Wal-Mart principles Essay
As pointed out by Craig Herkert, Senior Vice President and Chief Operating Officer for Wal-Mart International, “Every day low prices, quality assortment, and exceptional service are Wal-Mart principles that transcend borders, languages and cultural differences.” (Daniels, Radebaugh and Sullivan, 2004). Wal-Mart’s success in the retail industry depends on how the company may incorporate its customer strategy in a market completely different from
its home business.
Wal-mart inevitably find their operations growing more complex. One reason for this is the large number of individual decision makers (buyers, distributors, and store personnel) who have a significant effect on strategy and execution and who add complexity through their everyday actions (Bianco et al, 2007). Another is that the high fixed costs of retailing exert continual pressure to add new products and capture incremental revenue. Not only does this ratchet up complexity, it also raises the cost of selecting, buying, and delivering each product. The predictable result: buyers have to make too many decisions for too many different types of store on too little information.
Although sometimes Wal-Mart underestimate the cost financial and operational of added retail complexity (Bailey and Schultz, 2000). In financial terms, this complexity is directly reflected in selling, administrative, and other operating costs.
Among department stores, the cost gap between good and average performers can be 3 percentage points or more; among specialty stores, up to 5 percentage points. In operational terms, lower sales, slower inventory turns, and lower gross margins occur when buyers cannot cope with the complexity of their business. These effects can readily be seen in the gap between good and average performers’ markdown rates: a 2.5 percentage point difference among department stores; 4 percentage points among specialty shops.
Leading retailers have achieved these performance premiums by reducing complexity. They have stopped trying to be everything to everybody (Bianco et al, 2003). Regardless of their format or the market segment in which they compete, each has created a huge competitive advantage by focusing product offerings, narrowing market concentration, standardizing store size and layout, and simplifying the buyer’s job.
Retailer like Wal-mart carries tens of thousands of items: 70,000 stock keeping units (SKUs) is not unusual for a discounter; a full-line department store often carries close to a million. Many of these items require fundamentally different sourcing and distribution methods and are in demand for only a few short months before seasons and hence assortments change (Bonache, 1999). One retailer we studied carried more than 1,200 different styles of knitwear, yet only 5 percent of them contributed almost 40 percent of sales. This retailer was carrying the cost of offering all those SKUs when less than half that number would provide a selection adequate for most customers’ needs.
Several Companies in the commercial and industrial business where Snap-On is major players are in a race that gets more difficult every year, with bigger, stronger, and more innovative competitors. In addition, the rules of the race are constantly changing with the emergence of electronic business, globalization, disruptive technologies, innovation and convergence of industries. Competitors who have been in other races suddenly join your race with strength, technology, and new approaches to the market, often becoming instant leaders (Palmer, 1997).
Moreover, it is possible to lead in this race for long periods of time and to create significant value for shareholders and employees. To make the possibilities of these, different sectoral organizations need a strategy that sustains their strong position in the race, anticipates changes, and helps them continue to lead.
The rules to be ahead are the following:
• Competitive advantage is short-lived
• Today’s competitive advantage is tomorrow’s competitive requirement
• Companies without a competitive advantage should expect, at best, zero return.
For a variety of reasons, many companies have underdeveloped strategies. Sometimes an underdeveloped strategy is effective, a single spectacular idea can carry a business a long way, even without an explicitly stated strategy. Management intuition and organizational willpower can substitute temporarily as well.
However, with the pace of business today, industry leaders need to think through and plan for the next industry lifecycle or risk being dethroned (Briscoe, 2004). It is possible in today’s environment to fully engineer a company from a strategic point of view in a way that was unthinkable five years ago. Advances in technology, combined with worldwide deregulation and decontrol of product and financial markets, allows new flexibility in the implementation of company strategies.
Strengths. Compared to the retail industry competitors of Wal-mart, the company exercises an almost direct access to the market-base. Since the company originated and developed in the U.S. economy, Wal-mart is highly of advantage compared to its competitors.
This gives Wal-mart is well- experience, skilled, and knowledgeable of the people in the market. The centralized aspect of Wal-mart ensure capitalization of its brand globally which results to good return of investments and profits while the decentralized business approach of the franchises extends possible business opportunities for the entire business in terms of product innovation, design, research and development. This makes possible continuous growth of the business enterprise through a pool of creative staff and employees that contribute to the competence, security, image and integrity of the company. Other strengths of the company are as follows:
– Good strategic positioning has been the foundation of company’s success.
– High employee productivity as a result of its good scheme.
– Vibrant and independent culture is supported with a generous profit-sharing plan and stock ownership plan for all employees.
– Technology innovations.
– An efficient management team.
– Constant focus in the company’s mission.
Weaknesses. Basically, tools and equipments in today’s modern world is everywhere, with the help of globalization nonetheless. However, the problem with this is that world of the retail business has witnessed a dramatic shift in the way in which the market are determined away from an intrinsic interaction between the regional environmental factors towards the dominance by global capitalism.
Retail goods are now being considered more of a retail material rather than a medium on which artists can express their artistic ideas to the fullest (Hill and Jones, 1998). Globalization has made statements of different cultures available to every individual around the world. Although mass production of this merchandise is being created with extensive consideration on production budget and marketing research, Wal-mart should be sensitive to the importance of maintaining art in its products and designs so as not to fall into the common retail-crafted orientation perception regarding today’s market.
As such, the development efforts and research initiatives and projects that the company invest in order to maintain continuous operation and competitive position call for wise selection of business opportunities as well as skilled leadership and risk management skills among its decision-makers.
But more importantly, the company should foster tasteful and intrinsic creative designs for the consumers at the lowest possible prices. Good relationships with the suppliers and other business affiliations for the successful operation of the company lie should be observed. Moreover, technological innovations and facilities in tools and equipment marketing should be fully exhausted in order to serve the economic and aesthetic purposes of the company.
To survive in today’s world globalization is important. Wal-mart have a wide opportunity to go global to improve and expand its business. They also have the opportunity to include more overseas supplier, which will actually give them cost advantage, as suppliers then can be available on a local level. Before they are able to take these opportunities they need to fix themselves up more strongly (Child and Faulkner, 1998). They also have the opportunity to use available technology to improve their functioning and to gain competitive advantage.
– Additional content area or expansion is an opportunity for the company to boost its market coverage.
– Joint ventures with other company paves way for integrating new business practices and would definitely be a good basis in their plans for international expansions.
– The company can form additional alliances that will facilitate the culture and business systems of a foreign neighbor to support its foreign growth strategy.
– Consumers want to effortlessness of shopping.
– Growing opportunities in internet shopping.
– Increase in dollar value
Threats The continuous transformation of the monopolistic economic environment of U.S., the competitors in the local as well as the international children’s merchandise is a major intimidation to Wal-mart since highly acclaimed, recognized, popular and sophisticated companies in the fashion industry can exercise the same market penetration initiatives of the company.
In particular, there are highly stable local apparel manufacturers that supply and distribute materials, designs and products to other internationally acknowledged clothing lines. These local manufacturers are also distributing their products and designs in the local market under their own respective brand names. At the international level American designs and products are existent and likewise persistent in increasing market share in lucrative business locations (Hessan and Whiteley, 1996).
– Small towns do not want entry of Wal-mart.
– Variety of Competition in the national, regional and local market.
– There is a powerful competition among substitute products
– As a result of the very competitive rivalry substitute products come in easily.
Wal-mart have been the best performers have learned to focus on a well-defined target market even as they expand geographically (Shah and Phipps, 2002). Wal-Mart, for example, has largely maintained its focus on customers with similar needs as it expanded across regions. The traditional Wal-Mart customer lives in a small town and is willing to drive a great distance to stock up on a wide range of items at the best possible price (Shah and Phipps, 2002).
As the search for growth has brought Wal-Mart closer to urban customers, the company has had to support its merchandising performance by making additional investments in systems, communications, and executive travel in order to coordinate its widespread store network. Wal-Mart is considered to be a geographically-dispersed retailer, maintains market focus by expanding its store network region by region, building up enough scale in each one to justify regional buying offices dedicated to the specific needs of local customers (Briscoe, 2004).
Bailey, S. & Schultz, D. (2000). Customer/Brand Loyalty in an Interactive Marketplace. Journal of Advertising Research, 40 (3), 41.
Bianco, A. , B., Der Hovanesian, M., Young, L., & Gogoi, P. (2007). Wal-Marts Midlife Crisis; Declining growth, increasing competition, and not an easy fix in site. Business Week. New York, April 30, 2007, Issue 4032, page 46.
Bianco, A., Zellner, W., Brady, D., France, M., Lowry, T., Byrnes, N., & Zegel, S., Arndt, M., Berner, R., & Palmer, T., A. (2003). IS WAL-MART TOO POWERFUL? Low prices are great. But Wal-Marts dominance creates problems — for suppliers, workers, communities, and even American culture Business Week. New York: Oct 6, 2003., Iss. 3852; pg. 100
Bonache, J. (1999). The International Transfer of an Idea Suggestion System. International Studies of Management & Organization. 29(4), p. 24.
Briscoe, D. R. (2004). International Human Resource Management: Policies & Practices for the Global Enterprise. New York: Routledge.
Child, J & Faulkner, D (1998), Strategies of cooperation: managing alliances, networks, and joint ventures, Oxford University Press, Oxford.
Daniels, J, Radebaugh, L & Sullivan, D (2004), International business: environments and operations, 10th edn, Prentice Hall, London.
Hessan D. and Whiteley R.. (1996). Customer Centered Growth: Five Proven Strategies for Building Competitive Advantage. Cambridge, MA: Perseus Books.
Hill, C.W.L. & Jones, G.R. (1998), Internal Analysis : Resources, capabilities, competencies, and competitive advantage. Strategic Management Theory. An Integrated Approach. 4th ed, Houghton Mifflin Co., pp 107-139
Palmer, A. (1997) Defining Relationship Marketing: An International Perspective”, Management Decision, Vol. 35, No. (4), pp. 319-21, ISBN 0025-1747.
Shah, A & Phipps, T 2002, Wal-Mart Stores, Inc — 2001. In: F. David, Strategic Management: Concepts and Cases, pp. 41-55, Prentice Hall International, Inc.
Shaoming, Z. and Tamer, C. (2002) The GMS: A Broad Conceptualization and Measurement of Global Marketing Strategy, Journal of Marketing, 66 (4), 40-56