An introduction to the macroeconomics of walmart

An introduction to the macroeconomics of walmartSam Walton, a attracter with an modern vision, started his own gild and make it into the draw in discount retail that it is today. Through his savvy, and sometimes unusual, business practices, he and his associates led the fellowship advancing for thirty years. Today, years after his death, the company is still growing steadily. Wal-Mart executives hold back to rely on many of the tralatitious goals and philosophies that Sams legacy left over(p) behind, slice also keep an eye oning sensation step ahead of the constantly ever-changing technology and methods of todays fast-paced business environment. The organization has faced, and is still facing, a evidentiary amount of controversy over several(prenominal) different issues however, n unrivalled of these waste d superstar much more than scrape the exterior of this gigantic operation. The early also looks bright for Wal-Mart, especially if it is able to strike a convenien t balance between increasing its profits and recognizing its social and ethical responsibilities. wherefore is Wal-Mart so Successful? In 1962, when Sam Walton undecided the first Wal-Mart inclose in Rogers, Arkansas, no one could have ever predicted the enormous victor this small-town merchant would have. Sam Waltons talent for discounts sell not solo made Wal-Mart the worlds largest retailer, scarce also the worlds number one retailer in sales. Indeed, Wal-Mart was named retail merchant of the Decade by Discount Store parvenues in 1989, and on several occasions has been included in Fortunes list of the 10 close(prenominal) admired corporations. nonetheless(prenominal) with Waltons death (after a two-year battle with grind away understructurecer) in 1992, Wal-Marts sales continue to grow signifi vernacularly. Wal-Mart is winnerful not alone because it makes sound st gaitgic worry decisions, but also for its innovative writ of execution of those strategic decisions . Regarded by many as the entrepreneur of the century, Walton had a spirit for caring intimately his customers, his employees (or associates as he referred to them), and the community. In enunciate to check its mart jell in the discount retail business, Wal-Mart executives continue to cleave to the management guidelines Sam developed. Walton was a man of simple tastes and took a recherche interest in people. He believed in three guiding principles 1. customer value and service 2. Partnership with its associates 3. Community involvement (The Story of Wal-Mart, 1995). The tidings always can be seen in virtually all of Wal-Marts literature. angiotensin converting enzyme of Waltons deepest beliefs was that the customer is always right, and his stores be still driven by this philosophy. When questioned intimately Wal-Marts secrets of success, Walton has been quoted as saying, It has to do with our desire to exceed our customers expectations either hour of either day (Wal-Ma rt Annual Report, 1994, p. 5). Waltons greatest accomplishment was his ability to em military force, enrich, and train his employees (Longo, 1994). He believed in listening to employees and challenging them to come up with ideas and suggestions to make the company better. At each of the Wal-Mart stores, signs ar displayed which read Our People Make the Difference. Associates on a regular basis make suggestions for cutting costs by means of their Yes We Can Sam program. The total of the savings generated by the associates actually paid for the construction of a red-hot store in Texas (The study of Wal-Mart, 1995). One of Wal-Marts goals was to provide its employees with the appropriate tools to do their jobs efficiently. The technology was not used as a means of permutation existing employees, but to provide them with a means to succeed in the retail market (Thompson Strickland, 1995). Wal-Marts popularity can be linked to its hometown identity. Walton believed that every cust omer should be greeted upon entering a store, and that each store should be a reflection of the values of its customers and its community. Wal-Mart is involved in many community outreach programs and has launched several national efforts through industrial development grants. What are the Key Features of Wal-Marts admission to Implementing the Strategy Put Together by Sam Walton The key features of Wal-Marts burn up to implementing the strategy put together by Sam Walton emphasizes building consentient working relationships with both suppliers and employees, beingness aware and taking notice of the almost intricate details in store layouts and merchandising techniques, capitalizing on every cost saving opportunity, and creating a high performance spirit. This strategic legislation is used to provide customers access to quality effectuals, to make these goods available when and where customers involve them, to develop a cost structure that enables competitive pricing, and to build and find a reputation for absolute trustworthiness (Stalk, Evan, Shulman, 1992). Wal-Mart stores operate according to their terrene Low Price philosophy. Wal-Mart has emerged as the industry attractor because it has been better at containing its costs, which has al measlyed it to pass on the savings to its customers. Wal-Mart has become a capability competitor. It continues to break upon its key business processes, managing them centrally and investing in them heavily for the long- confines payback. Wal-Mart has been regarded as an industry leader in testing, adapting, and applying a wide shake off of cutting-edge merchandising approaches (Thompson Strickland, 1995, p. 860). Walton proved to be a visionary leader and was known for his ability to quickly learn from his competitors successes and failures. In fact, the founder of Kmart formerly claimed that Walton not only copied our c at oncepts, he strengthened them. Sam just took the cluster and ran with it (Thompso n Strickland, 1995, p. 859). Wal-Mart has invested heavily in its unique cross-docking caudex organization. Cross docking has enabled Wal-Mart to earn economies of scale, which reduces its costs of sales. With this system, goods are continuously delivered to stores inside 48 hours and often without having to neckcloth them. Lower prices also eliminate the expense of frequent sales promotions and sales are more predictable. Cross docking gives the individual managers more subdue at the store level. A company owned transportation system also assists Wal-Mart in shipping goods from warehouse to store in less(prenominal) than 48 hours. This al natural depressions Wal-Mart to replenish the shelves 4 times faster than its competition. Wal-Mart owns the largest and most civilise computing machine system in the private sector. It uses a MPP (massively parallel processor) reckoner system to track stock and movement which keeps it abreast of fast changes in the market (Daugherty, 1993 ). Information related to sales and inventory is disseminated via its advanced transmit communications system. Wal-Mart has leveraged its volume buying power with its suppliers. It negotiates the best prices from its vendors and expects inscriptions of quality product (Thompson Strickland, 1995). The purchasing agents of Wal-Mart are very focused people. Their highest priority is making certain(a) everybody at all times in all cases knows whos in charge, and its Wal-Mart (Vance Scott, 1995, p. 32). Even though Wal-Mart was tough in negotiating for absolute rock-bottom prices, the company worked about with suppliers to develop mutual respect and to forge long-term partnerships that benefited both parties (Thompson Strickland, 1995, p. 866). Wal-Mart make up an automated re fellowshiping system linking computers between Procter Gamble (PG) and its stores and distribution centers. The computer system sends a signal from a store to PG identifying an item low in stock. It then sends a resupply order, via satellite, to the nearest PG factory, which then ships the item to a Wal-Mart distribution center or directly to the store. This interaction between Wal-Mart and PG is a win-win pro agency because with better coordination, PG can lower its costs and pass some of the savings on to Wal-Mart. Sam Walton received national upkeep through his Buy America policy. Through this plan, Wal-Mart encourages its buyers and merchandise managers to stock stores with American-made products. In a 1993 annual report management stated the program demonstrates a long-standing Wal-Mart commitment to our customers that we get out buy American-made products whenever we can if those products deliver the same quality and affordability as their foreign-made counterparts (Thompson Strickland, 1995, p. 868). Environmental concerns are important to Wal-Mart. A prototype store was opened in Lawrence, Kansas, which was designed to be environmentally friendly. The store contains envi ronmental precept and recycling centers (Slezak, 1993). Wal-Mart has also adopted the low cost theme for its facilities. alone offices, including the corporate headquarters, are built economically and furnished simply. To conserve energy, temperature controls are connected via computer to headquarters. Through these programs, Wal-Mart shows its concern for the community. Wal-Mart has been led from the top but run from the bottom, a strategy developed by Sam Walton and carried on by a small group of senior executives led by CEO David Glass. Although recent growth has led Wal-Mart to add more management layers, senior executives strive to take note its unique culture. This culture, described as one part Southern Baptist evangelism, one part University of Arkansas Razorback teamwork, and one part IBM hardware has worked to Wal-Marts advantage (Saporito, 1994, p. 62). Just how Successful is Wal-Mart? A auspicate (see Appendix A) of Wal-Marts income for the period 1995-2000, consider ing subjoins of 30.6% in Net Sales, 27.7% in Operating Expenses, and 52.3% in Interest Debt (a level which is below Wal-Marts historically compounded growth rate of 55.6%) indicates that the company should continue to report gains each year until 2000. According to most analysts and company projections, sales should approximate $115 one thousand thousand by 1996, representing an increase of 30.6% as compared to 1995. If the company continues at this pace, sales should reach $334 billion by the year 2000. The growth on sales that Wal-Mart reported during the 1980s and the jump of the 1990s leave alone be knockout to repeat, especially considering the ever-changing marketplace in which it repugns. In an interview, Bill Fields, President of the Stores Division said, Wal-Mart is now visual perception price pressure from companies that once assiduously avoided taking it on. These include disparateness retailers such as Limited, category killers like Home Depot and forget me drug City, and catalog companies like Spiegel. I think everybody prices off of Wal-Mart. Youve got Limited arrival levels wed thought theyd never get to. The result is that everyday low prices are getting lower (Saporito, 1994, p. 66). In addition, the baby-boomers are reaching their rash earnings years, when financial and personal priorities change. Thus, savings, not spending, will likely crawfish precedence because most baby-boomers are approaching retirement. Based on Wal-Marts position in 1994, which was considered a year of expansion for the company, (Wal-Mart added 103 new discount stores, 38 Super-centers, 163 warehouse clubs, and 94,000 new associates) interest debt increased 52.3%. The cost paid by Wal-Mart to finance property plants and equipment forced the company to increase long term debt by 4.6 times during the period 1991-1995. Long term debt for 1995 is $7.9 billion. If Wal-Mart continues its expansion plans establish on more debt acquisition at 1994 levels, the comp any may not attain forecasted gains by as early as 1998. Operating expenses will be a key strategic issue for Wal-Mart in order to substantiate its position in the market. The challenge is how to run more stores with less operating expenses. According to Bill Fields,. . . the goal is to increase sales per neat foot and drive operating costs down yet some other notch (Saporito, 1994, p. 66). Trends indicate that operating expenses have been growing at a rate of 27.7% in recent years. However, Wal-Mart should reap the benefits of its investments in high technology, and be able to operate more stores without increasing its expenses. Cost of sales historically has been equal to the level of sales. If the company continues to take advantage of its buying power, Wal-Mart can expect to lower its cost of sales. Wal-Marts future(a) will depend on how easy the company manages its expansion plans. For the coming years, the company will urgency to justify its expansion plans with consiste nt growth in sales, in order to offset the increases in debt interest and operating expenses. What Problems are ahead for Wal-Mart? What Risks? end-to-end the 1980s, Wal-Marts strategic intent was to unseat industry leaders Sears and Kmart, and become the largest retailer in the U.S. Wal-Mart accomplished this goal in 1991. But Wal-Marts current pixilated competitive position and its then(prenominal) rapid growth performance cant guarantee that the company will remain as the industry leader or maintain its strong business position in the future. carol Farmer, a retail consultant, told the Wall Street Journal that, One slight bad thing can wipe out lots of good things (Trimble, 1990, p. 267). Every move in its business operation ought to be well thought-out and executed. Wal-Mart needs to address two major areas in order to maintain or to capture an even stronger long term business position 1) Single-business strategy Wal-Marts success is mainly based on its concentration of a single-business strategy. This strategy has achieved enviable success over the last three decades without relying upon variegation to sustain its growth and competitive advantages. Given its current position in the industry, Wal-Mart may want to continue its single-business strategy and to push hard to maintain and increase market share. However, there is risk in this strategy, because concentration on a single-business strategy is similar to putting all of a firms testis in one industry basket (Thompson Strickland, 1995, p. 187). In other words, if the retail industry stagnates due to an economic downturn, Wal-Mart might have difficulty achieving past profit performance. Also, if Wal-Mart continues to follow Sam Waltons vision of expansion, Wal-Mart will reach its posting in the very near future. When it does, its growth will start to opposed down and the company will need to turn its strategic attention to diversification for future growth. Social responsibility Retail stores can compete on several bases service, price, exclusivity, quality, and fashion. Wal-Mart has been extremely successful in competing in the retail industry by combining service, price, and quality. However, other merchants may object to Wal-Marts gate into their community. Because of its ability to out-price smaller competitors, Wal-Marts stores threaten smaller neighborhood stores which can only survive if they offer merchandise or services unavailable anywhere else. This makes it very hard for small businesses, such as mom-and-pop enterprises, to survive. They, therefore, fight to keep Wal-Mart from entering their locales. Numerous studies conducted in different states both support and criticise Wal-Mart (Verdisco, 1994). Nevertheless, Wal-Mart did drive local merchants out of business when it opened up stores in the same neighborhood. As a result, more and more rural communities are waging war against Wal-Marts entrance into their market. Besides protesting and signing petitio ns to attempt to stop Wal-Marts entryway into their community, the oppositions efforts can even be found on The Internet. Gig Harbor, a small town in cap, recently started a World wide of the mark Web page entitled Us against the Wal. The towns neighborhood association promised that they will fight them Wal-Mart tooth and nail (PNA/Island Aerie Internet Productions, 1995/1996). The increasing opposition indicates that the passageway ahead for Wal-Mart may not be as smooth as Wal-Marts annual report would entail. This requires Wal-Mart to rethink its expansion strategy since it would not be profitable to operate in an unfriendly community. How Big Will Wal-Mart be in Five Years if all continues to go well? sooner he died, Sam Walton expressed his belief that by the year 2000 Wal-Mart should be able to double the number of stores to about 3,000 and to reach sales of $ one hundred twenty-five billion annually. Walton predicted that the four biggest sources of growth potential wou ld be the following 1. Expanding into states where it had no stores 2. continuing to saturate its current markets with new stores 3. Perfecting the Super-center format to expand Wal-Marts retailing reach into the farestuff and supermarket arena a market with annual sales of about $375 billion 4. Moving into worldwide markets (Thompson Strickland, 1995). Wal-Mart Super-centers represent leveraging on customer loyalty and procurement muscle in order to create a new domestic growth vehicle for the company. With few locations left in the U.S. to put a new Sams Club or traditional Wal-Mart, the Super-center division has emerged as the domestic vehicle for taking Wal-Mart to $100 billion in sales. Before the Super-center, Walton experimented with a massive Hyper-mart, encompassing more than 230,000 public square feet in size. The idea failed. Customers complained that the produce was not fresh or well-presented and that it was difficult to find things in a store so big that inventory clerks had to wear roller skates. One of Waltons philosophies was that traveling on the road to success required failing at times. As a result of the unrealised experiment, Walton launched a revised concept the Super-center, a combination discount and grocery store that was smaller than the Hyper-mart. The Super-center was intended to give Wal-Mart improved drawing power in its existing markets by providing a one-stop shopping destination. Super-centers would have the unspoilt array of general merchandise found in traditional Wal-Mart stores, as well as a full-scale supermarket, delicatessen, fresh bakery, and other effectiveness shops like hair salons, portrait studios, dry cleaners, and optical wear departments. Super-centers would prevention 125,000 to 150,000 square feet, and crisscross locations where sales per store of $30 to $50 gazillion annually were feasible. Waltons prediction was right on target. The Super-center division more than doubled in size during 1993, th en doubled again in 1994. Super-centers, once thought of as risky because of slim profit margins on the food side, will most likely make Wal-Mart the nations largest grocery retailer within the attached five to seven years (Longo, 1994). Expanding overseas, Wal-Mart moved into the transnational market in 1991 through a joint-venture partnership with CIFRA S.A. de C.V., Mexicos leading retailer. Since then the company has entered Canada, Hong Kong, Mainland China, Puerto Rico, Argentina, and Brazil. The Wal-Mart International Division was officially formed in 1994 to manage the companys international growth. By the year 2000, analysts expect Wal-Mart to be a huge international retailer, with numerous locations in South America, Europe, and Asia. The ever-changing market presents continuing challenges to retailers. setoff and foremost, retailers must recognize the strong implications of a buyers market (Lewison, 1994). Customers are being offered a wide choice of shopping experienc es, but no one operation can capture them all. Therefore, it is incumbent upon management to define their target market and direct their energies toward solving that specific markets problems. Technology, demographics, consumer attitudes, and the advent of a worldwide economy are all conspiring to rewrite the rules for success. Success in the next decade will depend upon the level of understanding retailers have about the new values, expectations, and needs of the customer. If Wal-Mart continues its customer-driven culture, it should remain a retail industry leader well into the next century. REFERENCES Daugherty, R. (1993). New approach to retail signals strong future for point of purchase displays. Paperboard Packaging, pp. 24-27. Lewison, M. D. (1991). Retailing. New York Macmillan. Longo, D. (1994). New generation of execs leads Wal-Mart into the next century. Discount Store News, pp. 45-47. PNA/Island Aerie Internet Productions (1995/1996). Us against the Wal. Gig Harbor, Was hington Peninsula Neighborhood Association. Online Available http//www.harbornet.com/pna/. Saporito, B. (1994, May). And the winner is still . . . Wal-Mart. Fortune, pp. 62-68. Slezak, M. (1993). Seeds of environmental store deep-rooted in 1989. Discount Stores Inc., pp. 25-27. Stalk, G., Evans, P., Shulman, L. (1992, March-April). 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