Wal-Mart: A Case Study

Vikram Gulati
BM – B
Roll No: B10119
Note: Most of the content related to Walmart, its competition, innovations etc. is centric to the US/UK market. I have
however, indicated the differences with respect to the Indian market in some places. The introduction to the retail
market (section 1a) is however, India-centric.

Section 1: Introduction to the Retail Market, its characteristics, the broad

innovations to be followed and Wal-Mart's Business Model

Section 1(a): The Retail Market

The retail market has the following characteristics:

• It is very dynamic, with the threat of new entrants – as is evident with the sheer number of
players trying to enter into the market. These new entrants can come with the backing of
huge amounts of capital, both for operations and for marketing.
• Companies operate on relatively low profit margins, especially since all stores have
implemented the “large-volume = more discounts” model. (A qualifier: Walmart still is the
best at doing this)
• Consumers tend to shift loyalty easily.

In such an environment, it is imperitive that players in the retail space do the following:

• Constantly innovate – It cannot be stressed how important it is to think ahead of your

competition, especially given the level and quality of the other companies. Any type of
innovation will be helpful in providing the crucial “differentiator”.
• Look for innovations in the Supply side of the business – This would mean:
◦ Trying to source the cheapest raw materials, directly from the producers, thus
eliminating middlemen – eg:) ITC's e-choupals
◦ Keeping your supplier in good books, ensuring that you get preference in business
dealings
◦ Try and reduce inventory, thereby saving on warehouse space
• Look for innovations in the Display areas and the Overall Shopping Experience:
◦ Display products where people will buy them without hesitation/botheration – eg:) Place
dairy items near vegetables and other daily requirements, rather than near the toys'
section
◦ Have a very clear information display system – this will ensure that your store is known
for saving time, something that more and more supermarket consumers are very short on
◦ Work on improving the speed of the cashiers and their efficiency – Nothing is more
irrtating than waiting in a long check-out line
◦ If possible, try and implement a system where you can have the customers bill the goods
themselves
◦ Most importantly, become known as the “one-stop-shop” - where people can go to get
anything they may require
◦ Be mindful of the cultural background of India – eg:) Spar supermarkets have a meat
cutting section that is well seperated from the rest of the store, often in a seperate
enclosure. This is done keeping the vegetarian sensitivities of Indian consumers in mind.
• Try and outsource some of your functions – like inventory support and management, on-the-
floor shopping assistants (try and set up “push” money assistants – those that are paid to sell
a particular product with higher margins
Section 1(b): Walmart's Business Model (Uniqueness)

The uniqueness of the Walmart business model arises from the following differences:
• Infrastructure differences:
• No regional offices – saving on rent, expeneses etc.
• Basic infrastructure only, no friviolous installations in the offices
• A very centralized organisation, with frequent vists by head-office personnel
• Technology like POS, store performance tracking, real time market research, satellite
systems and UPC
• Procurement differences:
• Well negotiated deals with suppliers
• Centralised buying
• Smart logistics management (frequent replenishment, automated tracking etc.)
• Everyday low price system (EDLP)
• Attitude Differences:
• Monopoly model, crowding out local competition by virtue of low cost and hence
low price
• Pleasant work environments, with semi-formal meetings
• Employees treated like associates
• Compensation linked to performance
• Workforce not unionised as Walmart takes good care of its employees

Broad Strategies employed by Walmart, and the reason for its Competitive Advantage:

Wal-mart is obviously a very successful firm. It is able to achieve a competitive advantage by

implementing certain principles and strategies that others find very difficult to imitate. The guiding
principles behind Walmart are:

1. Customer value and service

2. Partnership with its employees, who are known as associates
3. Rapid expansion plans, using Porter's framework for doing business (See next section)

These principles lead to a unique, very-hard-to-duplicate strategy as follows:

1. At Walmart, the customer is always right. The stores aim to serve customers with ever-
increasing innovation and quality, allowing them to exceed expectations each and evry time.
2. Walmart believes in listening to employees and challenging them to come up with ideas and
suggestions to make the company better. At each of the Wal-Mart stores, signs are displayed
which read, "Our People Make the Difference." Associates regularly make suggestions for
cutting costs, and are paid a bonus with the savings earned. One of Walmart's goals is to
provide its employees with the appropriate tools to do their jobs efficiently. The technology
was not used as a means of replacing existing employees, but to provide them with a means
to succeed in the retail market.
3. Rapid expansion: Walmart is aiming at a continuous expansion into markets where it has not
had a presense upto now (eg: China, Canada, UK). During this expansion, Walmart has
focussed on acquiring international stores like ASDA and integrating them into its own
network. This ensures that the entry barriers for new businesses is kept high, keeping
competitors away.
 Section 2: Walmart's Overall Business analysed using Porter's Five Forces Model

Section 2(a): The Porters' Five Forces Model has the following components of analysis

1) Threat of New Entrants:

• As mentioned before, Walmart looks to monopolise the space that it is currently in. In
existing areas, it sources from the suppliers at the lowest possible cost, by buying in
large volumes – often well beyond the reach of local competition.
• Walmart also sets very high standards when it comes to customer service and
satisfaction. As an integral part of its strategy, (see previous section) customer service at
Walmart aims at nothing short of excellence.
• In new markets, Walmart pursues a similar strategy of shutting out the competition.
Walmart often acquires smaller, local chains of supermarkets and integrates them into
the network. This ensures that they have a captive market, in addition to raising the
entry barrier for new players.
• All the above three points make it very difficult for competitors to enter into a market
where Walmart is looking to get established or has established itself.

2) Bargaining Power of the Buyers:

• As is clear from the analysis of the retail market, consumers are becomingly increasingly
discerning about the store at which they shop. In order to maintain the customer base,
Walmart undertakes the following:
◦ Pursuit of customer satisfaction and the overall improvement of the shopping
experience (concepts of store-in-store) as a primary strategy motive.
◦ Perception Manipulation via methods like “price-spin”, advertisements that
emphasise that Walmart is cheaper than all other stores, “opening price point” - a
system where lowest priced items are placed in the most visible locations,
influencing the customer into believing that the prices in the store are really the
cheapest.
◦ Innovations like EDLP (Every Day Low Price) – these reinforce the opinion that
Walmart is the cheapest store in the area.
◦ Stocking a wide variety of products, aiming at being a “one-stop-shop”. Consumers
are often reluctant to leave such a convenient store.

3) Bargaining Power of the Suppliers:

• As the world's largest retail organization, Walmart has a distinct edge in maintaining its
relations with its suppliers. The sheer scope of the volumes that Walmart deals in,
enables it to have the upper hand when dealing with suppliers. Walmart is known for the
following strategies that it uses to deal with suppliers:
◦ As mentioned before, the large order volumes allow Walmart to demand rather than
accept supplier's prices. Walmart is known to ruthlessly demand lower prices from
the supplier. In one famous example, the price of a 4-pack of GE lightbulbs dropped
from $2.19 to $0.88 during a five year period.
◦ Walmart uses the “plus-one” strategy when renewing contracts with suppliers. It
either asks them to reduce prices or improve quality.
 4) Threat of Substitutes:

• In the Western World, substitution offers a mild threat to stores like Walmart. There are
not many retail formats that offer convenience and low prices under one roof.
• Consumers may be able to visit speciality stores to find certain rare and niche products,
but none of these stores will be able to offer the kind of prices that Walmart offers.
• However, in a location like India (if and when Walmart decides to foray into the Indian
Retail Space), large-format retailers are fighting against local grocer's shops, who have
an already established and perceptually well-served customer base.
• Online shopping is a slightly more potent force when it comes to threatening the retail
industry and stores like Walmart. However, demand for online stores is yet to prove to be
a significant worry for Walmart.

5) Established Competition:

• Currently, in the US market, there are three main companies that exist in the same league
as Walmart: Sears, K-Mart, and Target. Target is the strongest of the three in relation to
retail.
• Target has experienced tremendous growth in the market and has defined its niche quite
effectively.
• Sears and K-Mart seem to be drifting and have not challenged Walmart in sometime.
• A common feature among all these retail firms is the Mature industry life cycle. Because
of the high entry barrier to such a hyper-store format of retail, very few new entrants
seem to be on the horizon. This is in contrast to the space in countries like India, with
almost every major industrial player aiming to launch a big-store retail arm. The
industrial background of these companies like the Birlas, Reliance etc. gives them two of
the necessary requirements to enter into this kind of retail – Brand name, and starting
Capital. (It will be interesting to watch how Walmart deals with such players if and when
it makes its foray into the Indian market)

To sum up the Five Forces' Analysis, Walmart faces the biggest threat from Established Players and
in markets like India, (again, with the “if-and-when-it-comes” rider) New Entrants.
 Section 3: Steps Walmart can take to improve its Market Position

Especially in the retail business, continuous innovation is a perhaps the only way to maintain a
leadership position. Innovation leads to differentiation, which leads to better brand capital, and
hence better sales and profits.

Section 3(a): Possible innovation steps for Walmart

1. Wider use of technology – An exciting new avenue for stores like Walmart is targeted
advertising/promotion. Shopping Carts can be equipped with sensors that collect data
on the movement of people in the supermarket, and their corresponding purchases.
Analysing this data can lead to better placement of high-margin products, leading to
higher revenues. If linked up with an LCD display on the cart, consumers can be
informed of in-store promotions that they may have otherwise missed. Also, there is an
avenue for customised carts for privilged customers, saving time.
2. Better In-Store/Store-in-store Brands – Walmart can draw more customers into its
stores by allowing a diverse range of stores to operate within its existing stores. This
concept allows Walmart to avoid the hassles of procuring and promoting new types of
products. The incoming company takes care of this, while Walmart is paid for already
existing space.
3. Home Delivery – Walmart can start a system in which customers can place orders for
certain items, which are then delivered to their door-step. These orders can be one-time
or standing in nature (this means that the order is resent after a fixed amount of time).
4. Automated Check-Out – Customers can be allowed to check-out items that they buy,
(with security measures of course) allowing them to save time. This would go a long
way in drawing new customers who value their time, and retaining their existing ones

Section 4: References

1) Pinker, Stephen, “They've Got Your Number”, Vintage Publications, 2008.

2) “Wal-Mart”, Wikipedia, http://en.wikipedia.org/wiki/Wal-Mart
3) “How Wal-Mart Works”, How Stuff Works, http://money.howstuffworks.com/wal-mart.htm
4) “Strategic Management: A Case study of Walmart Inc.”, Articles Database,
http://www.articlesbase.com/strategic-planning-articles/strategic-management-a-case-study-
of-walmart-inc-945260.html