specific locations. As Bangladesh is considered as manufacturing hub for many of the international brands , walmart and easily upgrade themselves and implement these strategies to overcome the specific problem of increased budget for the specific location. As the labour charges are also very low in the developing countries, walmart in widely increase their effectiveness in terms of the retail marketing.

By keeping an eye on the overall sales as well as the human resource information system, walmart can widely increase their efficiency as well as productivity towards the specific region in which they are doing business. Measurement of the inventory as well as Rises of the customer regarding the product types and also be very beneficial for the organisation to keep a record of the performance for Walmart. This understanding of the situation would definitely increase the level of productivity of the organisation. High number of measurement techniques should be used to frequently measure and regulate the data as well as its progress for advancing Walmart in to the society . By using different metrics for Quality Management Walmart can widely increase the level of service provision to the customer.

Implementation of digital platforms is very essential for walmart to improve their overall level of effectiveness over the internet and other digital mediums. By creating specific strategy for implementation of the better marketing aspect on the Digital Network and widely increased companies reach to the customers. By increasing the reach the customer company can easily grow in different markets as well as it can easily go Global as well.

By using above strategies Walmart in easily increase the level of implementation as well as advancement in the society. Strategy for definitely help Walmart to maintain and advantage over its competitors and to provide better service and get larger revenues from the market.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.