Walmart Case Study HBS 9 794 024

Wal-Mart has grown from a small regional discount retailer operating in small towns to become a global retailing force. The company's early successes were based on avoiding competition and a keen attention to pricing. As the company has grown, its sources of competitive advantage have become more sophisticated. On the surface, most of Wal-Mart's competitive advantages appear to be replicable by their competitors. Yet, Wal-Mart has been able to either eliminate or dominate all of them. This paper will examine some of the key sources of competitive advantage for Wal-Mart, and evaluate whether or not these are sustainable over the long run.

In 1992, Wal-Mart had built up a dominant market position. There were several key factors that went into this. The first was their low cost approach. Part of Wal-Mart's success has been to consistently offer lower prices than their competitors. This strategy has incorporated numerous elements. One such element is their cost-cutting culture. Sam Walton led this culture, and was willing to make personal sacrifices to save money. This culture is sustainable, but it may not be. Mr. Walton felt that too many Wal-Mart associates were too wealthy, and showy. This could potentially compromise the culture once Mr. Walton passes on.

Wal-Mart's purchasing power is another factor in their ability to consistently undercut their competitors. As the world's largest retailer, Wal-Mart has unique capacity when it comes to selling volume. This volume allows for tighter margins, for both Wal-Mart and for their suppliers. The size of Wal-Mart gives them considerable bargaining power, but at the same time it also makes them a very attractive customer.

Before Wal-Mart was so large, they had to find other means of achieving cost advantages, and those techniques form another significant source of competitive advantage today. The company has long been at the fore when it comes to applying technological developments to cost reduction. The company has developed and refined its logistics system to minimize costs. They also have sophisticated information systems, linked by satellite, that allow for efficient purchasing and ordering procedures, and that aid with the logistics network.

Wal-Mart has also increased store sales through acute attention to efficient use of floor space. They use only 10% of store space for inventory, versus an industry average of 25%. Furthermore, their traiting program has allowed them to deliver $300/ft2, almost 50% more than Target and double that of K-Mart.

Another advantage for Wal-Mart is their brand. They have a reputation for industry leadership, and are widely considered by the public to offer the lowest prices. This message has been consistently reinforced in Wal-Mart's promotions.

Of these advantages, buying power is truly sustainable. Wal-Mart's size gives them this advantage, and there are no serious threats to their size at this time. They were able to achieve their size in an era when the discount retailing business lacked concentration. Now, there is more concentration in the industry and Wal-Mart's size seems defensible over the long-run. Their ability to move volume is not something that their competitors, even large ones such as Target, can match.

Another trait that is a source of sustainable competitive advantage is the Wal-Mart brand. The ubiquity of Wal-Mart means that there are strong associations with the brand. The most important of these is the association with the lowest price. One of the most significant, defining characteristics of the discount retailing business is the low cost proposition it presents to consumers. It is considerable competitive advantage for Wal-Mart to be viewed as the home of lower prices. Yet, this association is so strong amongst consumers that Wal-Mart would need to lose its cost leadership for years before consumers began to change this association.