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Unit 4: Retailing Structure

Wal-Mart’s Strategy Notes
Offering products at everyday low prices is only one of Wal-Mart’s many strategies. The
company value chain helps identify activities associated with how Wal-Mart achieves
their many strategies. First, Wal-Mart’s supply chain management is extremely cost
effective. For example, Wal-Mart has been known to imitate competition’s successful
merchandising concepts. Suggestions from all employees are expected and sometimes
rewarded. Another cost-effective method in Wal-Mart’s supply chain management is their
ability to track the movement of products through the entire value chain. Whether the
product is in shipment, in distribution center inventory, in-store inventory or on the shelf,
or at the cash register, Wal-Mart can track it in real time. Their capability in streamlining
supplies among stores and suppliers has helped them maintain appropriate inventory
and track what sells and what doesn’t.
Operations and distribution strategies have also helped Wal-Mart achieve low prices.
Wal-Mart’s strategy has been to plot stores outside of large cities and within 200 miles of
existing stores. Clustering stores together in small areas, Wal-Mart relies on word-of-
mouth advertising to win over consumers in larger cities. Because stores are close together,
distribution costs are below average. Furthermore, Wal-Mart seeks to meet different
customers’ needs with four distinct retail options; these include discount stores,
supercenters, Sam’s Clubs, and neighborhood markets. Each store concept has a specific
range of store size, total employment, and estimated sales.
Wal-Mart spends much less on advertising than does their competition. One way they
accomplish this is through the clustering of stores in a relatively small area. Because their
stores tend to be grouped together, they are able to spread advertising expenses across a
single market, minimizing advertising costs. One of Wal-Mart’s foremost strategies is to
provide superior service to customers. Every store has a “greeter” near the entrance to
welcome customers, offer them a shopping cart, and direct them toward where their items
are located. Rule number eight in Sam Walton’s 10 Rules for Building a Business is to
“Exceed our customers’ expectations. If you do, they’ll come back over and over.”

Supportive activities related to Wal-Mart’s strategy are related to the above primary
activities. Such activities and/or costs include the technology used in tracking product
(operations and distribution), relationships with suppliers, employee training, and
incentives and compensation policies. All of these activities have proven to be successful
overall as Wal-Mart earned $256 billion in revenues and $9 billion in profits in 2004.
In the SWOT analysis above, I’ve listed the strengths, weaknesses, opportunities, and
threats Wal-Mart faces. To elaborate on a few, Wal-Mart has a very powerful strategy but
it is also one that is hardly measurable or easy to communicate. Wal-Mart has very strong
brand recognition but somewhat of a negative reputation as of now. In many ways, Wal-
Mart has great customer service. Still, as in the case of stocking questionable CDs and
DVDs, there is room for improvement. As for opportunities, management argues there is
plenty of room to expand Wal-Mart to two or three times its current size. This may be an
opportunity but if there is that much of the market still available, Wal-Mart will face
threats of new competitors. Exploiting new technologies is an opportunity Wal-Mart will
likely take advantage of but new regulatory requirements is a definite threat to Wal-
Mart’s expansion goals.
The Unweighted Competitive Strength Assessment gives an approximate idea of each
company’s competitive advantage. In this assessment, Costco has the best advantage.
Wal-Mart is a close second, beating Target, Kmart, and Safeway. All of these data are
estimates to use in comparing and contrasting each company. Wal-Mart could use this
Contd...

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