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The Wal-Mart Effect. Chapters 5 The Man Who Said NO to Wal-Mart. Chapter 5 – The Man Who Said NO to Wal-Mart. “They had the lure of Wal-Mart volume. Once you get hooked on the volume, it’s like getting hooked on cocaine. You’ve created a monster for yourself.” Jim Wier, former CEO, Snapper.

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the wal mart effect

The Wal-Mart Effect

Chapters 5

The Man Who Said NO to Wal-Mart

chapter 5 the man who said no to wal mart
Chapter 5 – The Man WhoSaid NO to Wal-Mart

“They had the lure of Wal-Mart volume. Once you get hooked on the volume, it’s like getting hooked on cocaine. You’ve created a monster for yourself.”

  • Jim Wier, former CEO, Snapper

BUS-115 Introduction to Business

doing business with wal mart
Doing Business withWal-Mart
  • Being a supplier for Wal-Mart reorganizes the business to sustain ever-increasing need for more volume
    • Priorities end up skewed
    • Changes character of supplier company
    • Wal-Mart lowers value of product’s brand
      • At first expenses are cut
      • But eventually company goes into a “death-spiral”
        • “There’s no profit in that price, no room for reinvestment, for innovation, for rising health-care costs, or a sudden spike in … prices”

BUS-115 Introduction to Business

snapper lawnmowers
Snapper Lawnmowers
  • When Snapper stopped doing business with Wal-Mart, it lost 20% of its business
    • Short-fall made up by winning hearts of independent dealers
      • Well-made product
      • Long-life time
      • Service
      • Profit

BUS-115 Introduction to Business

how to compete with wal mart
How to Compete with Wal-Mart
  • Focus on things besides price
    • Quality
    • Design
    • Fashion
    • Total cost of ownership
    • Feel of shopping experience
    • Status
  • A higher selling price leaves more room for profit

BUS-115 Introduction to Business

how snapper competes
How Snapper Competes
  • Focus on niche (something better)

“We’re NOT obsessed with volume.We’re obsessed with having differentiated, high-end, quality products”

  • Emphasis on quality
    • Zero defects
    • Tireless attention to detail
    • Constant improvement

BUS-115 Introduction to Business

how snapper competes7
How Snapper Competes
  • Relentless focus on efficiency is as important as quality
    • Attention to detail and measurement
    • Productivity 3x what it was 10-years before
      • New lawn-mower every 109-seconds
      • Heavy use of robots
      • Small focus-factories w/in main factory
      • ½ the number of workers, job flexibility
      • Everybody’s performance is posted for all to see
      • Workers familiar with product
        • Paid to cut grass
  • “When you make a premium product, if you don’t control quality and durability, you have nothing”

BUS-115 Introduction to Business

how snapper competes8
How Snapper Competes
  • Manufacturers many of its own parts
  • Measures itself again rest of world but manufacturers products in U.S.
  • Distribution, inventory costs cut
    • Warehouse middleman cut out
    • Runs its own regional warehouses
    • Just-in time manufacturing made possible by predicting demand
    • Technology where it makes sense
      • Reduce labor costs to 10%
      • Removes China competition

BUS-115 Introduction to Business

the wal mart effect9

The Wal-Mart Effect

Chapters 6 – What Do We Actually KNOW About Wal-Mart?

chapter 6 what do we actually know about wal mart
Chapter 6 – What Do WeActually Know About Wal-Mart?
  • Wal-Mart is very secretive with its data
  • Wal-Mart does NOT like to talk about its pricing effects
    • Short-run: Prices decrease by 1.5-3.0%
    • Long-run: Prices decrease by 7-13%

BUS-115 Introduction to Business

has wal mart created more jobs than it has destroyed
Has Wal-Mart Created More Jobs than It has Destroyed?
  • Wal-Mart’s success comes largely at the expense of existing retailers
  • Net increase of 100-new jobs in first year of Wal-Mart opening
      • 150 new jobs – 50 who lost other retail jobs
  • 4-retailers close within first 5-years
  • 5-years after a Wal-Mart arrives, average county has a net increase of 30 jobs
    • 300 Wal-Mart jobs – 250 retail jobs lost – 20 distribution jobs
    • 6 jobs per year

BUS-115 Introduction to Business

wal mart s effect on inflation
Wal-Mart’s Effect on Inflation
  • Grocery inflation rate in U.S. is 15% lower than actually reported by CPI
    • Wal-Mart has 16% of national market
    • Supercenter prices across 20 categories were on average 27% lower than at traditional grocery stores

BUS-115 Introduction to Business

effect of wal mart
Effect of Wal-Mart
  • Kenneth Stone, Economist, Dean of Wal-Mart scholars
    • In towns with Wal-Mart, sales of general merchandise leap 55% after 3-years
    • Small-towns within 20-miles, sales drop 13%
    • The losers after 5-years of Wal-Mart:
      • Grocery stores -5%
      • Specialty stores -21%
      • Clothing stores -18%
    • Winners
      • Restaurant sales up 3%

BUS-115 Introduction to Business

effect of wal mart14
Effect of Wal-Mart
  • Kenneth Stone’s rules of thumb
    • Rule 1: merchants selling goods or services DIFFERENT from Wal-Mart benefit
    • Rule 2: merchants selling the same goods as Wal-Mart are in jeopardy

BUS-115 Introduction to Business

does being a supplier to wal mart help or hurt your business
Does Being a Supplier to Wal-Mart Help or Hurt Your Business?
  • Reasonable profitability allows
    • Companies to hire talented people
    • Pay employees well
    • Do research and development
    • Respond to customer’s needs, Innovate
  • The more business you do with Wal-Mart, the less profitable each sale is
    • Wal-Mart either
      • forces you to get it together or
      • Pushes you to bankruptcy

BUS-115 Introduction to Business

is there a connection between wal mart and poverty
Is there a Connection Between Wal-Mart and Poverty?
  • Stephan Goetz, economist
    • Should communities give tax breaks to encourage Wal-Mart to locate there?
    • Presence of Wal-Mart were correlated with increased family poverty rates in U.S. counties during the 1990s.
      • Rates of poverty fell 10% more SLOWLY in communities with Wal-Marts

BUS-115 Introduction to Business

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