The impact of Wal-Mart on the British retail market


Diploma Thesis, 2002
83 Pages, Grade: 2,7 (B-)

Excerpt

Table of Contents

1 Wal-Mart – an Introduction
1.1 Wal-Mart Culture and Strategies
1.1.1 Ten Rules on running a successful business
1.1.2 Corporate Structure and Strategy
1.2 Wal-Mart USA –Store Portfolio
1.2.1 Discount Stores
1.2.2 Supercentres
1.2.3 SAM’s Club
1.2.4 Neighbourhood Markets

2 Wal-Mart International
2.1 Internationalisation theories for the retail industry
2.1.1 Motives for Internationalisation
2.1.2 Strategic decisions for international retail businesses
2.1.2.1 Market Handling Strategy
2.1.2.2 Market Entry Strategies
2.1.2.3 Competitive Strategy
2.1.2.4 Planning Problems for international companies
2.1.3 Wal-Mart’s early years of internationalisation

3 Wal-Mart Germany
3.1 Entering Germany
3.1.1 Internal Challenges
3.1.2 External Challenges
3.2 Opportunities
3.3 Conclusion and SWOT Analysis

4 Wal-Mart in the UK
4.1 The British retail market
4.1.1 Consumer structure and preferences
4.1.1.1 Consumer Structure
4.1.1.2 Consumer Preferences:
4.1.2 Strategies and employment of marketing tools
4.1.2.1 Loyalty-Cards and Customer Relationship Management
4.1.2.2 Every Day Low Pricing and Trade Promotions
4.2 Asda and the takeover
4.2.1 Asda and Wal-Mart – a match made in heaven
4.3 The Wal-Mart Effect
4.3.1 The Impact on Competitors
4.3.1.1 EDLP – Competition on Price
4.3.1.2 Demographic and geographic factors
4.3.1.3 Non-food the new battleground
4.3.1.4 Conclusion
4.3.2 The changing environment for suppliers
4.3.2.1 Customer Relations Management and suppliers
4.3.2.2 Impact on British suppliers
4.3.3 Wal-Mart’s arrival – benefit for the consumer
4.3.4 Asda – internal challenges
4.4 Evaluation of the ‘Wal-Mart Effect’

5 Strategic recommendation
5.1 Recommendation for Wal-Mart Germany
5.2 Recommendation for Wal-Mart UK/Asda
5.3 Recommendation for Wal-Mart Europe

1 Wal-Mart – an Introduction

In 1945 Sam Walton opened his first variety store in Newport, Arkansas. It was a Ben Franklin franchise. After five years it became the number-one Ben Franklin Store for sales and profit within six American states[1]. In 1950 Sam Walton opened Walton’s Five and Dime store in Bentonville, Arkansas, where Wal-Mart’s headquarter is still based today. It was only the third self-service variety store in the United States of America. Though it was still a Ben Franklin franchise Sam Walton bought in much more products from other sources[2]. After successfully rolling out this model into other towns he and his brother James ‘Bud’ Walton launched their first Wal-Mart in Roger, Arkansas in 1962. It was their first independent store. In 1969 Wal-Mart stores were incorporated as Wal-Mart Stores, Inc. Shortly after, in 1970, Wal-Mart now operating 18 stores with an annually turnover of $44 million went public. In the same year they opened their first distribution centre and their home office in Bentonville, Arkansas. With sales of $1.2 billion and 276 stores the company’s stock was approved and listed on the New York Stock Exchange in 1972.

illustration not visible in this excerpt

Figure 1.1 Top Ten Global Retailers by Turnover[3]

Wal-Mart’s growth has been mainly concentrated on the US market but international activities are becoming more and more important. The company’s sales increased by 667% between 1988/89 to 1998/99[4]. Today, as shown in Figure 1.1, Wal-Mart is the world’s largest retailer with stores in 10 countries (incl. USA) and net sales of $165 billion in the financial year 1999/2000[5].

As Table 1.1 shows Wal-Mart’s sales exceed the combined sales of the next three competitors. This clearly demonstrates the strong position Wal-Mart has got on the global market and its resulting extend of buying power. It is estimated that Proctor & Gamble achieve 15% of sales from Wal-Mart[6] and Unilever’s business with the world’s leading retailer is around $1.4bn in the US and $600m in the rest of the world[7]. These two examples demonstrate perfectly how dependant suppliers are on Wal-Mart’s business.

illustration not visible in this excerpt

Figure 1.2 Wal-Mart year on year sales growth between 1990 and 2000[8]

Figure 1.2 presents year on year sales expansion during the last decade. Although growth has slowed down throughout the last 5 years Wal-Mart still managed to increase sales by 21% on average per annum during the monitored period of 10 years. As stated in the company’s Annual Report they are planning to maintain this rate of growth[9] and thus its buying power will still grow.

1.1 Wal-Mart Culture and Strategies

Sam Walton worked his way up from the shop floor to become the founder of the world’s biggest retailer. During his time he learnt many lessons, learnt from success, failure and most of all by observing other retailers around the world. During the period of 1970 to 1980 he managed to expand his business from 32 stores with a turnover of $31mln to 276 outlets with sales worth $1.2bln[10].

Sam Walton explained his success with following ten simple rules he compiled over the years. These ten rules condense Wal-Mart ‘s management culture in a very good way and will provide a frame to understand the company’s strategies, visions and values[11].

1.1.1 Ten Rules on running a successful business

Rule 1: Commit to your business.

This is the most obvious of the rules. Sam Walton states that it is important to believe in the business more than anybody else. He also says that passion is like fever and everyone around will catch.

Rule 2: Share your profits with all your associates.

Firstly this rule illustrates one major difference to other retail operators. Wal-Mart employees are not called as such but “associates”, partners, who work for a common goal. This ties in with rule number one, to create commitment and passion.

The other idea is sharing profits. In 1971[12] when Wal-Mart introduced this concept it was revolutionary. Sam Walton realised that by treating employees as partners and let them share the profits he will create a loyal workforce, which in return will provide the company with even higher takings[13].

Rule 3: Motivate your partners.

Three ways of motivations are named:

- Monetary incentives
- Challenge partners – encourage internal competition
- Don’t become to predictable

The main idea behind this is to turn the workplace in an exciting environment.

Rule 4: Communicate everything you possibly can to your partners.

The best way of explaining the principle behind this rule it is best to cite Sam Walton: “[…] The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there is no stopping them. […]”

The basic idea is that trust has to go both ways upwards as much as downwards.

Rule 5: Appreciate everything your associates do for the business.

Valuing their employees is not only expressed in money terms but Sam Walton encouraged praise. Explaining this rule he stated: “[…] sincere words of praise. They’re absolutely free – and worth a fortune

Rule 6: Celebrate your successes.

This seems to be a very trivial rule but is a very important cornerstone of Wal-Mart’s success over the years. Sam Walton emphasis is on enjoying triumph but don not worry too much about failure. This is a very forward-looking attitude, which allows a culture of trial.

Rule 7: Listen to everyone in your company.

Open communication especially upwards enables the top management to keep in touch with issues on all levels of the company. It also generates ideas and pushes responsibilities down in the organisation.

Rule 8: Exceed your customers’ expectations.

David D. Glass, President and CEO of Wal-Mart said “We are really agents for our customers” This summarises very well the idea behind this rule. The service to their customers sets Wal-Mart apart from their competition[14]. The company’s home cheer is ended with “Who is number One? The customer!”[15]

Rule 9: Control your expenses better than your competition.

Sam Walton sums up the quintessence of this rule by explaining “You can make a lot of mistakes if you run an efficient operation. Or you can be brilliant and still go out of business if you’re to inefficient

Rule 10: Swim upstream.

This is probably the most important of Sam Walton’s ten rules. Wal-Mart success lies in trying new things, doing things differently. When Wal-Mart opened discount stores in small towns with populations under 50,000 industry-insiders told him that these towns were not big enough to support a store like that. These outlets in remote areas were to become Wal-Mart’s biggest success and competitors took long to follow. Kmart (see 1.2.1 Discount Stores) did not really compete with Wal-Mart until 1972[16]

These ten rules seem to be very obvious to managers of companies nowadays but seeing the time when measures were introduced at Wal-Mart they were revolutionary. They contain modern management wisdom, which is now widely used in many industries. These concepts of modern values and operational concepts are:

- Workforce empowerment
- Open communication
- Appreciate change
- Create an exciting and challenging work environment
- Enjoy success but also allow for mistakes

1.1.2 Corporate Structure and Strategy

S Robson Walton, the son of founder Sam Walton chairs Wal-Mart’s board of 15 directors and managed by an Executive Committee of Officers, chaired by David Glass and under the management of H. Lee Scott, who is Wal-Mart’s President and Chief Executive. The company has got a stable and established management structure with only three Chief Executives since being founded in 1962. The operational segments of the organisation are kept simple and form as follows at the present time:

illustration not visible in this excerpt

Figure 1.3 Wal-Mart Operating Segments[17]

Resulting from his ten rules (see 1.1.1 Ten Rules on running a successful business) Sam Walton identified three basic beliefs by which Wal-Mart should conduct their operations, which are[18]:

1. Respect for the individual (colleagues and customers)
2. Highest standards of customer service
3. Constant strive for excellence

Wal-Mart added three marketing tools, which complete their strategy:

1. Low prices
2. In-stock positions
3. Customer service

Low Prices

When Sam Walton opened his first stores he realised that low prices increased volumes and created operational efficiency[19]. Wal-Mart has a volume led strategy, which principles are shown in its ‘Productivity Loop’[20].

Figure 1.4 illustrates the five steps how low prices lead to even lower prices. (Also see 4.1.2.2 Every Day Low Prices and Trade Promotions)

illustration not visible in this excerpt

Figure 1.4 Wal-Mart’s Low Price ‘Productivity Loop’

In-stock positions

Availability is very important for running a retail outlet. Firstly, one can only sell what is in stock. Secondly, out-of-stock situations can be very frustrating for consumers. Therefore, in the USA Wal-Mart operates an inventory system linking store sales data directly to distribution centres and suppliers[21]. The company’s IT system is said to be of similar size as the Pentagon’s[22]. Shortly after the takeover Allan Leighton, then CEO of Asda, stated: “The issue with stock is how fast you can replenish it, not how much space you give it[23].

Customer Service

To provide the best customer service Wal-Mart recognised they need motivated staff. Greeters at the store entrance, the Wal-Mart cheer and the 10-foot rule are measures to improve employee morale and thus customer service. The 10-foot rule is especially interesting. Any customer within 10 feet has to be approached by staff and offered assistance[24].

Wal-Mart views customer service as a measure to recruit the best people, who then improve the service even more. This is shown in Figure 1.5 Wal-Mart’s Employee Relations ‘Loop’

illustration not visible in this excerpt

Figure 1.5 Wal-Mart’s Employee relations ‘Loop’[25]

Again Sam Walton’s principles he wrote down in his ten rules show through. Exceeding customers’ expectations by delivering low prices and above average customer service lead in combination of appreciation of associates’ work to motivated staff, which then results in better customer service.

Wal-Mart thereby constantly improve their performance, which will lead to their main goal: to be number one.

1.2 Wal-Mart USA –Store Portfolio

The USA is Wal-Mart’s home market and still accounts for 84% of its sales and 92% of its profits[26]. In 1999/2000 they operated 2985 stores, covering all 50 states. Three different types of outlets make up Wal-Mart’s store portfolio:

illustration not visible in this excerpt

Figure 1.6 Wal-Mart store operations USA [27]

Moreover, they are testing a new concept called Neighbourhood Market with currently 14 outlets in the US.

The significance of the US business is underlined by Rob Walton’s statement in the Annual Report 2000 that over the next five years 70 to 85% of their growth will come from the domestic markets. For the fiscal year 2001/2002 they plan to open further 170 to 180 supercentres, 40 to 50 Sam’s Club warehouses and additional 15 to 20 Neighbourhood Markets[28].

1.2.1 Discount Stores

Discount Stores are the original format of Wal-Mart with the first one opened in Rogers, Arkansas in 1962. Discount stores average size is 94,000 sq.ft. and sales per store are around $31 million (»£19.6 million)[29]. Since the introduction of the Supercentre format Discount stores are slowly replaced though some are still added to the company’s portfolio in states where Wal-Mart is underrepresented. The stores’ product range is limited to non-food products with only the largest discounters offering a small range of grocery items. The stores offer a wide variety of merchandise including apparel, house wares, hardware, electronics, home furnishings, automotive accessories, pharmaceuticals and jewellery[30].

Their main competitors are Target and Kmart whereby Wal-Mart is outperforming both especially on sale per sq.ft (see Figure 1.7).

illustration not visible in this excerpt

Figure 1.7 Sales per sq.ft. at major US Discount Stores13

Kmart as Wal-Mart opened its first Discount Store in 1962 and currently operates 2,106 stores in all 50 states of America as well as outlets in Puerto Rico, the United States Virgin Islands and Guam. Their stores range from 40,000 to 180,000 sq.ft. and are normally open 24 hours a day, seven days a week[31]. Kmart has recently started a new format, which is called Super Kmart, directly competing with Wal-Mart’s Supercentres.

Target in comparison to Kmart and Wal-Mart is an upscale discounter currently operating 978 stores in 46 states. Their emphasis is on fashion leadership, quality merchandise and superior guest service[32].

Both Kmart and Target are competing directly with Wal-Mart whereby Kmart shares more similarities and thus suffers the most.

illustration not visible in this excerpt

Figure 1.8 Operating Margins of major US discounters[33]

Figure 1.8 confirms Kmart’s struggle with Wal-Mart, as Target at the upper end of the market seems to be less affected by the price competition.

For the fiscal year 2001 Wal-Mart plans to convert 100 –110 discount stores to Supercentres[34].

1.2.2 Supercentres

After a moderately successful joint venture called Hypermarket*USA with a Dallas based supermarket chain in 1987 Wal-Mart has launched it first Supercentre in 1988 in Washington Missouri. Sam Walton got the idea for a big hypermarket from a visit to Carrefour store in Brazil.

Supercentres range in size from 110,000 up to 250,000 sq.ft. and commonly offer over 100,000 SKUs (Stock Keeping Units) of which generally 20 – 25% are traditional grocery lines. Additional food products include meat, deli, bakery, dairy, frozen foods and dry grocery[35].

Kmart reacted by launching Super Kmart Centres. These shops carry both food and non-food lines. Currently the company operates 105 Super Kmart Centres in the United States[36].

In Wal-Mart’s Annual Report 2000 Rob Walton stated that over the next five years 60 to 70% of domestic growth in sales and earnings will come from its Discount and Supercentre formats.

illustration not visible in this excerpt

Figure 1.9 Sales in Discount stores and Supercentres by product category[37]

1.2.3 SAM’s Club

In 1983 Wal-Mart opened their first SAM's Club, which is member only warehouse operation where small businesses and individuals can purchase at a lower price by buying in bulks. SAM's Club has the company’s highest average sales per square foot. The number of SKUs is with ca. 3,800 much lower than at Wal-Mart’s Discount or Supercentre outlets but with a much higher percentage of food products (also compare figure 1.9 and figure 1.10).[38]

illustration not visible in this excerpt

Figure 1.10 Sales in Clubs by product category[39]

By founding SAM’s Club Wal-Mart reacted on the market trend towards member clubs lead by Costco. This new class of sub-discounters with very low overheads and small margins started threatening the company’s market position. Nowadays Costco and Wal-Mart dominate the warehouse sector. In August 1999 they together were holding 89.9% of the market with Wal-Mart having a 44% share.[40]

1.2.4 Neighbourhood Markets

Over the decades Wal-Mart has changed America’s retail environment, especially the non-food sector. In 1998 the company opened their first Neighbourhood Market Stores. These stores in contrast to all other formats are a more traditional grocery approach. Not only does Wal-Mart gain access to the grocery market but also to locations where there is no possibility to open Supercentres or Discount Stores. So far this format is still on trial but the company plans to open another 194 until fiscal year 2002/2003.

[...]


[1] Walton, S., Huey, J., Starting on a Dime in Sam Walton Made in America. Bantam Books, 1993

[2] Walton, S., Huey, J., Bouncing Back in Sam Walton Made in America. Bantam Books, 1993

[3] Source: IGD Research, Data for year end 1999, except Ahold (June 2000 for number of countries) and Costco (September 2000)

[4] Beard, J., Walton, J., Webb, S., Wal-Mart USA in Wal-Mart in the UK, IGD, August 1999

[5] Wal-Mart Annual Report 2000

[6] Aggarwal, R. et al, Supplier Structure & Global Brands in Global Retailing The Future, IGD Business Analysis, Nov 2000

[7] Lewis, L., Unilever bows to Wal-Mart might in The Independent, Dec 3, 2000

[8] Source: Global Retailing The Future, IGD

[9] Q&A in Wal-Mart Annual Report 2000, p.2

[10] Walton, S., Huey, J., Rolling out the Formula in Sam Walton Made in America. Bantam Books, 1993, p153

[11] Walton, S., Huey, J., Running a Successful Company in Sam Walton Made in America. Bantam Books, 1993, p133ff

[12] Walton, S., Huey, J., Building the Partnership in Sam Walton Made in America. Bantam Books, 1993, p169

[13] Walton, S., Huey, J., Building the Partnership in Sam Walton Made in America. Bantam Books, 1993, p160ff

[14] Beard, J., Walton, J., Webb, S., Overview in Wal-Mart in the UK, IGD Business Publications, August 1999, p8

[15] Walton, S., Huey, J., Creating a Culture in Sam Walton Made in America. Bantam Books, 1993, p200

[16] Walton, S., Huey, J., Meeting the Competition in Sam Walton Made in America. Bantam Books, 1993, p243

[17] Wal-Mart in Context in Wal-Mart A Strategic Review, IGD, August 2001, p.23

[18] Wal-Mart in Context in Wal-Mart A Strategic Review, IGD, August 2001, p.24ff

[19] Walton, S and Huey, J, Starting on a Dime in Sam Walton Made in America, 1993, p.26-39

[20] Wal-Mart in Context in Wal-Mart A Strategic Review, IGD, August 2001, p.24

[21] Wal-Mart in Context in Wal-Mart A Strategic Review, IGD, August 2001, p.25

[22] Rushe D, Episode I the Wal-Mart Menace in Sunday Times, 25 Jul 1999

[23] Rushe D, Episode I the Wal-Mart Menace in Sunday Times, 25 Jul 1999

[24] Beard, J., Walton, J., Webb, S., Overview in Wal-Mart in the UK, IGD Business Publications, August 1999, p8

[25] Wal-Mart in Context in Wal-Mart A Strategic Review, IGD, August 2001, p25

[26] Wal-Mart Annual Report 2000

[27] Source: Part I in Form 10-K, United States Securities and Exchange Commission, p. 3

[28] Weir, T., Does Wal-Mart rule? in Supermarket Business, New York, Nov 15, 2000

[29] Beard, J., Walton, J., Webb, S., Wal-Mart USA in Wal-Mart in the UK, IGD Business Publications, August 1999

[30] http://yahoo.marketguide.com/mgi/busidesc.asp?rt=busidesc&rn=9556N, Feb 27, 2001

[31] http://yahoo.marketguide.com/mgi/busidesc.asp?rt=busidesc&rn=4970N, Feb 27, 2001

[32] http://yahoo.marketguide.com/mgi/busidesc.asp?rt=busidesc&rn=2534N, Feb 27, 2001

[33] source: http://biz.yahoo.com, Wal-Mart as of Jan 31, 2001; Kmart as of Oct 31, 2000; Target as of Oct 31, 2000

[34] Weir, T., Does Wal-Mart rule? in Supermarket Business, New York, Nov 15, 2000

[35] Beard, J., Walton, J., Webb, S., Wal-Mart USA in Wal-Mart in the UK, IGD Business

[36] http://yahoo.marketguide.com/mgi/busidesc.asp?rt=busidesc&rn=4970N, Feb 27, 2001

[37] Source: Part I in Form 10-K, United States Securities and Exchange Commission, p. 5

[38] Beard, J., Walton, J., Webb, S., Wal-Mart USA in Wal-Mart in the UK, IGD Business, p. 59

[39] Source: Part I in Form 10-K, United States Securities and Exchange Commission, p. 7

[40] Beard, J., Walton, J., Webb, S., Wal-Mart USA in Wal-Mart in the UK, IGD Business, p. 61

Excerpt out of 83 pages

Details

Title
The impact of Wal-Mart on the British retail market
College
University of Applied Sciences Regensburg  (Business)
Grade
2,7 (B-)
Author
Year
2002
Pages
83
Catalog Number
V5834
ISBN (eBook)
9783638135733
ISBN (Book)
9783638696937
File size
601 KB
Language
English
Quote paper
Dipl Betriebswirt (FH), BA (hons) European Business, ACMA Axel Antoni (Author), 2002, The impact of Wal-Mart on the British retail market, Munich, GRIN Verlag, https://www.grin.com/document/5834

Comments

  • No comments yet.
Read the ebook
Title: The impact of Wal-Mart on the British retail market


Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free