Wal-Mart

Group No - 06

Sheekant E.

Karthik K.

Sushil Chaudhari

Sai Sandeep

Sree Harsha

Siddharth Padki

What are the success factors for Wal-Mart in the US ?

PurchasingEconomies of scaleElectronic hook-upsLess than 4% purchase volume

In bound logisticSaturation strategyDistribution centerSatellite network system

Store OperationCost advantageSales per square feet

Store LocationLarge discount stores in small rural area

Human Resource Dedicated work forceOffering for the employeesPerformance based promotion

Management information & control Excellent IT structureBenchmark information

Marketing strategyEvery day low prices

Did the success factors work in other countries?

YES Mexico, Canada, Britain Largest retailer in Mexico &

Canada Third largest in Britain

NO Japan, Korea, Germany,

China, Indonesia, Brazil and Hong Kong

Withdrew from Germany

Did the success factors work in other countries?

China Too much competition

Income Disparity

Local Protectionism

Infrastructural Deficiency

Distribution challenges Regulatory restrictions

Lack of IT network

Consumer behavior Many trips, little purchasesFresh means aliveShoplifting

Japan Challenges in implementing retail link system as suppliers lacked the technology

Retailer supplier relationship traditionally personal – challenge switching to impersonal electronic system

Did the success factors work in other countries?

Did the success factors work in other countries?

Germany Existing competition

Customers felt : extra services lead to higher prices

Extending store hours – not allowed

Cutting prices violated manufacturer’s price maintenance agreements

High labour costs

Did the success factors work in other countries?

South Korea

Operated in buildings of six to eight floors within dense cities

Unable to adjust its traditional model in different building structure

Merchandise mix

Location of stores far from the city

Detailed Analysis: Marginal success and failure in other countries

Japan - (Failure)

• Lack of storage room to store purchases - Small housings and apartment sizes, with high rent prices.

• Several small purchases, compared to Walmart usual practice of centralized, big stores, with bulk purchasing to save costs.

• High operating costs, especially because of the prices of rent and buildings in general - Average commercial land prices in Japan is 156,857 Yen (USD 2,017)/sqm.

• Inability to apply original supply chain modelLots of stores, lots of supplies to be delivered, but no warehouse space.

• Costly trash disposal procedure- Japanese environmental consciousness about waste disposal, added to their minimalist lifestyle, would discourage any bulk purchases from Walmart.

Germany - (Failure)

• Failed to build good relationships with suppliers – With a 1.1% share only of the German market, the company found

suppliers unwilling to tow the line.– Demanded access to suppliers’ premises to check their operations and

the quality of the products. This did not go down too well with German suppliers and as a consequence Wal-Mart failed to build good relationships.

• Wal-Mart's American buyers made classic errors in Germany such as stocking large number of US pillow cases which did not fit German Pillows.

Brazil - (Failure)

• Customers had to travel several miles to reach the stores• High average stock out rate(40%) – suppliers unable to produce and

supply to the requirements• warehouses located far away from stores – leading to stock out• Traffic problem – hindered on-time delivery• very huge product line – problem with stock maintenance• advertisement of stocked out products - strain on supply chain.

China – (Success)

• Successful vendor relationships– No nonsense negotiator which lead to efficient purchasing– Partnership with suppliers & sharing information electronically which resulted

in efficient communication.– Vendor managed inventory system which minimized inventory cost.

• Hub & spoke distribution network, owned warehouses and cross-docking gave better control over their distribution network.

• China sourcing at the scale of Chinese population which gave competitive advantage of its operation efficiency that enabled U.S. Wal-Mart to be low priced.

Can failures be attributed to poor retail strategies in these countries?

Germany Failure

Flawed Entry by acquisition strategy

• Acquired Spar – weakest German retailer• Run down stores, non lucrative location of stores in less well off inner city

residential areas• Cost burden- Poor returns realized even after Wal-Mart acquisition

High operating costs

• Strict zoning and planning regulations posed challenges for organic growth

• Due to comparatively small size of Wal-Mart, it could not enjoy significant price concessions or relaxations from suppliers

• To fully exploit economies of scale in food retailing, min. annual turnover of around €7.7 billion is de rigeur –2.5x Wal-Mart Germany’s actual sales.

Germany Failure

EDLP : Empty Promise

• Existing German retailers like Aldi, Lidl, Rewe and Edeka matched all of Wal-Mart's price cuts

• Aldi defended its position as Germany’s undisputed cost and price leader

No excellent service

• Wal-Mart's traditional US centered view of customer service not fully compatible with German sensibilities

• 10 foot rule• “Greeter” and “Bagger” did not go down well with Germans as well• Restrictive shopping hour regulation

South Korea FailureInefficient retail clustering

• Several stores need to be in close proximity to enable sharing of merchandise, distribution networks

• Wal-Mart Korea unable to capture logistically efficient locations• Most of Korean retailers already located stores in key areas and built a

distribution systems to optimize merchandise mix and operations

EDLP as customer value proposition• Wal-Mart's EDLP proposition lacked strategic fit to preferences of

Koreans• Koreans are quality conscious and brand loyal. Will not switch to cheaper

brands• Not compromise on service and quality for lower prices• Perceived Wal-Mart as cheap market place with warehouse style layout

South Korea FailureFailure to implement IT strategy

• Wal-Mart's IT systems were at the core of its success linking vendor supply operations to Wal-Mart's distribution network

• Information advantage lets Wal-Mart be the toughest negotiator• Korean vendors reluctant to have EDI system with Wal-Mart• As a result, Wal-Mart did not buyer power in Korea as it does in USA• Complete lack of control over Korea supply chain and procurement• If IT strategy was successful,

• Wal-Mart could access supplier operational process and the costs, and negotiate the vendor prices.

South Korea Failure

• Wal-Mart completely failed in developing an effective localization strategy for Korea market

• It did not build a strong alliance with suppliers facilitating integrated supply chain

• Consequently, it could not obtain ability to control logistics from sourcing to delivery

• It also failed to understand the Korean customer taste and preferences

Russia Failure

• Decided to enter the market through acquisition, not green-field development,

• Missed out on a deal to acquire Kopeika, one of Russia's largest discount grocery chains.

Some other reasons• Late entry• Land costs• Unsure about Store format

India ??

• Wal-Mart’s retreat comes amid slowing growth in India and the failure of officials to open and modernize the economy to attract foreign investment

• Authorities investigation: whether Wal-Mart violated foreign-investment rules by giving Bharti an interest-free loan of $100 million that could later be converted into a controlling stake in the joint venture

Some other failures

• Hong Kong: – entered in 1994– Left after two years because of failure in

merchandise selection and location• Indonesia– Entered in 1996– Jakarta store was looted and torched in 97-98 riots