Wal-Mart Stores: “Every Day Low Prices” In China

Wal-Mart is one the world’s largest retailer, owned by Sam Walton with the first store opened in 1962 in Rogers, Arkansas. On January 31st 2005, Wal-Mart stores reported net sales of US$285 billion, had a presence in nine countries with 5,289 stores and 1,6 million employees worldwide, offered multiple store formats including discount stores, supercentres, warehouse stores and neighbourhood markets, and was not only the largest company in the world but also the most admired company in the US according to Fortune Magazine.

Many attributed Wal-Mart’s success to its well-known model of selling brand-name products for less. Wal-Mart rightly focused on two major value drivers: price and service. The value of “Every Day Low Prices (ELDP)’s objective was to offer the same merchandise as other local stores, but at 20% less. “Roll-back” philosophy is aimed at lowering prices even further when there was an opportunity to do so, for example through price negotiation with supplier. The other value is “Customer is Number One,” which rules such as “exceed your customers’ expectation, ten feet rule, sundown rule.

According to Thompson, there are components of a company’s macro environment. In the outer ring those are general economic conditions, legislation and regulations, population demographics, societal values and lifestyles, and technology; while there are also immediate industry and competitive environment such as substitute products, buyers, new entrants, rival firms, and suppliers. However, the factors and forces in a company’s macro environment having the biggest strategy-shaping impact typically pertain to the company’s immediate industry and competitive environment.
Although Wal-Mart in United States is very successful with its success model: Small town location, relentless cost control, and partnership with supplier, however it did not enjoy the same success in China. By focusing more on the macroenvironment factors mentioned above, the failure of the Wal-Mart can be analyzed as bellow:

a.General economic condition in China is variable due to income disparity. It causes the needs and consumption pattern of the people become so diverse, result in inefficiency for a retailer-business in fulfilling the needs.

b.In term of legislation and regulation in China, it is very stricted and ruled by government. Regulation stated that only three stores were allowed to be launched in one city, and only a handful of cities were open to foreign retailers. Every store opening had to be approved by the central government.

c.Not only in size of land but also the population in China is vast. This actually can be one of the opportunity for business growth. However, this is not ideally happen due to some many factors that are being discussed.

d.Societal values and lifestyles in Chine can be related to the culture and behaviour. In China people consider that going to commercial center as an entertainment, as a result they do many trips but only make little purchase. According to them, the freshness of the food as the most important factor in its quality, and in many cases, fresh mean alive. It becomes additional cost and inefficiency for the retailer due to poor transportation network. Meanwhile, the condition is worsen by the rate of shoplifting (theft) which is higher (up to 5% of sales) compare to an international standard of 0.3%. This also causes the loss of Wal-Mart.

e.Technology in China was not really advance though. Under developed highway network and unconnected transportation are seriously fragmented. As ccnfirmed by Wal-Mart's chief of international operation, John Menzer, "the biggest obstacle Wal-Mart faced in mainland China was the lack of an information technology network with suppliers, making purchasing and distribution difficult." Technology indeed is critical for Wal-Mart success where the web-based system allowed suppliers hourly tracking of sales, inventory and pricing of their goods, and satellites connected the headquarter to every store and supplier for real-time communication. Lack of an information technology network and regulatory ban of satellite usage impaired the retailer's efficiency in communicating with its 15,000 local suppliers who supplied more than 95% of the goods sold in its local stores

In conclusion, competition is always there: substitute products, buyers, new entrants, rival firms, and suppliers. However, the major causes of Wal-Mart’s failure in China is more due to macro environment factors: the highly fragmented market, impaired distribution network and unique consumer behavior in China pushed Wal-Mar's operating cost higher and worked against a straight duplication of its home model.

The lesson learned from the Wal-Mart in China case is that the same business strategy cannot be implemented for all situation, therefore, it needs to be renew and readjust.

Source: Asia Case Research Center