slides - walmart undergrad

8/12/2019 Slides - Walmart Undergrad

1/23

Wal-MartIn Search of Renewed Growth


2/23

Ernesto Reuben

Wal-Marts performance (before 2000)


3/23

Ernesto Reuben

Wal-Mart store openings

http://projects.flowingdata.com/walmart/


4/23

Ernesto Reuben

Wal-Marts performance

Invest $1,000 in IPO in 1972 $10,000,000 in 2000

Richest Americans 6 (Chirsty Walton), 9 (Jim Walton), 10 (Alice Walton),

11 (S. Robson Walton) combined wealth of $87B


5/23

Ernesto Reuben

Wal-Marts performance (after 2000)

But essentially flat since 2000


6/23

Ernesto Reuben

Understanding financial data

ROE

ROA

Net Margin

Net

Income

OperatingProfit

Gross

Profit

Sales COGS

SG&A

Tax andOther

Sales

Asset

Turnover

SalesTotal

Assets

Leverage

TotalAssets

Equity

/ /

/


7/23

Ernesto Reuben

moving upscale?

Project Impact

Thinking small

Miles Cyrus clothing line

expanding internationally?

Should Wal-Mart grow by


8/23


9/23

Ernesto Reuben

Update Wal-Mart

Global Initiatives

Wal-Mart to South Africa (AP, Feb 17, 2010)

Wal-Mart takes over transportation for suppliers(BW, Jun 6, 2010)

Would you get your taxes done at Wal-Mart?(Time, Jan 20, 2012)

Firm Competitor

WTP

Cost


10/23

Ernesto Reuben

The Wal-Mart effect (Furman 2005)

Benefits to consumers

Savings of $263B in 2004 ($2,329 per household)

About 25% reduction in food spending ($782 per

household)

Benefits distributed progressively Productivity effects


11/23

Ernesto Reuben

The Wal-Mart effect (Furman 2005)

Impact on Retail Workers

Wal-Mart opens in Glendale AZ hiring 525 employees

with wages as low as $6.75 8000 applicants! (harder that getting into Harvard)

Wages not significantly lower given location and

qualification but lower than unionized workers in major cities

Health benefits comparable to other retailers

Net effect on employment and wages is less clear

Could Wal-Mart Do Much Better for Workers?

Promote public initiatives! Universal healthcare


12/23

Ernesto Reuben

Takeaways from the case

Growth is usually an outcome not a source ofcompetitive advantage

To create added value, activities must be tightlyintegrated

Helps you sustain your completive advantage byavoiding imitation

But it implies tradeoffs

Wal-Mart's strategy: Every day low costs


13/23

Ernesto Reuben

Mutually reinforcing activities

Inbound

Logistics

Operations Outbound

Logistics

Marketing

& Sales

After-Sales

Service

M

a

rg

i

n

Primary Activities

Support

Activities

Firm

Infrastructure

Human

ResourceManagement

Technology

Development

Procurement

Big stores in small towns

=> local monopolies, low

rental costs

Pricing that reflects local

monopoly

Concentric expansion

Brand-name merchandise

Private labels

Little space for inventory

Suggestion program Store within a store

Traiting: tailoring

merchandise to locale

EDLP

Low prices

Store manager

latitude on pricing

Little advertising

Merchandise meeting

Frequent

replenishment

Automated DCs,

cross docking,

pick-to-light

EDI

Hub and spoke

system

Easy returns

POS

Satellite system

Associates, not employees

Not unionized Store manager autonomy

Frugal culture (sharing hotel rooms,

calling collect

No regional offices

Lots of management visits

Store performance tracking

UPC

Hard-nosed negotiating

Centralized buying

No-frills meeting rooms

Partnerships with some vendors

EFT, electronic invoicing

Planning packets

Manager compensation tied to

store Stock ownership plan

Decentralized training in DC

Real-time market research

Saturday meetings

Fun working environment

Promotion from within

Associate compensation tiedto company

Shrink incentive plan

Wal-Mart's value chain


14/23

Ernesto Reuben

Low prices

Selection across

categories

Rural

convenience

Reliable prices

Merchandise

qualitySuburban

convenience

Selection within

categories

Sales help

Ambiance

You dont have to be good at everything!

1 2 3 4 5

Wal-Mart

Mom & Pop

Sears


15/23

Ernesto Reuben

Cost Leadership

Firm Competitor

WTP

Cost


16/23

Ernesto Reuben

WTS

WTP

Cost

Price

Cost Leadership

Industry average

competitor

Successful low-

cost competitor


17/23

Ernesto Reuben

WTS

WTP

Cost

Price

Cost Leadership

Industry average

competitor

Successful low-

cost competitor

1. Creates added

value

2. Captures a

bigger share of

the added

value


18/23

Ernesto Reuben

Cost Leadership

Sources of cost leadership

Learning curve?

Popularized by BCG


19/23

Ernesto Reuben

The Law of Experience

The unit cost value added to a standard

product declines by a constant % each

time cumulative output doubles.Cost per

unit of

output(in real $)

Cumulative Output

1992

1994

1996

19982000

2002

The Learning Curve

2004 2006


20/23

Ernesto Reuben

P

riceIndex

501

00

200

300

70% slope

UK refrigerators, 1957-71

Examples of Learning Curves

Source: Grant (2007), p. 226

100K 200K 500K 1,000K

1960Yen

15

K

20K

30K

75% slope

Japanese clocks & watches, 1962-72

Accumulated unit production(millions)

5 10 50

Accumulated units(millions)


21/23

Ernesto Reuben

If firms in an industry have the same learning curve:

Change in relative costs over time = f(relative market share)

Implies that market share is linked to profitability, which is

confirmed by PIMS data:

BUT: Association does not imply causation

OPMargin(%

)

-2

0

5

10

0-10 10-20 20-30 30-40 over 40Market Share (%)

The importance of market share


22/23

Ernesto Reuben

Cost Leadership

Sources of cost leadership

Learning curve?

Popularized by BCG

Better to think about in terms of

Economies of scale Economies of scope

Economics of density

Suppliers opportunity cost (WTS)


23/23

Ernesto Reuben

Whats next?

ZARA: Fast Fashion

Assignment Questions

What are the distinctive elements of Zara'sbusiness strategy?

How do the distinctive elements of Zara's business

strategy affect its operating economics relative toits competitors?

Poll Question

As an advisor to Amancio Ortega, would yourecommend franchising the Zara stores for fasterexpansion?

slides - walmart undergrad

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