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Sources of competitive advantage

?nbsp; Located stores in isolated rural areas and small towns, usually with populations of 5,000 to 5,000 ?a market that was ignored by the other players.

?nbsp; The pattern of expansion was "pushing from inside out? The position of strength thus built in a region enabled WalMart to take on its rivals in bigger markets.

?nbsp; Extremely competitive in terms of setting prices. Typically, a -4% pricing differential between WalMart and its best competitors in most markets. Offered consumers brand name merchandise for less than department and specialty stores.

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?nbsp; Simple and cost-effective advertising. WalMart was known for its national brand strategy, and the majority of its sales consisted of nationally advertised branded products. Advertising expense for WalMart was 1.5% of discount store sales compared with .1% of direct competitors. A marketing slogan "Always low prices-Always?emphasized the superior pricing position of WalMart.

?nbsp; Heavy investment in IT. Sales data of each WalMart store were collected and analyzed daily. The company could track product movements and customer preferences at a very micro level. This enabled managers to learn immediately what merchandise was moving slowly and thus avoided overstocking and deep discounting. A WalMart store devoted only 10% of its square footage to inventory, compared with an industry average of 5%. Thanks to the knowledge mined from sales and inventory data, WalMart merchandise could be tailored to individual markets, and in many cases, to individual stores.

?nbsp; WalMart tried to capitalize on every cost-cutting opportunity, and implemented processes and systems that led to cost-minimization.

Its operating expenses were 18.1% of discount store sales versus the industry average of 4.6%.

WalMart's rental expense was % of discount sales compared with an average of .% for its direct competitors.

A vast network of company-owned distribution centres ensured a smooth flow of products and huge cost cutting. With the "cross-docking?technique, goods were continuously delivered to stores within 48 hours and often without having to inventory them. This allowed Wal-Mart to replenish the shelves 4 times faster than its competition. The system also ensured that WalMart's cost of in-bound logistics was .7% of discount store sales compared with 4.8% of its direct competitors.

Shrinkage cost was estimated to be approximately 1.7% of WalMart discount store sales in 1, compared with an average % for direct competitors.

?nbsp; Wal-Mart has effectively leveraged its volume buying power with its suppliers. WalMart eliminated manufacturers?representatives from negotiations with suppliers at the beginning of 1, leading to an estimated savings of -4%.

?nbsp; Over time, WalMart's relationships with some its suppliers evolved into partnerships, a key element of which was sharing information electronically to improve performance.

?nbsp; WalMart called its employees associates. The organizational culture stressed the key role of associates who were motivated by more responsibility and recognition than their counterparts at other discount stores. It gave more autonomy to store managers in setting prices.

WalMart mostly promoted people internally and practiced profit-sharing among employees, resulting in higher employee morale and productivity.

Sustainability of competitive advantages

Throughout the 180s, Wal-Marts strategic intent was to unseat industry leaders Sears and Kmart, and become the largest retailer in the U.S. Wal-Mart accomplished this goal in 11. But Wal-Marts current strong competitive position and its past rapid growth performance do not necessarily guarantee that the company will remain as the industry leader or maintain its strong business position in the future.

?nbsp; Competitors had already started coming into the previously uncovered small towns and rural markets.

?nbsp; Most of the advantages gained through use of information technology can be replicated.

?nbsp; Difficulty (and the barrier) would be for the brand, relationship with buyer and the HR aspects.

?nbsp; The scale of operations of WalMart would also be an advantage coupled with the fact that they are very high on the learning curve in this business.

Diversification moves

- Initially diversification based on store type (related diversification ?only seeking into new segment of customers and not new products)

- Later on products (unrelated areas - first food retailing through supercenters and now into books, etc which till now had given very little revenue)

- They were closing down several stores (only 15% greater than 8 years) and so Bud's store was a utility based diversification

Sam's Clubs

High-volume (to compensate for very narrow profit margins), low-cost merchandise and minimization of handling costs enabled passing on of cost savings to customers.

Members (70% of whom are businesses) are offered merchandise at wholesale prices for use in their own operations, resale to their customers or personal use. With this move, they are effectively broadening their customer base to include other businesses, federal govt., schools and universities, hospitals, credit unions, etc.

Rather than give competitors any openings, Sam's Clubs were located close to one another sometimes leading to cannibalization of their own sales.

This diversification enabled its entry into Arizona, Rhode Island, Utah, Washington and California, with the acquiring of of K-Mart's PACE clubs as overcapacity within the industry lead to consolidation. Thus, with this move, they entered into the warehouse club market, accounting for % of the industry volume in 1, with sales in the industry projected to increase further in the coming year ($40.5 billion projected for 14).

Supercenters

A one-stop family shopping convenience a full line of groceries and general merchandise under one roof - offering limited package sizes and brands in order to keep costs low.

They also housed bakeries, delis and other convenience shops thus attracting more customers and giving tough competition to the supermarkets. This is especially true for the grocery section.

Profits generally came from higher margin general merchandise and the supercenters saw the sales in general merchandise nearly double from $6.4 billion in 185 to $1. billion in 1.

However, there is a high likelihood of the supercenters cannibalizing into the customers of the WalMart discount stores. Thus, they could maybe follow K-mart's strategy of building new Super K-marts to replace one or more traditional discount stores in a market.

International Expansion

After achieving a presence in 47 states by early 14, looking beyond the borders of the United States was David Glass?strategy.

WalMart expanded into Mexico and Canada and plans were on to enter South America and China.

With favorable predictions of international sales at $100 billion from analysts, WalMart can only gain from this strategy.

With their legacy of taking good care of their associates, strong supply chain logistics, maintenance of technological superiority and keeping the customer first, WalMart has a good chance to succeed in this endeavor.

The only criteria would be to test the market to see whether such a model will work in the foreign environment.

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