Aug 2005, an alert was sent out.
Panic, and rush spread throughout the state of Florida (USA).
A category 5 hurricane was headed in their direction.
Hurricanes leave behind a trail of destruction. They cost the public massive amounts of money.
Hurricanes displace, injure, and even kill people.
Flooding, electricity loss, food shortage, and communication systems failure – are the biggest problems after hurricanes.
Aug 23, 2005 – Hurricane Katrina was noticed in the Atlantic Ocean.
A category 5 hurricane is the most powerful hurricane. Wind speeds can reach as high as 300 kmph.
The US government officials met to discuss how they would handle this crisis. A few companies also stepped in to do their part.
Over the next few days, Hurricane Katrina hit Florida and devastated everyone.
Houses were destroyed, power cables were cut, and flooding was common.
During hurricanes, getting everyday supplies like food and water itself is a challenge. People leave their homes to move to safer locations or they shut windows and stay inside.
Malls are shuttered. Petrol pumps closed. Departmental stores are shut.
Walmart – one of the most common departmental stores in the USA – had prepared.
Their stores were shut during the hurricane too.
But the moment the hurricane passed, about 1,500 trucks filled with free essential supplies like water, food, batteries, etc. moved into the affected areas.
Some Walmart stores re-opened within one day.
Stores that re-opened were well-stocked. Walmart had taken care to stock the stores in advance. Relief material was delivered to locations where people were struggling.
The residents of Florida praised Walmart for being a lifesaver.
They were criticizing the government for not providing any support. But they were praising Walmart for its excellent management.
Walmart spent about $20 million on this activity – but the praise and brand recognition it got was unmatched.
Branding and PR experts commented about how Walmart had gotten enviable love from the public.
It was something other companies would not be able to get even if they spent the same amount of money.
What allowed Walmart to work so effectively and efficiently?
Their business model.
Supply Chain and Network
Walmart operates in the retail departmental store industry.
This industry is supposedly one of the toughest to crack.
They sell essential items. Their customers are looking to save costs. They are not loyal.
Soaps and shampoos of all brands are available in all stores. The only way to attract customers to your store is to offer rock-bottom prices.
If you can keep your margins/profit very low, you can succeed.
But how can you run a successful business if you earn very low profits?
The answer: by having an extremely large network of stores.
Walmart would not survive if it had 2 or 3 stores. They would suffer losses and shut down permanently.
To be profitable, they have to sell across a large network of stores – thousands of stores.
This is why the biggest departmental store companies have many branches across different locations.
Even then, keeping costs low is their top priority.
Cost Savings
They go to extreme lengths to save money.
The supply chain network that Walmart has built over the decades requires a case study.
The chain is extremely efficient at transporting goods from warehouses to stores.
One example of innovation to save cost: Walmart’s cross-docking.
Many times goods arrive at one location on a truck. Then they are stored. Then they are transported to another location on another truck.
To save time, effort, and space, Walmart uses cross-docking. Move items from one truck to another truck without keeping them in the warehouse in between.
Another example: reusing heat.
Their stores have giant fridges that store frozen items.
In winter, Walmart stores used air conditioning heaters to keep the store comfortable.
Their new idea: fridges also give off heat. They used this heat to keep their stores warm. So they did not have to use dedicated heaters anymore.
Energy and costs saved.
This obsession with saving costs can be seen in nearly all departmental stores across the world.
In India, D-Mart is famous for owning its stores instead of renting them.
When it was first started, rumor was that they didn’t even plan to have AC – to save electricity bills.
They research the location of their stores thoroughly. They only open near residential areas.
And they try to offer something that keeps their customers loyal – rock bottom prices.
Economics of Retail Stores
Prices at departmental stores are kept rock bottom low.
Their income comes from operating many stores.
Because they operate a large number of stores, they can buy orders in bulk – thus, they can buy items cheaper.
They offer a wide range of products – so their customers buy everything from their stores.
And then, they go to extreme lengths to save money – in any manner possible.
Walmart’s insanely efficient and effective supply chain is a result of wanting to save costs.
This industry – retail departmental stores – is an extremely competitive space.
Only companies that offer the cheapest prices win the game.
The illustrations used above are made using an AI tool (DALL-E).
Quick Takes
+Defence Acquisition Council has cleared proposals worth Rs 84,560 cr. Aim is to boost capabilities of the armed forces and the Indian Coast Guard.
+Around 4.82 lakh passengers were affected due to delayed flights in Jan 2024: DGCA data.
+India has started an anti-dumping investigation into imports of certain solar glass from China and Vietnam.
+Government has increased the authorised capital of the Food Corporation of India (FCI) from Rs 10,000 cr to Rs 21,000 cr. This will help to fund the food grains that the company stores.
+India’s tech industry is expected to create 60,000 new jobs in the financial year 2023-24, taking the total to 54.30 lakh employees. 2.7 lakh jobs were added in FY23: Nasscom.
+India’s trade deficit (imports minus exports) stood at $17.5 billion in Jan, lower than $19.8 billion in Dec. Exports rose 3.1% year-on-year. Imports increased by 3%.
+India's UPI and Nepal's National Payments Interface (NPI) will be integrated. This will enable low-cost remittance transfers.
+The Supreme Court has declared electoral bonds invalid.
+Stock markets will be open on 2nd March (Saturday). The aim is to test if stock markets can be quickly shifted to a disaster recovery site.
+Sales of luxury homes (costing over Rs 4 cr) increased 75% year-on-year. Delhi-NCR recorded the highest growth: CBRE.
+Uber is planning to buy back up to $7 billion worth of shares after its first profitable year.
+Urban employment rate was 6.5% in the Oct-Dec period, the lowest in nearly 4 years. Female labour force participation reached its highest at 25%.
+India’s industrial production growth was 3.8% in Dec vs 2.4% in Nov 2023.
+The Ministry of External Affairs (MEA) announced the launch of UPI in Sri Lanka and Mauritius. They also introduced RuPay services in Mauritius.
+India's retail inflation fell to a 3-month low of 5.10% in Jan 2024.
+India’s vegetable oil imports in Jan declined 28% year-on-year to 12 lakh tonnes: Solvent Extractors Association of India (SEA).
6-Day-Course
Theme of the week: tax on mutual funds
We’ve reached the end of this week’s course that started on Monday.
Here’s a test you should take. Get pen and paper!
Question 1:
In mutual funds, you have to pay a tax on your investment every year.
-True
-False
Question 2:
In equity mutual funds, profits earned in less than 1 year is called.
-STCG
-LTCG
Question 3:
One investor invested in an equity mutual fund. 2 years later, he withdrew his investment. What is the applicable rate of tax here?
-0%
-10%
-As per tax slab
Question 4:
According to the latest rules, if you sell your debt fund investments after 3 years, you have to pay a tax of:
-20%
-As per tax slab
Question 5:
One particular hybrid mutual fund invests 35% of its assets in debt and 65% in equity. How will it be taxed?
-According to equity mutual fund tax laws
-According to debt mutual fund tax laws
Answers:
Q1: False
Q2: STCG
Q3: 10%
Q4: As per tax slab
Q5: According to equity mutual fund tax laws
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest