Page 166 - Accelerating out of the Great Recession

GO ON THE OFFENSIVE

1973–1977. In those years, revenues quadrupled. It is not a coin-
cidence that in those years of spectacular growth for Wal-Mart,
the U.S. economy experienced a recession and high inflation. Wal-
Mart’s low-cost business model innovation allowed it to acceler-
ate when times were tough and customers were price sensitive.
As with any company that has a low-cost business model,
Wal-Mart strove to reduce costs in every way possible. One area
in which it achieved spectacular success was logistics, and it
achieved cost savings by developing a different expansion strat-
egy than other retailers. Competitors such as Kmart expanded
their retail networks by opening new stores in different cities,
stretching their centralized distribution networks over greater
and greater distances.
Wal-Mart followed a different model. It first established a
distribution center to serve a metropolitan area before opening
any stores there. Once it had a distribution center in place, Wal-
Mart rapidly expanded the number of stores in that area. It then
repeated that model of development in other metropolitan
areas, first expanding through the South and then across the
whole of the United States.
Wal-Mart’s model of localized distribution—together with
cutting-edge computerized inventory-management software—
led to substantial savings on fuel costs, especially as gasoline
prices increased rapidly in the 1970s. Moreover, these logistics
breakthroughs allowed the company to keep its costs down as
inflation ramped up, and price-sensitive customers reacted pos-
itively. Between 1970 and 1977, Wal-Mart’s revenue growth
was 171 percent greater than that of competing discount retailer
Kmart. In the Great Recession, Wal-Mart has once again per-
formed extraordinarily well owing to its focus on low prices and
the best distribution and logistics networks in the business.

■ 145 ■