A Model Thesis

The Strategy Of The U.S. Retail Industry

Hubell Seminar

Asako Kito

Mr.Paxton

Dec.18, 2000

Thesis: The U.S. retail industry could recover from the recession

because it developed new strategies. Today, the U.S. has the world's

biggest retailer, WAL-MART. I would like to write about how the U.S.

retailers attained such a great deal of growth in the short term.

Contents

1. Introduction

2. The history of WAL-MART

A. A success story

B. Super center

C. Neighborhood market

3. Category killers

A. Definition

B. Importance of their business

C. Globalization

4. The strategies of WAL-MART

A. Customer relationship marketing

B. Foreign market

C. E business

5. Conclusion

6. Bibliography

1. Introduction

In 1985, the U.S. retail industry was suffering a depression. Its

sales could not extend because of a high unemployment rate and a decline

in consumption. But, the U.S. retailers could recover from those tough

situations, and they have the world biggest retailer, WAL-MART now. In

Japan, there has continued a long term depression, and the retailers are

in a really serious condition. We should learn from the U.S. how they could recover their business.

2. The history of WAL-MART

A. A success story

Now WAL-MART has become the biggest retailer in the world. They made

every effort to make their stores succeed. Sam Walton, who established

WAL-MART, built the discount store in Arkansas. And in 1969, he

established WAL-MART Inc. At that time, it had 18 discount stores and 15

variety stores. Since then, WAL-MART has made remarkable progress.

Especially, in 1988, it showed a surprising annual sales rate in

comparison with the previous year. The sales have also increased every

year since Sam Walton died in 1992. (Funaki, H. 1998: 97-118)

B. Super center

In 1988, WAL-MART created its first "super center" in Montana. The

super center was a new type of store that was established by attaching a

grocery store and to a discount store. WAL-MART has succeeded in selling

general merchandise and durables, so WAL-MART executives also want to

succeed in grocery, because people shop for food twice as often as for

other goods. Now, there are 650 super centers and in this year alone,

WAL-MART figures on adding at least 160 new ones. Since the super

centers built across the U.S., people have shopped more conveniently

because they can buy every thing they want at one time. (Feldman, A. 1999: 158-164.)

C. Neighborhood market

At the same time, WAL-MART developed a new concept called the

Neighborhood Market. These stores are stocked with fruits and

vegetables, pharmacy, a 24-hour photo shop and a selection of classic

WAL-MART hard goods. This store's goal is to keep attracting neighbors

who may be in a hurry or want only a few items. This type of supermarket

looks like a Japanese one. The Japanese supermarkets usually have two

floors. The first floor has groceries, a bakery, pharmacy and photo

shop, and the second floor has clothes, shoes and bookshop. The Japanese

supermarkets are nice, small and convenient. The neighborhood market is

just like them.

3. Category killers

A. Definition

In the 1980s, new type of stores in the U.S. retail industry has

developed which are called "category killers". These stores have one

special category, such as toys, electric appliances, PC's and so on.

They only sell one category of goods at a lower price than any other

shops. Thus, the store that deals in the same items as the category killer

was not only damaged by the competitive prices, but also by the great variety of

articles and the size of store. (Yamaoka, K. 1998:25-40)

There are a lot of types of category killers and they have extended

their sales in the 1990s. The top category killer is BEST BUY that deals

in household appliances, and it increased its sales 4.8 times in the

four years. The other category killers also doubled their sales from

1992 to 1996. (Tomlinson, R. 2000:186-192)

B. Importance of their business

These stores regard convenience as important. They guarantee that

they always carry exactly what the customers want and that each customer can

get high quality goods at discount prices. So, they should have a great

variety of articles for sale.

C. Globalization

The pace of globalization of the category killers is going to be much

tougher because markets in Europe and the US are saturated with stores. In a

world ruled by mega-retailers, stores that act merely as resellers will

be vulnerable to price wars. Category killers are seeking to

differentiate themselves from one another for survival. For example,

Toys R Us found that providing the biggest selection of toys in

Europe and Japan has been enough to provide it with a strong brand

image. Store brand building generates not only profits, but also power.

(Pare, T. P. 1993:24-23)

Everyone knows Coca-Cola or McDonald's hamburger. If we buy them

anywhere, we can get the same taste and quality. Therefore, consumers

do not have to worry about that and companies get trust from consumers.

That is most important thing when they expand their business over the

world. Once they can establish trust it is easy to step into foreign markets.

4. The strategy of WAL-MART

A. Customer relationship marketing.

In these days the traditional ways of marketing, which rely upon mass

production and mass selling shifted to CRM, which stands for customer

relationship marketing. The point of CRM is that it offers each customer

suitable services.

As a concrete plan, they have the customers own a card, and they record

what the customer bought every time. This marketing gives a lot of

profits to the company because it can learn lots of things from the

customer data. The IT industry has revolutionized even the retail

industry. WAL-MART has a 101-terabyte computer system, which is the

second largest in the world, so WAL-MART can know what are the hottest

items in each area and how well the new item has sold and who are the

best customers immediately. And WAL-MART has also cut down its

inventory costs because they know how any goods they have to stock

already. This is the back-bone of the company's success.

B. Foreign market

Moreover WAL-MART is expanding its business into the world. There were

152 stores in Mexico, and 136 stores in Canada already by 1996. And

WAL-MART executives expect the South American market to build many

stores. They also aimed at the European market. In 1997, WAL-MART

acquired the 21-store Wertkauf chain in Germany, and in 1999, WAL-MART

shelled out $10.8 billion to buy Britain's ASDA, a 229-store

WAL-MART-to-be. It is often easier for WAL-MART to buy existing stores in

Europe than to build new ones. (Economist 2000:72-74)

Now, European retailers are fearful that WAL-MART will merge with

Metro, Germany's biggest retailer. European retailers have been

panicking because of the American supermarket's low prices, efficient

logistics, and its huge size. (Ibid.)

C. CARREFOUR VS WAL-MART

Lately, the second largest retailer in the world, CARREFOUR came to Japan from France. The strategy of

CARREFOUR is the same as WAL-MART's, which guarantees the lowest price within a radius of 15

kilometers. Of course, the Japanese supermarkets or other shops around there went pale because

they can not use their common strategy which advertises their loss of leadership. That is why they said that

WAL-MART brought about the retail revolution.

Six years earlier than WAL-MART was established, CARREFOUR opened the world's first hypermarket

in 1963, selling groceries, clothing and other merchandise under one roof. Today, CARREFOUR also

offers diverse services such as watch repairs, mobile-phone service orders, car rental and travel services.

CARREFOUR started to push into foreign markets in the 1970's. Now, it has 8800 stores in 26 countries.

WAL-MART found a market in 9 foreign countries.

CARREFOUR has been a marketing pioneer, but compared with WAL-MART according to the table

below, CARREFOUR is still far behind WAL-MART in sales and market capitalization. Even if WAL-

MART has trouble growing in Europe, it has room to expand in the US, especially in the groceries

business. CARREFOUR, by contrast, has fewer opportunities in its saturated home market. And the

greatest difference between WAL-MART and CARREFOUR is its distribution system. WAL-MART has

beaten its US competitors by creating tight links with suppliers and fine-tuning its distribution system.

And so, it can squeeze out costs and allow it to keep prices low. (Matlack, C. and others 1999:.54-56)

TWO GIANTS FACE OFF

	CARREFOUR	WAL-MART
Sales	$65 billion	$160.2 billion
Market Cap	$47 billion	$200 billion
Strengths	Innovative marketing, aggressive, experienced in foreign markets	Dominates US market with super efficient supply and distribution network
Weaknesses	Lacks strong logistical and information systems, crucial to improving efficiency	Spotty record on foreign expansion
Likely next move	Cut costs in Europe while pushing Asian and Latin American expansion	Seek more acquisitions to extend its reach in Europe

(Forecast for 1999 Data : Business Week)

The Japanese retailers are following the style of American supermarkets

or shopping malls lately. Jasco has a huge shopping center in Narita.

This shopping center contains many small shops, such as an accessories

store, clothes, and tableware, and a big supermarket called Jasco. This

is two-story wide building and there is a huge parking lot. Thus,

Japanese retailers are influenced by the American ones a lot. In my

opinion, WAL-MART won't come to Japan soon because there are many

markets where we can get a lot of benefits easily in Asia. Another

reason is that the Japanese real estate is extremely expensive and also

employees are expensive. Moreover there are a lot of intermediaries in

Japan. So, it will cost too much to build new stores in Japan.

D. E-business

Another structure of WAL-MART is that of online shopping. In 1996,

WAL-MART was the first discount store to start internet shopping. In the

beginning, the online store offered only 1500 items for six categories,

and WAL-MART worked hard on it without heavy advertising. It used

gathering data about what products consumers want. Finally, it offered

42,000 items in 1997, it cut prices to draw customers from well-known

e-tailers. For example, Millennium Barbie, dressed in a blue gown, for

$32.87, 12 cents lower than eToys, and a best-selling author's memoir

for $13, $2.60 less than Amazon.com. (Green, H. and Anderson. 2000)

But WAL-MART will use online sales as a complement. The customers use

the WAL-MART online shopping when they want to buy the item they know

very well, because it saves a lot of their time. So, they have two

choices for WAL-MART shopping. However, this online business is still on

trial, it will be big asset of WAL-MART soon.

5. Conclusion

In conclusion, WAL-MART has succeeded since in the 1980s, because it

always challenged new concepts. It tries to start ahead of other

retailers. I think that's why WAL-MART could become the world's

biggest retailer. Today, the globalization of companies has reached all

over the world. The Japanese retail industry should take some action to

learn from the U.S. First of all, they should reduce their costs and

use tight link distribution systems so that they sell the items at EDLP

stands for low prices every day.

Next, as I mentioned before it is a good idea to use the data of customers

to understand the customers better. WAL-MART has its own philosophy of

customer relationship, how it can meet customer's requests is a fundamental

ingredient of their success. The efficient distribution system WAL-MART constructed has three key

phrases. First, shortening of delivery hours, secondly, armed with information, thirdly, strategic

partnership with manufacturers. Those three points enable it to keep it's price low.

The IT industry is growing more in Japan. We will use online shopping

commonly in the near future. As the U.S. advances its use of online shopping

systems, we should adopt and adapt the ideas which worked efficiently there.

Japanese retailers have been suffering because of the bad economy. Japan would

be able to regenerate those supermarkets by learning from the U.S. because the U.S.

has done this before. And they have reflexively improved on their own performance.

The Japanese retailers should make harder efforts than the U.S. to get out of the depression.

As of June 2000 there were 1,784 WAL-MARTs, 753 WAL-MART Supercenters and 465 Sam's Clubs in

the United States. Internationally, there were 811 WAL-MARTs in 9 countries . Future European

expansion will be conducted through merger and acquisition. I know that this way of acquisition is

relentless, but it is the way to become competitive in the global economy.

I hope that I have shown how WAL-MART and other category killers are very interesting retailers. We

should keep an eye on their business and watch future developments closely.

6. Bibliography of References

Anonymous. (2000) "International News". Advertising Age 23 Oct. Pp. 28-30

Anonymous. (2000) "Newsline" Billboard 14 Oct. Pp.84-87 Anonymous (2000) "Chimera". Economist 29 Jan. Pp. 72-74.

Anonymous. (1998) "A buyers' market". Economist 31 Oct. Pp.66-68

Duggan, Ed. (2000) "Bricks and Morter Retailers Alive And Well".

Business Journal Serving South Florida 25 Aug. Pp. 1A, 2p, 1c, 1bw.

Feldman, A. (1999) "How Big Can It Get?" Money Dec. Pp. 158-164.

Funaki, H. (1998) "The regeneration of distribution learned from the U.S." The strategy of regenerating distribution. Douyuukann. Pp. 97-118

Green, H. and Anderson. (2000) "Retail" Business Week 10 Jan.

Gregory, S. S. and Cole, P. E. (1993) "They're up against the WAL" Time 1 Nov. Pp. 56-58

Itou, K. (1998) "The structure of differentiation in American retailers." http://www.umds.ac.jp/u-surric/1998/u-ryutsu/docs/ito.html

Matlack, C, Resch, I and Zellner, W. (1999) "En Garde, WAL-MART" Business Week 13 Sep. Pp.54-56

Miller, C. E, Reardon, J. and McCorkle, D. E. (1999) "The effectsof competition on retail structure: An examination of intratype, intertype, and intercategory competition" Journal of Marketing Oct. Pp.107-121

Palmer, J. (1999) "Toy Story". Des Moines Business Record. 09 Nov.Pp. 24-26.

Pare, T. P. (1993) "Mature Mainstreaming" Fortune, Autumn/Winter Pp. 24-23

Smith, P. (2000) "Global Wrapup". Business Week 17 Jan. Pp. 59-62

Sutou, M. (2000) "The efficient management learns from WAL-MART" Syuukann Touyou-keizai (54) 8 Apr. Pp. 120-121

Sutou, M. (2000) "The global strategy of WAL-MART". Syuukann

touyou-keizai (54) 15 Apr. Pp. 102-103

Takayama, K. (1999) "The advance of foreign retail industry into Japan and the influence of the Japanese distribution." The distribution and the system. Development center of distribution systems. Pp. 23-31.

Tomlinson, R. (2000) "Who's afraid of WAL-MART?" Fortune 26. Jun. Pp. 186-192

Tsunoda, M. (1999) "Not static foreign retailers and the Japanese blank market." The distribution and the system. Development center of distribution systems. Pp. 13-21.

Yamaoka, K.(1998) The U.S. category killers aim at the Japanese market. The distribution and the system. Development center of distribution systems. Pp. 25-40.

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