What could Walmart do? (2003)

Came across the following news on walmart.


Its an irony that  in Year 2003 while doing my MBA I wrote this up on what should Walmart do next on Strategy? Here it is.

Wal*Mart could achieve growth in the seemingly saturated discount retailing by expanding the cost advantage to new sectors, new urban and international markets and continuing to invest in new technologies.

Expansion to New Sectors

WalMart has the cost advantage in all cost centers compared to its competitors except technology[1]. With super centers, it took discount retailing to the next level by creating a combo offering of supermarket and general merchandise. The retailer should expand the notion of supercenters to include various basic routine services such as Laundromats, automobile service stations, hair salon etc.  Since the food and groceries market had a very small margin of 1-2%, supercenters use that to attract customers and make profits by selling the general merchandise[2]; these additional specialty services could be offered under one roof. The automobile service stations should do routine services such as tire change, oil change etc rather than getting into offering full-fledged mechanical servicing. Drop-off and Pick-up facilities should be offered in select departments such as Laundromats, pharmacy etc. Thus by reducing the contribution of food sales to the overall store sales and increasing contribution of services and general merchandise, the profit margin of these stores could be improved further. The concept of super markets, super centers and discount retailers is that to take advantage of the economies of scale. By expanding into basic routine services, WalMart could leverage the fixed investment, drive down costs further and become a one-stop shop.

Expansion to Urban markets

The retailer should plan for more store openings in the urban markets in the future as it has almost saturated the less competitive rural markets. The rural segment is ideal for the company to grow in the initial phase, with less competition it was able to concentrate on improvising its processes. Now it should enter the urban market to take advantage of its efficient distribution network and the cost advantage. The main obstacle for urban expansion is the non-availability of the real estate on the scale required for supercenters and its huge stores. Not all urban stores need to provide all the services and all the products. WalMart with the help of its sophisticated information systems should trim its products & services offering and redesign its stores to fit the urban needs. For example, to solve the real estate problem, the stores could be redesigned to fit multi-storied structure in some urban areas and a scaled down version in some other areas. Combined with its slogan of “Always Low Prices Always” and the concept of one stop shop is ideally suited for the fast paced urban life and could save a large amount of time for the customers. These redefined stores should be backed-up by establishing Sam’s Clubs on the outskirts of the cities.

Expansion to International markets

Human needs are the same across nations with slight preferences towards certain things depending on the culture. WalMart could copy its cost efficiency to new markets to repeat its growth in next phase. The safest route to expand into international markets is by acquiring the existing retail chains. Once the company familiarizes itself to the culture then it could expand to neighboring countries. In the first phase, WalMart should expand intoCanada, all Latin American countries, start withUKin Europe and then inAustraliabefore entering Asian and African markets. Being the leading retailer in US, it understands the western and Latin American culture. Hence it would be easy to expand into these markets in the second phase and sustain the current growth.

Investment in New technologies

One of the main reasons for its success is the continuous improvement of its processes (distribution, logistics, customer service, inventory control, central purchasing etc) by investing in technology[3]. It this urge to innovate that helps it maintain the leadership position and is required to sustain growth in this mature market. The company should forge partnership with universities and other manufacturers on technologies that aid improving inventory control, distribution and supply chain. It should lead the retailers by adopting new technologies to improve its processes further. This will lay foundation for its next phase of growth and help sustain its growth in two digits; otherwise the retailer would not be able to maintain its lead position.

Thus WalMart could continue on its growth path by expanding into basic routine services in its stores; enter urban markets by redefining and restructuring stores; International expansion into all of Americas, start with UK in Europe and Australia before venturing into Asian and African markets; and set the platform for next growth phase by continuing to adopt new technologies to improve its processes.

[1] IS expense is 1.5% of store sales compared to 1.3% for direct competitors

[2] 40% of super center sales is from food.

[3] Established satellite communication facility and linked up all the stores.


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