Wal-Mart\'s Strategy the Discount Retailing

Wal-Mart's Strategy

The discount retailing powerhouse has been leading the industry for more than three decades. Despite increased competition from retailers who entered the industry at the same time, such as K-Mart and Target, Wal-Mart has been able to cleave out a large section of market share that even these two organizations aren't able to touch.

Despite negative publicity and strong opposition whenever a new Wal-Mart comes to town, the reality is Wal-Mart has been successful because they offer consumers what they want. Low prices, innovative programs such as $4 prescriptions, and continuously improving convenience have made Wal-Mart the largest private employer in the United States and has placed them at the forefront of the discount retailing industry.

Wal-Mart History:

At first glance, 1962 seems to have been the birth of discount retailing, with the advent of K-Mart, Target and Wal-Mart; however, by that time, Sam Walton and his small chain of variety stores, in Arkansas and Kansas, were already experiencing regional competition from discount chains. Traveling the country to study this new retailing concept, Walton decided this would be the wave of the future and put up 95% of the money to open the first Wal-Mart store in Rogers, Arkansas ("Wal-Mart Story).

Three years later, Wal-Mart had 24 stores and $12.6 million in sales. The next year, in 1968, Wal-Mart opened their first stores outside of Arkansas, opening locations in both Sikeston, Missouri and Claremore, Oklahoma. The 1970s saw Wal-Mart opening its first distribution center, expansion into its eleventh state, two acquisitions, and three 100% stock splits. By 1979, the company had reached $1 billion in sales, had 276 stores, and 21,000 associates ("The Wal-Mart Timeline").

The 1980s experienced even higher levels of growth for the organization. From 1980 to 1987, Wal-Mart saw its eighth stock split.

And, in 1983, Forbes ranked Wal-Mart, for it's eighth straight year, number 1 in general retailers. Their 25th anniversary found Wal-Mart with 1,198 stores, sales revenues of $15.9 billion, and 200,000 associates. and, in 1988, Wal-Mart would further revolutionize the industry with the introduction of their first Supercenter, in Washington, Missouri. By the close of the 1980s, Wal-Mart had 16 distribution centers and was in 26 states ("The Wal-Mart Timeline").

The 1990s were equally eventful. Although Sam Walton passed away, Wal-Mart lived on.

There were three more 100% stock splits. and, in December of 1993, the company had its first $1 billion week.

In 1993, Wal-Mart acquired 99 Pace Warehouse club stores, which would be the basis for their Sam's Club stores. In addition, the purchase of 122 Woolco stores in Canada introduced Wal-Mart outside of the United States and its territories.

Hong Kong, Mexico, China, Korea, the United Kingdom, and Germany all are introduced to Wal-Mart in the 1990s. and, by 1999, Wal-Mart employed 1.14 million associates, making it the largest private employer in the United States ("The Wal-Mart Timeline").

The 21st century continues to be prosperous for Wal-Mart. The organization ranked #1 Corporate Citizen in America in the 2000 Cone/Roper Report, for their philanthropy and corporate citizenship.

In 2002, the company ranked #1 in the Fortune 500 listing. They also earned Fortune's Most Admired Company in America accolade, in both 2003 and 2004 ("The Wal-Mart Timeline"). Today, the company has nearly 2 million associates worldwide, and more than 7,000 stores and wholesale clubs, in 14 markets ("Wal-Mart Story").

Clearly, Wal-Mart is a proven success. More than three decades of industry innovation and leadership shows that much.

But, in today's hypercompetitive, increasingly globalized world, this phenomenal growth has been due to sound strategies that have not only brought in the consumers, but kept them coming back for more.

Wal-Mart's Competitive Strategies for Success:

Sam Walton described his company's secret to success in his autobiography. The secret of successful retailing is to give your customers what they want. (...) and really, if you think about it from the point-of-view of the customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience. You love it when you visit a store that somehow exceeds your expectations, and you hate it when a store inconveniences you, or gives you a hard time, or pretends you're invisible (qtd. "Wal-Mart Story").

Giving consumers what they want is what Wal-Mart is all about. They have taken this simple, straight-forward concept and turned it into several specific strategies that have made it the most powerful discount retailer in America.

Pricing:

The most obvious strategy Wal-Mart has employed is pricing.

Through the power of bulk buying and savings passed on through just-in-time delivery of goods to stores, Wal-Mart is a low price leader, on everything from food, to clothing, to electronics, to toys, to tires. Recent research from Global Insight indicates that American families now save $2,500 per year by shopping at Wal-Mart, up 7.3% from $2,329 in 2004. As the organization notes, "that's equivalent to one year of natural gas and electric bills with money left over; gas for a year, two monthly car payments, and enough to wash a car seven times; or almost half of the average tuition at a public four-year university" ("Economic Opportunities"). and, these savings are not lost on consumers.

More than 127 million customers shop at Wal-Mart stores, across America, every single week.

A recent UBS Warburg study found that Wal-Mart grocery prices are between 17 and 20% lower than other supermarkets ("Economic Opportunities"). Wright notes that cereal specifically costs 17% less at Wal-Mart than at a traditional supermarket. This direct effect of lower prices for consumers is easy to see. and, Wal-Mart doesn't raise prices when its driven out their competition.

These lower prices are especially important to consumers with lower incomes. "For families with incomes less than $10,000 annually, a super center makes a 30% difference in what they can buy" (Wright).

In addition, the rate of overall consumer welfare improvement in a community averages 3.75%. Even though Wal-Mart does pay its employees less, which does negatively affect local wages, a 3.75% increase is better than any tax reform or other government policy, according to Wright.

Dollar Prescriptions:

Another one of Wal-Mart's strategies for bringing in consumers and encouraging them to continue to return is their $4 prescription program. This unique program is part of Wal-Mart's commitment to bring affordable health care to all Americans, and again, falls in line with Sam Walton's theory that bringing the customers what they want will keep them coming back for more. As part of the program, the company offers 361 generic prescription to their customers and associates for only $4, for up to a 30-day supply ("4 Dollar Prescriptions").

Wal-Mart sees this program as "bringing competition to the pharmacy marketplace and easing the burden of the high costs of health care for (their) customers and associates" ("4 Dollar Prescriptions").

What it also does is bring consumers into their stores. As a customer comes to the Wal-Mart pharmacy for one of their $4 prescriptions, they are likely to purchase other items while they are there at the store, including other non-prescription health related items, groceries, and more.

In essence, the $4 prescription program is a loss-leader item.

Since the launch of this program, in September 2006, Wal-Mart has saved customers an estimated $610 million dollars. Approximately 40% of the prescriptions filled through Wal-Mart, Sam's Club, and Neighborhood Market pharmacies are from the $4 prescription program. In September 2007, to mark the program's first anniversary, Wal-Mart expanded the program in two ways ("4 Dollar Prescriptions").

In 2007, more medicines in more categories were covered by the program. "Prescription drugs covering glaucoma, Attention Deficit Disorder/Attention Deficit Hyperactivity Disorder (ADD/ADHD), fungal infections and acne were added to the program" ("4 Dollar Prescriptions"). In addition, several other prescriptions were reduced in cost. These included fertility and birth control availability at $9 per prescription, compared to a national average of $24 to $30 per month.

The second way the program was expanded was in faster savings on new-to-market generics.

In August 2007, the antifungal medicine Lamisil® had an average price of $337.26. Terbinafine, the generic version, is now available through Wal-Mart, Sam's Club and Neighborhood Market pharmacies for just $4 for a commonly dispensed quantity up to a 30-day supply, saving customers $333.26 per month (approximately $3,999 annually). Carvedilol, the generic for Coreg® (August 2007 average price was $119) now costs $4 for a commonly dispensed quantity up to a 30-day supply, saving customers $115 per month (approximately $1,300 per year) ("4 Dollar Prescriptions").

These savings, just like the savings on food, are powerful motivators for consumers, especially in times of economic stress, where many families are living paycheck-to-paycheck, and keep consumers coming through Wal-Mart's doors.

Convenience:

As Walton noted, consumers hate to be inconvenienced. For this reason, Wal-Mart has worked diligently to provided the most convenient one-stop shopping experience possible, for their customers.

One such way that Wal-Mart ensures customer convenience is by making certain they do not run out of stock on popular items. However, one of the many ways Wal-Mart has been able to cut costs is by not having large stores of items in back rooms at each of their stores. Instead, the organization has used technology to remain customer focused.

By innovating the use of sharing sales data, via computer, with their major suppliers, Wal-Mart has been able to keep key items in stock, without having to stockpile them. When an item is rung up at the cash register, this information is sent to a data warehouse that then facilitates reordering from that particular supplier ("Wal-Mart Story"). Add this product availability to the fact that Wal-Mart offers such a wide variety of items, and services from: financial services to beauticians to optometry to automotive care, and one can easily see how the company has added convenience to its strategies of success.