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Title: WalMart: An American Original Agenda

Wal-Mart An American Original- Agenda
  • A Retrospective on its Growth
  • 2. Innovative Business Model
  • How Did Sam Walton Get These Ideas?
  • 3. Wal-Mart Today The Challenges
  • Retreat from Germany in 2006
  • Sluggish Growth in the US Market
  • Clamour at Home The Price of Becoming Big
  • 4. Wal-Marts Response
  • Global Ambitions
  • Re-thinking One-Size-Fits-All Approach
  • Flexible Workforce

How Wal-Mart Got There- A Retrospective on
Its Growth
  • The Numbers How Big is Big?
  • IT The Driver of the EDLP strategy
  • Management Process
  • Partnership with Suppliers
  • Partnership with Employees
  • Obsessive Focus on Costs

Wal-Mart A Behemoth
  • 1962 Sam Walton launched his first store
  • Location Bentonville, a backwater in
    Arkansas, a state where
    chickens outnumber people
  • Today Worlds Largest Retailer
  • Four times as big as 2 Retailer, Carrefour
  • 5,482 stores in 14 countries as of Oct 31, 2005
  • Revenues 285B vs GE 152B
  • Second-largest Company after ExxonMobil (298B)
  • Workforce 1.3 M
  • Biggest private sector employer in the world

Waltons Business Model was Different
  • Located stores in small towns since big retailers
    such as Kmart and Sears dominated large towns
  • Kept overhead low
  • Offered incentives - Profit-sharing for staff
  • Partnerships for suppliers
  • Large investment in IT To keep inventory low
  • Customers got friendly service
  • AND, Everyday Low Price

Wal-Mart after 40 years .Lord of the
  • Annual 2001 sales 220 billion Pre-text
    Profits 9.3 Million
  • .. 60 of U. S. Retail Sales
  • 1 Food Retailer in the U.S. 56 billion in
  • .. Opened since 1985 over 1000 massive
    dept./grocery supercenters,
    at 200,000 sq. ft., bigger than 4 football
  • of employees worldwide 1.28 million
  • .. More than the US Postal service in
    China 4,000
  • of Suppliers 30,000 .. In every continent
    but Antarctica
  • Value of 100 shares bought in 1970 _at_ 16.50 per
    share 11.5 million
  • Wal-Marts of PG's 40 billion in annual sales
  • PG has a 150-strong Bentonville office
    Senior EVP dedicated to Wal-Mart
  • Typical starting hourly wage 6.50
  • Source Business 2.0, March 2002

A Simple But Powerful Idea Minimize the
Bad I - Inventory
  • Walton figured out that most of the costs gets
    added after the product leaves the factory and
    moves through the supply chain
  • Mfg. ? Wholesaler ? Retailer
  • 20 - 30 of retail price spent on keeping
    inventory in 3 warehouses
  • Walton eliminated the wholesaler
  • He instituted JIT inventory practices using
    real-time flow of information from a stores
    sales floors to the suppliers plants that
  • What to produce? When to ship? To which

IT is Critical for Wal-Marts Everyday Low
Price Strategy
Invested in most of the waves of retail IT
systems earlier and more aggressively than its
- Set industry standards in IT
1969 Used computers to track store
inventory 1980 Adopted bar codes 1985
Electronic Data Interchange (EDI) with
suppliers Late 80s Wireless scanning guns 20
03 Mandated its 100 largest suppliers
to place RFID (Radio Frequency
Identification) tags on the boxes and pallets
shipped to Wal-mart stores by January 2005
Focus of IT Investments Applications that direct
ly enhanced its core value proposition EDLP
and increase sales through
IT Only Area Where Wal-Mart Outspent Competitors
  • Walton recognized early on that timely
    information is the key to maximizing sales and
    minimizing costs. The better your information
    about whats selling and whats not, store by
    store, the better you can avoid the twin perils
    of retailing
  • too little inventory or too much
  • Very Secretive About Its Information Systems
  • Custom-designed systems built by employees kept
    competitors off the trail
  • Hardware and software vendors bound by
    non-disclosure agreements
  • In 2001, Wal-Mart summarily announced that it
    would no longer share sales data with market
    research vendors like Information Resources Inc
    and AC Nielsen, since the reports of the vendors
    are available to all retailers who subscribe to
    that service.

Wal-Marts Fetishness About Secrecy- Sued Amazon
for Stealing Its Computer Secrets
  • 1997 Amazon Forced to Set Up Distribution
  • Because Bertelsmann, the German media giant, went
    into a joint venture with Barnes Noble, one of
    the two largest book store chains in the US, and
    launched an online book store to compete with
  • AND
  • Bertelsmann bought the largest book distributor
    in the US, who was Amazons Supplier
  • Amazon Lacked Core Competence in Distribution
  • Recruited 15 current employees of Wal-Mart and
    its vendors who had intimate knowledge of
    Wal-Marts computer systems behind the
    super-efficient distribution system.
  • Amazons Stand
  • Were not interested in other peoples trade
    secrets. Were interested in hiring the
    brightest, hardest working, and most talented
    people wherever they might be.
  • Wal-Marts Response
  • Theres a lot of computer talent out there in
    the Valley. If youre coming to Bentonville,
    youre looking for something special.

Sharing Sales Data With Suppliers- Key to
Low-Price Leadership
  • Treat Suppliers as Partners, NOT Adversaries
  • Implemented a Collaborative Planning, Forecasting
    and Replenishment (CPFR) Program
  • JIT Inventory Program Reduced Carrying Costs
    - for Both Wal-Mart AND Its
  • Wal-Marts Cost of Goods 5 - 10 Less Than

CPFR has blurred the lines between Wal-Mart and
the Supplier Youre both working to the same
end To sell as much product as possible without
either of us having too much inventory.
Source Computerworld, Sept. 30, 2002
Wal-Marts Data Warehouse
  • Current Level of Storage Capacity 570 Terabytes

  • Second only to the U.S. Governments
  • More than all of the Internets fixed pages
  • Information is shared with its own Buyers AND

Wall Street Journal, Dec 3-4, 2005
Value of the Data Warehouse- Wal-Marts
  • Helps to time merchandise deliveries -
    Its shelves stay stocked,
    but NOT overstocked
  • Predict what is going to happen,
    instead of waiting for it to
  • Example Analysis of purchases during Hurricane
    Charley indicated products to be stocked in
    Floridas Wal-Mart ahead of Hurricane Frances
    that hit a few weeks later
  • Not just the usual flash-lights, but, for
    example, strawberry Pop-Tarts whose sales rates
    was 7 times the normal rate. The Pre-Hurricane
    top-selling item was beer!

Source New York Times, Nov 14, 2004
Value of the Data Warehouse - Suppliers
  • Wal-Mart opened its data vault in January 1999 to
    its suppliers cements Wal-Marts power over
  • Extranet built by Wal-Mart, Retail Link, allows
    suppliers to see how their products are selling
    in different stores and which ones need to be
  • Vast and detailed data on sales and inventory
    exceeds what many manufacturers know about their
    own products.

They are very strict with their suppliers, but
they give them the data they need.
All That Data Is Mined!- Doing it since 1990
Analysis of its 90 million shopping cart
transactions per week - To see how the purchase
s of the different items are related.
- Company can then better identify items to
market together. Obvious examples -
Charcoal and tongs go alongside the barbecue
grills - Tiny baggies next to the pretzel boxes
so Mom can pack snacks for the kids
A not so obvious example! - Customers who buy Ba
rbie dolls (it sells one every 20 seconds) have a
60 likelihood of buying one of three types of
candy bars Source Forbes, Sep 5, 1997
Micromerchandising Pays Off
Wal-Mart Stays Ahead of Competition!
Competitors began to adopt many of Wal-Marts IT
innovations including EDI and wireless bar code
scanning in earnest in the mid-1990s. Targets
vice-chairman acknowledges that his company is
the worlds premier student of Wal-Mart.
Still Wal-Marts productivity, measured by real
sales per employee, is higher than competitors.
Sales per employee, thousand
The Wal-Mart Effect on Retail
  • 1987
  • Wal-Marts Market Share 9
  • But 40 more productive than its competitors
  • 1995
  • Wal-Marts Market Share 27
  • Productivity advantage widened to 48
  • 1995-99
  • Competitors reacted by adopting Wal-Marts
  • Managed to increase their productivity by 28
  • Wal-Mart raised the bar further by increasing its
    own efficiency by another 20

Source Retail The Wal-Mart Effect, The
McKinsey Quarterly, 2002, No. 1
Wal-Mart Changed Retailing Economics
  • Company
  • (Latest 12 months in 1994-95)
  • Wal-Mart
  • Circuit City
  • K-Mart
  • Caldor
  • Bradlees
  • Federated Dept. Stores
  • Selling, General Admin.
  • Costs As a of Sales
  • 15.8
  • (19.4 in 1984)
  • 19.0
  • 22.2
  • 24.4
  • 29.4
  • 33.3

Now in Chapter 11 bankruptcy proceedings
Source Business Week, Nov 27, 1995
IT Innovation Is NOT Enough
At least half of Wal-Marts productivity edge
stems from managerial innovations that improve
the efficiency of stores and have nothing to do
with IT.
  • For Example
  • Cross-training of employees allows them to
    function effectively in more than one department
    at a time.
  • Better training of cashiers and monitoring of
    utilization can increase productivity rates at
    checkout counters by 10 to 20.

Wal-Marts Management ProcessKey Features
1. Low Wages But Golden Cuffs
Started a Profit-Sharing Plan in 1971 for ALL
Employees Based on profit growth, we contri
bute a of the employees wages to his/her
plan. The employee can take it in cash or
Wal-Mart stock when they leave the company.
After nearly 25 years at the company, Shirley
Cox, a cashier, still earned barely 7.00 an
hour. But she retired in her 40s on 250,000 of
company stock. the stock is a prevailing theme
for everyone at Wal-Mart if you hang around long
enough, you can make a fortune on the stock.
2. No class system, thus fending off all attempts
at unionization ALL employees are called ass
ociates drumming home the notion that
managers and workers are partners
3. Promote from within In 1996, 5,900 workers
moved up to management jobs 60 of the 30,00
0 managers are former hourly workers
Wal-Marts Management ProcessKey Features
4. Empowering of Front-Lines Wal-Mart give
s them information at their finger-tips and the
freedom to act. If someone asks me how we man
age a 100 billion company, I tell them a store
at a time, and we constantly challenge tha
t unit to make it the best. 5. Keeping Track o
f Competitors Prices Later that afternoon
, she leaves the store for an hour to compare
prices at nearby Kmart and Target stores.
She is reimbursed mileage. If a competitors
prices are the same or lower than
Wal-Marts, she consults with her supervisor
about cutting her own prices up to 5 .
6. Management will not tolerate shrinkage
Loss, theft and damage of inventory is
capped at around 1 Other retailers settle
for 3 - 5
Wal-Marts Management ProcessKey Features
  • Work Ethic, Disdain for Extravagance
    and Customer-Centric
  • Lead by Example Walton was a model of frugality
    and modesty who continually warned against
    complacency and sloth. He drove around in an aged
    Ford pickup truck and wore inexpensive clothes.
  • Wal-Marts corporate offices are cramped, dingy
    and cheaply furnished. Walton believed that
    executives should spend more time on the selling
    floor than behind desks.
  • To make sure they did, Walton, an avid pilot,
    assembled a small air-force that whisked them
    around the country, visiting Wal-Marts Monday
    through Friday. On the road, they stayed in
    budget hotels, and ate at family restaurants.
  • Every Saturday, at a meeting in corporate
    headquarters in Bentonville, they discussed their

A Model of Frugality- In Practice
  • No signs of opulence or ego at the companys
  • Lee Scott, the current CEO, drives a VW beetle
    and shares a
  • hotel room. John Menzer, head of Wal-Mart
  • sits in a tiny office on the same floor as
    his staff.
  • Executives take out their own rubbish, pay for
    their coffee
  • and are told to bring back pens from
    conferences !
  • Another penny-saving practice call vendors
    collect !
  • Expenses on a buying trip should not exceed 1
    of the cost
  • of the items purchased.

In the Founders Words
Theres no two ways about it Im cheap. Wal-Mart
never bought a jet until we hit 40B in sales and
expanded as far away as California and Maine, and
even then they had to practically tie me up and
hold me down to do it. A lot of what goes on thes
e days with high-flying companies and these
overpaid CEOs, whore really just looting from
the top and arent watching out for anybody but
themselves, really upsets me
Why should we stay so cheap when were a 50B
company Because we believe in the value of the
dollar. We exist to provide value to our
customers, which means that, in addition to
quality and service, we have to save them money.
Every time Wal-Mart spends one dollar foolishly,
it comes right out of our customers pockets.
The Bigger Wal-Mart Gets,The More
Essential It Is We Think Small
  • Waltons Management Principles (circa 1990, 1528
  • For several decades now weve worked hard at
    building a company thats simple and streamlined
    and takes its directions from the grassroots.
    Its a pretty tall order for an outfit that is
    spreading out all over the country as fast as we
  • At our size today, theres all sorts of pressure
    to regiment and standardize and operate as a
    centrally driven chain.
  • Id hate to work at a place like that and I worry
    every single day about Wal-Mart becoming that
  • Nothing at all profound about any of our
    principles in fact, theyre all common sense.
    Most of them can be found in any number of books
    or articles on management theory.
  • But I think the way we have applied them at
    Wal-Mart has been just a little bit different.

Most Important,Think One Store At a Time
That sounds easy enough, but its something weve
constantly had to stay on top of. Because our
sales and earnings keep going up doesnt mean
that were smarter than everyone else, or that we
can make it happen because were so big. What it
means is that our customers are supporting us. We
know what we have to do keep lowering our
prices, keep improving our service, and keep
making things better for the folks who shop in
our stores.
That is not something we can simply do in some
general way. It isnt something we can command fr
om the executive offices because we want it to
happen. We have to do it store by store, departme
nt by department, customer by customer, associate
by associate.
Store Within A StorePush Responsibility And
Authority Down
  • Toward that department head whos stocking
    the shelves and
  • talking to the customer.
  • What sets us apart is that we train our
    department heads to be managers of their own
    businesses. In some cases, these businesses are
    bigger in annual sales than a lot of our first
    Wal-Mart stores.
  • This works only because we decided a long time
    ago to share so much information about the
    company with our associates, rather than keep
    everything secretive.
  • We let them see all the numbers so they know
    exactly how they are doing within the store and
    within the company. They know their costs, their
    markup, their overhead and profit margins. Its a
    big responsibility and a big opportunity.
  • And, we give them incentives to want to win.

Sales Review Meetings at Corporate- One
Store At A Time
  • When we sit down at our Saturday morning meetings
    to talk about our business, we like to spend time
    focusing on a single store, and how that store is
    doing against a single competitor in that
    particular market. We talk about what that
    store is doing right and what its doing
  • Focus on a Single Store
  • Enables us to improve that store
  • Learn a particular way in which, say, the Panama
    City Beach Wal-Mart is outsmarting the
    competition on beach towels.
  • Get that information out to all our other beach
    stores around the country.

I dont know any other large retail company
Kmart, Sears, Penneys that discusses their
sales at the end of the week in any smaller
breakdown than by region. We talk about
individual stores - if were talking about the
store in Harrisburg, Illinois, everybody here is
expected to know something about that store how
to measure its performance, whether a 20
increase is good or bad, what the payroll is
doing, who the competitors are, and how were
Keep Your Ear To The Ground
  • A computer is not and will never be a
    substitute for getting out in your stores and
    learning whats going on.
  • It can tell you down to the dime what youve
    sold. But it can never tell you how much you
    could have sold.
  • Thats why we at Wal-Mart are fanatics about our
    managers and buyers getting off their chairs here
    in Bentonville, and getting out into those
    stores. We have 12 airplanes only one of them
    is a jet, Im proud to say in our hangars out
    at the Rogers, Arkansas, airport, and thats why
    they are there.
  • We stay in the air to keep our ear to the
  • Our whole travel system is really an outgrowth of
    the way I managed those 9 stores back in 1960. I
    would get in my old Tri-Pacer and fly to those
    stores once a week to find out what was selling
    what wasnt, what the competition was up to, what
    kind of job our managers were doing, what the
    stores were looking like, what the customers had
    on their minds. Of course, I have continued to
    visit stores almost constantly ever since, but
    with almost 2,000 stores today, a lot of other
    folks have to get in on the act.

The Real Hands-On, Get-Down-In-The-Store
  • Our district managers are doing the job that I
    did back in 1960. But we also have 18 Regional
    Managers based here in Bentonville. Every Monday
    morning, they pile into those airplanes and head
    across the country to the stores in their
  • Its a condition of their employment. They stay
    out 3 to 4 days, usually coming back in on
    Thursday. Weve drummed into their heads that
    they should come back with atleast one idea that
    will pay for the trip.
  • Then they gather with the senior management of
    the company all of whom should also have been
    visiting stores earlier in the week if they
    expect to ask any intelligent questions or know
    the first thing about whats going on for our
    Friday morning merchandising meeting.
  • In addition to the field work, we have computer
    printouts at the meetings which tell us whats
    selling and whats not.
    But the really valuable intelligence
    that surfaces in these sessions is what everybody
    has brought from the stores.

Bentonville, Arkansas, Does Not Come to the
World- The World Comes to Bentonville!
Source One Nation Under Wal-Mart Fortune, Feb.
18, 2003
As the Company Grew,It Exercised Its
Muscle on Suppliers
  • Wal-Mart meets with each Supplier to establish
    sales goals for the coming year after review of
    sales results for past weeks and months.
  • Keeps a Supplier Scorecard
  • Punctuality of deliveries
  • Data-documented problems about meeting orders or
    returns of defective products by customers
  • Suppliers not meeting sales targets would face
    tougher negotiations in the future from the
    steely Wal-Mart buyers.
  • RFID Mandate to Top 100 Suppliers in 2003
  • In the Horizon Scan-based Trading
  • Suppliers own each product until it is sold.
    Wal-Mart will never take those orders onto its
    books. Think of the impact of shedding 50B of
    inventory. The impact will probably be felt by
    suppliers, but none are likely to complain.
    Meta Group Retail Analyst

Wal-Mart Lives in a World of Supply
Command,Instead of a World of Supply Demand
  • An Example Cross-Docking
  • Pre-assembled orders for individual stores from a
    suppliers truck go seamlessly from an unloading
    dock at Wal-Marts Distribution Center directly
    into a truck bound for stores
  • Get goods into stores without even unpacking
    them let alone allowing them to sit
    in storage !

Until we reached a billion dollars, a lot of
suppliers just ignored us way out here in the
Arkansas Outback. Now, of course,
were too big too ignore.
Vendor-Financed Inventory !
  • How Cross-Docking Works
  • At Wal-Marts new distribution centers, PGs
    trucks are unloaded directly to trucks that will
    head for Wal-Mart Stores. The toothpaste is never
    even put on warehouse shelves. Once a truck is
    full, it heads to the stores.
  • Products are put on the shelf within 4 hours, and
    are usually sold within 24 hours.
  • Despite this tight delivery schedule, Wal-Mart
    has 10 days to pay PG.
  • Benefit of Cross-Docking Vendor-Financed
  • Sell the goods before we have to pay.

How Wal-Mart Drives a Tough Bargain
  • Suppliers are shown to the row, a long corridor
    of drab, windowless cubicles at the Bentonville
    headquarters, each adorned with a notice that
    Wal-Marts buyers do not accept bribes.
  • Its like a scene from a bazaar sweaters spill
    out of suitcases and haggling over prices
    continues all day.
  • We were grapes, but now we are raisins. They
    suck you dry.
  • Theres a difference between being tough and
    being obnoxious. Every buyer has to be tough,
    Thats the job.

How Wal-Mart Drives a Tough Bargain
  • Buyers are told Youre not negotiating for
    Wal-Mart. You are negotiating for your customer.
    And your customer deserves the best price you can
    get. Dont ever feel sorry for a vendor. He knows
    what he can sell for, and we want his bottom
  • Vendors are told to quote the best price
  • If they told me its a dollar, I would say,
    Fine, Ill consider it, but Im going to go to
    your competitor, and if he says 90 cents, hes
    going to get the business. So make sure a dollar
    is your best price. If thats being hard-nosed
    then we ought to be as hard-nosed as we can be.
    You have to be fair and upfront and honest, but
    you have to drive your bargain because youre
    dealing for millions and millions of customers
    who expect the best price they can get. If you
    buy that thing for 1.25, youve just bought
    somebody elses inefficiency.

A Telling Example of Wal-Marts Growth- Went
Past Toys R Us by 1998
Toys R Us Largest Toy Retailer in the U.S.
--- Value Proposition Choice, Quality,
Reasonable Price --- Displaced Dept. Stores and
small specialist toy retailers
--- 25 share of the market Before Wal-Mart!
Today Wal-Mart Largest Toy Retailer 25 market
share --- Toys R Us Share 15 (2003 Sales
11B) --- Value Proposition One better than Toys
--- Super-efficient supply chain
--- Mass retailer, with a broad diverse array of
products --- Can afford to use toys as a loss
-leader (lose money on toy sales) to lure in
customers who then purchase higher-margin
goods - Toys R Us just doesnt have that lu
xury Source Wall Street Journal, August 31, 2004
41 Years of Nonstop Growth
Sense Respond Management Process of Wal-Mart
Why They are Unbeatable
  • Disappointing sales on Friday, Nov 26, 2004
  • (the day after Thanksgiving),
  • Traditionally the biggest shopping day of the
  • Wal-Mart knows it literally at the end of the day
    Because of their state-of-the-art information

How did Wal-Mart Management respond to it?
  • Within a couple of hours, Michael Duke, the
    president of Wal-Mart, had gotten messages on his
    Blackberry that sales were off at stores around
    the country.
  • He brainstormed with execs and store managers
    about which products to mark down.
  • A team met over the weekend to finalize the list
    and contact suppliers.
  • On Tuesday, stores nationwide offered the new
  • Source

How did Wal-Mart Management respond to it?
  • On Thursday, Wal-Mart broadcast a video for its
    stores suggesting new displays.
  • The next day, the displays were up, and a new ad
    campaign was underway.
  • 7. On Saturday, the company conducted a meeting
    with 500 employees asking for more ideas -- and
    acted on 21 of their recommendations.
  • The result? The retailer expects December sales
    to be up three percent. Alth ugh it's not the
    holiday season it had initially hoped for, it
    represents a heck of a comeback.
  • Source

Wal-Marts Exception Management Driven by IT
  • At Wal-Mart, problems are referred to as
    exceptions. We keep watching everything that
    just happened. We are pretty near real-time. We
    can tell people that they need to go do
    something, and we are within hours, depending on
    the event.
  • The event may be a trucks failure to drop off
    or pick up something. It could be the absence of
    an important product in the stores backroom or
    in the distribution centre that serves the store.
    Or, it could be an act of nature like the
    hurricanes that descended, one after another, on
    Florida in 2004
  • Source New York Times, Nov. 14, 2004

Reflecting on the Wal-Mart Business Model- What
Is It Grounded On?
  • Use of IT
  • Cost Control
  • Partnership with Suppliers
  • Partnership with Employees

How did a Small-town Merchant get these
Innovative Ideas?
Walton tells it all in his folksy, conversational
style in his autobiography Sam Walton Made in
America My Story, Bantam Paperback, June 1993
He died in April 1992, after fighting a two-year
battle against a form of bone cancer.
How did Walton Get IT?
  • 1966 Store 5 was under construction
  • I knew we had to get better organized than we
  • We had lists of items we were supposed to carry,
    and we were dependent on the people in the stores
    to keep records of everything manually this was
    at a time when quite a few people were beginning
    to go into computerization.

How did Walton Get IT?
  • I had read a lot about that, and I was curious. I
    made up my mind I was going to learn something
    about IBM computers.
  • So I enrolled in an IBM school for retailers in
    Poughkeepsie, New York. One of the speakers was
    from the National Mass Retailers Institute - Abe
    Marks, Head of a Discount Retailer in
  • I visited with Abe a number of times at his New
    York office, and he was a very open guy. He
    shared with me how he used computers to control
    your merchandise.

Best Utilizer of InformationTo Control
Absentee Ownerships
Sam knew that you are putting your stores where
you, as management, arent. If he wanted to grow
, he had to learn to control it.
  • Need Timely I to Service the Stores
  • How much merchandise is in the store?
  • What is selling? What is not?
  • What is to be ordered? Marked down?

  • Key Metric Inventory Turnover
  • Ratio of Sales to Inventory
  • Higher Inventory Turnover à Less Working Capital

The man is a genius. He realized even at the
rudimentary level he was on in 1966, operating
those few stores that he had that he couldnt
expand beyond that horizon unless he had the
capability to capture this information on paper
so that he could control his operations, no
matter where they might be Gave him the ability
to open many stores, and run them well, and be
Growth of Wal-Mart Stores
  • Year of Stores Sales (million )
  • 1
  • 1966 5
  • 1968 13
  • 1970 32 31
  • 1972 51 78
  • 1974 78 168
  • 1976 125 340
  • 1978 195 678
  • 1980 276 1,200
  • 1990 1,528 26,000
  • Went public on Oct 1, 1970
  • 100 shares in 1970 _at_ 16.50
  • Nine Two-For-One Stock Splits
  • 51,200 shares in 1990 _at_ 62.50
  • Initial Investment of 1,650 in 1970 worth 3M
    in 1990

How Did Walton Manage IT?
  • I knew Id never be any whizbang computer guy
    myself, so I had another reason for going to that
    school. I was looking to have a good, bright
    systems person, and I figured I might find one
  • Thats where I first met Ron Mayer, then the
    smart young CFO at Duckwall Stores in Abilene,
    Kansas. I targeted him as the guy we needed at
    Wal-Mart, and started wooing him right there.
  • Like so many of them, he wasnt interested just
    then in moving to Bentonville, Arkansas, to work
    for somebody he knew next to nothing about. Later
    on, we changed his mind He joined Wal-Mart in
    1968 as VP for finance and distribution.

How Did Walton Manage IT?
  • From Ron Mayers arrival on, we as a company have
    been ahead of most other retailers in investing
    in sophisticated equipment and technology.
  • The funny thing is everybody at Wal-Mart knows
    that I have fought all these technology
    expenditures as hard as I could. The truth is I
    did want it. I knew we needed it, but I just
    couldnt bring myself to say, OK, sure, spend
    what you need.
  • I always questioned everything. It was important
    to me to make them think that may be the
    technology wasnt as good as they thought it was,
    or may be it wasnt the end-all they promised it
    would be.

Growth of IT in Wal-Mart
  • 1978 Bar Coding SKU Inventory System
  • When Jack Shewmaker became our COO in 1978, he
    worked really hard at getting me to invest in
    more and better computer systems, so that we
    could track sales and inventories across the
    company, especially in-store transactions.
  • 1983 Satellite Communication System
  • Once we had those scanners in the stores, we had
    all this data pouring into Bentonvile over phone
    lines. Those lines have a limited capacity, so as
    we added more and more stores, we had a real
    logjam of stuff coming in from the field. I like
    my numbers as quickly as I can get them. The
    quicker we get that information, the quicker we
    can act on it.

The technology did not really exist to do this
for a retailer in the early Eighties. But we got
together with Macom Hughes Corporation and
worked out a contract Committed 24 M to build
it It was not an immediate success.
But we got it working. Now, everybody has one -
Jack Shewmaker
Value of IT in Wal-Mart- According to
A few years ago, we built this huge building
right next to our offices around 135,000 sq.
ft. just to house the computers, and everyone
at the time told me how much room wed have to
grow. I mean it was really empty in there just 2
or 3 years ago. Well, already its completely
full of computer equipment. And, when I look
back, its no wonder Weve spent almost 700 M
building up the computer and satellite systems we
have Im told its the largest Civilian databas
e in the world even
bigger than ATTs.
None of that matters to me. What I like about it
is the kind of information we can pull out of it
on a moments notice.
Value of IT in Wal-Mart- According to
We keep a 65-week rolling history of every single
item we stock. I can pick anything, say a little
combination TV/VCR like I use here in my office,
and tell you exactly how many of them weve
bought over the last year and a quarter and
exactly how many of them weve sold. Not only
overall, but in every region, every district,
every store. It makes it tough for a vendor to k
now more about how his product is doing in our
stores than we do.
Weve always known that information gives you a
certain power, but the degree to which we can
retrieve it in our computer does give us the
competitive advantage.
Partnership with Suppliers- Started with PG
One day my close friend, George Billingslay,
asked me to join him on a canoe trip down the
Spring River. He said he was bringing along an
old friend named Lou Pritchett, who was a V.P.
with PG at the time, and who wanted to meet me
and talk about some things relating to our two
companies. So I went along, and it turned out to
be the most productive float trip I ever took
with George. During that time on the river, we bo
th decided that the entire relationship between
vendor and retailer was at issue. Both focused on
the end-user the customer but each did it
independently of the other. No sharing of
information, no planning together, no systems
We were simply two giant entities going our
separate ways, oblivious to the excess costs
created by this obsolete system.
Sharing of Information- Key for Win-Win
We assembled the top ten officers of both the
companies in Bentonville for two days of
soul-searching and thinking. Within three months,
we had created a PG / Wal-Mart team to build a
whole new kind of vendor relationship.
We formed a partnership to conduct our business,
with one of the most important outcomes being
that we started sharing information by computer.
PG could monitor Wal-Marts sales and inventory
data, and then use that information to make its
own production and shipping plans more
We broke new ground by using IT to manage our
business together, instead of just to audit it.
Employees Key to Customer Loyalty
The way management treats the associates is
exactly how the associates will then treat the
customers. And if the associates treat the custom
ers well, the customers will retain again
Satisfied, loyal, repeat customer are at the
heart of Wal-Marts spectacular profit margins,
and those customers are loyal to us because our
associates treat them better than salespeople in
other stores do.
Our relationships with the associates is a
partnership in the truest sense. Its the only
reason our company has been consistently able to
outperform the competition and even our own
Sam Waltons Confession
Now I would love to tell you that this
partnership was all part of my master plan from
the beginning, that as a young man I had same
sort of vision of a great retailer company in
which all the employees would be awarded a stake
in the business That I saw them having the
opportunity to participate in many of the
decisions that would determine the profitability
of that business. I would love to tell you all
that, but unfortunately none of it
would be true! In the beginning, I was so chi
ntzy I really didnt pay my employees well. The
managers were fine, but we really didnt do much
for the clerks except pay them an hourly wage,
and I guess that wage was as little as we could
get by with at the time.
Then, Eureka !- Walton Saw the Light
In the very early days of the business, I was so
doggoned competitive, and so determined to do
well, that I was blinded to the most basic truth,
really the principle that became the foundation
of Wal-Marts success Back then, I was so obses
sed with turning in a profit margin of 6 or
higher and, no matter how you slice it in the
retail business, payroll is one of the most
important parts of overhead. Overhead is one of
the most crucial things you have to fight to
maintain your profit margin That was true then,
and its still true today The larger truth that
I failed to see turned out to be another of
these paradoxes like the discounters principle
of the less you charge, the more you will earn
AND, HERE IT IS The more you share profits with
your associates, whether its in salaries or
incentives or bonuses or stock discounts the
more profit will accrue to the company.
The Idea for Sharing Profits Benefits
NOT From Me, But From Helen
We were on a trip, and we were talking about the
high salary that Sam was earning, and about all
the money and benefits that he was paying the
officers of the company in order to keep his top
people. He explained that the people in the store
didnt get any of those benefits .
I think it was the first time I realized how
little the company was doing for them. I
suggested to him that, unless those people were
on board, the top people might not last long
either . I remember it because he didnt really
appreciate my point of view then. Later on, I
knew he was thinking about it, and when he bought
it, he really bought it. We didnt include our
associates in the initial, managers-only profit
sharing plan when we took the company public in
1970. There was nobody around preaching that
philosophy in those days In 1971, we corrected
my big error of the year before, and started a
profit-sharing plan for all the associates
Profit-sharing has been the carrot thats kept
Wal-Mart headed forward.
One of the Most Successful Bonuses- Our
Shrink Incentive Plan
  • Unaccounted-for inventory loss theft is one
    of the biggest enemies of profitability in the
    retail business.
  • So, in 1980, we decided the best way to control
    the problem was to share with the associates any
    profitability the company gained by reducing
  • If a store holds shrinkage below the companys
    goal, every associate in that store gets a bonus
    that could be as much as 200.
  • Our shrinkage is about half the industry

Employees Monitor Shrinkage !
  • Most associates dont want to think that theyre
    working alongside anyone who does enjoy
  • So, under a plan like this, where you are
    directly rewarded for honesty, theres a real
    incentive to not ignore any customers who might
    want to walk off with something, or, worse, to
    allow any of your fellow associates to fall into
    that trap.
  • Everybody in that store becomes a partner in
    trying to stop shrinkage, and when they succeed,
    they, along with the company in which they
    already hold stock, share in the reward.

Empowering Front-Line Employees- Sharing
Rather Than Hoarding, Information
  • The only way they can possibly do their jobs to
    the best of their abilities.
  • Obviously, some of that information flows to the
    street. But I just believe the value of sharing
    it with our associates is much greater than any
    downside there may be to sharing it with folks on
    the outside. It doesnt seem to have hurt us much
    so far.
  • Nowadays, I see management articles about
    information sharing as a new source of power in
    corporations. Weve been doing this from the days
    when we only had a handful of stores. Weve kept
    doing it as we have grown.
  • Thats why weve spent hundreds of millions of
    dollars on computers and satellites to spread
    all the little details around the company as fast
    as possible. But they were worth the cost. Its
    only because of IT that our store managers have a
    really clear sense of how theyre doing most of
    the time. They get all kinds of information
    transmitted to them over the satellite on an
    amazingly timely basis like, for example, up-to
    the-minute sales date that tells them whats
    selling in their own store.

Obsessive Focus on Costs- Control Your
Expenses Better Than Your Competition
Every time Wal-Mart spends one dollar foolishly,
it comes out of our customers pockets. Every
time we save them a dollar, that puts us one more
step ahead of the competition, which is where we
always plan to be. Sam Walton
Fifteen years after his death, frugality is still
ingrained in Wal-Marts culture.
Walton Led By Example
  • Frugality came naturally to Walton, who was a
    country boy. He drove an old pick-up truck, and
    flew economy class.
  • Im not saying every company should necessarily
    be as chintzy as Wal-Mart. Everybodys not in the
    discount business, consumed by trying to save
    every possible dollar for their customers I
    feel its upto me as a leader to set an example.
    Its not fair for me to ride one way and ask
    everybody else to ride another way, The minute
    you do that, you start building resentment and
    your whole team idea begins to strain at the
  • If American management is going to say to their
    workers that were all in this together, theyre
    going to have to stop this foolishness of paying
    themselves 3M and 4M bonuses every year and
    riding around everywhere in limos and corporate
    jets like theyre so much better than everybody

The 2 Percent Formula- For Corporate
Overhead Expenses
  • When we had about 5 stores, I tried to operate
    on a 2 general office expense structure. I just
    pulled it out of the air.
  • Most companies then charged 5 of their sales to
    run their offices. But we have always operated
    lean. We have had our people do more than in
    their companies. It has been our heritage, our
    obsession, that we would be more productive and
    more efficient than our competition.
  • We have not changed that basic formula from 5
    stores to 2,000 stores. In fact, we are actually
    operating at a far lower today in office
    overhead than we did 30 years ago. And, that
    includes tremendous expenses for computer support
    and distribution center support everything that
    we supply centrally in the way of support for the

Stay Lean, Fight Bureaucracy
  • A lot of first-time visitors are shocked by our
    executive offices. Most people say my office and
    those of the other Wal-Mart executives look like
    something youd find in a truck terminal We
    sure as heck wont win any interior decorating
    awards, but theyre all we need, and they must be
    working fine. Just ask our shareholders.
  • A lot of bureaucracy is really the product of
    some empire builders ego. Some folks have a
    tendency to build up big staffs around them to
    emphasize their own importance. We dont need any
    of that at Wal-Mart.
  • If youre not serving the customer, or supporting
    the folks who do, we dont need you.

A PARADOX !Wal-Mart Retreats from Germany in
July 2006
  • Entered Germany in 1997
  • Bought two struggling German retail chains
  • 95 stores in 1999
  • Persisted for 8 years before admitting defeat
  • Too afraid to tarnish its image
    by pulling out of the
    worlds third largest economy
  • Fiscal 2006 Sales 2.5 B Losses 127.5 M
  • Total International Sales 63 B Global Sales
    312 B
  • Struggled from the outset against stiff local
  • Closed 10 of the initial 95 stores
  • Tried German managers, US managers, and a
    combination of the two.
  • Sold its 85 stores to Germanys largest retailer,
  • Pre-tax Loss 1 B on the Deal
  • Source Financial Times, July 29-30, 2006

Germanys Discount Retail Market- A Tough One to
  • German shoppers are frugal
    People in this country only
    ever look out for one thing PRICE
  • This trait should have been a boon for Wal-Mart
    - the guardian of EDLP
  • But Germany already had a number of homegrown
  • Regulations restrict store hours and other
    retailing basics
  • Carrefour, Wal-Marts biggest global competitor,
    operates in 29 countries But has steered clear
    of Germany

It is clearly a very challenging market for us
that we have not figured out. Wal-Mart CEO,
April 2006
German Discounters- Proved to be A Real Match
for Wal-Mart
  • Power of Privately-held Discounters Aldi
  • Grown their market share to 40 vs. Wal-Mart
  • Had discovered the efficiency of drab out-of-town
    store sites and economies of scale that made
    their suppliers sweat
  • Kept costs AND prices low
  • Underpriced Wal-Mart
  • Sell a limited selection in each store 850 to
    1,000 items vs. 100,000 at Wal-Mart
  • Stock mainly their own brands
  • 80 of German consumers are 20 minutes from an

Aldi has invaded Wal-Marts home turf
opened more than 700 stores
in the U.S.
Source Asian Wall Street Journal, July 31, 2006
BIG Mistake Made by Wal-Mart- Exported Its
Culture Wholesale
  • Did NOT Adapt to the German Market
  • Little feel for German shoppers
  • They care more about price than having their bags
  • The German consumer does not like extra service
    as hes worried that hell have to pay for it.
  • Bag-packers were reassigned !
  • Little feel for German staff as well
  • They hid in the toilets to escape the morning
    Wal-Mart cheer.

We screwed up in Germany. Our biggest mistake
was putting our name up before we had the service
and low prices - Head of Wal-Mart International,
The Economist, Dec 6, 2001
Germany Was Not The Only Failure
  • Before Germany, South Korea
  • Sold its 16 stores in May 2006
  • Another Problem Child Japan
  • Took a stake in the Seiyu store chain over 400
    stores in 2002
  • Faced Problems Similar to Germany
  • Sluggish domestic consumer market
  • Challenge of adapting its global strengths to the
    different cultural expectations of its Japanese

The Japan Expansion- Seiyu Store Chain Still
Hangs Heavily
  • Took Full Management Control of Seiyu
  • Invested an additional 565M in Dec 2005
  • Became the majority owner of Seiyu
  • Ended the uneasy effort to cooperate with the
    previous Japanese-led management
  • Dispatched former COO of Wal-Mart International
    to take command of the Seiyu operation
  • Challenges in Japan
  • Low-cost format is not established in the market
  • Will Japanese consumers respond to its efforts to
    turn Seiyu, a conventional Japanese department
    store, into something closer to its discount
    store model?
  • Source The Financial Times, July 29-30, 2006

Maturing US Business- Impacting Wal-Mart
Share Price
  • Sales Growth at Existing Stores Sliding Since the
    Late 1990s
  • FY06 3 same-store sales gains vs. 9 in 1999
    6 for Target
  • Q2 Profit in FY07 likely to fall 23 despite 14
    rise in sales First time in 10 years
  • Stock Price Down 35 from Peak in Dec 1999
  • Despite 11B Earnings on 312B Revenue for FY06
    10 rise from
    previous year
  • US Division 78 of Total Sales
  • BIG Challenge in the US Market
  • Cant rely solely on building hundreds of new
    stores each year to perpetuate growth
  • Must find ways to generate more sales at existing
    US stores
  • Source Wall Street Journal, Sept 7, 2006
    Economic Times, Aug 15, 2006

The Price of Becoming a Behemoth- A Rash
of Lawsuits Negative Publicity
  • Its Giant Stores Symbols of Big Retail
  • Blamed for the destruction of entire communities
  • Eliminates jobs when it moves into a new
  • Drives down retail wages in that community since
    Wal-Marts low price forces other businesses to
    lower their prices and hence their wages.
  • Companys Pursuit of Low Prices
  • Crushes Kmarts and mom-and-pops alike
  • Decline in U.S. manufacturing jobs as both
    Wal-Mart its Vendors turn to cheaper overseas
  • Class Action Suit for Sex-Discrimination
  • 6 women filed a suit in 2001 alleging that
    Wal-Mart doesnt fairly pay promote women
  • Federal judge ruled in 2004 that the suit could
    proceed as a class action covering 1.6M current
    and former female employees

Is There Such a Thing asToo Much
  • Wal-Marts Unusually Detail-Rich Human-Resources
  • Contains data on
  • Performance reviews
  • Seniority Time Spent with the Company
  • Which Store ?
  • Judge Has Allowed Use of the Database
  • To compare whether men and women working in the
    same store were paid differently
  • Whether women were fairly promoted compared to men

Wal-Mart CEO Rebuts Critics
  • We used to believe you could run the company
    out of Bentonville, and if you took care of your
    business, employees and customers, everyone would
    leave us alone.
  • What were trying to do now is reach out. Where
    were wrong, we change, so our detractors dont
    have a foothold in attacking us. Where were
    right, we will fight and take each issue to the
  • Impact of Lawsuits
  • Sam Walton believed that there were only two
    types of employees he wouldnt give a second
    chance to those who abused people and those who
  • We have 1.5 million employees, including every
    kind of person known to man racists, sexists,
    etc. If someone made a negative racial comment in
    the past, instead of dealing with it severely, we
    might have transferred him.
  • In todays world, he has to go.
  • The number of people not doing the right
    thing is a small . But it is unfair when that
    number is seen as representative of a wider
    institutional pattern.
  • Source Wall Street Journal,
    Oct 6, 2004

Response to Charges of Discrimination
  • Started companywide computer postings of
    management openings
  • Hired a Director of Diversity
  • Executive managers bonuses based on diversity
  • CEO personally stands to forfeit 600K of his
    bonus if the company falls short of company
  • CEO is also getting out more, meeting with
    investors, community groups and the media
  • Playing the role of the Companys public
    defender and explainer
  • To avoid future growth being constrained by
    political barriers,
  • Wal-Mart will have to raise its head from
  • and worry more about how it is perceived

Response to Charges of Low Wages
  • The United Food Commercial Workers union has
    been successful in creating in peoples minds the
    perception that we pay inadequate wages
  • I like the free-enterprise system in this country

  • Two-thirds of our managers are promoted from
    the ranks of
  • hourly employees.
  • Over 75 of our workers are full-time.
  • We paid 2B last year in health benefits.
  • We pay more than our Competitors.
  • We opened a store in Phoenix recently and
    5,000 people
  • applied for 500 openings.

Driving Out Competitors
I get irritated as sin when I read that we
historically sell our toys at a loss
We have a phenomenal toy business,
and our profits are exceptionally good.
Its one of the highest margin businesses.
We say we sell for less, which means, if a
competitors prices are lower, we will dr
op our prices, even if it means
below our cost.
Unpopularity is Hard forWal-Marts Executives to
  • After all, EDLP has been good for consumers
  • Criticism Leveled Against Wal-Mart
  • To benefit your customers, you drive down prices
    as low as possible. But doesnt that encourage
    manufacturers to move jobs overseas, which puts
    some of your customers out of work, so they cant
    afford to buy as much at Wal-Mart. Isnt that a
    vicious circle and does that really benefit
    America ?
  • CEOs Response
  • We have a history of working with companies like
    PG, Kellogg, PepsiCo to drive out unnecessary
    costs inventory buildup, packaging expenses
    from the business and pass the savings onto the
  • Say we do business with a certain manufacturer
    and give them all the shelf space for their
    products. And other retailers are sourcing a
    similar item overseas and offering greater value.
    Ultimately, the customer will make the decision.
    Manufacturers are putting themselves at risk.

Wal-Marts Global Ambitions
  • International Revenues 20 of Total Sales in
  • Fastest-growing business segment
  • Focused on Asia Latin America
  • Bought a stake in Central Americas largest
    retailer in late 2005

  • gained a majority stake in March
  • 60 retail outlets 30,000 employees in
  • We have plans to open 20 new stores in China
    this year.
  • Exit from South Korea Germany in 2006
  • Put it farther from its target of getting a
    third of its sales and profit growth
  • overseas
  • Fallen behind Carrefour in expanding globally

  • will operate in 11 countries
    outside the U.S., vs. 29 Carrefor
  • Deepened its India Focus in 2006
  • Set up a liaism office in Bangalore to
    undertake its Indian market research
  • The Indian market is much less competitive
    than Germany and Korea, and its
  • middle class is hungry for modern
    retailing prices and products sold by
  • Western retailers like Wal-Mart
  • Source Economic Times, August 14,

Wal-Mart Opens Doors to Unions- In China
August 2006
  • After years of fighting unionization efforts at
    its stores in the U.S., Wal-Mart decided to allow
    unions in China after years of pressure from the
    All China Federation of Trade Unions
  • Unionization is required under Chinese law.
  • Wal-Mart Supports Chinas Efforts to Build a
    Harmonious Society.
    Company Announcement
  • Will collaborate with the All China Federation
    because the two groups had the mutual aim to
    establish grassroots unions
  • Unions in China do not have the history of
    bargaining power that unions in Europe and the
    U.S. have
  • The function of Chinese unions is to urge
    workers to participate in the work, care about
    their welfare, and to organize recreational
    activities for them.
  • Statement from the All China Federation
  • If Wal-Mart union members are subjected to
    unfair treatment at work, unions at the national,
    provincial, city and district level will strive
    all out to protect employees legitimate rights.

To Boost Sales, Wal-Mart Drops
One-Size-Fits-All Approach
  • Break Its 3,400 U.S. Stores into 6 Different
  • Affluent Shoppers, African-Americans,
    Empty-Nesters, Hispanics, Suburbanite
    Rural Residents
  • Wal-Mart is all things to all people.

    By offering customers all the same
    things, you end up under-serving everyone because
    you dont have an offering that is specific to
    that customer segment. CEO of U.S. stores
    and architect of the new approach.
  • Huge shift for a Company that grew on the
    strength of standardization
  • Test Run of Localization Theory in Mexico
  • Six Different formats with different
    merchandise mix