Wal-Mart Stores Discount Operations - Case Study Example

Building rentals accounted for 1.8% of sales in the late 1970s. This was the lowest level for major discounters. Additional building rentals of Wal-Mart took it up by only 0.1%. Wal-Mart was able to keep its the cost of goods as low as possible. It had a centralized purchasing network and therefore purchased in bulk. It also had distribution centers and a good distribution network that ensured it's stories always had a consistent supply of stock. These steps further reduced cost greatly. Wal-Mart had Goodwill in cities where it was established because of its promotional strategy which was tailored by it's a philosophy of "Everyday low prices".

It had a high sales turnover and spent just 1.1% of its net sales in the second half of the 1970s. Costs were greatly reduced here too. Wal-Mart undertook capital investments to improve labor productivity. Salaries and wage expenses had declined to 10.1% of sales by 1985. This reduced cost, however employee incentives, like profit-sharing were enabled to ensure employee satisfaction. Their employees put in their best to satisfy Wal-Mart customers in return. Cost is minimized as much as possible, allowing for continuous reduction in prices of commodities.

The reduction in prices led to increased sales and a high rate of turnover hence increased profits and more operating income for expansion and performance.How does Wal-Mart have superior profitabilityExhibit 2 (page 10) is a financial performance that compares Wal-Mart's performance with that of its competitors from 1974 to1984 in (%) 2. Wal-Mart has superior profitability because of the high percentage of sales. It was very competitive in terms of prices, Wal-Mart was able to sell at very low prices governed by its a philosophy of "Everyday low prices".

It ran a lot of promotional sales and was able to balance this with a low-cost profile. Increased sales brought in more profit, Wal-Mart had the highest return on equity of 33.0%, sales growth of 40.3% and earnings per share growth of 38.8%.How do Wal-Mart's retail prices compare to those of its competitorsWal-Mart was very competitive in terms of prices. The store managers had the liberty to set prices as compared to their counterparts that didn't have. This latitude in price-setting enabled prices to be set uniquely to a particular location while having the overall objective of the organization in mind.