Walmart Case Study

In your opinion, what were the key factors that led to Wal-Mart’s success?

Wal-Mart phenomenal success can be attributed to both internal and external factors. Wal-Mart started the same year as Kmart and Target, when the economic circumstances were right and demographics trends were favorable. But unlike, Kmart and Target, Wal-Mart adopted a different strategy on several dimensions, such as geography, human capital and cost.

First the company targeted, geographically remote rural areas and isolated villages. From their headquarters in Arkansas they expanded concentrically - in Glass words the company “only pushed from inside out”. Second, from a human capital perspective the company decentralized its store management and employee training, but retained the charismatic figure of Sam Walton at its core. More, management compensation based on store profits and empowering their associates contributed to building loyalty among its associates.

Third, Wal-Mart was not only advocating the lowest prices in the industry for its customers, but also an inherit frugality as one of the company’s core values. Wal-Mart recognized cost saving opportunities and acted on them, having suppliers storing merchandise yet billing it only when the goods were leaving the warehouse. The company improved efficiency of the supply chain by using “cross-docking” for transferring goods directly from in-bound warehouse vehicles to store-bound vehicles. Also, they took advantage of the stores geographical position, consolidating and optimizing the distribution process, by having trucks serving several stores in one trip and picking up new merchandize on their way back to the warehouse. More, as it was expanding, the company continued to focus on customer needs, by customizing individual merchandize to store demand while also maximizing sales value and inventory turnover to keep expenses low. Finally, the company was an early adopter of technologies such as UPC and EDI, and employed these technologies to electronically track sales and forecast shipping and replenishing needs. This strategy was consistent with Wal-Mart frugality values as a way to improve on efficiency and inventory allocation therefore to reduce costs.

By efficiently managing its operations and delivery process and taking advantage of demographic trends, Wal-Mart pursued a cost leadership strategy, therefore achieving economies of scale, gaining supplier bargaining power and expanding by opening new stores and acquiring new business.

What elements detracted from their success? Why?

Wal-Mart’s success was defined by its phenomenal performance and could be measured by the market value of the company, by the sales per square foot and by the same store sales growth. However in 1993, the market value of the company decreased by 17B from 57.5, while the

...