In mid-1999, Wal-Mart had 2,435 big-box discount stores in nine countries selling everything from Barbie dream homes to handbags and Prodigy CDs. The recipe that made Wal-Mart the largest retailer in the world, hauling in $ 137 billion in sales in 1998, is very straightforward.
First build stores two to three times the size of the nearest competitor. Next, pile your shelves with products purchased in great volumes that the suppliers are forced to give you at substantially lower prices. Then cut your in-store prices so low that no smaller retailer can begin to compete with your everyday low price (EDLP) prices.
Another key element in keeping costs down is Wal-Mart opens outlets close to its distribution centres. It won’t move into a new region until it has blanketed the last area with stores – almost 40 in a 100 mile radius. This blanketing strategy is also closely followed by other retail giants like Starbucks.
Small businesses cannot compete with Wal-Mart. In fact, most of the smaller retailers say that what they pay for goods wholesale is more than what Wal-Mart charges retail. This led to many legal problems for Wal-Mart as they continue with their predatory pricing strategies.