Term Paper on "Walmart's Success"

Term Paper 6 pages (1910 words) Sources: 2

[EXCERPT] . . . .

Management

Wal-Mart Success

Sam Walton's radical vision was to have huge superstores in rural towns that discounted a wide variety of products. His initial approach has been to Ben Franklin. They passed because they did not like the idea of operating with lower margins. Even without a large company to back him, Walton decided to move ahead. In 1962, he mortgaged his house and borrowed against everything else that he owned in order to open his first Wal-Mart in Rogers, Arkansas, an adjacent town of Bentonville. Energized about the prospects of getting discounts and selection that were beforehand only available in the cities, rural customers came out in droves to this store. The accomplishment of this first store permitted him to expand and by 1969 he had 18 Wal-Marts throughout Arkansas and Missouri. Financed completely through debt and reinvested profits, Walton decided that in 1970 he would take the company public. This raised $5 million of which Walton kept 61%. He used his share to settle the company's debts and fuel further expansion. By 1980, there were 276 Wal-Marts in operation (Carmichael, 2010).

An essential component of Wal-Mart's success was its leveraging of new technologies in order to improve efficiencies and save costs. Walton understood that the key to success in a low margin business was to strictly control costs. Wal-Mart was one of the first major retailers to use electronic scanners at the registers. These were tied to an inventory control system so that they could know immediately which items were selling well and needed to be re-ordered. The success of his Wal-Mart stores led Sam to another inspiration in the form of Sam's Wholesale Clubs. These are discount stores that sell to small business owners in bulk. This plan was another big hit for Walton and by 1985 he was thought by Forbes magazine to be the richest man in America. He was estimated to be worth of $2.8 billion. Sam Walton did not invent retailing; he simply altered the business model and way of doing business to make it a much more profitable undertaking (Carmichael, 2010).

Wal-Mart Stores, Inc., in 1998, with corporate headquarters in Bentonville, Arkansas, was not only the nation's largest discount department store chain but also had surpassed Sears, Roebuck & Company as the largest retail organization in sales volume in the United States. The firm manages stores under a variety of names and retail formats. These stores include Wal-Mart, discount department stores, SAM'S Clubs, wholesale and retail membership warehouses and Supercenters, large combination general merchandise and grocery stores. In the international division, it managed stores in Canada, Mexico, Argentina, Brazil, Germany and China. Wal-Mart operated a total of 2,421 Wal-Mart stores, 483 SAM'S Club stores, and 502 Supercenters (Thompson, Strickland and Gamble, 2009).

A major apprehension was Wal-Mart's impressive growth and the power of the firm within the market. The firm was alleged to be in the accelerated development or growth stage of the institutional life cycle in which sales increase rapidly, profits run high, new stores are opened, existing stores are refurbished, the product line is reevaluated, service offerings are upgraded, automation is introduced to store operation, and better management controls are developed. What made this circumstance distinctive was that the discount department store industry was thought to be at maturity. The industry faced increased competition, leveling of sales, moderate profits by surviving firms, over-stored markets, and more complex operations problems than previously (Thompson, Strickland and Gamble, 2009).

Another concern that Wal-Mart faced was life after Sam Walton. After his death a new president and chief executive officer was put into place. Management view was that there would be no transition to make because the principles and the basic values of Sam Walton used in founding these companies were so sound and so universally accepted that it wouldn't be needed. Senior management felt that the firm could continue to maintain its blistering growth pace by outmaneuvering the competition with innovative retailing concepts (Thompson, Strickland and Gamble, 2009).

Today almost 90% of the U.S. population lives within 15 miles of a Wal-Mart store. In 1962 when Sam Walton opened the first Wal-Mart no one thought it would be as successful as it turned out to be. Walton's aptitude for discount retailing not only made Wal-Mart the world's largest retailer, but also the number one retailer in sales. Wal-Mart stores are often so successful that they outgrow where they are located and then they need to relocate in order to better serve their 176 million weekly customers. The main goal that Wal-Mart has is to keep prices low. On average, customers save 15% by shopping at Wal-Mart (Caban, 2007).

Wal-Mart employs cutting edge technology, thrifty corporate culture, and a pushes to make suppliers sell merchandise at cheaper and cheaper prices every year. They expect their stores to keep operating expenses to a bare minimum and pinch pennies wherever feasible. They even adhere to this with heating and cooling. In the winter stores are kept at 70 degrees while in the summer they are kept at 73 degrees. Wal-Mart has a policy known as plus one. They demand that suppliers either lower their prices or increase the quality in regards to every item every year (Wilbert, 2010).

In fiscal year 2006 Wal-Mart set new sales records. Net sales went up 9.5% to $312.4 billion, while net income rose 9.4% to $11.2 billion. Their earnings per share hit double digits growing from $2.41 to $2.68. Some experts feel that Wal-Mart might have reached its peak because same-store sales had slowed down considerably. Other experts argued that they hadn't peaked because Wal-Mart can always enter new retail segments. The reality is that they only started with one Wal-Mart and now they operates four retail divisions, Wal-Mart Supercenters, Wal-Mart discount stores, Neighborhood Market stores and Sam's Club warehouses (Wilbert, 2010).

2006 was a big year for Wal-Mart as it expanded internationally. They started 537 new international stores and hired over 50,000 new employees. They acquired the retail operations of Sonae located in Brazil, and CARHCO located in Central America. This Wal-Mart's annual income has not shown any signs of slowing down. Over the past ten consecutive years it has been steadily increasing and it seem as if it will continue to do so. Even though they have some competition with companies like Kmart and Target, neither has managed to beat their great prices as Wal-Mart overshadows both of them. It has exceeded both Kmart and Sears combined in magnitude since 1994. There's doesn't seem to be any stopping Wal-Mart. It's a company that has been around for over 40 years and continues to flourish, because they are always changing to meet their customers' needs. Wal-Mart is more than just the world's largest retailer; it's an economic powerhouse and cultural phenomenon (Wilbert, 2010).

Wal-mart has had several strategic goals over the years have allowed them realize the success that they have today. These goals have included:

Dominating the retail market - Company founder Sam Walton put into place a retail philosophy the company still goes by. Wal-Mart is primarily a discount retailer because they sell their products at the lowest possible prices. By selling products at the lowest price, Walton delineated that the essence of successful discount retailing is to cut the price on an item as much as possible, lowering the markup, and earning a profit on the increased volume of sales.

Having competitiveness within every unit - Each store is encouraged to fiercely compete against all other stores in its customer base until the Wal-Mart store gains dominance over its local competitors. Wal-Mart is currently thought to be the world's number one retailer and the number one company in the world in terms of sales according to the Fortune 500 list. The key strategy is to dominate a market. By utilizing its size and volume buying power, the company effectively implements its strategy.

Expansion - The statistics clearly show the corporation has dominance and power. Currently the corporation employs over 1.3 million employees, one million in the United States alone. The company owns over 4000 stores around the world. Over 1,200 stores are in operation internationally. Wal-Mart is the largest U.S. retailer. It employing around 1 million people. They have over 3,000 stores and outlets, and 77 distribution centers. The company serves more than 100 million customers every week in all 50 states, Puerto Rico, and several nations around the world.

Creating positive impressions of customer satisfaction with the Wal-Mart brand - Their objective is to have the customer connect the retailer with the reputation of offering the best prices. The company accomplishes this by way of television advertising campaigns and newspaper adverts. Typical of Wal-Mart advertising is the use of actual Wal-Mart stores and employees in its commercials. Their key themes, such as Low Prices Always are always featured. The company engages in partnerships and co-branding. There are many Wal-Mart stores that have a McDonald's restaurant inside them. Because of their size, there are certain select… READ MORE

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