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The Wal-Mart Effect

The Wal-Mart Effect. Week 1 Who Knew Shopping Was So Important?. Deodorant & Paperboard Box. I’m probably not the best negotiator in the world. I lack the ability to squeeze that last dollar – Sam Walton Deodorant & Paperboard box

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The Wal-Mart Effect

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  1. The Wal-Mart Effect Week 1 Who Knew Shopping Was So Important?

  2. Deodorant & Paperboard Box • I’m probably not the best negotiator in the world. I lack the ability to squeeze that last dollar – Sam Walton • Deodorant & Paperboard box • The Perfect Wal-Mart moment - largely unseen, unnoticed, and all apparently good • Wal-Mart uses it’s muscle to force efficiency and reduce cost • Relentless pursuit of efficiency & cost-cutting • Waste eliminated • Savings is recurrent and permanent • A new standard of efficiency is established, lowering costs for everyone BUS-115 Introduction to Business

  3. The Wal-Mart Effect • A wasteful routine is detected and eliminated • Costs are lowered, especially for consumers • But in the wake of these changes comes a ripple of unintended consequences that also affect everybody • Not immediately noticed • Unacknowledged • Scale of change not understood • Communities and everyday life changed BUS-115 Introduction to Business

  4. Supercenters • Wal-Mart Supercenters • Double the size of traditional Wal-Mart store • Sprawling, own “eco-system” • Growth rate • 9-Supercenters in 1990 • 888-Supercenters by 2000 • Over 2,000 Supercenters today • 1000 more than just 5-years ago • 7-Supercenters opened/month for 120-months in a row • 16-Supercenters opened/month for last 5-years BUS-115 Introduction to Business

  5. Groceries • Supermarkets - well-established, experienced, well-run national chains • Kroger – 1883 • Safeway – 1915 • Albertsons – 1939 • Unionized • Good-paying jobs • Benefits • Formalized labor relations BUS-115 Introduction to Business

  6. Groceries • 15-years ago Wal-Mart did not sell groceries • Today, Wal-Mart now sells more groceries than ANYONE IN THE WORLD • Wal-Mart sells more groceries than Kroger and Safeway COMBINED • Wal-Mart continues its onslaught • For the past 5-years, 16-new Supercenters are opened each month • 40% of Supercenters are devoted to groceries • Wal-Mart has16% of grocery market – in some cities 30% • Wal-Mart captures grocery market by pricing about -15% lower than its competition BUS-115 Introduction to Business

  7. Groceries • Wal-Mart Effect • Lowered prices for groceries • Changed supermarket business • 31-supermarket chains have gone bankrupt • Effect on unionized grocery workers • L.A. Times - The Wal-Mart Effect:Part 1: An Empire Built on Bargains Remakes the Working World • Will Wal-Mart Take the Labor Challenge? BUS-115 Introduction to Business

  8. The Most Powerful Company in the World • Wal-Mart is everywhere • Over 4,000 stores in the U.S. • More than 1 Wal-Mart for every county • Largest retailer in North America • In 2004, Wal-Mart opened 4-new Supercenters PER WEEK • Wal-Mart is very visible • Hard NOT to see • Create their own gravitational force and sprawl • Does everyone shop at Wal-Mart? • 1/3 of Americans shop there each WEEK • Average American household spends $2,060 per year (Wal-Mart’s profit = $75) • 7.2-billion visits worldwide per year • China expansion BUS-115 Introduction to Business

  9. The Most Powerful Company in the World • Wal-Mart is largest private employer in the U.S. • 1.3-million workers in U.S. • 3-million additional jobs are dependent directly on Wal-Mart • Wal-Mart = Home Depot + Kroger + Target + Costco + Sears + Kmart COMBINED • Wal-Mart sells more in 10-weeks than Target does in a year • Wal-Mart is the largest company in the history of the world • 1.6-million employees world-wide • ExxonMobile v. Wal-Mart • Wal-Mart’s performance is indicator of entire U.S. economy • Wal-Mart Starts Discounting Early • Today’s Wal-Mart stories BUS-115 Introduction to Business

  10. Wal-Mart’s Effect • Wal-Mart shapes consumer behavior • Where we shop • The products we buy • The prices we pay • Our sense of quality • Reset our expectations • Wal-Mart shapes business behavior • Reaches deep within its suppliers operations • Changes how their products are made, packaged, and presented • Changes the lives of the factory workers who make the products • Wal-Mart shapes communities • Reshape economic life of towns • Steadily, silently, purposely moves the economies of the world • Sometimes even changes the countries where the products are made BUS-115 Introduction to Business

  11. The Most Powerful Company in the World • Obsessive, data-gathering habits • Data v. information distinction • Innovation done slowly, deliberately • Warehousing, logistics, data management, merchandizing • Studied competitors, borrowed from them, and improved their innovations BUS-115 Introduction to Business

  12. The Most Powerful Company in the World • The Wal-Mart Effect • Wal-Mart is: • The boldest, most innovative, most democratic validation of free-enterprise in the world or • An insatiable, insidious beast exploiting the people it pretends to defend or • Something somewhere in-between BUS-115 Introduction to Business

  13. The Wal-Mart Effect “Eventually, Your Greatest Asset becomes your Greatest Liability”-Steve Jobs, co-founder of Apple. • Wal-Mart’s Core value - always lowering costs • The larger it becomes, the harder it to grow by lowering costs • Sexual-discrimination class action suit on behalf of 1.6-million female ‘associates’ • Adequacy of health benefits and effect on states-Medicaid • Locking employees in stores • Forcing associates to work ‘off the clock’ • Wage Caps and moving full-time employees to part-time BUS-115 Introduction to Business

  14. Does Wal-Mart Understand? • Bentonville – source of strength • Far from distractions • Work ethic, frugality, focus, hard work • But Bentonville is isolated, lack of perspective • Inability to see itself clearly • Family-friendly • “Average hourly wage is nearly twice the minimum wage” • $660/month after rent, health insurance • Wal-Mart jobs are intended as “supplemental” • 2/3 of Americans, Wal-Mart is the single-largest employer where they live BUS-115 Introduction to Business

  15. Does the U.S. Understand Wal-Mart? “Wal-Mart is just plain greedy” • 2004 Microsoft profit was $12.3-billion • 2004 Wal-Mart profit was $10.3-billion • Giving ALL the profit to ‘associates’ would mean an extra $6,400/employee • About $3 per hour • There isn’t enough money to raise wages from $8-9/hour to $12/hour BUS-115 Introduction to Business

  16. The Birth of Wal-Mart • Sam Walton: • Sell stuff people need every day just a little cheaper than everyone else • Sell it at the lowest price all the time • If you do, people will flock to your store (volume) BUS-115 Introduction to Business

  17. Wal-Mart Core Values • Incredibly demanding corporate culture • Unrelenting focus on cutting costs • If you spend $1, how much merchandise do you have to sell • “Sales cure all ills” • Hard work, long hours • Accountability • Devotion to numbers • Competitiveness • Core respect for competitors • Continuous improvement BUS-115 Introduction to Business

  18. Has Wal-Mart Outgrown Its Culture? • Sam Walton’s 10-pound bass • Sam Walton wanted his employees to be happy • Many early employees became millionaires • 100 shares of stock in 1970 = $11.25-million in 2000 • 100-shares bought anytime from 1970-1980 and held for 20-years = up to $1.7-million • 100 shares of stock bought after 1990 and held 15-years = $20,000 BUS-115 Introduction to Business

  19. Has Wal-Mart Outgrown Its Culture? • “The surest indicator of Wal-Mart’s failure to evolve is the wave of workplace problems the company is facing.” • By fall, 2005, Wal-Mart faced 40-separate law suits filed by employees (forced to work off the clock) • In 2000, it settled a Colorado class-action suit brought by 69,000 employees for $50-million • October, 2003 federal agents raided for illegal aliens • August, 2004, Wal-Mart closes Quebec store after union was certified to bargain BUS-115 Introduction to Business

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