Wal-Mart is the largest private sector employer company in the world. The multinational company started in 1962 in Rogers, Arkansas as a group of small stores and now has 8400 stores in fifteen countries these includes operations in diverse consumer markets like China, United Kingdom, Brazil and Mexico.
The company has two million employees and serves in excess of two hundred million customers and members each week. In 2010 Wal-Mart International reported a US $ 100 Billion net sales mark. Growth of Wal-Mart has been driven by the theme of buying for less, operating for less and selling for less.
This essay looks at the innovative management techniques, distribution methods and sales techniques employed by Wal-Mart and how they have affected the landscape of the retail industry and influenced government policy toward business. Wal-Mart operates in a retail industry characterized by competition from national or regional drug stores, variety and specialty stores, warehouse clubs, supermarkets and departmental stores, internet-based retailers among others for prime locations, quality employees, and customers.
Significance of Wal-Mart in the context of the period under study and business history in general
Apart from innovating new ways of doing business in the retail industry, the company has also driven the level of efficiency in distribution and store operations to the highest levels and is now considered a trend setter in the industry. The management techniques first developed by Sam Walton, who started the company, are refined by senior management and are the reason behind the success of the company.
Innovativeness is notably observed in the Wal-Mart’s employee management. Employees form the human resource cost of all businesses and Wal-Mart is not an exception. The company is considered a low-paying environment in comparison to its market. With over 2 million employees, one wonders how the company manages to maintain its competiveness in the retail industry.
Sam Walton founded Wal-Mart on the presumption that it was the consumers right to have “Always Low Prices” and the success of the company brought democracy to shopping in the same way Caesar brought democracy to Rome as it is argued by Henderson.
To managers and employees of Wal-Mart take it as an obligation and subject themselves to the task of providing the customer with goods at always lower prices. They understand that in today’s consumer democracy, votes are cast by wallets, mobile money and credit card money and any other form of payment. High prices are regarded as the evil to be fought, and by offering lower prices for the consumers, the company’s employees know that they raise the standards of living wherever Wal-Mart stores are created.
This moral obligation might be the reason why despite low wages and very small charitable giving by the company compared to other big sized companies, The Swiss Management Center report by Henderson says that “at a recent store opening in Evergreen Park, Illinois, 25000 potential employees applied for 325 store positions, a ratio of approximately 77 applicants for each position available.”
The company maintains a healthy relationship with its employees and refers to them as associates. Apart from relying on surveillance cameras in its stores to check on shrinkage, the company rewards a check at the end of the year to associates who ensure shrinkage below target.
There has been a significant change in the retail industry since the entry of Wal-Mart and other large chain stores in the 1960s. A new competitive edge has been identified and is responsible for Wal-Mart’s run-away success; having the capacity to do what competitors cannot do. Wal-Mart’s adoption of new technology has enabled it to expand rapidly and reduce operating expenses as a fraction of sales. The company has a culture of experimenting new strategies on a pilot basis using a few stores and if the strategy proves successful.
It is implemented fully on all stores thus saving the company unnecessary losses on capital expenditure on a large scale. Stone writes than one positive impact of this strategy was the introduction of point of sale (POS) scanner checkout in 1981. As a result, there was an improvement in inventory control since each time an item was scanned at checkout, inventory levels automatically reduced accordingly and reorder levels could be noted quickly.
This technology was then implemented in the whole company system by 1984. Later in 1987 Wal-Mart fully operationalized a communications satellite system to provide two-way data and voice transmission and one way video broadcast from headquarters to the stores and distribution centers. This was necessitated by the lack of state-of-the-art telephone systems in the small townships.
Capacity advantage shows up again in Wal-Mart’s history after the decision to deploy a satellite system proved to be a futuristic one when the company added credit cards authorization feature to the system so that all authorizations were secured in less than seven seconds.
The system brought in great time savings as other competitors were still relying on slower transmissions over public phone lines. Another technological milestone was reached when the company started controlling the heating and lighting of its stores from the central headquarters eliminating the need for constant attention by store personnel, who now had time to attend to other roles.
The use of technology has enabled Wal-Mart to take efficiency in logistics, data mining of customer information and supply chain integration to a level that very few other companies can match thus ensuring that it stays ahead of its competition in terms of cost structure. Prior to the existence of Wal-Mart, no other retail company had a symbiotic arrangement with their suppliers.
It is an intelligent business model that allows Wal-Mart to find new methods of efficiency extraction through the ceaseless study of its supply chain. The company shares customer information with its suppliers so that they are able to have a “just in time” inventory. Suppliers deliver goods to Wal-Mart’s warehouses for selection, repacking and subsequent dispatch to stores. The whole process takes about 48 hours and goods don’t sit in inventory. It’s a unique logistic technique known as “cross-docking.”
In this system the company purchases truckloads of goods and avoids unnecessary inventory and handling costs thus achieving massive economies of scale. Costs of sales for Wal-Mart are 2 percent to 3 percent lower than the industry average as a result of running 85 percent of good through the company’s warehouse system. Wal-Mart therefore does not need to run promotions and has an added advantage of having more predictable sales due to stable prices.
Cross docking is very difficult to manage and this alone has given Wal-Mart a virtual monopoly in use of the technique. This would be unattainable had the company not invested in the communication satellite system since cross-docking demands that there is a permanent connection among distribution centers, suppliers and all points of sale (POS) so that there is a timely consolidation and execution of orders, usually in a few hours.
Wal-Mart beats the industry norm of two weeks by replenishing its store shelves twice a week because it has a fast and quick to respond dedicated truck fleet that allows shipment of goods from warehouse to store in less than 48 hours. Wal-Mart has demonstrated that it is possible for a retail chain with 8400 stores around the world, central management of stock inventory is possible, a feat that smaller retail chain stores are having difficulty to achieve.
Considerations on the Larger Impact of Wal-Mart on the Social, Cultural and Political Assumptions
The mammoth store concept pioneered by Wal-Mart has resulted in the availability of a commercial space equivalent to nine times what was available in 1960 and this has become one of the greatest crises in the community economics of American history. Main streets in the U.S. cities have a glut of commercial space and even if no more is built, it will take decades to absorb the current supply.
Retail pricing in America has been transformed as a result of the elimination of wholesalers by stores with massive distribution network like Wal-Mart. Almost 20 percent of all department-store-type-merchandise in the United States is now sold by Wal-Mart.
The company has driven out small stores from the main streets of major cities where it has stores located. This has been inevitable because Wal-Mart does not pay union wages and buys very large inventory and to enjoy massive economies of scale and can therefore source products at the lowest possible cost and sell them cheaper than supermarkets. In this case, the supermarkets struggle to keep up and eventually collapse.
The company has demonstrated that big is better in retailing business where the amount of time consumers spend in a store or supermarket is proportional to the amount of money they spend. It has been reported that customers spend up to two hours in Wal-Mart stores shopping.
The effects of Wal-Mart have been felt beyond the retail industry and prime commercial space frontier. Now business schools are putting retail trade as the focus of their attention as a result of Wal-Mart’s success.
Bosshart writes that Harvard Business School now sells Wal-Mart case studies to other business schools all over the planet, he further writes that in 2003, Wal-Mart’s war-like surge into the neighborhood food market and displacement of local chains was published as an in depth study; further reinforcing the fact that Wal-Mart has become synonymous with retail trade.
The American consumer now enjoys low prices and power to influence prices of commodities, a responsibility that was not available prior to the 1960s. Moreton writes that with Wal-Mart Americans created enlightened consumerism; something better than communism, socialism and capitalism.
Negatively, Wal-Mart has created new social problems associated with shopping. As shown above, the large amount of choice present in the mammoth stores of typically 120,000 to 130,000 square feet filled with goods makes choosing a painful task let alone finding that which you seek to choose.
The success of Wal-Mart demonstrates the importance of strategic business decisions informed by the need for capacity. All the company’s strategies are centered on replenishing inventory as the chosen competitive edge. As a capability-based company, Wal-Mart has created very flexible business processes whose combination sets may serve many other businesses, for example its inventory-replenishment system that allows its discount stores to be able to set up new shops in retail areas that were unattainable.
Sales at Wal-Mart are now representing the mood of the U.S. economy. In 2009, one American woman in five shopped at a Wal-Mart store weekly. In American politics Wal-Mart is now associated with a new voting bloc of consumers referred to as the “Populists” mainly consisting of mothers concerned with minimum wages and universal health coverage.
Therefore for politicians, the best place to reach their valuable voters is at a Wal-Mart store. The arrival of Wal-Mart at a neighborhood is now viewed as a big win for the residents because of better shopping, more jobs.
Furthermore, the presence of a Wal-Mart store in a neighborhood entices other retailers who hope to benefit from increased Wal-Mart consumer traffic that usually spills to their stores. The city officials of Harford, Connecticut used this knowledge to lure Wal-Mart there so that they could use the resulting development revenues to build new housing. This is an example of how Wal-Mart has affected official policy albeit indirectly.
Wal-Mart has not reinvented the wheel of retail business; it has merely been efficient at compressing points in the distribution system. What started with wholesalers displacing small peddlers in the 1870s and the subsequent displacement of these wholesalers by mass retailers who dealt directly with manufacturers has been a testimony to the true nature of capitalism which promotes free enterprise.
With freedom of choice and consumer awareness, the companies that were more efficient in their business outlive their incompetent competitors.
Bibliography
Berger, Athur Asa. Shop ‘til you drop: consumer behaviour and American culture. Lanham, MD: Rowman & Littlefield Publishers, Inc. 2005.
Bosshart, David. Cheap? The real cost of living in a low price, Low wage world. London: Kogan Page Ltd. 2007.
Grant, Robert M. and Kent E. Neupert. Cases in contemporary strategy analysis. 3rd ed. Oxford: Blackwell Publishing. 2003.
Henderson, Jeffery. The Meta Cultural Constraints Facing Wal-Mart. Web.
Malanga, Steven. What does the war on Wal-Mart mean?City Journal, 2004. Web.
Moreton, Bethany. To Serve God and Wal-Mart: The making of Christian free enterprise. Boston, MA: Harvard University Press. 2009.
Serageldin, Ismail, Ephim Shliger & Joan Martin-Brown. Eds. Historic cities and sacred sites: cultural roots for urban futures. Washington, DC: THE WORLD BANK. 2001.
Wal-Mart. Wal-Mart 2010 annual report. Atlanta: Corporate Reports Inc. Web.
Stalk, George, Jr., Philip Evans, and Lawrence E. Shulman. “Competing on Capabilities: The New Rules of Corporate Strategy.” In The Learning imperative: managing people for continuous innovation. Ed. Robert Howard. Boston, MA: Harvard Business School Publishing Corporation. 1993.
Stone, Kenneth E. Competing with the retail giants: how to survive the new retail landscape. New York, NY: John Wiley & Sons. 1995.