Strategy Audit of Wal-Mart Stores - Case Study Example

Strategic Audit of Wal-Mart & Kmart Strategic Audit of Wal-Mart & Kmart Any business should take care of the external environment in which it operates. The external environment creates a lot of opportunities and at the same time also creates threats to the business. The opportunities may be exploited and the threats, if not handled carefully may damage the business. Proper resources and capabilities are to be aligned properly in order to exploit the opportunities and handle the threats. Such capabilities and resources are to be understood and evaluated carefully. Such a process is defined as Strategy Audit. About Wal-Mart Stores: Wal-Mart is the largest retail chain in the world and the largest corporation in the world. It was started in the year 1962 in Rogers, Arkansas, by Sam Walton. It took a long way to reach an annual sales turnover of $1 billion. By the year 2002, Wal-Mart became the world’s largest retail giant with sales of $218 billions. In the initial days of starting the business, Wal-Mart designed a strategy to build large discount stores in rural areas. Wal-Mart employed the strategy of selling branded products at a very low price. Initially, the management of the firm decided to develop the firm as a one-stop discounted departmental chain store with a vast variety of general merchandise goods to be offered to the customers that too at a low price. The management’s initial focus was on its purchase decisions. The firm focused on exploring each and every opportunity that helped in general merchandise goods. The two important products of the entire Wal-Mart product line on which the firm laid a strong emphasis were health products and beauty products. The stores used to maintain a high stock of these products. When the firma became successful in opening more than 279 stores by the end of the year 1979, the next focus was on designing strategies for expanding the firm aggressively. In contrast, to the other retail stores who built ware houses in order to serve the already existing outlets, Wal-Mart used to first build distribution centers and later started stores around the distribution centers. This strategy of Wal-Mart helped the firm in pooling the advertising and distribution overheads. The firm also focused on the transportation time needed for a customer to reach the outlet. The strategy of aggressive expansion turned out to be a big success because Wal-Mart became the largest retailer and discount stores in United States by the end of the year 1991 which had almost 1,573 Wal-Mart outlets in 35 states. Once the firm attained the position of national discount department store chain, it designed its outlets in such a way that they provided a one-stop-shopping to its customers. The outlets were designed to have 40 different departments like apparel, health products, beauty products, toys etc. Wal-Mart was strict on not spending huge amount on special promotions and advertising strategies etc. It rather operated its outlets on a concept of “everyday low prices.” It was a belief in every customer that the Wal-Mart stores would provide them with a friendly, clean and a very pleasant experience every time they shop. The year 2001 was a real challenging era not only to the retail industry but also for many other industries. The reason for this being like a year that ended with a worst holiday season i.e end of 2000, energy crisis, the rise in the unemployment factor, the spending of the consumers became sluggish and last but not least – terrorist blasts of the WTO on September11, 2001. Though the firm became successful in almost every strategy designed, it did not neglect to focus on the external market environment at the same time. The firm strongly believed that their business in the forthcoming year would definitely be affected by the external market environment. The external factors would also influence the financial figures in the firms’ balance sheets. Some examples of such factors being inflation, competitive factors and pressures, unemployment, level of consumer debts etc. During the 1990s Wal-Mart designed strategies for its expansion and recognition and it even succeeded in them. During the initial months of 2000-2001, the firm’s management started studying the external environment and forecasted that there is a scope of getting 60-70% of sales and earnings would come from domestic markets that had Wal-Mart outlets. 10-15 % of sales are expected from Sam’s Club etc. The remaining 20% would come from international market growth. Wal-Mart also owned hypermarkets by name super centers. These were usually a combination of stores. Such stores combined with general merchandise consumer store along with grocery shops, restaurants, and also other services like banking etc., and by the year 2002, the stores had a count of almost 1,066 super centers. Another concept which Wal-Mart tested was the concept of “Neighborhood Market.” The company named them as ‘small-marts.’ These stores used to stock fresh fruits and vegetables and also had a pharmacy, 24 hour photo-shop and also a selection of classic hard goods of Wal-Mart. The reason for operating such small-marts were to facilitate customers who wish to shop for very few items and who were in hurry. The firm succeeded in this too. One of the important factors that differentiated the company was the freedom it gave to its employees for their involvement in the affairs of the company. The firm used to employ people from the same locality in which it had an outlet and trained them to meet the organizational requirements. The employees were encouraged to use words like ‘we’, ‘us’ etc. This was as part of their corporate language principle. The employees were free to ask the management any questions which they had about the company. The company also organized a number of special award programs in order to recognize and award achievements of individuals and departments. About Kmart Stores: The management of Kmart made a commitment of $80 billion in lease and merchandise for about 33 stores before it commenced business in the year 1962. In order to achieve this commitment, the company strongly believed and depended on its employees’ strengths and abilities. Kmart designed its strategies in such a way that it offered a wide variety of merchandise products. The Kmart stores actually evolved from another organization by name Kresge - a store that was founded in the year 1899. Kresge stores was also a retail store which sold general merchandise goods that are priced low and needed a very low budget. The stores were opened in relatively small areas with not much furniture. Kmart had sufficient knowledge and ability for merchandising almost 50% of the departments of its proposed business and hence it concentrated on the remaining departments. In the later years, Kmart started taking over almost all the departments except the footwear wing. The year 1987 became the silver jubilee year for Kmart and its sales figures were in a high boom. Late in the 1990s Kmart went ahead in acquiring and developing of many smaller operations. Kmart acquired an insurance company called Planned Marketing Associates. This company offered a full fledged solution to different insurance of both life and general. Kmart also acquired many bookstores from an organization named Carter, Hawley, Hale Inc. Kmart designed a strategy for capturing an increased share of the products that the firm consisted already. The acquisition of the bookstores was an effort made in alignment of the above mentioned strategy. After the overall study made about the growth of the company, Kmart emerged with many new strategies. Kmart focused on developing the company with 250 new stores, 280 relocations in the next five year period. As a result of the efforts made for this plan, Kmart stores redesigned it into stores that offered better shopping experience, better ambience, one-stop shopping solution and a far better in-store presentation and customer service. Kmart also made improvements in displaying its products in the stores. As part of the strategy of improving its product display, Kmart emerged with a new concept of ‘shop.’ The concept intended in putting different departments in one spot rather than locating them in different places. This would serve the customers in such a way that they would shop for different inter-related items instead of sticking to one item. This way the goods were made complementary too. The firm also focused on Name Branding. The merchandise of the firm was featured in the company’s own newspaper. A centralized system of merchandising was also opened in order to improve communication. The technology development part was also taken care. A highly automated system was arranged in order to track the turn-around-time (TAT) of the sale of goods and also the refilling of the empty shelves. Kmart also opened a Super Center which was a combination of general merchandise and other services. The super center was aimed at greater customer satisfaction and convenience. The company operated over 100 super centers by the end of the year 2001. COMPARITIVE STUDY: The financial figures of both the retail stores have a variation in the series of past years. If the financial figures of the fiscal year 1990 were considered, the sales of Kmart equals to an amount of 32,070,000,000$ and of Wal-Mart comes to about 32,601,594,000 $. Ten years later, in the year 2001 Kmart’s sales hiked by 12.73% in contrast with the latter’s hike of 568%. The total number of store owned by these retail giants also differ. Kmart owned 2,219 stores whereas Wal-Mart owned 4,414 stores. There existed many other variations among these companies. A study conducted in comparison of both these firms says that many of the customers are less satisfied with Kmart because of the price fluctuation factor. They believe that prices of same products in the store vary every month. But Wal-Mart was very serious in maintaining and assuring an ‘everyday low price’ to its customers. Customers also feel comfortable at Wal-Mart because most of the employees at these stores are bi-lingual. Kmart stores lacks in this. K-mart stores will only exchange a sale product when returned but Wal-Mart assures you a money –back guarantee. The percentage of repeat shoppers at Wal-Mart stores is almost 98% but for Kmart it is only 82%. References: 1. http://www.tutor2u.net/business/strategy/Strategic_audit.htm 2. http://www.answers.com/topic/wal-mart-stores-inc 3. http://mba.tuck.dartmouth.edu/pdf/2002-2-0013.pdf Read More