Wal-Mart: Planning for Superstore Competition

Introduction

Wal-Mart is one of the most popular chain stores in the United States today and has

effectively spread all over the globe in recent years. All of that is a result of the efforts of

one man, Sam Walton. Sam Walton is an entrepreneur that built Wal-Mart up from

nothing and into a force to be reckoned with in the retail industry. As such, he provides a

perfect and timeless plan of how anyone else could follow in his footsteps.

1. Discuss how Wal-Mart’s managerial philosophies and principles enabled it to

pursue the key objectives?

Walton’s management style was popular with employees and he founded some of the

basic concepts of management that are still in use today. After taking the company

public in 1970, Walton introduced his “profit sharing plan”. The profit sharing plan

was a plan for Wal-Mart employees to improve their income dependent on the

profitability of the store. Sam Walton believed that “individuals don’t win, teams do”.

Employees at Wal-Mart stores were offered stock options and store discounts. These

benefits are commonplace today, but Walton was among the first to implement them.

Walton believed that a happy employee meant happy customers and more sales.

Walton believed that by giving employees a part of the company and making their

success dependent on the company’s success, they would care about the company.

By the 1980s, Wal-Mart had sales of over one billion dollars and over three hundred

stores across North America. Wal-Mart’s unique decentralized distribution system,

also Walton’s idea, created the edge needed to further spur growth in the 1980s amidst

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growing complaints that the “superstore” was squelching smaller, traditional Mom and

Pop stores. By 1991, Wal-Mart was the largest U.S. retailer with 1,700 stores.

Wal-Mart pushed the retail industry to establish the universal bar code, which forced

manufacturers to adopt common labeling. The bar allowed retailers to generate all kinds

of information creating a subtle shift of power from manufacturers to retailers. Wal-Mart

became especially good at exploiting the information behind the bar code and is

considered a pioneer in developing sophisticated technology to track its inventory and cut

the fat out of its supply chain. The central goal of Wal-Mart is to keep retail prices low

and the company has been very successful at this. Experts estimate that Wal-Mart saves

shoppers at least 15 percent on a typical cart of groceries. Everything including the

technology and corporate culture feeds into that ultimate goal of delivering the lowest

prices possible. Wal-Mart also pushes its suppliers, some say relentlessly, to cut prices.

Marketing is also significant to the success of Wal-Mart since it has aided in identifying

and gratifying customer needs, as well as the shifting demands of the customers.

Currently, most store locations have incorporated an optical center, banking center, nail

shop, beauty salon, automotive center, and a fast-food restaurant. For example, Wal-Mart

is the only store that specializes in the low price guarantee. To sum it up, marketing has

played a very important role in Wal-Mart’s overwhelming success. With the addition of a

coffee shop, Wal-Mart would only enhance their ability to increase revenue, while at the

same time meeting the current demands of its clientele. Additionally, marketing has

helped Wal-Mart to obtain, preserve, and expand the most valuable customer base.

Marketing is essential due to the fact that this technique also emphasis specialization. For

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instance, the company may offer snow removal equipment in New York and year-round

swim gear in Florida due to climate differences. In addition, the concept has also served

as the determining factor for what market to target certain products that are distributed by

the company assisted in generating enhanced sales and revenue. It has contributed to

analyzing the customer needs and preserving a continuing relationship with the customer.

For example, Wal-Mart has added various stores within its super-centers to meet the

needs of its consumers with complex schedules. This allows the customer to enjoy the

one-stop shopping experience.

2. Explain how do planning and controlling seem to be linked at Wal-Mart?

Regarded by many as the entrepreneur of the century, Walton had a reputation for caring

about his customers, his employees (or “associates” as he referred to them), and the

community. In order to maintain its market position in the discount retail business, Wal-

Mart executives continue to adhere to the management guidelines Sam developed.

Walton was a man of simple tastes and took a keen interest in people. He believed in

three guiding principles: customer value and service; partnership with its associates; and

community involvement. Walton’s greatest accomplishment was his ability to empower,

enrich, and train his employees (Longo, 1994). He believed in listening to employees and

challenging them to come up with ideas and suggestions to make the company better. At

each of the Wal-Mart stores, signs are displayed which read; “Our People Make the

Difference.” Associates regularly make suggestions for cutting costs through their “Yes

We Can Sam” program. The sum of the savings generated by the associates actually paid

for the construction of a new store in Texas (The story of Wal-Mart, 1995). One of Wal-

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Mart’s goals was to provide its employees with the appropriate tools to do their jobs

efficiently. The technology was not used as a means of replacing existing employees, but

to provide them with a means to succeed in the retail market (Thompson & Strickland,

1995).

Wal-Mart’s popularity can be linked to its hometown identity. Walton believed that every

customer should be greeted upon entering a store, and that each store should be a

reflection of the values of its customers and its community. The key features of Wal-

Mart’s approach to implementing the strategy put together by Sam Walton emphasizes

building solid working relationships with both suppliers and employees, being aware and

taking notice of the most intricate details in store layouts and merchandising techniques,

capitalizing on every cost saving opportunity, and creating a high performance spirit.

This strategic formula is used to provide customers access to quality goods, to make these

goods available when and where customers want them, to develop a cost structure that

enables competitive pricing, and to build and maintain a reputation for absolute

trustworthiness.

Wal-Mart’s competitive advantage in discount retailing in 1990 is very sustainable,

because they follow the two competition principles the key to a firm’s success in

competition is its competitive advantages; and how sustainable a firm’s success is

depends on how sustainable its competitive advantages are competitive Advantages are

what customers’ value and what a firm is better than its competitors in. Wal-Mart’s

customers value the value of the dollar and being able to buy brand names at low

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discount prices. Sam Walton’s philosophy was that he believed in the value of the dollar

and keeping prices below everybody else’s. He made providing value part of the culture

of Wal-Mart. Competitive advantages can be considered to be price, quality, design,

convenience, good brand image and reputation associated with products and services and

many other factors. Customers determine what competitive advantages are relevant to

them and price, quality, convenience and brand image were what Wal-Mart customers

considered to be the competitive advantages of Wal-Mart versus other discount stores.

There were interactions among departments and individuals were ideas and suggestions

were shared on how to improve the business, and this included everyone from the bottom

to the top of the ladder. They also developed a “Buy American” program was they

replaced foreign-sourced goods with American-made ones. These associates participated

in management seminars, and programs were instituted to involve the associates in the

business. Information systems made this possible through “traiting,” a process that

indexed the product movements in a store to over a thousand store and market traits. Its

operation capability consisted of its stores and its warehouses where the inventory was

stored. Some of the stores, including the super centers were open 24 hours a day. Local

store managers using inventory and sales data, could choose which products to display

based on customer preferences, and allocated shelf space for a product category

according to the demand at their store.

Wal-Mart stores operate according to their “Everyday Low Price” philosophy. Wal-Mart

has emerged as the industry leader because it has been better at containing its costs,

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which has allowed it to pass on the savings to its customers. Wal-Mart has become a

capability competitor. It continues to improve upon its key business processes, managing

them centrally and investing in them heavily for the long-term payback.

3. Explain how the various elements of Sam Walton’s cultural legacy contribute to

the company’s ethical orientation

Building a culture that could support such a structure has been a crusade at Wal-Mart

from the beginning. It is a culture based on profit derived, not from the pricing end, but

from the cost end of every transaction. The plan, always, has been to drive costs out of

the system in the stores, from the manufacturers’ profit margins, and from merchandise

brokers and other middlemen, all in the service of driving down prices at the retail level.

Respect for the Individual

Every associate’s opinion is respected. Managers are considered “servant leaders” who

help new associates realize their potential through training, praise and constructive

feedback. An “open door” management philosophy encourages associates to raise

questions and concerns in an open atmosphere.

Service to the Customer

The customer is the boss. Everything possible is done to make shopping at Wal-Mart and

Sam’s Club a friendly, pleasant experience. The “Ten-Foot Attitude” means that

associates are to greet each person they see. The “Satisfaction Guaranteed” refunds and

exchange policy allows customers to be fully confident of Wal-Mart and Sam’s Club’s

merchandise and quality.

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Strive for Excellence

Wal-Mart and Sam’s Club associates share an exceptional commitment to customer

satisfaction. At the start of each day, store associates gather for the Wal-Mart or Sam’s

Club cheer and review sales from the previous day, as well as discuss their daily goals.

“The Sundown Rule” requires a continual sense of urgency, with questions asked in the

morning answered before the end of the day.

The culture, established by Walton, also plays into Wal-Mart’s success. The company has

been criticized for the relatively meager wages and health care plans that it offers to rank-

and-file employees. It has also been accused of demanding that hourly workers put in

overtime without pay. Store managers often work more than 70 hours per week. They are

are expected to pinch pennies wherever they can, even on things like the heating and

cooling of the stores. In the winter, stores are kept at 70 degrees Fahrenheit, and in the

summer, they stay at 73. This culture is also present at the company’s headquarters. Wal-

Mart is headquartered in Bentonville, Arkansas, instead of an expensive city like New

York. The building is drab and dull. Executives fly coach and often share hotel rooms

with colleagues. They work long hours, typically arriving at work before 6:30 a.m. and

working half-days on Saturdays.

Driving out costs has evolved into some of the basic rules of operation. The first of these

is to form partnerships with vendors. More than once Sam Walton, the company founder,

demanded lower costs from vendors only to be told that goods were already selling

essentially at the manufacturing cost. Walton would insist that manufacturing processes

be analyzed in a search for lower costs. He didn’t tell his vendors how to do things, but

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he insisted that they look for a better way. Often the result was increased efficiency in

manufacturing and a lower price for Wal-Mart. With that lower price, Wal-Mart could

sell more, increasing the amount of business with the vendor.

4. Sam Walton’s 1992 book Made in America identifies key factors in building a

business. These factors are identified on the company’s website,

http://www.walmartstores.com. How do these factors relate to Wal-Mart’s culture

and success?

At the heart of Wal-Mart’s growth is the unique culture that “Mr. Sam” built. His

business philosophy was based on the simple idea of making the customer No. 1. He

believed that by serving the customer’s needs first, his business would also serve its

associates, shareholders, communities and other stakeholders. The goal at Walmart.com

is to bring Mr. Sam’s culture and philosophy from Wal-Mart stores to the Internet. Sam

Walton had three basic beliefs the company was built on. Sam Walton built Wal-Mart on

the revolutionary philosophies of excellence in the workplace, customer service and

always having the lowest prices.

Walton's 10 commandments for business success were:

1) Commit to your business.

2) Share your profits with your associates and treat them like your partners.

3) Energize your colleagues.

4) Communicate everything you possibly can to your partners.

5) Appreciate everything your associates do for the business.

6) Celebrate your success.

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 7) Listen to everyone in your company.

8) Exceed your customers' expectations.

9) Control your expenses better than your competition.

10) Blaze your own path.

Wal-Mart’s biggest and most obvious effect is that it provides lower prices to consumers.

The competitive pressure the firm creates for competitors have lowered prices that

consumers pay even when they do not shop at Wal-Mart; but they also reduce the

profitability of other stores, and in some cases lead stores, especially small ones, to shut

down. Wal-Mart’s investment in technology and its tight control over the supply chain

have also changed the competitive environment upstream. As Wal-Mart’s size has made

direct sourcing more profitable, and as the fixed costs of doing business with Wal-Mart

have increased (due to factors ranging from the need for a local once in Bentonville, to

Wal-Mart’s requirement that suppliers install Radio Frequency Identification tags on

shipments), small producers have made room for larger ones, and local producers have

been displaced by foreign ones. Wal-Mart has therefore contributed to the trend of

increased outsourcing and imports.

References

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 Wal-Mart Stores, Inc. (1995). The story of Wal-Mart. Bentonville, Arkansas:

Corporate Offices of Wal- Mart Stores, Inc.

 Thompson, A. A., Jr. & Strickland, A.J. III. (1995). Strategic management

concepts and cases (8th ed.). Chicago: Irwin.

 Longo, D. (1994). New generation of exec’s leads Wal-Mart into the next century.

Discount Store News, pp. 45-47.

 Basker, Emek. “Job Creation or Destruction? Labor Market Effects of Wal-Mart

Expansion.” University of Michigan, 2004.

 Cleeland, Nancy and Abigail Goldman. “An Empire Built on Bargains Remakes

the Working World.” Los Angeles Times, November 23, 2003.

 Cleeland, Nancy and Abigail Goldman. “Grocery Unions Battle to Stop Invasion

of the Giant Stores.” Los Angeles Times, November 25, 2003.

 Cleeland, Nancy, et al. “Scouring the Globe to Give Shoppers an $8.63 Polo

Shirt.” Los Angeles Times, November 24, 2003.

 Cleeland, Nancy. “Seams Start to Unravel.” Los Angeles Times, November 24,

2003.

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