Wal Marta Essay

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Wal-Mart Stores, Inc. Question 1 The case highlights competition between three major firms in the discount store industry – Wal-Mart, Kmart and Target. These firms sell relatively homogeneous goods, do not cooperate and compete aggressively in pricing. Additionally, the firms operating have significant market power and due to the existence of barriers to entry because of high initial investments, the number of firms is fixed in the short/medium-run. Thus, it was considered that Wal-Mart stores exist in an oligopolistic competition where it operates numerous stores that provide consumers with products and services. Question 2 Throughout the years, Wal-Mart’s store size and inventory turnover has been evolving to much higher values. Because of the latitude given to store managers in setting prices, the prices that were charged had the intent of meeting local market conditions in order to maximize the volume of sales and inventory turnover, while minimizing costs at the same time. The intense price competition made inventory turnover at Wal-Mart very high since with lower prices, stocks can flow out the warehouse more frequently (due to a higher value of demand and search for its products). With the introduction of the new technique of “cross-docking”, inventory turnover became even higher since products were spending no time at all in the warehouse, they were transferred directly from in-bound vehicles to store-bound vehicles. This allowed the products to be continuously delivered to warehouses, where they were repacked and dispatched to stores without ever sitting in inventory. It is mentioned in the case that by 1994 about 10% of Wal-Mart merchandise was “cross-docked” in four facilities that were equipped for it. By using this technique, the cost of inbound logistics of Wal-Mart was lower than the one from its competitors. Also, by having a limited

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