Wal-Mart is one of the nation's leading discount retailers, and its success is built on the vision of its founder, Sam Walton. With a strategy of locating in relatively small areas (with populations of under 100,000), the company built a loyal following by offering many products in a single location, and by selling at prices which met, or were lower than, prices available in cities located hours away. The success of Wal-Mart can best be found in its performance relative to its competitors, including Dayton-Hudson, Heck's, Kmart, Rose's and Zayre. The following chart illustrates the performance of each of these competitors for the period 1974-1984 in key financial areas:
The chart illustrates that Wal-Mart has consistently and significantly outperformed its competition although its total sales revenues are not above those of Kmart (for example). Wal Mart is able to achieve this impressive performance because of several key strategic decisions which the company has developed and implemented, and which may well change the way discount stores operate in the future.
To begin with, Wal-Mart has a strong centralized distribution system with warehouses serving as hubs for the stores in a given geographic area. In this way, the company is able to reduce the inventory levels at the stores (and the associated nonproductive warehouse space that goes with them) and ship what is needed to each store from a central point. The result is that stores do not have unnecessary stock on hand, and the company is able to buy in bulk from its vendors.
The company also negotiates very aggressively with its vendors, with the result that it obtains the best pricing available. It is able to maintain this stance by not favoring any one vendor with a tremendous percentage of its business. In this way, Wal-Mart is able to keep vendors competing with each other in order to maintain their Wal-Mart share, while the company is not overly dependent on any...