Porter (2002) states that root of the problem lies in the lack of distinguishing between operation effectiveness and strategy. The expedition for productivity, quality and speed has resulted in management tools and techniques, total quality management benchmarking, time based competition, outsourcing, partnering, reengineering, change management. In any organization, strategy management Is the key to Its success.
There are many theories based on this assumption that without a proper tragedy and planning, it is difficult for any industry to survive irrespective of its size. It is necessary to understand here that all the major corporate organizations have established themselves, thanks to superior strategic planning and implementation. The retail industry is making news everywhere with not only the traditional industries increasing their outlets but some major corporate Industries also Intruding into this Industry Like Fresh @ Reliance of Reliance Industries, More of Ditty Barilla Group In India.
Wall-Mart, a US based retail Industry, which Is known as the giant In the retail industry has survived and is still the huge enterprise in the world which deals with almost all the F&B products, apparels, etc. It is not only the largest company in world but also the largest company in the history of world. (Fisherman, 2006) The present paper is divided into four sections to understand and answer as what makes Wall- Mart the best In the industry, 1) retailing industry at the time of Wall-Mart’s innings, 2) Wall-Mart’s Competitive advantage and key components, 3) Wall-Mart’s Strategy and 4) Sustainable growth of Wall-Mart. L.
Retail Industry – Wall-Mart says Hello! Strategic decisions are ones that are aimed at differentiating an organization from its competitors in a way that is sustainable in the future. (Porter, 2002) Porter strongly advocates that decisions in business can be classified as strategic if they involve some Innovation and difference that results In sustainable advantage. According to Patrick Hayden et al (2002) the retailing Industry adopted the style of discounting on Its merchandise after the second world war. It Is learnt that discount retailing was not the strategy at the time Smart, Target and Wall-Mart first started operating their equines.
Frank (2006) states that when Sam Walton was franchising for Ben Franklins variety store, invented an idea of passing on the savings to his customers and earning his profits through volume. Prior to Wall-Mart’s entry into the market, Sidney and Hubert from Harrison founded Two Guys discount store In the year 1946 which dealt In hardware, automotive parts and later on groceries. Two Guys was the forerunner as compared to today’s retailers like Super Target, Wall-Mart which succumbed to the economic recession. Another discount store set up by Eugene as E. J.
Corvette, which is often cited as first discount store which did not raise from 5 & 10 cents roots and eventually declared bankruptcy due to inability to compete with the new entrants. Essential for superior performance which is the primary goal of any organization. He also says that a company can perform its rivals only if it can operate in different ways which are not in practice. Much emphasis had been laid on strategic positioning like variety based positioning, needs – based positioning and access based positioning. Along with Wall-Mart, other stores that started operating were Target, Woolworth Wool) and K-Mart.
However, Target has been functioning successfully, courtesy Wall-Mart, but other two failed in their operations and filed bankruptcy. ( Michael Beverage, 2004) Porters five forces model explains what strategic decisions should be made and on what basis. The model explains the basic strategies to be considered while starting a business like bargaining power of suppliers. While franchising of Franklin he always looked for cheaper deals and thought of passing his savings to the customers and earning through the margin on volume of bulk purchases.
Through he way of discount stores, shoppers were given the cheapest price as compared to any other store. In regard to threats of new entrants, Wall-Mart has been constantly in the news for acquisition of other small retail shops in view of its expansion. But nevertheless it has stiff competition from likes of Super Target, Tests, etc. It is the world’s biggest retail industry. II. Key Components of Wall-Mart Business Model Wall-Mart is the leader in retailing industry with fiscal revenue of $244. 52 billion in 2003 making it the world’s largest corporation.
Mike reports that Wall-Mart as of 2002 ad 1,283,000 employees growing at 1 1. 2%. The above data explains that strategy of Wall-Mart is extraordinary which manages and operates over 41 50 retail facilities globally. The key components of Wall-Mart (The Value Chain), which offers cheap prices than its competitors includes firm infrastructure like frugal culture, no regional offices and pleasant environment to work. Managements take lots of visits and it is learnt there are no rehearsals before any meeting which is usually scheduled on every Saturday.
In any organization, human resource is the key to development and Wall-Mart efficiently manages its sources. Wall-Mart terms its employees as associates. Manager compensation is linked to the profit of store operated by him, within promotions, compensation offered to associates depending on company’s profits and also offered some incentives on their performances. The workforce at Wall-Mart is not unionized as the company takes all the measures of their benefits and provides them training on related issues.
Technology plays a vital role in development of the organization and Wall-Mart is well equipped with technological innovations like POS, store performance tracking, real time market research, satellite system and PUC. Wall-Mart procurement measures like hard-nosed negotiations, partnerships with some vendors, centralized buying, planning packets, etc. Helps at large the cause of providing the goods and services on cheap prices. The other factors that increase the margin of profit for Wall-Mart are inbound logistics with frequent replenishment, automated Disc cross docking, pick to flight, DE’, hub and spoke system.
Wall-Mart strategy of operation is innovative with big stores in small towns with monopoly in the market at low rental costs, local prices, concentric expansion, merchandising in brand name, private labels, little space for inventory, room locals, spent less on advertising and the prices are fixed low and it depends on the store manager to fix the latitude of pricing. All the above factors combined together form the key components of Wall-Mart which not only increase the margin of profits through bulk sales but also boost the confidence of the customers with services like point of sale information system and everyday low prices.
Ill. Wall-Mart Strategy Wall-Mart dominates the American retailing industry due to number of factors like its business model which is still a mystery and its effectiveness in not letting the rivals let know about the weaknesses. Wall-Mart made strategic attempts in the its formulation to dominate the retail market where it has its presence, growth by expansion in the US and Internationally, create widespread name recognition and customer satisfaction in relation to brand name Wall-Mart and branching into new sectors of retailing.
It is learnt that Wall-Mart strives on three generic strategies consisting of Focus Strategy, the Differentiation Strategy and overall cost leadership. Managers strive hard to make their organizations unique, distinctive and identify key success factors that will drive the customers to buy their products. Thus, firm specific resources and capabilities are crucial in explaining the firm’s performance. The Resource Based View (ROB) explains competitive heterogeneity based on the premise that close competitors differ in their resources and capabilities in important and durable ways.
The company’s capability can be found through its functionality, reliable performance, like Wall-Mart superior logistics. (Helmet, 2002) Wall-Mart has firm infrastructure, well equipped in human resource with management professionals and technologically too. Any organizations thrive hard to be successful for which it needs to have better sources and superior capabilities. Wall-Mart has strong ROB with economically and financially very strong enough to stand still in the time of crisis. Premier states that dominating the retail market is its key strategy.
Wall-Mart operates on low price strategy which is operated as every day low prices (IDLE) which builds trust among the customers. (Brunt, 2006)The strategy lies in purchasing the goods at lower prices and selling the goods to customer at much lower prices, cutting the price as far as possible and increasing the profit by increasing the number of sales. This ferociously increases the competition in the market and Wall-Mart competes with all its competitors till it is dominant it the market. Wall-Mart is expanding seriously and rapidly which is also its strategic goal. Wall-Mart employs over 1. Associates, owns over 4000 stores out of which 3000 are in US and serves around 100 million customers weekly. Wall-Mart has acquired many international stores and merged with some super stores like SAD in I-J. Wall-Mart far flung network of retail outlets has ensured that Wall-Mart interacts with and has led the hunger of Wall-Mart to many European Countries. It is learnt that three entries with no Wall-Mart stores became part of corporation’s international presence wherein the domestic retail chains were taken over by Wall-Mart including 122 Wool stores in Canada, 21 Workweek stores in Germany and 229 SAD units in United Kingdom.
The takeover strategy by Wall-Mart keeps the company at forefront when entering into the new market and the number of competitors is also minimized. The strategies have helped the Wall-Mart to rein in number one position in international countries making it the largest retailer in the world. It is seen that Wall-Mart has significantly the Porters five force model wherein through roper strategic planning and strategic implementation has led to removal of barrier entry, rivalry from competitors and pricing norms.
In regard to substitutes, Wall-Mart in order to achieve its aim of customer satisfaction has selling goods under its own legal brand. Wall-Mart’s big box phenomenon has changed the retailing industry in the United States which is often considered as discount stores and makes profit through high volume of purchases and low markup on profits. (Apparel, 2008)Wall-Mart with its low cost and ever expanding strategy has made a dramatic impact since 1962 when Sam Walton first started his business. With this strategy, Wall-Mart has now over 4000 stores and outlets in US and other countries through acquisition and mergers.
IV. Sustainability in Discount Retailing – Wall-Mart According to Porter, (2002) operational effectiveness and efficiency are the key elements of success in any organization. A company can outperform its rivals or competitors in the market only with superior management and efficient control creating a difference from the others which eventually attracts customers. Porter defines operational effectiveness as performance of similar activities as its rivals but better than them. In a study, it is stated the Wall-Mart is expert in manipulating perceptions.
It is termed that low price is not the strategy of Wall-Mart but the advertisement manipulates the consumer perceptions by making them think that its prices are lower than its competitors’ price using ‘price spin’. Wall-Mart makes the consumer addicted coming to its stores by convincing them the prices are lower than in the other stores by selling itself cheaper by advertising that We have lower prices than anyone else’ and placing a ‘opening price point’. The ‘opening price point’ is the lowest price in the store which is kept at high visibility which makes consumer lives that the products in this store are really cheaper. Race Cowling, 2005) The SOOT analysis of Wall-Mart reveals that it is most powerful retail brand, reputation for money, value, commitment, and provides wide range of products. It is growing at a brisk pace with expanding its horizon to other parts of world through acquisition and merger. Wall-Mart has good opportunities in markets of Europe and China and focuses on acquiring the market through acquisition of smaller stores and merger with leaders in the specific markets. Wall-Mart is always under threat to sustain its top position in market nationally and internationally.
Global leader in the industry leaves the organization vulnerable to many socioeconomic and political problems of the country. Strives hard to frame the policies and strategy to compete with its rivals in the market. Slack, Imitation, Substitution and Hold-up are some of the threats to any organization in retail industry. However, Wall-Mart with its visionary goal of attaining zero waste status and reaching 100% renewable energy has planned to launch number of sustainability initiatives. (Greenbrier, 2008) Imitation increase profits by increasing the supply. But imitation puts reputation, relationship at stake.
James Hall reports that Wall-Mart is planning to open convenience stores as Tests has started and operating in US called Fresh & Easy Neighborhood Markets. Games, 2008) Such tactics will create mixed response among the consumers while degrading the reputation of the leader in market. Substitution reduces the demand for what a firm uniquely provides by shifting the demand elsewhere due to changes in technology. The threats of substitution can be subtle and unexpected like minimizing expenses through videoconferencing instead of air flights to long distance meetings with its managers of other stores, etc.
Therefore, substation is an especially effective way of attacking dominant rivals in the market. Substitution offers mixed responses after identifying and understanding the threats. The organization should fight the threat and merging with them, switching to different options of substitution to be in the market. Hold-up diverts the value to customers, suppliers or complementary who have some bargaining leverage which results in tough negotiations, contractual agreements and vertical integration. Wall-Mart is having great network with almost over 7800 stores and Cam’s Club locations in 16 markets worldwide.
It employs more than 2 million associates and serves more than 100 million customers every year. According to Fisherman (2006) Americans spend $26 million every hour at Wall-Mart which makes it believable that Wall-Mart is financially very strong and is capable of combating any threat from its rivals in the market. Wall-Mart is ever expanding its boundaries by way of acquisition and mergers. Thus Wall-Mart with such a vast network of stores and alliances in the forms of SAD, Target and many other stores is well protected enough to sustain its top position in the retail industry.