From Time Magazine - Written by Christofer Matthews

Last Monday, Dollar General, the U.S.’s largest dollar-store chain, posted better-than-expected profits, helping boost the company’s stock, which is up 15% year to date. And earlier this year, it announced plans to open its 11,000th store by the end of the 2013 — an impressive figure for a discount retailer. The only other companies to boast store counts that high are fast-food chains like McDonald’s and Subway.

And Dollar General isn’t the only dollar chain to have had success in recent years. Competitors Dollar Tree and Family Dollar have also experienced significant growth in revenue since the 2008 recession, when many consumers began shopping at discount chains for everyday items like cleaning supplies, toiletries and groceries. Another boon to these sorts of discount chains has been government safety-net programs like food stamps, which prevented those already shopping at dollar stores from being shut out altogether from being able to afford necessities. According to Morningstar analyst Michael Keara, 40% of dollar-store-sector customers rely on some form of government assistance.


Meanwhile, Walmart — America’s biggest and most successful discount retailer — has not been performing as well since the recession, and is off to a slow start in 2013. So why have dollar stores been able to capitalize on the weak economy while Walmart hasn’t? There are a few reasons:

1. Walmart was already starting from a position of dominance. When you’re the biggest retailer in the U.S., it’s much more difficult to achieve steady sales growth than if you’re an outfit like Dollar General, which was losing money as recently as 2007.
2. Dollar stores had the inside track in the race for urban shoppers. Walmart’s bread and butter are rural and ex-urban shoppers who can access its massive supercenters with relative ease. Penetrating the urban market has proved more difficult for the simple reason that the supercenter model cannot easily be reproduced in places with less space. Walmart is trying to remedy this with its push to open more smaller “neighborhood centers,” but it has some catching up to do in order to reach the sort of urban penetration that dollar stores have.
3. Dollar stores are getting away with higher prices. Though dollar stores are known to sell off-brand items at low prices, overall dollar stores are selling their merchandise at higher margins than Walmart. That means that either dollar stores are buying their goods for less than Walmart, or that dollar stores are getting away with higher prices on a pound-for-pound basis. And given Walmart’s legendary purchasing power and supply-chain management, it’s highly unlikely that any of the major dollar-stores chains can consistently source their merchandise more cheaply. What’s more likely is that dollar stores have successfully masked their higher prices by selling items in smaller portions and by strategically discounting certain items.

With these factors in mind, it’s difficult to see dollar stores maintaining their current growth rates for much longer. Walmart recently announced a plan to ramp up its efforts to build smaller Neighborhood Market outlets, which will be on average about one-third the size of its traditional supercenters. These stores will be better positioned to attract customers in urban centers where Walmart has lagged the competition. The retail giant has also said it will be instituting $6 billion in price cuts over the next several years, which will make it more difficult for dollar chains to maintain their market share and high margins at the same time.

Walmart has also made several unforced errors in the past couple of years, from limiting its product selection to allegedly understaffing many of its supercenters. But it’s hard to imagine that a company with Walmart’s track record will continue to flounder for very long. Dollar stores have exposed and capitalized on some chinks in Walmart’s armor over the past few years, but the world’s biggest retailer has begun to address those weaknesses, and will no longer be taking the fight lying down.

Read more: http://business.time.com/2013/04/01/will-dollar-stores-rule-the-retail-world/#ixzz2PyPK9FBS

Understanding Wal-Mart's Business Strategy

By Sheldon Cwinn

Business strategies Wal-Mart uses and how they differentiate their services and products.

There are 3 generic business strategies and they consist of

- The Focus strategy,
- The Differentiation strategy,
- and Overall Cost leadership strategy.

The Focus strategy is usually defined as focusing on offering products and services to a particular market segment or buyer group, within a segment of a product line, and/ or to a specific geographic market. The Differentiation strategy is defined as offering a product or service that is perceived as unique in the marketplace. Wal-Mart‘s business strategy is Overall Cost Leadership, offering their customers great quality service and products at a lower price than their competition. Overall Cost Leadership is defined as offering the same or better quality product or service at a price that is less than what any of the competition is able to do. In achieving this goal it relies on superior Supply Chain Management through automation and supplier relationships, that ensures products are available to their customers when they need it. The items offered are broken down into products and services, products. Products would be privately labeled brands such as, “George, Metro 7, Mainstays, as well as national brands such as Tide or Levis. Services that they offer would be tire changes, oil changes, and photo printing.

There are 5 market forces that govern the way supply chains operate and how Wal-Mart reduces both buyer and supplier power.

The five forces are
- buyer power,
- supplier power,
- threat of substitute products and services,
- threat of new entrants,
- and rivalry among existing competitors.

Wal-Mart follows the five forces business strategy.

Buyer Power - is affected by how big your purchasing power is and how much revenue you constitute to your suppliers as well as other things. For instance Wal-Mart has a lot of power with suppliers because it buys so much of their inventory and is thus a large percentage of those companies revenues. It is no surprise then that these companies have lived and died with Wal-Mart's orders and would do anything to protect their business with them. Buyer power constitutes about 55% of the five forces model that Wal-Mart uses, since the Company’s sole purpose is to ensure that its customers are, “Saving Money, Living Better”. Buyer power would also include their employees. Wal-Mart was the first national chain to institute employee discounts. It considers its employees as "associates" and gives each employee respect. Wal-Mart also gives them support through an open door policy. Wal-Mart also provides great job security (Wal-Mart rarely fires anybody - thay may cut their hours though....) Wal-Mart's intent is to create happy employees which transfers to happy customers. More then that, Wal-Mart employees are fiercely loyal. Did you know that 15% of all product sourcing comes from employee suggestions, and employee purchases account for 8% of all purchases! That amounts to billions of dollars comming from its own workforce.
Supplier power -  Wal-Mart ensures that its suppliers come from a diverse group and that it never relies on any particular single supplier in any given fine line or product category. Furthermore, Wal-Mart is always turning over suppliers, and introducing new products in each product category. This diversity is passed on to consumers, and makes their shopping experience more exciting. The average Wal-Mart store has about 80,000 SKUs on sale. A few years ago Wal-Mart changed its merchandising policy by cutting the amount of items sold by each Wal-Mart store by 25%. The idea was to carry more inventory of established products. This proved to be less successful.  It is the diversity of merchandise at store level that keeps consumers comming back again and again. This represents 35% of Wal-Mart's marketimg strategy.
Threats of Substitution - Because Wal-Mart is always sourcing new products and new vendors, the threat of competition to suppliers is enormous. Here is how Wal-Mart uses the threat of competition to its advantage. Vendors are considered "partners". As such they are "protected" and have first right of supply to the company. For example, if you are selling Wal-Mart scented candles, and Wal-Mart has found an alternative supplier of less expensive merchandise, they will then ask if you can match the prospective new competitor's prices. Because Wal-Mart usually represents between 20% and 50% of most suppliers purchases, it doesn't take long for the supplier to price match. The threat of competition acts like a guillotine over each supplier's head.
Threats of new entry To create entry barriers, Wal-Mart employs exhaustive market research on what customers are actually purchasing. They then ensure that they are able to deliver, and become the only store chain offering that product at a price the customers and afford. An example would be Norelco razors. Wal-Mart's supplier relationship with their supplier is that they get new models 60 days in advance of other retailers. Furthermore Wal-Mart does away with accessories like supplying a case with the razor, so Wal-Mart not only has the product first, but also has the product at the lowest possible price.
Rivalry - is how competitive an industry is. For instance, if there are lots of companies selling essentially the same products, there will always end up being a price war which will severely hurt the company' profits. Wal-mart has such low prices that it has made it tough for competitors to make a profit. Actually what Wal-Mart does is target about 100 items that consumers need on a daily basis, usually consumable products like Tide. They then take very little profit on those products and offer them at prices significantly lower than the rest of the market. This way consumers have the illusion that the other 80,000 items are also at the lowest possible price. In fact, they use their private lable brands to make proce comparisons difficult. Also it will have specific lines of products developed by national manufacturers, for example Levis Jeans. If you purchase a pair of Levis at your local Wal-Mart, you will notice that the jeans come from "the Signature Series..." In fact the jeans are made for Wal-Mart in factories over-seas to Levis specifications. They wind up with a product line that costs 65% at retail of what Target sells Levis jeans for. And Levis can get away with it , and still have Target as a customer because strictly speaking Wal-Mart  is not selling the same product.