Management · Strategy

Wal-Mart’s Success Strategy and its Implementation in Indian Retail – A study of strategies and challenges in Indian retail

ABSTRACT

Wal-Mart is the biggest retail chain in the world, which provides a large number of quality products under one roof. The company is the world’s third largest public corporation, according to the Fortune Global 500 list in 2012, the biggest private employer in the world with over two million employees, and is the largest retailer in the world. Most importantly, Wal-Mart holds the distinction of being a hugely successful business model which has led to many other retailers joining the bandwagon, trying to emulate its success.

In this paper, we discuss the reasons for Wal-Mart’s phenomenal success and the steps it takes to ensure a leadership in the retail sector. We also discuss the present scenario of the Indian retail sector and look at the ways in which some of Wal-Mart’s strategies can be employed in India.

INTRODUCTION

Wal-Mart is the biggest retail chain in the world which provides a large number of quality products under one roof. Wal-Mart Stores, Inc., branded as Wal-Mart, is an American multinational retail corporation that runs chains of large discount department stores and warehouse stores.Major products include grocery, clothing, pharmacy, toys, hardware and various CDs, DVD Musical instruments, consumer electronics, books and more. Every Wal-Mart possesses McDonalds where people can eat and have a break while shopping. Founded by Sam Walton, Wal-Mart remains a family owned business, as the company is controlled by the Walton family, who own a 48 percent stake in Wal-Mart. It is also one of the world’s most valuable companies.

Sam Walton opened the first Wal-Mart store on July 2, 1962 in Rogers, Arkansas. It is publicly traded under the New York stock exchange and recognize by the symbol WMT. The secret of the international economic aspect of Wal-Mart is hidden in the number of shareholders associated to it, which are from many economically developed countries of the globe. These shareholders till the end of this year are estimated to be around 333,604 as a common stock of Wal-Mart. So Wal-Mart basically works in economic collaboration with other states where consumers get a large range of discounted products that include mostly stocks and a small percentage of premium products.

Over the past ten years, Wal-Mart has become the world’s largest and arguably most powerful retailer with the highest sales per square foot, inventory turnover, and operating profit of any discount retailer. Wal-Mart owes its transition from regional retailer to global powerhouse largely to changes in and effective management of its supply chain.

STRATEGIES USED

Wal-Mart employs a group of strategies to achieve its success and goals. These range from cost cutting plans to sustainable development.

  1. EDLP (Everyday low price):

According to this strategy Wal-Mart offers its customers a great quality of services and products than its competitors. Setting low prices increased the sales volume to levels that could actually give increased profits as compared to selling at a higher price. EDLP is a pricing strategy which provides consumers with low prices daily instead of them waiting for a sale or promotional discounts. This led to the “low price reputation” of Wal-Mart earning an increased number of consumers and shoppers loyalty. This reduces the need of frequent advertisements. According to this strategy Wal-Mart offers its customers a great quality of services and products than their competitors. It relies on five forces model:-

  1. Buyer Power: – Wal-Mart has the biggest buyer power in the market as it buys a large percentage of inventories which is a major portion of earning for these companies and hence they will do anything to supply inventories to Wal-Mart. It believes in creating happy employees therefore creating happy customers.
  2. Supplier Power: – Wal-Mart achieves its dream of satisfying its customers with a wide range of goods and services along with the best quality which indeed helps it in maintaining its Supplier Power.
  3. Threats of substitution: – In order to remain in the highest racket of retailers, they keep on innovating their products by providing substitute goods.
  4. Threats of Entry: – They constantly do market research on what goods the customers are buying so that they can also provide them with the same goods at low cost to remain in the competition.
  5. Rivalry: – Wal-Mart sells its goods at very low cost which makes it difficult for new rivalries to come in retail chain market.
  1. Technology:

Technology plays a key role in Wal-Mart’s supply chain, serving as the foundation of their supply chain. Wal-Mart has the largest information technology infrastructure than any other private company in the world. Its state-of-the-art technology and network design allowsWal-Mart to accurately forecast demand, track and predict inventory levels, create highly efficient transportation routes, and manage customer relationships and service response logistics. Wal-Mart was an early adopter of uniform product codes (UPC) at the point of sale which allowed Wal-Mart to know the location of every item at all times. Wal-Mart’s investments in technology helped enhance communication between headquarters, stores and vendors. Inventory costs decreased and inbound logistics became more efficient. Supply Chain Management ensures that their customers get their goods in a timely manner. It also keeps the tracking of stockpile and information. Currently Wal-Mart is using ERP which helps in improving Customer Relationship Management.

  1. Social Media Strategy:

Wal-mart provided 2,450 truckloads of supplies to Hurricane Katrina victims and donated more than $2 billion to end world hunger. Umang Shah, director of Social Strategy for Wal-Mart Corporate Affairs department is responsible for managing and promoting the reputation of the world’s largest retailer through social channels. With twitter and Facebook rising, Wal-Mart provides with information on major activities and initiatives – from sustainability to diversity, from healthier foods to charitable giving.

  1. Vendor Partnership:

The idea of vendor partnership was developed for the business relationship to achieve unprecedented coordination between Wal-Mart and its vendors by exchanging information about sales and inventory levels. This model works well to reduce transaction costs and increase efficiency. Several hundreds of Wal-Mart’s major suppliers have permanent offices near Wal-Mart’s headquarters in Bentonville, Arkansas, to facilitate these relationships. Wal-Mart being a major distributer is able to pressurize its suppliers to lower their costs. For example, in 1987 10% of P&G sales went through Wal-Mart, however P&G represented less than 3% of Wal-Mart’s total revenue.

  1. Belief in Go Green Concept:

Since launching its sustainability program in 2006, Wal-Mart has reduced energy consumption in its stores, installed solar panels on its rooftops, curbed emissions from its trucks and recycled millions of tons of its trash.

Lee Scott, Mike Duke’s predecessor as Wal-Mart CEO set out three aspiration goals:

  • To be supplied 100% by renewable energy
  • To create zero waste
  • To sell products that sustain people and the environment

In 2005, sustainability planners decided to change the lighting in stores’ freezer cases. Replacing existing bulbs with more efficient models served the dual purposes of reducing the energy needed for lighting and for refrigeration, since LEDs don’t heat up like incandescent bulbs. It took three years from beginning the replacements in the U.S. until the last market completed it.

In 2009, stores started doing the same with parking lot lighting. Early work turned out not to be worth the effort in the continental U.S., where electricity is relatively inexpensive. Puerto Rico’s higher utility rates made the project pay for itself there. They retrofitted the island’s stores and then moved on to some 350 parking lots in Central America. “By scaling this up one market at a time, it helped drive down the cost of the technology,” Zimmerman said. By the time they had re-lit the rest of the world, the price had come down sufficiently that it finally made sense to do the U.S. They completed the project globally in 15 months. For developing more sustainable trucking fleet they introduced two new types of commercial hybrid trucks and two different types of alternatively fueled heavy duty trucks in the year 2009.

Retail in India

India has still not achieved what it can in the one stop multibrand retail sector. Shops like Big Bazaar, Food Bazaar, Central (hypermarket) are some the few multi brand retail stores which have flourished in India. But even these companies have failed to generate huge profits and cater the needs of the whooping upper and middle classes which are ready to try new avenues of shopping with world class quality, with their increasing purchasing power capacity.

The Indian Retail Industry is literally a “gold mine” due to its tremendous, still to be fully tapped potential. Unlike its other counterparts, retail is relatively a new concept in India and as such faces the delighting prospect of a vast potential market but with the added threat of competition from foreign majors like Wal-Mart.

Challenges

1) Competition from Foreign counterparts:

The Indian retail sector needs to build retail as a brand rather than the other way round. The foreign retail chains wishing to set-up in India are based in the highly urbanized metropolitans to gratify the needs of the upper middle-class. Shopping from these chains also adds a status symbol to the affluent Indian for whom a “Western identity” holds importance. The Indian retail chains cannot compete with these foreign stores yet. However, India has many developing cities and towns filled with the “newly-rich” who would welcome such stores in their cities which provide value for money.

The Indian counterparts can take a cue from Wal-Mart, which started out in small towns and has since spread into a huge network of stores which are situated within a few miles from the nearest town. By the end of 2005, 46 percent of Americans lived within 5 miles of the nearest Wal-Mart. A similar statistic in India would be hugely beneficial.

2) Lack of Proper Branding Strategy:

The Indian retail industry has attracted a lot of players within a short span of time with the result that similar categories of retail have got crowded so there is hardly anything to differentiate between different retail chains. There is a dearth of innovative strategy that sets one chain apart from the other. Also, in India, we have specialized retail stores- groceries, electronics, clothing, music have separate stores. One of the biggest attractions of Wal-Mart is that it gives a user the experience to shop for groceries, electronics, clothes, food or music under one roof. It provides a complete shopping experience with its huge shopping centers. Indian industry needs to take a note and come up with a similar alternative which offers a good choice on different varieties.

3) Improve the variety of Products:

Indian consumer is accustomed to see and feel a product before purchasing it. But they don’t really have much to choose from. At their local stores, they have to ask for a product and the shopkeeper shows about 2-3 varieties at the most and gets irritated if too many questions are asked. Retail gives consumers a choice; it empowers them. Still, the Indian retail stores don’t have a huge variety of products and people prefer to shop at their local markets due to the familiarity factor and are ready to let go of the minimal choices on offer. The quality and quantity of products need to be improved. It has to be a complete shopping experience.

Big Bazaar

Big Bazaar out of all the new Indian hypermarkets has shown the maximum promise by opening 214 stores across 90 cities. It basically focuses on the 14% consumer class which has high disposable income.

Figure 1: Consumer classes in India

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The major driving force with Big Bazaar is its Indian-ness which it constantly uses for its own benefits. It encourages the fact that most Indian families like to shop together where shopping is a fun activity unlike the west where shopping for retail items is considered to be monotonous and an individual job. Also many Indian like to touch and feel their staple food so it allows both sealed and unsealed varieties of staple food like rice, pulses, wheat, etc.

Offers like “SabseSasteBoodhwar”, “Purana Do Naya Lo… BadalDalo”, “Sabsesaste char din”, etc. helps to boost sales but if they need to compete with the growing domestic competition and the possible upcoming international competition they need to learn something from their international counterpart like Wal-Mart.

Some strategies used by Wal-Mart which can be implemented in India as well are:

  • Embrace the idea of EDLP (Everyday low price) completely as giving special discounts on some days might attract crowd on a particular day but the rest of the days, its sales won’t be that much. Moreover, especially in smaller towns people visit just to buy discounted items as the rest products are available on MRP. They still prefer to buy them from local stores where they might get some discounts. By incorporating ELPD they can reduce their dependencies on special discount sale to boost their sales and also will help them to keep competitors away.
  • By eradicating the middle man and purchasing goods right from the company and also purchasing fruits and vegetable right from the farmers. This will save them a lot of money as the cost of middle man is reduced. Also this type of partnership is better for the farmers as they won’t have to share profits with the middle man.
  • Spend on the development of technology in supply chain management system and infrastructure development by opening new self-owned cold storage, etc. Also they should develop a information technology infrastructure with a network design that will allow them to accurately forecast demand, track and predict inventory levels, create highly efficient transportation routes, and manage customer relationships and service response logistics
  • Promote private contract based partnership with business man and entrepreneurs for developing products in bulk which they can sell only in their store. This will ensure them of good quality product at low cost as they can even keep a check on the product quality themselves.

Conclusion

Some major strategies used by Wal-Mart were discussed. Strategies like EDLP, Technology and Social Media Marketing strategy were further explored in detail. Also, the reasons for why the Indian Retail Industry like Big Bazaar is not able to capture the enormous market were examined. Some possible solutions by comparing it with Wal-Mart model were discussed and how they can be implemented in Indian scenario. Some possible solutions are – embracing the idea of EDLP, eradicating the middle man and purchasing goods right from the company, developing supply chain management and infrastructure and lastly entering into partnership with business man for the development of new products.

By: Ayush Anand, Namrata Yadav, Nikhil Agrawal, Riddhima Ahluwalia and Rishav Ankit

References

  1. http://www.usanfranonline.com/wal-mart-successful-supply-chain-management/
  2. http://money.howstuffworks.com/wal-mart.htm
  3. http://online.wsj.com/news/articles/SB10000872396390443749204578048842451207454
  4. http://warlmart.blogspot.in/2009/02/which-of-3-generic-business-strategies.html

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