German AliceaKimmie HardinMichael MabenJohn McLaurinKyle Simmons

Industry – U.S. Discount Retail Industry Segments

Supercenters Discount Stores Neighborhood Markets

Supercenters Our goal is to leverage the outsourcing of

popular services such as banks and optical centers within Walmart’s Supercenters.

Corporate Level Strategy – Related Diversified, Vertically Integrated

General Discount Retail DivisionSam’s Club DivisionInternational Division

Business Level Strategy – Broad Cost Leadership in Supercenters

Tactics employed:1. Heavy experimentation 2. Outsourcing Services

Strategic Alliance with Woodforest Bank

Options:• Top Down Approach: Increase Bank Services from 15%-40% through corporate selection by proximity of other banks.

•Regional Proposal Approach: Increase Bank Services from 15%-40% by business/regional & store proposals.

•Population Approach: Increase Bank Services from 15%-40% by identifying cities with a population of 750,000 or above.

Facets of the industry:credit cards, savings/checking accounts, check cashing, money orders, wire transfers, debit cards, online banking, mortgage generation/servicing, loans, lines of credit, CDs, Open 7-days a week.

Government/legal According to the Graham-Leach-Bliley Act 1999

the Discount Retail Industry is unable to gain Banking Charters. Outsourcing is the only option.

Legislation against “Sweat Shop Sourcing” Unionization

Employment Litigation Government “Bail Outs” Domestic and International Product Taxes

Technology Break-throughs in advanced Information

Technology

Socio-cultural/Demographics – One Stop Shop Concept The government “Bail Out” has increased adverse

sentiment against large companies in the industry. Offshoring, loss of jobs

International/global Tarrifs Recent tax on Chinese products from U.S.

caused retaliation International rivalries

China India Brazil

Discount Retail Industry:Definition- The discount retail industry in the United States includes sellers of consumer merchandise, including electronics, clothing, household items, etc. in an effort to sell this merchandise for a discounted price opposed to going to a specialty store. The retail sector comprises a variety of retail formats to reach end-consumers, including online retail and home shopping networks.

Furthermore, Wal-Mart can be segmented into a broad line retailer with an emphasis on discount retail supercenters.

Basis of Competition: Primary Rivals of Wal-Mart in the US- Kmart, Target, Shopko and Meijer Expansion of Physical Store Space Payment Modes Changes in customer service Promotional Offers

Potential for New Entry:The Discount Retail Industry has relatively low entry and exit barriers since broad line

retail is not focussing all of their effort on a single product.Entry Barriers include: Economies of Scale Customer Loyalty Absolute Cost advantage Supplier Agreements Predatory Pricing

Bargaining Power of Buyers:Wal-Mart has an absolute advantage as a buyer in the discount retail industry. Since Wal-

Mart controls such a large market share, they have a lot of power over the suppliers.Power of Buyers Include: Buyers purchase in large quantities Supplying industry depends on buyers for a large percentage of its order Low switching costs, buyers can play supplying companies off of each other Economically feasible for buyers to purchase an input from several companies at

once

Bargaining Power of Suppliers:Suppliers have very limited power due to the massive size power of Wal-

Mart.Factors that limit Suppliers Include: Low switching costs for buyers among competitors Profitability of Suppliers is significantly affected by single customer in

this industry Many substitute for product supplier sells

Substitutes:In the Discount Retail Industry, competitors can play a large factor in taking away business from Wal-Mart. And because you are dealing with retail, there can be multiple substitutes coming from many different industries. Substitutes can especially be an issue when dealing with specialty stores such as grocery, clothing, automotive, etc.

Corporate Strategy – Related Diversified, Vertically Integrated

Business Level Strategies – broad cost leadership with minimal differentiationProduct Differentiation – low pricesMarket Segmentation – mass marketDistinctive Competency – materials management with co-branded manufacturing

Global Expansion Strategy – International Strategy‘Big Box – Low Price’ model, with adaptations as needed for local markets

Domestic Expansion Strategy – Rapid saturationFocus on Supercenters in urban areas (Chicago, New York City, Los Angeles)

Tactics – horizontal integration, outsourcing, strategic alliances, joint ventures, co-locating, co-branding, acquisitions, wholly owned subsidiaries, divestment

1. Competition/industry definition/industry structure/basis of competition (6 %)

-Retail Industry

-Competitors of Wal-Mart include Kmart, Target, ShopKo and Meijer

-Sam’s Club competition includes Costco and BJ’s Wholesale Club

-Industry Structure: Wal-Mart is the largest publicly owned business in the United States and is a Franchise Operated structure. Which means they may receive price support from their wholesaler. Price support enables the wholesaler to influence the retail prices set by the operator of the site.

*Focus on space leasing and how walmart relates to the banking/pharmaceutical industry*

2. Potential for new entry (entry barriers) (4 %) – economies of scale, brand loyalty, absolute cost advantage, switching costs

Dr Tyler: pick two potential entrants and consider each of the five barriers to entry to see how much threat to each; pick two kinds of suppliers and buyers and evaluate each using porter’s five forces and 6 economically based criteria to determine if each is very low, low, moderate… threat to the industry

Wal-Mart: Low entry and exit barriers. There is always a threat of new entry into the retail industry, and it is especially easy because the retail companies are not producing a product, however Wal-Mart has become so well established there is a greater chance of the government implementing a statutory monopoly, eliminating all competition in the industry. Some of the barriers include consumer loyalty, distributor agreements, and predatory pricing.-Bank (WoodForest)- High entry and Low exit barriers http://www.jstor.org/pss/1056377-Pharmacy- Low entry and exit barriers

3. Power of buyers (4 %) – pg. 60 in book (low switching costs…)Buyers have tremendous power over Wal-Mart since they are a retail outlet. Wal-Mart is dependent on both buyers and suppliers to operate, and if one group is unhappy it hurts Wal-Mart in the long run

4. Power of suppliers (4 %) – pg. 61 in book; armored truck companies; software vendors (scalability of current system); threat in the form of human capital transferring among competitors

-Since Wal-Mart operates as a discount distributor, they are at the mercy of their suppliers. If the suppliers choose to increase prices, Wal-Mart in turn has to increase their prices as well. 

5. Substitutes (2 %) – pg. 63 in book

Corporate strategy- centralization, differentiation (via quantity of items to choose from), cost leadership, single business, vertical integration, related diversification, unrelated diversification, global expansion

business strategy- chapter 5, pg 1120 focused/broad and/or cost leadership, differenetiation, distinctive competencies (use abell's framework in discussion) does economies of scale count as a distinctive competency? use table 6.1 from chapter 5 slides- hightlight cost leadership through low product differentiation, mass market segmentation and materials management (ie: rapid inventory turnaround)

Note as well any important tactical strategies and their relationship with the strategic decision (acquisitions, strategic alliances, licensing, etc.)-- entering new business (law/garden, pet supplies, electronics, clothing, gym equipment, groceries, red box, restaurants, tires/oil changes, banks, outsourcing, horizontal integration, internal venturing (leasing floor space?), acquisitions, joint ventures

Functional strategies (8-10) most closely related to the decision made, that have led to resources and capabilities or the lack thereof. Try to have these distributed across the organization: marketing, finance, operations, HR, R&D, etc.

- talk about how these MUST lower costs and/or increase perceived value (chapter 4)

functional strategies (not all inclusive)- design products that are easy to manufacture, pioneer process changes, exploit economies of scale, learning effects, experience curve, flexible manufacturing, mass customization, flexible machine cells, increasing demand, retaining customers, JIT, marketing strategies

page 101- resources: land, buildings, plant, equipment, inventory, money, brand name, reputation, intellectual property (patents, copyrights, trademarks), technical or marketing know-how

capabilities- a company's INTANGIBLE skills at coordinating its resources and putting them to productive use- ways individuals interact, cooperate and make decisions

What building blocks do these resources and capabilities support or fail to support (efficiency, quality, innovation, customer responsiveness) and determine if the strategies in #2 have lead to distinctive competencies, parity or disadvantages related to cost or differentiation and how this relates to the strategic decision made.

Efficiency- customer responsiveness (in offering what customers demand)Economies of scale- is that a building block? Walmart was the innovator

Wal-Mart’s Structure

Board of Directors/CEO

Board of Directors/CEO

Corporate (HR/CFO/CIO)

Corporate (HR/CFO/CIO)

International

International Sam’s ClubSam’s ClubWal-Mart US

(Thomas Mars)

Wal-Mart US (Thomas Mars)

Discount Stores

891

Discount Stores

891

Supercenters 2,612

Supercenters 2,612

Neighborhood Markets

153

Neighborhood Markets

153

RegionsRegions

StoresStores

DivisionsDivisions

SegmentsSegments

Control Systems- 

Financial- Audit Committee, ROE/ROA, COGS, budgets

Output- monitor turnover

Behavior- Ethical Standards, adopted statement of ethics, code of ethics

Culture- Historically vs Now

Reward Systems- Stock Purchase PlansProfit Sharing401k Store DiscountsPromotion from within

-“Open Door” Communication

The Walton Institute-Three Basic Beliefs

Respect to the IndividualService to CustomersTo Strive for Excellence

-10 Foot Rule-Sundown Rule

-Unionizing

•Regional proposal approach•Regional mgr. area evaluation•Large potential stores picked•Proposals generated/ sent to Arkansas•Corporate review/implementation•Woodforest banks

•Top Down Approach •Corporate task forces overview surrounding areas•Generate the “Proximity List”•Regional mgrs. Either approve/disapprove of locations•Top locations get banks•Woodforest banks

•Population approach•Corporate task forces overview surrounding pop.’s•750,000 + = qualification•Area spending potential outweighs general pop.•Regional mgrs. either approve/disapprove of locations•Woodforest banks

Regional proposal approachS (Store diversity, +Involved customers, +pre- established success) Higher level of regional mgr supptW (Poorly ran banks would negatively affect Wal Mart) Mgr greed + biased repts = no optimal locationsO (+Increased revenue from leasing income, +spending from one-stop- shopping ) higher regional cust. baseT (Competitor relocations)

Top Down approachS Ease of establishing new banking relationshipsW Not very large bank (for needy customers)O “home field advantage” ack of competitor proximity T Relocations of competitors

Population ApproachS One-stop-shop bank locationW Newbies in a competitive locationO Hit-or-hit (potential customer base)T High population = many banks

TOP-DOWN APPROACH

•Banking functions currently = most profitable Wal Mart area•More profitable than vision centers•More profitable than any individual sales dept ($422/sq ft./yr.)•Not considered risky investments

•Aggressive incorporation before competitor attempt•Diversify stores•+profit from +cust. base (shopping while banking, etc.)•Competition avoidance by placement•Areas of few banks = New oppt

Woodforest location already operating in Gloucester, VA Wal Mart

Months 1-3• Begin by contacting Woodforest, letting them know of interest to them being desired “Wal Mart banking” center. Draw up an initial 5-year contract with a provisional renewal (subject to leasing payment amts, alterations in banking procedures, etc.) and a 1-year operational re-design•Corporate research turning up locations in which banks will be situated (largest distance proximity of competitors wins), sent out to regional mgrs for approval

Months 4-5•Space Planning: plan out new store plots for all super centers where banks will be situated inside

Months 6-9•Initiate the incorporation of Woodforest banks into stores (U.S. based, only)•Build on space if sufficient amounts aren’t already available inside the supercenters•Banks will open/begin operation as each location finishes construction

Woodforest, “Banking your way… EVERY DAY AND NIGHT!”

Months 10-12• Advertise heavily that “Wal Mart now does banking”, and “+ more

options from your already low-price one-stop-shop local Wal Mart”• Banks will be located at the fronts of every Wal Mart, but run on separate

hours of operation (+benefits of Woodforest hours (Sundays 12-4, Saturdays 9-5)).

Year 1• Operational re-designing of bank, profitability analysis performed

Years 2, 3, 4, 5 • Profitability analysis performed

Year 5 • Revisions made to original contract, contract is/isn’t renewed

Woodforest, “Banking your way… EVERY DAY AND NIGHT!”