How To Beat Wal-Mart

1. How To Beat Wal-Mart by Matthew Maier Travis DeBacker Roth Puth Hung Nguyen

2. Agenda • War & business? • After the external environment. • 4 strategies to beat Wal-Mart.

3. Military Strategies

4. Business Strategies Cost Leadership Costs are below those of competitor Product Differentiation Perceived value of products & services

5. Sources Size and Economies of Scale Experience and learning-curve economies Low-cost access to productive inputs Technological advantages Policy choices Cost Leadership

6. Product Differentiation Sources • Focus directly on attributes • Product features, complexity, location • Relationship with customer • Product customization, brand building • Linkage between firms • Product mix, supply chain, service and support

7. Rule 1 Hit’em where they ain’t If you know the enemy and know yourself, your victory will not stand in doubt. Regard your soldiers as your children, and they will follow you into the deepest valleys; look upon them as your own beloved sons, and they will stand by you even unto death. -Sun Tzu

8. Costco • Target Customer: small business owner • Wealthy & Frugal. • Demand quality to reflect their status. • Employees • Highest paid in the industry • Motivated & well treated • Strategy: brand names at bargain prices.

9. Results • Sales per store: • Costco: $115 Million • Sam’s Club: $67 Million • Employee Strategy • Costco Turnover: 6% Walmart Turnover: 44% (1.5 billion expense) • Revenue contribution per employee: • Costco: $16,550 • Wal-Mart: $12,800

10. Rule 2 OutDiscount the Discounter What is of supreme importance in war is to attack the enemy’s strategy. -Sun Tzu

11. Dollar Tree Who did what to Wal-mart? • Dollar Tree: Simple pricing and a less painful shopping experience for their customers.

12. Dollar Tree Facts • Nation’s largest single-price vendor. “Everything’s $1” • 1986 The first Dollar Tree store opened in Dalton, GA. • 2735 locations and counting • $3.2 billion of annual revenue. Net sales surged nearly 191% since 1998 • In 2004, company earned $186 million dollars

13. Strategy • Outdiscount the discounter. $1 • Suppliers work with Dollar Tree to fit both their needs. (ex. Instead of 20-ounce soap bottles, P&G produces 18-ounce soap bottles) • Simple convenience

14. Outcome • Dollar Tree operating margin, 2005: 9.7% Wal-Mart: 5.9% • Customers get the basic necessities in a shorter period of time.

15. Rule 3 Re-create what Wal-mart has swept away To capture the enemy’s army is better than to destroy it.. -Sun Tzu

16. SAVE-A-LOT Who did what to Wal-mart? - SAVE-A-LOT: A grocery chain store who brought back the bygone Main Street feel and focus on underserved neighborhoods.

17. SAVE-A-LOT Facts • Has 1,250 outlets in 39 states • Sale estimated to be $4.2 billion dollars in 2004 • Growing about 7 % annually. • Save-a-lot has a 3.5% profit margin compare to Wal-mart’s 2.6%

18. Strategy • Theme: keep everything small. (Ex. 20-25 employees and selection limited.) • Save-a-lot 1,250 grocery items. Wal-mart 40,000 grocery items • One kind of each product, also relies heavily on private-label brands (account 75% of inventory).

19. Strategy • Focus on neighborhoods where income are fixed or below $35,000. • Inventory comes from 16 distribution centers all packed into one truck. • To avoid Trademark cost, brand names are taken from employees.

20. Outcome • The nation’s 5th largest grocer

21. Rule #4 Win the service game The potential of troops skillfully commanded in battle may be compared to that of round boulders which roll down from mountain heights. -Sun Tzu

22. Dick’s sporting goods- has created a sales team with true expertise that coddles customers. • Dick’s revenue growth is 34% Wal-Mart sporting section is 16%. • Customers today want information-dick’s hires certified trainers and has 200 PGA pros. • Customers can try out golf clubs in a driving cages with simulated course, sneaker shoppers can test shoes on a 60-yard rubber track, bike owners can have their cycles repaired, and tennis players can get their rackets restrung.

23. Rule #4 Cont. • Although the cost to run a dick’s might be high, dick’s returns are greater. • Dick’s has been growing 16-23% yearly and stock prices from $8-$34 the past two years. • Dick’s has a wider selection and is cost efficient. • Dick’s inventory turnover is 3.7 while the industry is 2.7. • Dick’s has a replenishment system that calibrates and gets exact orders they’re needed. • Never think your powerful competitors are invincible. • Find opportunities and make sure Wal-Mart misses them

24. Lessons From The Fallen • Kmart- had high inventory cost and never materialized. • Toys R Us- Wal-Mart expanding its toy selection and slashed prices in the mid-1900s. Toys R Us was slow to recognize and found • Winn-Dixie- Sam Walton worked for Winn-Dixie for six years and two years after he opened his supercenters with cut-rate groceries. • Winn-Dixie customers didn’t buy into an upscale grocer and soon started to shop at Wal-mart.

28. Questions & Comments