Building rentals accounted for 1.8% of sales in the late 1970's. This was the lowest level for major discounters. Additional building rentals of Wal-Mart took it up by only 0.1%.
Wal-Mart was able to keep it's cost of goods as low as possible. It had a centralized purchasing network, and therefore purchased in bulk. It also had distribution centers and a good distribution network that ensured it's stores always had a consistent supply of stock. These steps further reduced cost greatly.
Wal-Mart had Goodwill in cities where it was established because of their promotional strategy which was tailored by it's philosophy of "Everyday low prices". It had a high sales turnover and spent just 1.1% of it's net sales in the second half of the 1970's. Costs were greatly reduced here too.
Wal-Mart undertook capital investments to improve labor productivity. Salaries and wage expense had declined to 10.1% of sales by 1985. This reduced cost, however employee incentives, like profit sharing were enabled to ensure employee satisfaction. Their employees put in their best to satisfy Wal-Mart customers in return.
Cost is minimized as much as possible, allowing for continuous reduction in prices of commodities. The reduction in prices led to increased sales and a high rate of turnover, hence increased profits and more operating income for expansion and performance.
How does Wal-Mart have superior profitability
Exhibit 2 (page 10) is a financial performance that compares Wal-Mart's performance with that of it's competitors from 1974 to1984 in (%) 2. Wal-Mart has superior profitability because of the high percentage of sales. It was very competitive in terms of prices, Wal-Mart was able to sell at very low prices governed by it's philosophy of "Everyday low prices". It ran a lot of promotional sales and was able to balance this with a low cost profile. Increased sales brought in more profit, Wal-Mart had the highest return on equity of 33.0%, sales growth of 40.3% and earnings per share growth of 38.8%.
How do Wal-Mart's retail prices compare to those of it's competitors
Wal-Mart was very competitive in terms of prices. The store managers had the liberty to set prices as compared to their counterparts that didn't have. This latitude in price setting enabled prices to be set uniquely to a particular location, while having the overall objective of the organization in mind.
In a comparism by Sachs in late 1983 and early 1983 on a location