The visionary leadership of Sam Walton played a significant role in WalMart's success. Walton knew the value of starting small in business and growing big over time. He scanned his immediate environment, identified unmet needs and converted these needs into growth opportunities. For instance, Walton initially focused on small towns within Arkansas and later expanded to other areas. This strategy was adopted after the realization that WalMart's major competitors at the time, K-mart and Target, concentrated their operations in high-end areas and ignored rural areas and small towns. This strategy gave WalMart a strong customer base, enabling the retailer to expand to more competitive regions of the country when it had attained financial stability.
Walton's willingness to learn from the weaknesses of competitors was crucial for the phenomenal rise of WalMart. This strategy enabled Walton to avoid the mistakes that were made by the competitors. For instance, Walton's constant monitoring of the activities of the competitors helped him to perfect WalMart's customer service, manage employees better as well as diversify its portfolio through the launch of Sam's Club warehouses. Such strategic measures enabled the retailer to instill a great sense of loyalty and motivation among its workers. They also allowed the firm to constantly change its operational model with little negative impact on its operations.
However, it is the hard-discount business model that saw WalMart survive over the years without significant disruptions to its core operations. Since the opening of its doors as a single store in Arkansas, the company has emphasized religiously on highly discounted prices for its customers. Through close collaboration with suppliers, WalMart has managed to negotiate lower prices for its customers for decades. It also adopted a lean cost management strategy that saw cost savings passed onto customers in terms of reduced prices. The high discount model has instilled unparalleled customer loyalty thereby enabling the firm to record stable profits over the years irrespective of the status of the economy.
Why Costs of WalMart are Lower than Competitors
The cost of WalMart's operation is lower because of the company's ability to manage its core business functions efficiently. For one, the realization that buying goods in large quantities from suppliers enables businesses to benefit from trade discounts and economies of scale, the management of WalMart built distribution centers that stored goods before transportation to the chain stores. Distribution centers enabled the firm to move goods to the stores with exceptional speed and efficiency, avoiding stock-outs at the stores. At the same time, the firm invested heavily in technological innovations to boost efficiency. Notably, Wal-Mart developed and promoted a system that tracked and remotely identified goods within the distribution chain. Implementation of this system eliminated pilferage and instilled transparency on the part of the suppliers.
WalMart used its strong market presence to negotiate for lower prices with suppliers. The company has leveraged on its IT infrastructure to connect suppliers with its customer database. The connectivity allowed suppliers to monitor customer trends and deliver appropriate supplies as well as replenish the retailer's stocks almost in real-time. Such privileges made suppliers consider WalMart as an important trade partner. In response, they offered the retailer competitive prices. Some suppliers such as Gamble and Procter moved their operations near WalMart's headquarters to reduce their cost of operations. The nearness of Gamble and Procter operations had a positive negative ripple effect on WalMart's cost of goods.
Efficient management of human resource played a vital role in reducing WalMart's operation costs. For instance, the firm adopted an internal satellite communication system between managers which saved the company substantial resources in terms money and time. Additionally, attractive remuneration packages and employee schemes promote loyalty, allowing the company to avoid turnover costs. Moreover, the company hired most of its workforce right from high school or college. Such strategy not only ensured reduced compensation expenses but also lowered the cost of employee training and development. Hiring and training costs are also reduced through its policy of hiring senior staff from within the organization.
Marketing is another element that has helped WalMart reduce costs. The firm focused on high sales-per-square-foot. In effect, it increased its assortments in its chain stores to give customers more options. This resulted in profitable outcomes which were sustained through thin margins. At the same time, the company limited product advertising in favor of its low-price policy. As a result, cost savings accrued.
Internationalization: Brazil and South Korea
WalMart failed in Brazil because of competition. Competition from already-established brands such as Carrefour made it difficult for WalMart to extend its hard-discount business model. In South Korea, the retailer was unable to take off due to the unshakeable loyalty of Koreans towards locally-manufactured brands. The Koreans saw WalMart as a promoter of China's economic interests in the country hence avoided its products.
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