Wal-Mart's Cost Leadership Strategy
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Case Details:
Case Code : BSTR096
Case Length : 17 Pages
Period : 1962 - 2004
Organization : Wal - Mart
Pub Date : 2004
Teaching Note :Not Available
Countries : USA
Retail ing
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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EXCERPTS
Achieving Cost Leadership
Offering products at EDLP, especially during its early years, when Wal-Mart was not an established retail player, was quite difficult. The company aggressively followed a cost leadership strategy that involved developing economies of scale and making consistent efforts to reduce costs.
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The surplus generated was reinvested in building facilities of an efficient
scale, purchasing modern business-related equipment and employing the latest
technology. The reinvestments made by the company helped it to maintain its cost
leadership position.
From the start, Wal-Mart imposed a strict control on its overhead costs. The
stores were set up in large buildings, while ensuring that the rent paid was
minimal. The company imposed an upper limit for its rent payment at $1.00 per
square foot during the late 1960s. Not much emphasis was laid on the interiors
of the stores. The company did not invest on standardized ordering programs and
on basic facilities to sort and replenish the stock...
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Wal-Mart in the 1990s
In the early 1990s, Wal-Mart started focusing on its Supercenters and Sam's Clubs to fuel growth. Wal-Mart expanded its operations into the Northeast and West of the US by placing a lot of emphasis on the groceries business through its Supercenters.
The modus operandi was to first establish discount stores, after which the best performing stores were to be converted into Supercenters.
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By 1991, Wal-Mart's mammoth retail network comprised of 1,355 discount stores, 120 Sam's Clubs and three Supercenters being served by 16 distribution centers.
However, at this time, Wal-Mart had yet to enter as many as 23 states in the US. In the early 1990s, it was estimated that the size of the groceries business in the US was three times that of the discount store business. So, Wal-Mart decided to focus on Supercenters to propel its growth. Following Walton's death in 1992, David Glass (Glass) succeeded him as the CEO of Wal-Mart. Glass viewed food retailing as a key driver to increase revenue growth in the 1990s... |
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