(Solved): Read the Strategic Market Management Case 'Walmart - Competing against the Industry Giant', and answ ...

Read the Strategic Market Management Case 'Walmart - Competing against the Industry Giant', and answer the following questions:

1. Identify and evaluate Wal-Mart’s strategies. What Wal-Mart strategies led to success?

2. What were the strengths and weaknesses of Wal-Mart from the perspective of  (a) Wegmans and (b) Costco? 

     

While answering, please note the following: 

 

There is no minimum or maximum word limit for your answer. Do take as much space as needed to convey your point.

Your answer should be written in clear and concise language.

Please answer in full sentences. If you would like to use bullet points, please provide a context - i.e., your answer cannot comprise only bullet points.

Please ensure you proofread, copy-edit, and review your answers before submission. 

COMPETING AGAINST THE INDUSTRY GIANT: COMPETING AGAINST WAL-MART Wal-Mart is the most successful retailer ever. In 2002 , at \( \$ 218 \) billion in sales, it was by far the world's largest retail company, three times the size of the runner-up, France's Carrefour. Measures of Wal-Mart's success are mind-blowing. Its share of the U.S. grocery business was 19 percent in 2003 and could grow to 35 percent if its five-year planned growth materializes. It was the third largest pharmacy with a 16 percent share. It sold 32 percent of the disposable diapers in the United States, 30 percent of all hair care products, 26 percent of toothpaste, 20 percent of pet food, and 13 percent of home textiles. In 2003, Fortune named Wal-Mart the most admired company in America. Wal-Mart was founded in Arkansas by Sam Walton in 1962. Six years later it expanded into neighboring states, and in the 1970 s it ventured beyond the South. Over time it added products such as jewelry and food, as well as pharmacy and automotive departments. By 2002 , there were some 1,650 Wal-Marts and over \( 1,000 \mathrm{Wal}- \) Mart Supercenters in the United States. In 1983, Wal-Mart went into the wholesale club business under the Sam's Club brand name; this concept grew to 500 stores within two decades. In 1991, it began its international quest by opening a store in Mexico. In 2002, Wal-Mart had nearly 1,200 stores outside the United States and was the leading retailer in both Mexico and Canada. For its first thirty years, Sam Walton was the heart and soul of Wal-Mart. An inspirational and visionary influence, he created strategies, policies, and cultural values that fueled the firm's success. He would spend much of his time visiting stores and meeting customers and "associates" (employees). The visits would always result in customer and merchandising insights, pats on the back for workers, and suggestions for improvement. He would summon managers back to the headquarters in Bentonville, Arkansas, for Saturday morning meetings that kept the firm focused and provided a pervasive work ethic. He also enjoyed celebrating successes, once keeping a promise to do the hula on Wall Street if the company achieved an 8 percent pretax profit. For employees and customers alike, Sam Walton was Wal-Mart. In 1962 , Walton started his firm with three basic beliefs-respect for the individual employee, exceptional customer service, and a striving for excellence. He developed a host of rules for associates. He challenged them to engage in "aggressive hospitality," to be ready with a smile and assistance to all customers. The "ten-foot rule" decreed that whenever an associate was within ten feet of a customer, the associate was to look that customer in the eye and ask if he or she needed help. His "sundown rule" meant that any task that could be done today would be not put off until tomorrow-especially if the task involved customer service. Exemplifying his belief in empowerment, Walton instituted the Volume Producing Item (VPI) program, in which an associate would pick an item, design a merchandising effort for it, and monitor and communicate the results. In his 1992 book Made in America - a title that reflects Wal-Mart's positioning strategies in the early 1980 s, as well as a comment on the founder's career-Sam Walton listed ten key factors that he felt were key to his success. One was to appreciate your associates and their contribution; a second item was to share your profits with them. A third factor was to talk to the customer and listen to what that customer is saying. Another item was to exceed your customer's expectations ("satisfaction guaranteed" really meant something to Sam Walton). Still another factor was to control your expenses better than your competition, as Walton prided himself on having a number-one ranking in the ratio of expenses to sales. Sam Walton offered strategies as well as charisma. One basic early strategy was to bring discount stores to cities of roughly 50,000 people. While the large discount stores of the day were fighting for prime spots in large cities, Wal-Mart had the smaller metropolitan areas to itself. Second, because of the location of its early stores and its headquarters site, Wal-Mart had an employee cost advantage from top to bottom. Third, by setting up distribution centers, Wal-Mart from the outset gained operational and logistic efficiencies. Over time Wal-Mart relentlessly innovated in warehousing, logistics, information technology, and operations to create more and more savings. In part, this innovation was done in partnership with suppliers like P\&G. Wal-Mart continued to prosper after 1992 when Sam Walton passed away. Although his strategic flair and connection with employees and customers was missed, many of his ideas had become institutionalized. Aggressive merchandising led by empowered associates and the trademark greeters, for example, remained part of the Wal-Mart profile. In addition, there was a focus on energy adding "Retailtainment," including live concert broadcasts in the home entertainment departments, exclusive promotional events around video releases, and exhibits by local organizations. Equity was built into private-label brands, such as Ol' Roy dog food (which has surpassed Purina as the world's top-selling dog food), White Cloud tissues and diapers, and the Sam's Choice and Great Value product lines. Low prices and cost containment have continued to be the focus-some say the obsession-of Wal-Mart management. The customer promise of "Low Prices, Always" drives the culture and the strategy. Suppliers are continuously and aggressively challenged to reduce costs. Wal-Mart will set demanding cost reduction goals, on occasion showing suppliers how to achieve them. Operations are continuously made more efficient. The resulting cost savings are passed on to customers, as WalMart does not support suppliers' premium-price brand policies. The firm's privatelabel lines are often sourced directly from foreign factories, creating significant cost advantages and disrupting price norms in many categories. Wal-Mart views itself, first and foremost, as the customer's purchasing agent, and its goal is to reduce prices. By some estimates, Wal-Mart saves consumers \( \$ 20 \) billion a year. Wal-Mart has significant detractors as well. One set of arguments, summarized in a Business Week cover story questioning whether Wal-Mart is too powerful, relate to jobs. Wal-Mart has been accused of hastening the move of jobs abroad, as its focus on costs led the company to buy over \( \$ 12 \) billion in goods from China alone in 2002 . Some even argue that suppliers, in order to meet Wal-Mart's cost targets, are forced to move jobs to China and elsewhere. In addition, it is estimated that for every supercenter that Wal-Mart opens, two supermarkets will close. When Wal-Mart went into Oklahoma City, for example, thirty supermarkets closed. Because of the loss of local businesses, are said to be inferior, as the company's anti-union, low-pay policy has been hypothesized to hold down wages in retail Ametica and throughout local regions. On average, a Wal-Mart sales clerk in 2001 macle less thar \( \$ 14.000 \), which was below the poverty line for a family of three. Dozens of lawsuits related to overtime pay and sex cliscrimination have been filed against the firm. Sam Walton's values of "Macle in America" and "respect for the inclividual" seem to some a distant memory. Wal-Miut also faces some more intaugible concerns. Because it controls over 15 percent of all non-subscription magaine and video/DVD sales. some fear that the firm wieks an unwelcome and arbitrany influence on culture. Wal-Mart elects to stock some magavines while banning or hiding the covers of others ia nearly naked womat on the cover of Rolling Stone is acceptable, but not on the fiont of Glamour and Redbook, and it sells only videos that meet family-friendly standards. As a result, some movie producers have felt compelled to create a "W:J-Mart version" of their films. Further. WalMart's market power is so high that some people fear it has an inordinate influence on product clesign (for example, a particuku design direction may be deemed by Wal-Mart as too costly for its customers ). In at wide indiety of product areas, nanuficturers c:ulnot afford to desiate fiom specifications set by Wal-Mart. Wal-Mart has plans to expiand dramatically as the first decade of the twenty-first century continues. The primary vehicle for this grouth will be Wal-Mart supercenters, often located in malls where sites are aviilable at distressed prices, face fewer zoning issues, and precipitate less neighborhood opposition. 'The obsession with low prices, costs, and efficiency will not change. In fact, suppliers have been given a deadline to attach radio-frequency iclentification tags to all packages and pallets in orcler to create a new level of efficiency: There will be a continued emplasis on the growth of private-label goods, which were estimated to represent 20 percent of Wal-Mart's sales in 2003. A program to upgrade Sam's Club by adding phannacy; optical, one-hour photo, fuel, and other services is under way. Wegmans There are sixty-five Wegmans Food Markets in New York. Pennsylvania, and Maryland. Wegmans is healthy, with sales in 2003 of \( \$ 3.3 \) billion (up 9 percent from the prioryear) and operating eamings at \( 7.5 \) percent. Howeves. thisty-nine of these stores are within twenty miles of a Wal-Mart Supercenter. and expansion plans in Baltimore and Washington, D.C., involve more competition with WVal-Miurt. Costco started in 1981, just a few years before Sanis Club appeared. It had fewer stores thim Samis Club (312 compared to 532) but more sales (\$34.4 billion versus an estimated \( 832.9 \) billion) because the average Costco store genemtes nearly donble the revenue of a Sanis Club Unlike Samis Club, which focuses on price, Costco offers upscale brands like Callaway golf clubs, Starbucks coffee, and expensive jewelny, and thus it attracts a different kind of shopper. San's Club is attempting to attack Costco by adding upscale brands and integrating more closely with Whal-Mart in order to achieve more buying power and bogistical efficiencies.