Department store Essay Example

partnerships prompted Wall*Mart to remove manufacturers' representatives from negotiations with suppliers at the beginning of 1992 which resulted in substantial savings. The company made it a practice to centralize its eying at the head office, with no single supplier accounting for more than 2. 4% of its purchases in 1993.

It also restricted sourcing to vendors who limit workweeks to 60 hours, provide safe working conditions, and do not employ child labor. Through bargaining and sheer size, Wall-Mart now has power over the suppliers, and can purchase goods cheaper than its competitors.

Products also have many substitutes and are not critical to stay on the shelves. Through private branding, Wall*Mart can become less dependent on branded manufacturers, further eliminating the power of suppliers. Power of Buyers - LOW The bargaining power of buyers is low because customers make small purchases of the general merchandise.

Wall*Mart provides family apparel, health & beauty aids, household needs, electronics, toys, fabrics, crafts, lawn & garden, Jewelry and shoes. Wall*Mart has a large number of customers who are individuals and not influential enough to bargain for a special price.

Product Substitutes - HIGH Wall*Mart faces a high level of product substitutes because they sell general merchandise that many other competitors offer. The performance of these substitute products are similar.

In addition, the prices and quality of substitutes are very nominative. As a result, consumer switching costs are very low. Intensity of Rivalry- HIGH Wall*Mart faces high competition with Target and Smart which offer the same goods and similar capacity to Wall*Mart. According to the Overall Corporate Performance of Discounters exhibit in the case, Wall*Mart represents 25% share in the US

Supermarket business.

In 1993, Wall*Mart accounted for 44,900 sales and right behind them came K-mart with 26, 449 and Target with 11,743. Wall*Mart had 1,953 Environment In the mid-sass, about one-third of Wall*Mart stores were located in areas that were not covered by any of its competitors. However, the company's geographic growth resulted in increased competition with other major retailers specifically Target and K- mart. Fifty five percent of Wall*Mart's stores faced direct competition from K-mart stores, and 23% from Target, whereas 82% of K-mart stores and 85% of Target stores faced competition from Wall*Mart by 1993.

Wall*Mart was very competitive with prices and gave its store managers control in setting them.

Store managers priced products to meet local market conditions by pricing them below competitors that surrounded them in order to maximize sales volume and inventory turnover, while minimizing expenses. By the early sass, there was typically a two to four percent pricing difference between Wall*Mart and its top competitors. In seven pricing surveys conducted between 1992-1993, Wall*Mart's prices were 2. 2% below K-mart's on average, and 3% below on items priced at all stores. Compared with Target in six surveys, Wall*Mart's prices were 3.

% lower on average, and 4. 1% lower on items priced at all stores. General Environment Political/Legal The early ass's was significant for business and those who longed to expand globally. The North American Free Trade Agreement (NONFAT) was put into action on January SST 1994 and was signed by Canada, Mexico and the United States. The agreement eliminated tariffs to encourage economic activity between the three countries and made it easier to purchase each other's goods while dramatically

increasing trade between the nations.

Economic During the ass, the unemployment rate was a concern for the United States.

Since Wall*Mart was growing rapidly, it was able to create hundreds of thousands of Jobs. There was also a slight increase in consumption in the discount retail sector in the United States. All companies from Ames to Wall*Mart saw an increase in sales from 992-1993 as shown in the Top 15 Discount Department Stores Sales exhibit in the case study. Demographic/Coloratura Wall*Mart aimed for isolated rural areas or "boondocks" usually with populations of 5,000 to 25,000 so they would not have distributors falling over themselves to serve us like competitors in larger towns.

This was one of two key aspects to Wallow's plan for growing Wall*Mart.

According to Sam Walton, "Our key strategy was to put good- sized stores into little one-horse towns which everybody else was ignoring. " The second element of Wallow's plan was the pattern of expansion from inside out. This romped them to find an alternative and build their own warehouse so they could buy in volume at attractive prices and store the merchandise. In terms of coloratura factors, the middle class was increasing and the United States was experiencing a faster pace of life due to technological advancements.

Technologies "training" a process which indexed product movements in the store to over a thousand store and market traits. Information technology growth during this time allowed businesses to manipulate data. The local store manager, using inventory and sales data could choose which products to display based on customer references, and allocated shelf space for a product category according to the demand at his

or her store. Global With NONFAT in effect, Wall*Mart could expand to Mexico and Canada. They took this opportunity in a Joint venture with Mexico largest retailer Caviar, S. A to test different retail formats there.

They also expanded to Canada as well by purchasing 122 Wool stores, reformatting them to fit Wall*Marts style and re-training employees to Wall*Mart's standard as well. The emerging world economy also created an opportunity to expand further abroad to Europe and Asia. Internal Environment Resources Although Wall*Mart entered the discount store industry as a late player, they became successful quickly and were able to gain valuable resources to sustain their company. One major resource Wall*Mart possessed was its leadership of Sam Walton. Walton dedicated everything he had to Wall*Mart.

He went to the competing stores to see their progress and would bring back ideas for Wall*Mart. Each discount store had many practices that could be easily imitated, however Walton always seemed to find a way to do it best. Part of Wallow's philosophy was his dedication to his employees. He was sure to make the environment fun, unpredictable, and interesting. He empowered them and made sure they were happy.

Each manager had the freedom to set local prices and make decisions for product placement. The associates had a key role and a lot of responsibility that kept them committed to the company.

Human resources are a huge aspect that kept this company running smoothly. The location of the stores in relation to distribution centers was an important resource.

Creating a seamless chain of supply and distribution was key. Wall*Mart owned their own distribution centers and located stores near them.

The trucking companies worked together to unload and load directly at the distribution center to make each transition easy and timely. Wall*Mart had invested a great deal of money into its information technology and maintained a stronghold over the other discount stores.

A sophisticated satellite system allowed managers to track inventory, trends, refunds, authorizations and collect data to make wise decisions for their local store. It connected distributors and vendors so they knew when items were being purchased and were already moving forward with new deliveries.

Finally, Wall*Mart ad the financial stability to be able to grow and expand. As the company saved money in many ways like sharing hotel rooms, only using collect calls, being frugal with purchases and etc. , they were setting themselves up to be able to afford the vast expansion of superstructures, Cam's Clubs and more.

Wall*Mart has many core competencies based on it's slew of resources and capabilities. Clearly they have been able to offer the lowest prices with typically a two to four percent pricing differential between them and their competitors.

At one point they had sales of about $300 per square foot compared to $209 for Target and $147 or Smart. Wall*Mart also managed to keep it's operating expenses to 18. 1% compared to the industry average of 24. 6%. Most of which can be related back to Sam Walton and his sparing way of spending which carried on for the entirety of the business.

One thing that allowed Wall*Mart to be so efficient was its satellite system that connected manufacturers, vendors, managers, and others.

Wall*Mart installed Uniform Product Codes two years ahead of Smart and had

handheld scanners to price mark and improve efficiency in transactions. The replenishing process was one of the best as a result as well. Wall*Mart incorporated an Electronic Data Interchange (DE') that allowed 3,600 vendors to receive orders and interact electronically. They were able to use streamline forecasting, planning, replenishing and shipping.

Not only did this improve the pricing opportunities, but also this allowed vendors and Wall*Mart to create partnerships and share the information so everyone could benefit. Additionally, Wall*Mart's financial success enabled the company to make improvements and never stop expanding with money not being a serious concern. This also allowed them to make ventures such as Cam's Club, and creating Super Centers and keep their prices extremely low. Keeping low prices is the basis of every Wall*Mart and their brand would be nothing without that mentality.

Wall*Mart was ahead of the game in many aspects.

They used their resources extremely well and ensured financial success in smart spending and good business practices. Wall*Mart offered a valuable service to it's customers, in small towns who searched for low prices, and a one-stop-shop for many items. Some of the products sold were rare, again in reference to the placement of the stores in small farm towns, which were not readily near other retailers. The service of Wall*Mart was somewhat costly to imitate. This is because most of what they did was based off of other competition but Walton somehow figured out how to do it cheaply.

And finally their products were definitely substitutable, but not for the price offered. As of right now, Wall*Mart has a sustainable competitive advantage and they are seeing above average returns.

The company is getting to a point where they have seen so much success that they are not sure of where to go from here. This is where we can analyze external factors and strategies and determine the appropriate future actions.

Firm Strategy One of Wall*Mart's main strategies was extreme expansion. First is the company distribution. As discussed previously, Wall*Mart located the stores in rural areas and small towns.

They focused on populations of around 5,000 to 25,000 which other competitors were ignoring. Due to the lack of competition, this helped Wall*Mart to grow even faster and snatch up market share.

Secondly, Wall*Mart focused on emphasizing how important the store associates were. Wall*Mart wanted to provide high quality services for consumers, so treating the associates well was one of their first steps. These associates are directly connected with consumers. They know what technological superiority, and building up loyalty with associates, customers, and suppliers were all a main part of Wall*Mart's strategy.

Thirdly, Wall*Mart's compensation system and profit sharing was associated with loyalty and motivation.

In order to maintain Wall*Mart's competitive price strategy, they allowed store managers to set prices depending on the local market conditions and specific consumer behavior. This ended up maximizing sales volume and increasing inventory turnover. Managers and supervisors compensation were based on standard salaries plus in-store profits. Wall*Mart profit sharing is available for everyone working in the company after one year of employment, even part-time employees.

When the associates leave the company, they have the opportunity to cash out or keep their money in Wall*Mart stock.

This incentive system motivated employees and executives to work efficiently. It also makes them feel

important and connected to the other employees. Conflict Resolution Options As you can see, Wall*Mart has been very successful in utilizing their strengths and opportunities to overcome the many challenges they faced in becoming the largest discount retailer in the world. No company, however, can continue to grow at such a paid pace forever and the company now has many question marks in terms of which options they should pursue.

The first problem the company must address is the growing opposition that the company is experiencing in small towns. A huge portion of Wall*Mart's revenue comes from its small town locations and this could be a major problem for the company if the opposition gains momentum. One option to solve this problem would be to invest more money in stores that are in big cities over their more rural stores. A second option could be to work with the local communities and sell locally sourced goods. The first option would essentially lead to a decline in rural stores while the second would be a way to revive their rural store sales.

The second major problem that the company is facing is a lack of interaction of its associates.

The company was built on a foundation of camaraderie between management and store associates, which resulted in a highly effective horizontal structure with few overhead management costs. Now that the company is expanding into distant markets, the company is struggling to maintain the same culture that has made it so successful. One option to solve this problem would be to switch from a relationship based management system to a reward system based solely on numbers and performance

data.

This would hold everyone accountable and would be an indisputable way of improving performance. On the other hand, the company could invest more heavily in spurring interaction between employees by rewarding them with trips and company getaways to other store locations, which could help restore the camaraderie at the company.

Working with the rural communities rather than abandoning them can resolve the first problem of growing opposition to the company. One of the trends that we have started to see in big grocery and retail chains like Whole Foods ND others is an attention to locally sourced products.

Wall*Mart needs to capitalize on this trend by offering locally sourced food and merchandise options in their stores. This would please local businesses and governments and also lead to higher a connection to.

The second problem should be resolved by restoring the culture that has made the company so successful instead of trying to pivot to a new management system. The company must make an even greater effort in bringing its employees together to reestablish this culture. There is not one specific thing the company can do to restore this culture but there are many small steps it can take.

For example, rewarding highly effective employees by sending them to a new location of their choice for a brief period to train others.

This would motivate employees to do well and also help the employees around the world feel closer to one another. The company must maintain a delicate balance between staying true to its core values and investing in new projects, however, if they solve these two problems, the company is poised to be able

to build on its success at home while capturing an even larger share of the global market. Recommendations & Implementation In the past, Wall*Mart has thrived as a discount retail store and a grocery store.

Starting around 1994 to the present, Wall*Mart has suffered some backlash and had concerns about the future of their strategies. CEO, David Glass states that, "When we were smaller, we were the underdog, the challenger.

When you're number one, you are a target. You are no longer a hero. " This statement sums up Wall*Mart's current struggle. In the past, Wall*Mart has been early adopters, but a lot of their strategy comes from previous ideas. When they were young, they were always looking at their competitors and learning from them.

Now that they are at the top, they have no one to look to anymore for ideas.

They remain stagnant where they are. Overall, Wall*Mart needs to start generating new ideas and innovating. They should keep on observing big players, but ones that are not in the discount industry.

By studying companies like Amazon, Wall*Mart could start expanding the online platform side of their company. Wall*Mart's current online platform is relatively average compared to other discount stores. They should focus on to improving the online experience. Even ideas like delivery groceries and "prime" accounts could work for them.

Wall*Mart's Mexico location has recently found a cost-effective way to deliver groceries.

On top of that, according to Wall Street Journal, "Last month, global e-commerce chief Neil Ashes vowed to match Amazon's service offerings within two years. " If they can master this online market, they have the potential to grow into

something much more. To fuel innovation, they could also foster a more creative work environment for their employees.

By empowering employees and executives, they can get more internal ideas and ways to increase commitment and efficiency. Through this, they can increase performance and loyalty in employees and associates. It can also directly improve customer's experiences and increase long term profits.

On top of that, Wall*Mart may want to consider studying companies such as Cost.

They pay associates much better than Wall*Mart. Better wages will also increase commitment. It would also decrease turnover rates, which reduces the human resources department costs. Another huge issue with Wall*Mart is their locations. The small- town strategy has worked well for them in the past, but they are currently missing out on a huge city market. They already have a few superstructures in major cities like and convenience as much as the small-town people.

With stores in Canada and South America, Wall*Mart should also increase their international presence.

Glass recognized that they have to keep up with this trend. In order to make this happen, they should adapt each business model to fit local culture. In the past, they have always focused on empowering associates to create their own prices and inventory.

They should do the same thing internationally, but on a larger scale. They should create specific teams that are in charge of everything Wall*Mart in that country or region. Team members should consist of current employees to maintain the company's mission, along with members from the foreign country to help overcome cultural barriers.