Wal Mart s Competitive Advantage Essay Example for Free

Wal Mart s Competitive Advantage EssayWal-Mart, likely the nations near popular discounter, entered the foodstuff at the right clock time, when the barriers to entry were low-down. Benefiting from first mover advantage, Wal-Mart moved into marts that were not already served by competitors and was subject to set higher prices in these areas (6). Conversely, to compensate for low margins in areas heavily congested with competition, it cut apostrophizes (1). With an aim to offer low prices, the society soon learned that it needed to trim its expenses and establish itself as a lean organization, eventually softening to profitability and strong competitive advantage. Refer to Exhibit 1 for Wal-Marts successful performance, compared to the rest of the industry, as salubrious as the sections below for an explanation by expense item.Cost of Goods SoldInventory logistics were positive. Turnover exceeded 4.5 in the mid-1980s, well above that of competitors and trucks were 60% ful l on backhauls (4). In addition, getting in the forefront of technology allowed for lower overhead costs. The drug abuse of UPC scanning increased from 25 stores in 1983 to 91 stores in 1984 and 235 stores in 1985 (5). Even though the Company catered to a vast market, offering 36 merchandise departments across 70,000 SKUs, it was able to remain highly organized with a computerized corpse to track inventory, which set itself apart from its peers, as well as a central computer at headquarters, which was updated on a weekly basis (5), the verity of which led to efficiencies.The Company shopped around with its vendors, using around 3,000 of them, taking no more than a fifth of its volume from any one vendor (3). In 1984, the cost of inbound logistics was 50% that of the industry at 2.8% of sales (4). Still, Wal-Marts cost of goods sold was almost 2% higher than the industry average of 71.9%. given over the lack of distributors who would be able to offer competitive pricing, Wal-Mart built its own store in 1970. By the mid-1980s, Wal-Marts five distribution centers served the rapidly expanding issue of stores over 850 stores, meanwhile racking on steep upfront expenditures.Operating ExpensesPayroll ExpenseThe Company was able to minimize employee costs by give low wages (7), meanwhile keeping employees happy, in hopes of avoiding turnover costs. In 1984, Wal-Marts salary expense was approximately 1% lower than that of the industry. Unlike its competitors, the Companys 12 regional VPs all lived in surrounding areas, enabling intimate visibility over a relatively smaller geographic network, which lastly saved the Company about 2% of sales by not having to set up regional offices. However, contrary to intuition, this decrease in expenses did not adversely impact anyone at the Company. Instead, the offsetting increase in costs resulted in a company-wide benefit as Wal-Mart offered profit sharing, employee stock purchase plans, bonuses, and rewards for low shrin kage.With its people-focused initiatives, Wal-Mart was able to use intrinsic and extrinsic motivation to show employees how much they were appreciated. There was a huge emphasis on communication as management strived to be as transparent as possible with lower direct staff. For example, executives came into the office for meetings on Saturdays, then disseminated the latest updates downward, starting with the regional managers, district managers, store managers, and so forth. With its attractive CEO, who kept a pledge to put on a grass skirt and dance hula on Wall Street to celebrate the achievement, Wal-Mart was able to distinguish itself and was named one of the 100 best companies to work for in the United States (7-8).Advertising ExpenseRefer to Exhibit 1 for a high level summary, as well as Exhibit 2 for a more detailed breakdown, of the Companys advertising expense compared to the higher industry average. Marketers fixed a heavy emphasis on low prices with tag lines such as w e sell for less (5) or everyday low prices (6). As expected, the cost of advertising was directly correlated with the launch of new stores (6), as well as the location of those stores (i.e. cosmopolitan areas would be more costly) after entering a new area and establishing itself, Wal-Mart would then scale back advertising in that area. Branded merchandise, which made up the bulk of the inventory, was mostly nationally advertised (5), thereof promptly building brand awareness among consumers.Rental ExpenseRental expense at Wal-Mart was 0.3% lower than that of the industry. A large part of this was attributable to the occurrence that Wal-Mart did not permanently lock itself down to a certain location of the 859 stores in the mid-1980s, 812 were leased. With the flexibility to move during flourishing times, the size of an average Wal-Mart store went from 42,000 unbowed feet in 1975 to 57,000+ square feet in 1985 (3). In addition, the Company made a smart decision to stay out of lo cations that could not be expanded, again showing the Companys long-term, instead of short-term, mindset.Counter-Intuitive ComparisonsAfter further analysis of Wal-Marts costs in 1984, we encountered findings in the data that was counter-intuitive to the costs that we would expect to see from the most successful discount retailer of its time. Naturally, the area in which we would expect Wal-Mart to exhibit higher than average cost savings compared to the industry average would be in Cost of Goods Sold. However in 1984, Wal-Marts COGS at 73.8% was almost 2% higher than the industry average. As mentioned above, Wal-Marts system contained over 70,000 SKUs, a morsel larger than most other discount retailers which would lead one to believe that a high volume discounter like Wal-Mart would achieve economies of scale to bring on a COGS lower than the industry average.Next, due to Wal-Marts efficient distribution network, inventory did not back up in storage as quickly as other retailers . Wal-Mart boasted inventory turn 4.5 times in the mid-1980s, which was higher than the industry average. With reduced inventory levels due to the speed at which Wal-Mart was selling its inventory, this would lead one to believe that there would be a smaller amount of ending inventory to subtract from beginning and purchased inventory.ExpansionBeing the first warehouse club to solicit and introduce the concept in a market can be a major competitive advantage (9). As a result of the distinctive features mentioned above, Wal-Mart was able to set itself apart from its peers and rise to the top of the industry. In 1984, it started to diversify by starting three new ventures, the most worthy of which wassurface-to-air missiles, a warehouse club. The Company expanded from three stores in 1983 to 11 stores in 1984 and 23 stores in 1985. It took what it learned from the Wal-Mart venture and applied it to Sams accordingly.ConclusionOver the years, Wal-Marts success grew and it distinguished itself from its competitors, thus enabling the Company to expand its operations and diversify into the warehouse club market with the now-renown Sams Club. David Glass (later Wal-Marts president and chief operating officer) summarized the Companys history best when he said We are unendingly pushing from the inside out.We never jump and then backfill. (3) Instead of becoming greedy and aggressively dominating the market, the Company did so steadily over time by not taking on more than it could handle, the Company was able to strategically position itself. In the years to follow, Wal-Marts market value was twice that of its competitor, K mart, even though it was a third as large.