Walmart Case Analysis

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a big disadvantage in a competitive environment.

● Walmart’s work culture was employee friendly as it believed in giving latitude and

decision power to employees along with responsibility. E.g. Store managers could set

the price for products based on local demand to drive up sales rather than a centrally

dictated pricing mechanism.

● Training: Walmart decentralized training so that store managers were more aware of

their distribution center’s needs and local challenges.

● · “Yes We Can Sam”: A suggestion program was introduced to encourage

associates to simplify, improve or eliminate work. More than 650 suggestions were

implemented in 1993, resulting in an estimated savings of over $85 million.

● · “Shrink Incentive Plan”: The program provided incentives to associates who kept

shrinkage of their stores below company’s goal. Shrinkage costs were about 1.7% for

Walmart Stores compared to 2% for direct competitors.

● · Frugal Approach: Management followed a very frugal approach whether it meant

driving sub-compact rental cars or sharing hotel rooms with other executives during

travel leading to cost savings and reinforcing the corporate culture.

● · Executives’ visits and meetings with stores employees: To have a better

understanding of trends and challenges at store level for decision making, executives will

visit stores or talk to employees via company satellite on a regular cadence. And each

trip was targeted to bring back at least one new idea.

Used underserved market segments as beachhead market to develop a successful

business model : Walmart targeted customers living in isolated rural areas and small towns,

usually with populations of 5,000 to 25,000. This segment was largely ignored by competitors,

and customers in these areas had to drive up to 4 hours to nearest cities for purchases. Over

time, Walmart targeted customers nation-wide that were price sensitive and offered products at

competitive rates that were hard to match by other retail chains.

Competitive Analysis :

Walmart benchmarked its performance against key metrics vs competitors. This enabled them

to incorporate best practices and also beat competition on the key metrics giving them an

advantage in lowering prices and cost structures.

For eg: They had lower advertising spend vs competition, they had lower rental costs vs

competition

In initial years of Walmart, Walton, the founder, spent significant time on analyzing competitors

and incorporating best practices in Walmart’s operations. Walton launched Sam’s Club by

copying idea of Sol Price, who launched Price Club.

Customers Policies :

Walmart offered a "satisfaction guaranteed" policy to its customers that allowed them to return

the merchandize to any WalMart store without any questions asked.

Walmart had "People Greeter" associates at the doorsteps who would welcome customers

entering the stores and hand out shopping carts, making customers feel special.

2.How sustainable will their position be in the future? For this, you can forget the fact

that you know what has happened since. The question still applies today.

How effective do you think their diversification into the food industry will be (again forget

that we might have some hindsight).

Walmart has nearly covered all the potential markets within the United States with different store

types: regular discount retail store, warehouse club and supercenter. It will be unsustainable to

hold the growth and position with same offerings in these stores. To maintain growth, they need

to explore:

·

● Growth opportunities:

1) At 0.297$/Sq Ft, we found that the super centers make 3-5% higher revenue per store

than the discount stores. However, when we benchmark this performance vs Meijer, we believe

that Walmart has the potential to boost revenue to 0.36$/ sq ft for supercenters thereby giving

an additional revenue boost of 25%. We see this as a significant improvement to top line

performance. In addition, the supercenters have 100% higher EBIT than the average super

market. This will help walmart achieve a higher profit margin and net income with supercenters.

Therefore we believe Walmart has potential to grow revenue by growing the supercenter

business with particular focus on Northwest and Midwest.

2) Based on our analysis of $/sq ft for warehouses, we found that Price Club and Costco

have $0.68/sq ft and $0.53/sq ft respectively. Sam’s Club has $0.29/sqft. This provides a huge

opportunity for Sam’s Club to improve top line revenue by increasing per store sales for

warehouses.

● International expansion ($100B sales estimation) in developed nations like Australia,