Wal-Mart's Cost Leadership Strategy
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Case Code: BSTR096 Case Length: 17 Pages Period: 1962 - 2004 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.500 Organization: Wal-Mart Industry: Retailing Countries : USA Themes: Cost Leadership |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Achieving Cost Leadership
Offering products at EDLP, especially during its early years, when Wal-Mart was not an established retail player, was quite difficult. The company aggressively followed a cost leadership strategy that involved developing economies of scale and making consistent efforts to reduce costs. The surplus generated was reinvested in building facilities of an efficient scale, purchasing modern business-related equipment and employing the latest technology. The reinvestments made by the company helped it to maintain its cost leadership position. From the start, Wal-Mart imposed a strict control on its overhead costs. The stores were set up in large buildings, while ensuring that the rent paid was minimal. The company imposed an upper limit for its rent payment at $1.00 per square foot during the late 1960s. Not much emphasis was laid on the interiors of the stores. The company did not invest on standardized ordering programs and on basic facilities to sort and replenish the stock...
Wal-Mart in the 1990s
In the early 1990s, Wal-Mart started focusing on its Supercenters and Sam's Clubs to fuel growth. Wal-Mart expanded its operations into the Northeast and West of the US by placing a lot of emphasis on the groceries business through its Supercenters. The modus operandi was to first establish discount stores, after which the best performing stores were to be converted into Supercenters. By 1991, Wal-Mart's mammoth retail network comprised of 1,355 discount stores, 120 Sam's Clubs and three Supercenters being served by 16 distribution centers. However, at this time, Wal-Mart had yet to enter as many as 23 states in the US. In the early 1990s, it was estimated that the size of the groceries business in the US was three times that of the discount store business. So, Wal-Mart decided to focus on Supercenters to propel its growth. Following Walton's death in 1992, David Glass (Glass) succeeded him as the CEO of Wal-Mart. Glass viewed food retailing as a key driver to increase revenue growth in the 1990s...
The Growth Continues
By the beginning of the new millennium, Wal-Mart was one of the world's largest companies, with revenues of $165 billion in fiscal 2000. Wal-Mart's rapid growth continued in the initial years of the new millennium. While continuing its aggressive expansion in the food business, the company started launching innovative programs to further penetrate the US markets. For instance, in 2001, Wal-Mart launched a program, called 'Store of the community.' Under the program, Wal-Mart began remodeling its discount stores and Supercenters in the US to fulfill the needs of customers they served, in line with what the customers wanted. Explaining the program, Tom Coughlin, President and CEO of Wal-Mart Stores Division, said, "The one-size-fits-all concept simply doesn't work anymore in the retail industry. Customers tell us what they want and it is our responsibility to meet those needs. Our store associates live and work in each store's community and interact with over 100 million customers each week...
Plans And Challenges
Wal-Mart has chalked out an aggressive expansion plan to accelerate its growth in the near future. By the fiscal year ending 2007-08, Wal-Mart aims at achieving a revenue target of $500 billion. The company plans to achieve this by expanding aggressively in international markets. In the US, Wal-Mart plans to increase its store count and to introduce new product categories. The company plans to increase the total number of stores in the US from 3,400 to 5,000 in the next five years. By 2008, Wal-Mart plans to open 1,000 Supercenters in the US. Analysts and media reports are expressing doubts as to whether Wal-Mart will be able to achieve its ambitious $500 billion revenue target. Given the size of its operations, some analysts felt that Wal-Mart may also face the danger of anti-trust suits. However, not all analysts agree on this issue, as Wal-Mart enjoys significant customer support, and the customers are the ultimate beneficiaries of low prices...
Exhibits
Exhibit I: Walmart's Awards and Recognitions
Exhibit II: Top Ten Retailers Worldwide (2002)
Exhibit III: Wal-Mart - Types of Retail Stores
Exhibit IV: Wal-Mart - Using It
Exhibit V: Financial Performance of Wal-Mart (1972-2003)
Exhibit VI: The Strength of Walmart (2003)
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