A discount store is a type of store, which sells products at prices lower than those asked by most of the retail outlets. Most of the discount department stores offer a wide variety of products; other stores specialize in merchandise such as electronic equipment, or electrical appliances. Discount stores are not a type of variety stores, which sell goods at a single price-point or may be multiples thereof.
Discount stores are different from variety stores in that they do sell many name-brand products & because of its wide price range of the items offered. Discount stores are very popular in the United States than any other countries. In the beginning, number of retail establishments in the U.S. started pursuing a very high-volume, low-profit-margin strategy designed to entice price-conscious consumers. Currently Wal-Mart, the largest retailer in the world, operates more than 1,300 discount stores in the U.S.
Wal-Mart’s top competitors are target and K-mart.
Porter states that
“The root of any problem lies in lack of distinguishing between strategy and operation effectiveness”
The race for productivity, quality and speed has resulted in management tools and techniques, TQM benchmarking, time-based competition, outsourcing, reengineering as well as change management.
In any organization, strategic management is the key to success. There are many theories based on the assumption that without a valid strategy and planning, its difficult for any industry to survive irrespective of the size it have. It is very necessary to understand here that all of the major corporate organizations have finally established themselves, thanks to superior planning of strategies and its implementation.
The retail industry is becoming a news everywhere with not only the traditional industries incrementing their outlets but some major corporate industries also entering into this industry like Fresh @ Reliance of Reliance Industries and more of Aditya Birla Group in India. Strategic decisions are the decisions that are aimed at differentiating the organization from its competitors in any way that is sustainable and profitable in the future. Porter strongly advocates in the theory that that decisions in business can be simply classified as strategic if they involve some of the innovation and difference that resulted in sustainable advantage. According to Patrick Hayden about the retailing industry, it adopted the style of discount retailing on its merchandise after the World War 2. It is learnt that discounting in retail was not any strategy at the time Kmart, Target and Wal-Mart first started their business.
Wal mart is known as the giant in retail industry. It has survived for very long and is still a huge enterprise in the world which use to deal with almost every product, apparel, etc.Sam Walton, started a company and with time became leader in discount retailing. It is largest company in the history of world. Wal-Mart executives continue to follow many of the philosophies that Sam’s legacy left behind, while simultaneously keeping one step ahead of the ever-changing technology and methods of today’s fast-paced business environment
Wal-Mart became successful because of its good Strategy as well as good Strategy Implementation. In 1962, Sam Walton opened the first Wal-Mart store in Rogers, Arkansas. At that time, no one could have predicted the enormous success of Wal mart. Sam Walton’s talent and discount retailing made Wal-Mart the world’s largest retailer, as well as, the world’s best retailer in sales.
Philosophy – for a successful company not only sound strategic management decisions are required, but also innovative implementation of those strategic decisions is necessary.
Wal-mart business model:
It offers cheap prices than its competitors and differ with them in frugal culture, no regional offices & pleasant environment to work. Lots of visits are made by the management and the point to be noted is there are no rehearsals before any meeting and meeting are scheduled mostly on Saturday. In every organization, human resource is the key for its development and in Wal-Mart efficient management of its sources is done. Wal-Mart terms its employees as associates. Compensation for managers are linked to the profit of store operated by them, within promotions, compensation offered to associates depends on company’s profits they make and they are also offered some incentives on their performances.
Wal-Mart’s workforce is not unionized and the company takes all the measures and advantages for their benefits. They provide their workforce with training on related issues. Technology plays vital role in development of the organization & Wal-Mart is well equipped with technological innovations like store performance tracking, POS, real time market research, satellite system & UPC.
Wal-Mart followed procurement measures like hard-nosed negotiations, partnerships with some of the vendors, planning packets, centralized and simplified buying, etc. helps at large the cause of which provides the goods & services on cheap prices to the customers.
The margin of profit for Wal-Mart was very high, the factors are their inbound logistics with frequent replenishment, highly technology driven business model, pick to flight, EDI, hub and spoke system. The strategy of operation by wal mart is innovative and highly creative with big stores in small towns, as they got monopoly in the market at comparatively low rental costs, concentric and efficient expansion, based on local prices, merchandising in their brand name, private labels of the area, store within store, much little space for inventory, etc. In relation to marketing and sales, merchandising was tailored from locals ,they spent less on advertising and the prices were fixed low and it uniquely depends on the store manager and he was the one who fixed the latitude of pricing.
If we combine all the above factors together, the margin of profits was increased through bulk sales and further which also boosted the confidence of the customers by providing them various services like point of sale information system which was a new technology driven and the most unique everyday low prices.
Strategies used :
Wal-Mart made strategic and tactic attempts in its formulation or procedure to dominate the retail market where it is having its presence, experiencing growth by expansion in the US. Internationally, wal mart created widespread name recognition and it focused on high customer satisfaction in relation to its brand name and branched itself by doing mergers and acquisions to new profitable new sectors of retailing.
The strategies called Generic strategies consisting of Focus Strategy, where focusing to the niche market is the main objective, the Differentiation Strategy where product differentiation is done and finally the overall cost leadership are adopted by the retail company wal-mart. Any organizations thrive hard to become successful for which it mostly needs to have better resources and superior capabilities. Wal-Mart retail company operates on low price strategy where prices are low and operated as every day low prices (EDLP) which builds efficient trust among the customers.
“The strategy follows purchasing the product at lower prices and selling the product to customer at much lower prices, price cutting is done as far as possible and increases its profit by increasing the number of sales.”
Discount retailing strategy by Wal-mart & Price spin:
According to Porter, operational effectiveness of the strategy and efficiency are the basic key elements for the success of any organization. A company can easily outperform its competitors in the market with its superior management & real efficient control hence creating a difference from the others(its competitors) which eventually results into enticing customers. Porter defines operational effectiveness in strategy as
” performance of similar kind of activities as its rivals but difference in its betterment than them”
Wal-Mart is an expert in changing and manipulating perceptions. It is actually termed that low price in retailing is not the strategy of Wal-Mart but still the advertisement manipulates the perceptions of the customer by making them think and perceive that its prices are in actual lower than others ( its competitors’ )price using ‘price spin’.
Wal-Mart by manipulating makes the consumer stick and addicted coming to its retail store making them convinced that the prices are actually lower than in other stores (its competitors) by selling itself cheaper by advertising that
‘we have lower prices than anyone else’ and placing a ‘opening price point’.
The ‘opening price point’ is the lowest price in the store which is kept at high visibility which makes consumer believes that the products in this store are really cheaper.
The SWOT analysis of the retail company Wal-Mart clearly reveals that it is the most powerful retail brand, has reputation for money, value, commitment & it provides a wide range of products. It is growing incremnetly at a brisk pace along with expanding its horizon to other parts of the world through various acquisition and merger. Sustainability at the top place is a very important job that makes the managers strive hard to frame the policies, future intentuions and strategy to compete confidently with its rivals in the market. Imitation, Substitution and Hold-up are some of the threats to any organization in the retail industry. Imitation increments profits by incrementing the supply. But imitation mostly puts reputation and relationship at stake. The report by James Hall states that Wal-Mart is planning to open some convenience stores as Tesco its competitor has already started and operating in US now known as Fresh & Easy Neighborhood Markets. Such tactics and strategies will create mixed and variable responses among the consumers while demolishing the reputation of the leader in the market. Substitution is the strategy that reduces the demand for what any firm uniquely provides by shifting its demand elsewhere due to changes and alterations in technology. The threats in the case of substitution can be subtle & unexpected like we can say diminishing expenses through video conferencing and some other means instead of air flights to be made for long distance meetings with the managers of other stores, etc. Therefore, substitution is a very effective way of attacking dominant and strong rivals in the market. Substitution offers various mixed responses after identifying and understanding the market threats. The organization should fight hard to the threat & can go for merging with them, and also can go for switching to different options and alternatives of substitution to be in the market.
Hold-up basically diverts the value to customers, its suppliers or complementary partners who have some bargaining leverage or abilities which results in very tough negotiations, contractual agreements as well as can be vertical integration.
Wal-Mart is expanding its boundaries by way of acquisition and mergers also. Thus Wal-Mart retail company with such a vast and huge network of stores and alliances as compared its competitors ASDA, Target and many other stores is very well protected enough to sustain and continue its top position in the retail industry.