Hi! Thanks for the interesting question.
After considerable research, I have found the following reasons which
necessitated Wal-Mart’s diversification strategy.
Wal-Mart’s diversification strategy of the 1980s is a classic case of
tapping and recognizing new market segments.
“Another important challenge in 1980s was that they test drove through
developing different market segments. Sam’s club was the most
successful case of all at the decade by adopting wholesaling concept.
The first Sam’s Club launched in April 1983 at Oklahoma City. It was
significantly bigger larger than Wal-Mart, yet inventory was confined
to an average of 3,500 items verse the 70,000 items carried in a
typical Wal-Mart. Sam’s was originally established to obtain a market
in urban area. It was exceptionally successful, especially it was
located with Wal-Mart at the same place. At the end of the decade the
store reached 123 in 23 states, while attaining superior position over
rivals, and allowed to Wal-Mart to operate in the major metropolitan
area. Although Wal-Mart continued growing, they were not always
successful. Hypermart USA in which had borrowed the French concept of
one stop shopping was launched in 1987. The merchandise mix of 35%
food and 65% of nonfood items was placed in a huge 220,000 square foot
building with 35 different departments. Although it achieved a great
success in sales, because of high operation cost and difficulty of
finding adequate land for parking, which caused overall customer
dissatisfaction, this project ceased in 1990. The company, on the
other side, opened its first Wal-Mart Supercenter in 1988 at
Washington, Missouri. It was essentially a complete Wal-Mart discount
store with a supermarket added to it. While the grocery area carried a
narrower assortment of goods than a conventional supermarket, yet
better than the hypermart.”
“Wal-Mart’s diversification into new retail formats during the 1980s
did more than enhance the firm’s growth in the fundamental areas of
retail square footage and net sales volume. Diversification also gave
the company the opportunity to take risks and experiment in additional
ways; by entering the retail good business, by expanding into large
urban markets, and by enlarging its geographic territory(Sandra S.
Vance, Roy V, Scott, p113-p135)”
“Continuous Improvement In Wal-Mart”
http://academic.emporia.edu/smithwil/s99mg423/eja/lee.html
If you need more information on the market segment diversification of
Wal-Mart and how they adopted different types of shopping facilitates
the following link would be helpful. The specific information of
interest to you is at the bottom of page 11. This file is in PDF file
so you will need the Adobe Acrobat Reader to read them. In case you
haven’t installed it yet here is a link so you could download The
Adobe Acrobat Reader
(http://www.adobe.com/products/acrobat/readstep2.html).
“Wal-Mart Stores, Inc. (A)”
http://www.t-bird.edu/pdf/about_us/a07990014.pdf
In case you have difficulty in reading the PDF file because it is
quite big, here is a link to an HTML version.
(http://216.239.39.100/search?q=cache:fEK2VTy17aYC:www.t-bird.edu/pdf/about_us/a07990014.pdf+wal-mart+diversification&hl=en&ie=UTF-8)
Another driving force to the diversification of Wal-Mart is the
prevailing social change.
“This is a sign of change from static markets to dynamism.”
“Swatch calls this competing on capabilities. Wal Mart is a good
example of Drucker's idea of social change. What did Wal Mart do? It
changed retail shopping - and the way people shop. Wal Mart saw that
cheap prices can be accompanied by good service and still have
everything always in stock. This was achieved by cross docking and
centralised procurement. They combined economies of scale (in
procurement) with rapid restocking. This gave them a 2 to 3% cost
advantage over K Mart - vital in a low margin business.”
“Learning, Change and Organisations”
http://www.mygradnet.com/Science/learning.htm
Finally the globalization factor also necessitated Wal-Mart’s
diversification into markets beyond the US.
“2-ranked Wal-Mart Stores, Inc., of Bentonville, Ark., is still the
world's leading retailer, employing 885,000 people in the U.S. and
another 255,000 internationally. Diversification is also helping
improve the company's sales. Wal-Mart's Supercenters and Neighborhood
Markets sell groceries, while SAM's Clubs membership warehouse stores
are also popular. In addition, Wal-Mart International plans to open
between 100 and 110 units in existing markets during fiscal year 2002.
The company operates in Argentina, Brazil, Canada, China, Germany,
Korea, Mexico, Puerto Rico, and the U.K. Projects are scheduled to
open in each of these countries, and will include new stores and clubs
as well as relocations of a few existing units.”
“Movers and Shakers”
By Lara L. Sowinski
http://www.worldtrademag.com/CDA/ArticleInformation/coverstory/BNPCoverStoryItem/0,3481,64403,00.html
Search terms used:
wal-mart diversification causes
I hope these links would help you in your research. Before rating this
answer, please ask for a clarification if you have a question or if
you would need further information.
Thanks for visiting us.
Regards,
Easterangel-ga |
Clarification of Answer by
easterangel-ga
on
01 Nov 2002 17:33 PST
Hi I'm back. Thanks for asking a clarification before making a rating.
Yes. Your book is correct. The only difference between my answer is
that the information I presented discussed the underlying or root
causes of the need for the diversification strategy, while your book
mentions Wal-Mart's immediate need and objectives in creating such a
program.
In fact the first two element's mentioned in your book which was
increase of firm's value and revenues are the main points of my first
two links and my last link. The long document I submitted (the second
link) actually discussed that during the 1980s and 1990's, these goals
were achieved because of this diversification process.
"Wal-Mart’s growth in net income also outperformed the competition
over the eighties. In addition, Wal-Mart’s average stock market value
in 1990 was 1.5 times greater than Sears Roebuck and Company and over
three times larger than Kmart, despite having significantly fewer
stores than either of those chains (profitability measures for
Wal-Mart and its major competitors are listed in Exhibit 5).
Wal-Mart’s overall level of performance resulted in “buy”
recommendations from numerous investment brokerage firms. As the
discount retailing market became increasingly saturated, however,
there was
some question as to whether Wal-Mart could maintain its historically
high levels of return."
“Wal-Mart Stores, Inc. (A)”
http://www.t-bird.edu/pdf/about_us/a07990014.pdf
In searching for new opportunites, Wal-Mart determined that
diversification is the way to go. So by diversifying in different
products, store sizes and concepts and penetrating untapped local and
international markets, Wal-Mart was able to increase its revenues and
the value of the firm.
About reducing costs, my fourth link discusses this. By utilizing
cross docking and centralised procurement with the aid of technology,
Wal-Mart's costs against K-Mart became 2% to 3% better. Diversifying
into proper utilization of technology through the identification of
changes in the way people do their shopping, provided Wal-Mart with
lots of savings.
I hope that my clarification clears matters up. If you still need
further information or explanation, please do not hesitate to ask for
another clarification. Thanks again.
Regards,
Easterangel-ga
|
