Wal-Mart, a giant discount retailer, is the largest company in the world. The company started out as a small chain of franchised stores but turned into a multi-billion dollar company. What sets them apart from other companies is that they are very efficient and cut as many costs as possible in order to increase profits. The characteristics that define Wal-Mart are very different fromthose that define its competitors. The ways in which Wal-Mart makes money are generally unique to the company and those who have attempted to imitate Wal-Mart have not been very successful (i.e. Kmart). However, Wal-Mart is not a perfect company as it faces challenges in terms of domestic and international growth, increased competition, and rising legal issues.
Wal-Mart islocated in all 50 states and in many countries around the world. Their discount stores and Supercenters are concentrated in rural areas where they are likely be the only supermarket of their kind. In urban and more congested areas, where space is limited, Wal-Mart operates its smaller “Neighborhood Markets.” Wal-Mart also focuses on placing their discount stores in areas where they can have a strongcustomer base depending on the retailing format (i.e. about 150,000 customers for a Supercenter).
Much of their strong customer base comes from a vast demographic because they seem to target lower income households because they are able to sell goods at lower prices than the competition. Recently, Wal-Mart has begun to target upper income households by introducing online shopping to make theirservices available to all parts of the country—not just the rural surroundings of the stores.
In order to cater to such a vast demographic Wal-Mart strides to achieve a very high level of operational efficiency. Their stores are centered around their warehouses which usually deliver to those stores within 48 hours (driving distance). Another advantage Wal-Mart capitalizes upon with their warehousesis their ability to purchase goods in large batches and store them there until future distribution. Along with coordinating warehouses, Wal-Mart has mastered the art of cross docking in which merchandise is exchanged from inbound to outbound trucks without having to take time (and incur distribution costs) to unload into the warehouse. Wal-Mart has also implemented other innovations in theevolution of discount selling which include: RFID, the use of barcodes and UPCs, and the implementation of a system to reduce stock-outs and over-stocking. It is interesting to note that Wal-Mart—the largest public company in the world—controls many aspects of its stores and (such as electricity consumption) warehouses from its one headquarters in Bentonville, Arkansas.
As the “world’s largest privateemployer,” Wal-Mart provides numerous resources for its estimated 1.4 million employees. For example, it provides incentives for its associates and managers. Managers—who generally receive less than their counterparts at other stores—get bonuses for having satisfactory store performance. Employees also have the opportunity of being promoted to a higher position based on their performance. Foremployees—who are often referred to as “associates”—Wal-Mart provides minimal medical coverage at a reduced cost. Other resources include an open-door policy in which an associate can bring up an issue to any level of management, sharing all information with its associates, and profit sharing in which associates’ income improved based on higher store performance. Finally, Wal-Mart tries to inspire pridein its employees through cheers and its annual parties for employees and their families.
How does Wal-Mart make money?
The company bases its philosophy on the words of Herb Gibson: “buy it low, stack it high, sell it cheap.” Wal-Mart’s merchandise is comprised of consumables, hard goods, and soft goods. Consumables include food, candy, and tobacco. Hard goods include appliances, household...