German Alicea
Kimmie Hardin
Michael Maben
John McLaurin
Kyle Simmons

Industry – U.S. Discount Retail Industry

Segments
 Supercenters
 Discount Stores
 Neighborhood Markets

Supercenters

Our goal is to leverage the outsourcing of popular services
such as banks and optical centers within Walmart’s
Supercenters.
Corporate Level Strategy – Related Diversified, Vertically
Integrated

General Discount Retail Division
Sam’s Club Division
International Division
Business
Level Strategy – Broad Cost Leadership in
Supercenters
Tactics
1.
2.
employed:
Heavy experimentation
Outsourcing Services
Strategic Alliance with Woodforest Bank
Options:
Top Down Approach: Increase Bank Services from 15%-40% through
corporate selection by proximity of other banks.
•
•Regional
Proposal Approach: Increase Bank Services from 15%-40%
by business/regional & store proposals.
•Population
Approach: Increase Bank Services from 15%-40% by
identifying cities with a population of 750,000 or above.
Facets of the industry:
credit cards, savings/checking accounts, check cashing, money orders,
wire transfers, debit cards, online banking, mortgage
generation/servicing, loans, lines of credit, CDs, Open 7-days a week.
♠
Economic Factors (info courtesy of Forecasts.org)
♠
♠
Current prime interest rates have fallen since recent
Goldman Sachs Fraud Scandal and are at 3.25%
Reduced confidence by consumers
♠
Current inflation rate is as 2.39%
♠
GDP growth is at 5.5% , higher than the avg. 2.5-3%
♠
♠
(consumer, investment, government spending, export, - import)
Exchange rate for the ChineseYen is 92.61 to the USD
*All forecasts are as of April 19, 2010

Government/legal



Legislation against “Sweat Shop Sourcing”
Unionization



According to the Graham-Leach-Bliley Act 1999 the
Discount Retail Industry is unable to gain Banking
Charters. Outsourcing is the only option.
Employment Litigation
Government “Bail Outs”
Domestic and International Product Taxes

Technology


Break-throughs in advanced Information Technology
Socio-cultural/Demographics –



One Stop Shop Concept
The government “Bail Out” has increased adverse
sentiment against large companies in the industry.
Offshoring, loss of jobs

International/global
Tarrifs
 Recent tax on Chinese products from U.S. caused
retaliation
 International rivalries

 China
 India
 Brazil
Discount Retail Industry:
Definition- The discount retail industry in the United States includes sellers of
consumer merchandise, including electronics, clothing, household items, etc. in an
effort to sell this merchandise for a discounted price opposed to going to a
specialty store. The retail sector comprises a variety of retail formats to reach endconsumers, including online retail and home shopping networks.

Furthermore, Wal-Mart can be segmented into a broad line retailer with an
emphasis on discount retail supercenters.
Basis of Competition:

Primary Rivals of Wal-Mart in the US- Kmart, Target, Shopko and Meijer

Expansion of Physical Store Space

Payment Modes

Changes in customer service

Promotional Offers
Potential for New Entry:
The Discount Retail Industry has relatively low entry and exit barriers since broad line retail is not
focussing all of their effort on a single product.
Entry Barriers include:

Economies of Scale

Customer Loyalty

Absolute Cost advantage

Supplier Agreements

Predatory Pricing
Bargaining Power of Buyers:
Wal-Mart has an absolute advantage as a buyer in the discount retail industry. Since Wal-Mart
controls such a large market share, they have a lot of power over the suppliers.
Power of Buyers Include:

Buyers purchase in large quantities

Supplying industry depends on buyers for a large percentage of its order

Low switching costs, buyers can play supplying companies off of each other

Economically feasible for buyers to purchase an input from several companies at once
Bargaining Power of Suppliers:
Suppliers have very limited power due to the massive size power of Wal-Mart.
Factors that limit Suppliers Include:

Low switching costs for buyers among competitors

Profitability of Suppliers is significantly affected by single customer in this
industry

Many substitute for product supplier sells
Substitutes:
In the Discount Retail Industry, competitors can play a large factor in taking away
business from Wal-Mart. And because you are dealing with retail, there can be
multiple substitutes coming from many different industries. Substitutes can
especially be an issue when dealing with specialty stores such as grocery, clothing,
automotive, etc.
Corporate Strategy – Related Diversified, Vertically Integrated
Business Level Strategies – broad cost leadership with minimal differentiation
Product Differentiation – low prices
Market Segmentation – mass market
Distinctive Competency – materials management with co-branded manufacturing
Global Expansion Strategy – International Strategy
‘Big Box – Low Price’ model, with adaptations as needed for local markets
Domestic Expansion Strategy – Rapid saturation
Focus on Supercenters in urban areas (Chicago, New York City, Los Angeles)
Tactics – horizontal integration, outsourcing, strategic alliances, joint ventures, colocating, co-branding, acquisitions, wholly owned subsidiaries, divestment
1.
Competition/industry definition/industry structure/basis of
competition (6 %)
-Retail Industry
-Competitors of Wal-Mart include Kmart, Target, ShopKo and
Meijer
-Sam’s Club competition includes Costco and BJ’s Wholesale
Club
-Industry Structure: Wal-Mart is the largest publicly owned
business in the United States and is a Franchise Operated
structure. Which means they may receive price support from
their wholesaler. Price support enables the wholesaler to
influence the retail prices set by the operator of the site.
*Focus on space leasing and how walmart relates to the
banking/pharmaceutical industry*
2. Potential for new entry (entry barriers) (4 %) – economies of scale, brand
loyalty, absolute cost advantage, switching costs
Dr Tyler: pick two potential entrants and consider each of the five barriers
to entry to see how much threat to each; pick two kinds of suppliers and
buyers and evaluate each using porter’s five forces and 6 economically
based criteria to determine if each is very low, low, moderate… threat to
the industry
Wal-Mart: Low entry and exit barriers. There is always a threat of new
entry into the retail industry, and it is especially easy because the retail
companies are not producing a product, however Wal-Mart has become
so well established there is a greater chance of the government
implementing a statutory monopoly, eliminating all competition in the
industry. Some of the barriers include consumer loyalty, distributor
agreements, and predatory pricing.
-Bank (WoodForest)- High entry and Low exit
barriers http://www.jstor.org/pss/1056377
-Pharmacy- Low entry and exit barriers
3. Power of buyers (4 %) – pg. 60 in book (low switching costs…)
Buyers have tremendous power over Wal-Mart since they are a retail
outlet. Wal-Mart is dependent on both buyers and suppliers to operate,
and if one group is unhappy it hurts Wal-Mart in the long run
4. Power of suppliers (4 %) – pg. 61 in book; armored truck companies;
software vendors (scalability of current system); threat in the form of
human capital transferring among competitors
-Since Wal-Mart operates as a discount distributor, they are at the mercy of
their suppliers. If the suppliers choose to increase prices, Wal-Mart in turn
has to increase their prices as well.
5. Substitutes (2 %) – pg. 63 in book
Corporate strategy- centralization, differentiation (via quantity of items to choose from), cost
leadership, single business, vertical integration, related diversification, unrelated diversification,
global expansion
business strategy- chapter 5, pg 1120 focused/broad and/or cost leadership, differenetiation,
distinctive competencies (use abell's framework in discussion) does economies of scale count as a
distinctive competency? use table 6.1 from chapter 5 slides- hightlight cost leadership through low
product differentiation, mass market segmentation and materials management (ie: rapid inventory
turnaround)
Note as well any important tactical strategies and their relationship with the strategic decision
(acquisitions, strategic alliances, licensing, etc.)-- entering new business (law/garden, pet supplies,
electronics, clothing, gym equipment, groceries, red box, restaurants, tires/oil changes, banks,
outsourcing, horizontal integration, internal venturing (leasing floor space?), acquisitions, joint
ventures
Functional strategies (8-10) most closely related to the decision made, that have led to resources and
capabilities or the lack thereof. Try to have these distributed across the organization: marketing,
finance, operations, HR, R&D, etc.
- talk about how these MUST lower costs and/or increase perceived value (chapter 4)
functional strategies (not all inclusive)- design products that are easy to manufacture, pioneer
process changes, exploit economies of scale, learning effects, experience curve, flexible
manufacturing, mass customization, flexible machine cells, increasing demand, retaining customers,
JIT, marketing strategies
page 101- resources: land, buildings, plant,
equipment, inventory, money, brand name,
reputation, intellectual property (patents, copyrights,
trademarks), technical or marketing know-how
capabilities- a company's INTANGIBLE skills at
coordinating its resources and putting them to
productive use- ways individuals interact, cooperate
and make decisions
What building blocks do these resources and capabilities
support or fail to support (efficiency, quality, innovation,
customer responsiveness) and determine if the strategies in
#2 have lead to distinctive competencies, parity or
disadvantages related to cost or differentiation and how
this relates to the strategic decision made.
Efficiency- customer responsiveness (in offering what
customers demand)
Economies of scale- is that a building block? Walmart was
the innovator
Wal-Mart’s Structure
Board of
Directors/CEO
Corporate
(HR/CFO/CIO)
Divisions
Wal-Mart US
International
(Thomas Mars)
Supercenters
2,612
Regions
Stores
Discount Stores
891
Sam’s Club
Neighborhood
Markets
153
Segments
Control SystemsFinancial- Audit Committee, ROE/ROA, COGS, budgets
Output- monitor turnover
Behavior- Ethical Standards, adopted statement of ethics,
code of ethics
Culture- Historically vs Now
Reward SystemsStock Purchase Plans
Profit Sharing
401k
Store Discounts
Promotion from within
-“Open Door” Communication
The Walton Institute
-Three Basic Beliefs
Respect to the Individual
Service to Customers
To Strive for Excellence
-10 Foot Rule
-Sundown Rule
-Unionizing
•Regional
proposal approach
•Regional mgr.
area evaluation
•Large potential stores picked
•Proposals generated/ sent to Arkansas
•Corporate review/implementation
•Woodforest banks
•Top
Down Approach
•Corporate task
forces overview surrounding areas
•Generate the “Proximity List”
•Regional mgrs. Either approve/disapprove of locations
•Top locations get banks
•Woodforest banks
•Population
approach
•Corporate task
forces overview surrounding pop.’s
•750,000 + = qualification
•Area spending potential outweighs general pop.
•Regional mgrs. either approve/disapprove of locations
•Woodforest banks
Regional proposal approach
S
(Store diversity, +Involved customers, +pre- established success) Higher
level of regional mgr suppt
W
(Poorly ran banks would negatively affect Wal Mart) Mgr greed + biased
repts = no optimal locations
O
(+Increased revenue from leasing income, +spending from one-stopshopping ) higher regional cust. base
T
(Competitor relocations)
Top Down approach
S
Ease of establishing new banking relationships
W
Not very large bank (for needy customers)
O
“home field advantage” ack of competitor proximity
T
Relocations of competitors
Population Approach
S
One-stop-shop bank location
W
Newbies in a competitive location
O
Hit-or-hit (potential customer base)
T
High population = many banks
TOP-DOWN APPROACH
•Banking
functions currently = most profitable Wal Mart area
•More profitable than vision centers
•More profitable than any individual sales dept ($422/sq ft./yr.)
•Not considered risky investments
•Aggressive incorporation before competitor attempt
•Diversify stores
•+profit from +cust. base (shopping while banking, etc.)
•Competition avoidance by placement
•Areas of few banks = New oppt
Woodforest location already operating in Gloucester, VA Wal Mart
Months 1-3
• Begin by contacting Woodforest, letting them know of interest to them being desired “Wal
Mart banking” center. Draw up an initial 5-year contract with a provisional renewal (subject
to leasing payment amts, alterations in banking procedures, etc.) and a 1-year operational redesign
•Corporate research turning up locations in which banks will be situated (largest distance
proximity of competitors wins), sent out to regional mgrs for approval
Months 4-5
•Space Planning: plan out new store plots for all super centers where banks will be situated
inside
Months 6-9
•Initiate the incorporation of Woodforest banks into stores (U.S. based, only)
•Build on space if sufficient amounts aren’t already available inside the supercenters
•Banks will open/begin operation as each location finishes
construction
Woodforest, “Banking your way… EVERY DAY AND NIGHT!”
Months 10-12
•
Advertise heavily that “Wal Mart now does banking”, and “+ more options from
your already low-price one-stop-shop local Wal Mart”
•
Banks will be located at the fronts of every Wal Mart, but run on separate hours of
operation (+benefits of Woodforest hours (Sundays 12-4, Saturdays 9-5)).
Year 1
•
Operational re-designing of bank, profitability analysis performed
Years 2, 3, 4, 5
•
Profitability analysis performed
Year 5
•
Revisions made to original contract, contract is/isn’t renewed
Woodforest, “Banking your way… EVERY DAY AND NIGHT!”