Walmart – A Case Study in Business

What are the goals and objectives of Walmart?

Walmart’s unstated goal (but obvious nonetheless) is to dominate the retail industry. In my mind, it does this by being a pure resource-based organization that takes full advantage of the resources it has developed over the years. Originally created to be the major discount retail player in small cities and rural areas, Walmart has grown into an unstoppable force in the retail industry. By 1994, the intersection of this past strategy with the rampant growth that had taken place in the last ten years could be best seen in a statistic seen on page three of the case. While Target and Kmart were in over 80% of each other’s markets with Walmart, Walmart faced competition from its major adversaries in only about 40% of its markets.

There were some other major goals, as of the original 1994 printing of the case (and still hold true today), that affected the business operations at Walmart. One had to be the consistent effort to block out unionization at all levels of the company. While this effort occurred under the radar, the other major goal was right on the front page of every memorandum the company sent at that time. International expansion, with the increased sales and growth it could offer, was the natural next step for the firm.

What businesses/industries are they in?

Walmart does not mess around with unrelated side ventures, choosing instead to focus all of its energies in a few highly-related forms of retail store. For sake of ease, we can break down the businesses it is in into four major categories: the flag-bearing Walmart discount stores, the very similar supercenter stores (which include a grocery component), the company’s Sam’s Club warehouse stores, as well as the international extensions of these stores. At one point, about twenty years ago, the company tried to start a drug store extension that was quickly sold off due to poor results. This action demonstrates that management is fully aware of company strengths and maintains a short leash on anything that might deviate from these strengths.

While the line is slightly blurred between the final business the company is in and the other four mentioned above, it should be noted that Walmart also produces and sells its own line of private label products. Marketed under the Sam’s Choice brand name, these items provide further revenue while simultaneously cutting costs that would have been passed on by vendors selling those same products.

What are the unique resources they have developed?

Generally speaking, Walmart is in the discount store business. As such, they provide consumers the opportunity to buy products at margins that are 10-15% lower than the average department store. In order to make these prices possible, the company must slash its costs “to the bone.” More than anything else, this is the unique resource that Walmart provides.

Yet, it is the way that Walmart differentiates itself from its competitors that makes it the powerhouse it has become. Through the use of information technology improvements, the company has created a system to cut costs lower than anyone else can offer. The early adoption of satellite information systems and the formation of EDI relationships with suppliers were the predominant drivers of these results. When you factor in the strong distribution network (27 distribution centers in 1994) the company maintains, it is no surprise that the company reached the heights it has. Resultantly, the size of the firm has led to further competitive advantage, since the consumer access Walmart can provide its suppliers allows it to often dictate the terms of business with them.

How does the corporate office create value for its business units?

The corporate office is an interesting case study on how to minimize costs on the highest levels, thus solidifying this notion throughout the firm. It was well documented how Sam Walton and, subsequently Mr. Glass, made every effort to eliminate unnecessary expenditures when doing business. Whether it was sharing a hotel room or skipping a taxi fare, these men willingly avoided the normal perks afforded to executives.

On a macro level, the corporate office preaches an everyday low prices guarantee that allows them to spend significantly less on advertising. They also centralize buying at the corporate level and reduce it even further by bypassing a regional office structure (which supposedly saves them 2% on sales per year). Perhaps most amazing of all, the company forces its vendors to pay for all phone calls by dialing them collect!

What kinds of systems has Walmart set up to manage its business units?

Walmart manages its operations under what ostensibly appears to be a highly decentralized structure. The firm allows individual stores to stock what products sell best in that city/region, at prices that make sense given localized market research. The systems extend this empowerment even further by using the “store within a store” strategy that pushes decision-making down to department managers, thereby allowing store managers the flexibility to handle the top-line issues. In actuality, this freedom to act is pushed down to every associate working for the company, although the cost-saving element of this system eventually dissipates.

Despite this, there still seems to be an entrenched hierarchy at Walmart. Employees cite feelings of higher-ups looking over their shoulders. Moreover, the salary structure at the company demonstrates huge gaps in the pay between store managers and their associates. Lastly, the power wielded at the corporate level, evidenced in question number 4, stands in stark contrast to the decentralized image the company tries to portray.

What are the sources of sustainability for Walmart?

The future shows no sign of decline for Walmart, now that it has established such a dominant position in the marketplace. As mentioned earlier, the company is known for a constant effort toward greater efficiencies through the use of IT. What surprised me was the company’s ability to keep IT expenses almost even with its main competitors. If this continues to hold true, it will be hard for Kmart and Target to find a way to offer better values to the customer. Another strong point in favor of Walmart is the efficiency of its distribution center system. Unless competitors can build infrastructures to compete with this model, they will be forever mired in second or third place.

Yet, there are sources of strength for Walmart that are at least somewhat vulnerable in the long term. First, I am not quite sure what to make of the fact that the company leases 70% of its space. While this does provide the company with flexibility to move out of outdated locations, it also probably adds costs to the financial statements that owning might mitigate. Shrinking opportunities to open stores in markets without competition (now that most of the country has at least one type of discount store within a few miles) creates more head-to-head battles. This could further reduce profit margins for Walmart on a per store basis. Of course, international expansion is the remedy for this problem, but it is still unclear whether the discount model works as well across borders. In the end, the biggest threat to sustainability could come if Walmart falters and is forced to deal with the repercussions of angry suppliers who have resented Walmart’s demands over the years.




Leave a reply

Register New Account
Reset Password
Compare items
  • Cameras (0)
  • Phones (0)
%d bloggers like this: