The study deals with analysing the strategy of walmart. Since it is operating in different geographical locations, a model which can be used for any firm which is operating globally is arrived as a part of the study. This model deals with in-depth analysis of each modules of execution phase of the strategy and the post-correction of the strategy by comparing the targets set and the outcomes got after executing the strategy. Further, analysis of retail industry, latest trends and future of this industry is assessed as a part of this study.
Wal-Mart Stores, Inc., is an American international retail company that operates a chain of departmental stores and ware-house stores. It is head-quartered in Bentonville of Arkansas. The company was established by Mr. Sam Walton in 1962 and was incorporated on October 31, 1969. Walmart has around 11,000 stores in over 27 countries, providing a total 71 different brands. The company functions with the name ‘Walmart’ in the United States of America and in Puerto Rico. While in Mexico, it operates by the name of ‘Walmart de México y Centroamérica’. In the United Kingdom, it operates the under the name ‘Asda’, in Japan as Seiyu, and in India as Best Price. The company has wholly owned operations in the countries of Brazil, Argentina and Canada. The company is controlled by the Walton family, with the family holding over 50 percent of Walmart shares through their property company called Walton Enterprises. Thus, Walmart is a family-owned business.
According to the Fortune Global 500 list in 2014, in terms of revenue, Walmart is the largest company in the world;it is also the biggest private provider of employment in the world with over 2 million of employees, and is the largest retailer in the world. Also, in terms of market value, it is also one of the most valuable companies in the world.
Walmart has its operations organized into three divisions, which are Walmart Stores U.S., Sam’s Club and Walmart International. Walmart Stores is the company’s principal division, and it accounts for $279 billion of revenue in 2015 of Walmart which is 63.8% of total sales. This particular division comprises3 retail formats which are the Discount Stores, the Supercentres, and Walmart Markets. These department stores sell a range of mostly non-grocery products, with the emphasis now being shifted towards supercentres, which include more of grocery items. The online retail format of Walmart called walmart.com is also part of this division. The Discount Stores are the discount the regular departmental stores with a size varying from fifty-one thousands to two hundred and twenty for thousands square feet with an typical store covering around 102,000 square feet of area. These stores generally provide a range of groceries and other general merchandise. Several of these stores also have a pharmacy, a garden centre, one-hour photo processing lab, portrait studio, tire & Lube Express, optical centre, cell phone store, bank branch, and a fast-food joint, usually McDonald’s or Subway.
Walmart Supercentres are the hypermarkets having an area varying from 98,000 to 261,000 square feet. Apart from carrying the items which the Walmart discount store provides, these stores also have full- service supermarket, including meat and poultry, baked products, frozen foods, sea-food, and other dairy products etc.
Sam’s Club is a chain of warehouse clubs that sell general merchandise and groceries often in large quantities. This particular format of Walmart Sam’s Club stores requires membership to purchase the products and the customers need to buy memberships to avail the services. There are three classes of memberships available in Walmart Sam’s Club which are: Sam’s Plus, Sam’s Business and Sam’s Savings. Each of those memberships vary in the benefits and convenience that it provides to customers. For a non-member to purchase from Sam’s club, one-day membership card is required or an additional surcharge needs to be paid as per the amount of the purchase.
Walmart’s International comprises 6,337 stores in 26 countries of the world excluding the stores in the United States as of 2014. In the FY2010, the total sales of Walmart’s international were around $100 billion which is equivalent to $108 billion in 2015. Thus, Walmart’s international comprises 24.7% of total sales of Walmart.
The model proposed above is applicable for firms operating at different geographical locations. Each of the units are explained below and in-depth analysis of each of these modules are analysed further in this report.
External trigger This deals with analysis of:
Since the firm is operating at different locations, the leadership quality required at different geographic locations is different. Also the leader should be receptive in understanding the dynamic changes in his location.
Also the leader of a division should be in such a way that he has a good blend of the country-of-origin culture and the culture in which he is leading so that all the divisions of the organization operating at different geographic locations have a common objective and similar way of operation.
This deals with how the organization is blending its corporate culture with the culture of each units at its respective geographical divisions.
This deals with the value proposition and differentiation in service which is being communicated to the customers.
Deals with incentivizing employees at each levels for meeting the responsibility/ targets laid on them using
various tools like balance score card for assessing their performance.
This deal with analysing the strategy adapted by the firm for reaching the targets set, analysing the reason for the deviation in outcomes after executing the strategy if present. Propose the course of action to hit the desired targets/ objectives.
Deals with technology adoption, unique value creation/differentiating strategy which is not easily immitigable by competitors (This can be process innovation to come up with superior products or operational excellence to have higher control in margins and hence have higher profits.)
The company has historically bred managers who have been cross pollinated across the organisation in different functions and different roles. Those individuals who were reflective of this strategy are the ones holding senior positions in the company. The depth of the management is something the founder - Sam Walton - propagated and promoted in the early years of the retail giant. However, more recently, the senior management is more of a blend of externally hired managers and internally promoted managers. However, what is common to the entire leadership is an attitude of servant leadership that considers the most important people at Walmart to be the associates who take care of customers.
Sam Walton was hailed as the most influential retailer and for setting the path for modern retail in an undercapitalised economic situation in his early years. He adapted and innovated new models of measuring and maintaining effective use of capital - through efficient inventory management and distribution, finding untapped rural markets which had been discarded, establishing the “everyday low prices” concept thus eliminating the need for advertising.
Sam Walton forged a culture of corporate loyalty by treating employees as associates and developing his employees’ knowledge and skill. He took genuine efforts to maintain a cheerful workplace for his employees. He established direct connections with his employees and took sincere interest in engaging them in decision making and learning from them. He also created a culture of belonging by providing stock options to even the lowest rung employee – a significant step towards boosting morale.
Walmart has been departmentalized by functions and geographic departmentalization. The span of control is narrow and the organization has a centralized management team that determines how the merchandise gets priced, shipped and transported. The company is fairly centralized and hierarchical. The retailer has created four core merchandising areas, each consisting of similar categories. Each merchandising area is headed by an executive vice president. The company has recently launched an aggressive competitive strategy against Amazon.
Walmart has realised the importance in improving value proposition and is investing on technology in retailing and is moving from traditional retailing offering just as a sales platform to making shopping more convenient with technology adoption. It has also introduced its own card for financial transactions. Sensing the current trends in retail industry, it has stepped into e-retailing well in advance and is following multi- channel retailing offering services to the customers via e-commerce and brick and motor retail outlets. Further, it has also started exploring into mobile-retailing.
Walmart has tapped social media as a tool for communicating value proposition as a discount store offering the lowest price in the market. Further it is also using twitter extensively to hear from the customers their views. It is also training its employees to spread positive word of mouth to the customers on its heritage and build credibility in their business by emphasizing 50+ years of operation in this business.
To keep the employees motivated, walmart is attaching performance of the store to quarterly bonus of the employees. In addition to this, they have also started benefit schemes on retirement benefit and medical benefits to mention a few.
The basket size in retail is decreasing because of the introduction of specialised retail catering to different segments. Also retails have started introducing technology in their business and shifting towards multi-channel retailing. Assessing this, walmart have started operating in both online and brick and motor store. It is also investing in technology in its retail to make the retailing experience convenient to the customers.
Walmart began with the goal to provide customers with the goods they wanted whenever and wherever they wanted them. The company then focused on developing cost structures that allowed it to offer low everyday pricing. Walmart then concentrated on developing a more highly structured and advanced supply chain management strategy to exploit and enhance this competitive advantage and assume market leadership position.
Walmart’s supply chain innovation include with the company removing a few of the chain’s links. In the 1980s, Walmart strategy is to work directly with the manufacturers to cut costs and then more efficiently manage the supply chain of the company. Walmart introduced a supply chain initiative called as Vendor Managed Inventory (VMI), under this manufacturers became responsible for managing their products in Walmart’s warehouses. This helped Walmart was able to expect close to 100% order fulfilment on merchandise. Wal-Mart was named Retailer of the Decade in 1989, the distribution cost of Walmart was estimated at a mere 1.7% of its cost of sales – which was very less as compared to its competitors like Kmart (3.5%) and Sears (5%).
Walmart rely on strategic sourcing to get products from suppliers at the best price who are in a position to ensure they can meet demand. This helps company to establish strategic partnerships with most of their vendors, by offering them the potential for long-term and high volume purchases in exchange for the lowest possible prices.
Additionally, Walmart streamlined supply chain management by building competitive communication and relationship networks with suppliers to enhance material flow with less inventories. The huge network of global suppliers, warehouses, and retail stores has been showed as operating like a single firm.
Cross docking is a logistics method that is the heart of Walmart’s strategy to replenish inventory efficiently. Cross docking means direct transfer of products from inbound or outbound truck without extra storage, by unloading items from an incoming semi-trailer truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail cars (and vice versa), with no storage in between. Cross docking helps in keeping inventory and transportation costs down, it lessens transportation time, and removes inefficiencies. Goods will transported from one loading dock to another, usually in 24 hours or less, and company trucks that would else return empty “back haul” unsold merchandise. With the help of cross docking, products are routed from suppliers to Walmart’s warehouses, where they are then shipped to stores without sitting for long periods of time in inventory. This helped Walmart’s reducing costs significantly and they share those savings on to their customers with highly competitive pricing.
Technology plays a vital role in Walmart’s supply chain, serving as the foundation pillar of their supply chain. Walmart has the largest information technology infrastructure of any private company in the world. Walmart has used technology to become an innovator in the way stores track inventory and restock their shelves, thus allowing them to cut costs.
Its technology and network design allow Walmart to accurately predict demand, track and forecast inventory levels, create highly efficient transportation routes, and manage customer relationships and service response logistics. Technology has helped Walmart to reduce its cost by effectively amalgamating the process with the technology.
For example, the implementation of Universal Product Code bar codes is a perfect example of in which store level information was immediately collected and analysed, and the company then devised Retail Link. With the use of a global satellite system, Retail Link is connected to analysts who predict supplier demands to the supplier network, which shows real-time sales data from cash registers and to Walmart’s distribution centres.
Walmart has introduced the new concept of sharing information with the partners to optimize the whole process. This was different as before companies were using third parties and they had to pay for that information. Wal-Mart has used radio frequency identification tags (RFID), which use numerical codes that can be scanned from a distance to track pallets of merchandise moving along the supply chain. As inventory must be handled by both Wal-Mart and its suppliers, Wal-Mart has encouraged its suppliers to use RFID technology as well.
|
Profitability |
2009-01 |
2010-01 |
2011-01 |
2012-01 |
2013-01 |
2014-01 |
TTM |
|
Tax Rate % |
34.19 |
32.35 |
32.2 |
32.56 |
31.01 |
32.87 |
33.26 |
|
Net Margin % |
3.3 |
3.51 |
3.89 |
3.51 |
3.62 |
3.36 |
3.27 |
|
Asset Turnover (Average) |
2.48 |
2.44 |
2.4 |
2.39 |
2.37 |
2.34 |
2.32 |
|
Return On Assets % |
8.2 |
8.58 |
9.33 |
8.39 |
8.57 |
7.86 |
7.58 |
|
Financial Leverage (Average) |
2.5 |
2.41 |
2.64 |
2.71 |
2.66 |
2.69 |
2.63 |
|
Return On Equity % |
20.63 |
21.08 |
23.53 |
22.45 |
23.02 |
21 |
20.76 |
|
Return On Invested Capital % |
13.69 |
14.33 |
15.52 |
14.2 |
14.54 |
13.36 |
12.92 |
|
Interest Coverage |
--- |
11.69 |
11.67 |
11.51 |
12.43 |
11.56 |
11.02 |
Inferences
The mobile usage is increasing globally and hence many retailers started doing their marketing activities in this platform. Many retailers are encouraging the customers to use their mobile application by offering discounts upon making first transaction.
However development cost of a mobile app would range from $500,000 to $1,000,000 and takes around 6 months to 1 year for the development of a mobile application for retail. Hence this has remained to be feasible to large / volume players.
This technology helps retailers in assessing the purchasing pattern of the customers visiting their retail outlets. Based on the customer data, retailers are deciding on store layout, placements of items to making shopping comfortable for the customers and hence increasing sales. This enables them to have personalised one-to-one marketing with them based on customer’s interest. It also helps customers to navigate through the retail in identifying the commodities of their interest using their mobile device inside the retail.
Based on the past purchasing trends of customers in retail, customised messages on offers/discounts on the items which might be of customer’s interest is sent as a message to the customers once she enters the radius of coverage of the retail.
Because of the increasing penetration of internet connectivity and mobile adoption, retailers are following multiple channels of operation be having sales in all the streams. However in doing this, keeping track of inventory, pricing of the products in different channels based on the price offerings of the competitors has remained a challenge and sophisticated software is being developed for the same. (Eg: Amazon for instance has started opening its experience stores so that customers can get touch and feel of the products before making purchase decision.)
As the industry is attaining maturity, the retailing is becoming bi-polar. Meaning, for a retail to sustain in the industry, the retail has to be clear in its objective - be a cost player (operational excellence) or should follow differentiating strategy offering unique services (differentiation strategy) charging premium for the same.
Home Depot did it based the gadget sort (tablets/ mobile/laptop). Orbitz demonstrated higher costs to Mac clients, maybe accepting they were lesser price sensitive in comparison to Android or Windows clients. Staples showed distinctive costs focused around the geo-area of the customer’s IP address –if it is near their competitors, the products were priced lesser.
Authored by:
Mr. Venkatesh KG
venkatesh.pgpm15c@greatlakes.edu.in
Mrs. Kratika Saxena
kratika.pgpm15c@greatlakes.edu.in
Mr. Rakshit Srivastava
rakshit.pgpm15c@greatlakes.edu.in
Ms. Divyabala N.
divyabala.pgpm15c@greatlakes.edu.in
Great Lakes Institute of Management
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