Wal-Mart Business Analysis

Keywords: walmart swot, swot walmart, walmart five forces, personal swot

Wal-Mart store Inc. is not only the retail giant, but also is the largest grocery chain in the world. Wal-Mart store Inc. was founded in 1962. Samuel Walton and his brother J.L. Walton open their first Wal-Mart Discount City in Rogers, Arkansas (Wal-Mart History, 2010). For Wal-Mart store Inc., their common mission is: “Save people money so they can live better” (Wal-Mart corporate, 2010). Compared with their main competitors such as Target and K mart, Wal-Mart’s 2009 sales were almost 50% more. “Because of its giant size and buying power, Wal-Mart can buy its products at very low prices, exchanging high purchase volumes for low cost then passing the savings onto its customers” (Wikinvest Wal-Mart, 2010).

Wal-Mart has 8,900 stores around the world in three different business segments of retail stores that including: Wal-Mart stores, Sam’s Club and Wal-Mart international. All of them offer different kinds of merchandises including electronic appliances, groceries, furniture, apparel and health & beauty stuffs etc. For their business segment, they have over 54% of the company’s stores are located in the United States, and the others international stores are mainly located in central and south America and China. The company mainly focuses on offering the lowest prices to attract its consumers. Wal-Mart totally earned $408 billion revenue in 2010, increase 1% compare to 2009 (Wikinvest Wal-Mart, 2010).

In 2009, Wal-Mart earned $255.7 billion in the domestic segment of the company’s revenue. For Wal-Mart stores segment are further categories into three different formats including: Supercenters, Discount stores and Neighborhood Stores. For the Sam’s club, it is the second largest membership-only retailer club ( Costco is the first largest membership-only retailer) in United States belong to Wal-Mart Inc., their main customers mostly are offices, convenience stores, motels, restaurants and schools etc. (Wikinvest Wal-Mart, 2010).

For now, Wal-Mart has total 3,121 international stores all over the world including in Mexico, Japan, Canada, China and countries in central and South America. However, recently Wal-Mart begins to slow down their growth rate in the United State and turn their main focus onto its international stores to develop growth. For international stores locations altogether earned total $98.6 billion revenue in 2009, compared to the sales of 2008, is increased 9.1% (Wikinvest Wal-Mart, 2010).

Strategic History of the Industry

The whole retail industry in the United States has over $4 trillion annual revenue. The main retail companies are including Wal-Mart, Home Depot, Kroger, Costco, and Target. Some of the large companies dominate some retail sectors such as mass merchandisers and grocery stores, other sectors like auto dealers and convenience stores are fragmented. However, retail industry still has many small and specialty retailers are single-store operations (Hoover, 2011).

The economy deeply affects the retail demand. In other words, retail demand depends on the economy. Many different kinds of economic factors such as job growth, recession, personal income, consumer confidence and interest rates can strongly affect consumer spending behavior. When during recessionary periods, the bad economy can affect the retail sales growth rate slow drastically or even sales revenue decline. While the retail spending grows rapidly when in the period of strong economy growth, for example consumers will spend more on grocery when they have more income. However, the rising interest rates will affect consumer purchase behavior and consumer ability to finance large amount of purchase such as purchasing cars (Hoover, 2011).

Strategic History of Wal-Mart Store Inc.

In the early stage of strategic history for Wal-Mart, they always unchanged their vision “always low price” for their customers. Until 1990s, Wal-Mart announced that they planned to go global. They wanted to look for international markets for the reasons as following: First of all, Wal-Mart has facing very strong competition in United States such as Target and K mart. These two firms had aggressive expanding their business and had started sharing Wal-Mart’s market share. Secondly, the market in the United States is already saturated; it was becoming difficult for the company to continue its growth rate. Thirdly, the US population is accounted for only 4% of the world’s population and if they want to expand their global market, China had the potential massive growth due to their huge population of over 1.3 billion people. The last reason is, globalization opened up new markets in China and created opportunities for discount stores such as Wal-Mart (Wal-Mart’s Cost Leadership Strategy, 2004).

On the other hand, Wal-Mart is using the strategy that cooperates with local suppliers to purchase their products, even though the organizational culture is standardized with the home country. This strategy is not only use to the products purchasing, but also adapted to the local cultures and stores decoration and designed are also changed to meet local taste all around the world (Wal-Mart’s Cost Leadership Strategy, 2004).

Organizational mission statement

As we know, the mission statement for Wal-Mart is “every day low price.” In order to insist their mission, Wal-Mart implemented three approaches in the market. First, it increased the local purchasing in order to reduce the purchasing costs and also suit consumers’ needs in different places. Secondly, it maintained a good relationship with their suppliers, satisfied them by paying within 3-7 days during its initial years. Thirdly, it established distribution centers (DC) and computerized its management system to improve efficiency and reduce costs (ICFAI, 2005).

Business Level Strategy

For these several years, Wal-Mart has been trying hard on expand its stores outside the United States. It through two different to expand their international business market: new store construction and acquisition. Acquisition strategy of supermarket chains had been a part of Wal-Mart’s entry and

store expansion strategy in Canada, Mexico, Brazil, Japan, China and Great Britain (The Wal-Mart Puzzle, 2008).

Over all, the Wal-Mart strategies were including: multiple store segments, lower daily prices, lots of name-brand merchandise, reduce operating costs, emphasized customers satisfied service, wide selection products, disciplined expansion into new geographic markets, and using acquisition to enter foreign market (Wal-Mart Store Inc., 2010). However, no matter Wal-Mart are in which foreign country, their company vision “always low prices” is never changed.

The company’s low distribution costs and cost-efficient supply chain management are the big reasons why Wal-Mart is so success and at the same time reduce the products’ prices. Wal-Mart has get into distribution efficiency compare with their competitors because of its rural store locations.

Current strategy for the major operations/functions of the company

Current strategies for Wal-Mart are including low costs, high volume, increase customer satisfaction and expansion strategy. Wal-Mart creates name recognition and customer satisfaction, and combined the retailer with the reputation of offering the best prices. They also expand their new business segments to different sectors such as pharmacies, automotive repair, and grocery sales to increase their sales revenue.

Expansion strategy:

The company realized that building a new store will allow for increase market share value. After their success in the rural areas, Wal-Mart moved to urban areas and then moved to surrounding areas. The expansion strategy made Wal-Mart the number one retail store in the United States. As Wal-Mart continue its expansion domestically, the firm decided to go international. Furthermore, Wal-Mart realized that acquiring an existing retail firm is necessary for expand domestic and international markets. Therefore, Wal-Mart by acquire retail store which enable to expand locally and internationally.

“Always low prices make customers live better” strategy is believed the strongest strategy used by Wal-Mart. The firm developed the idea of dealing directly with the manufacturer and with the power control by Wal-Mart will enable it to get the best deal from the manufacturers and suppliers.

Organizational structure, culture, and control systems

“Saving people money to help them live better” was the mission for Wal-Mart. Hence, Wal-Mart negotiates different suppliers and understanding their cost structure in order to reduce the price. Wal-Mart has to be certain that the manufacturers were doing their best to cut down costs. Also, Wal-Mart believed in establishing a long-term relationship with their suppliers.

Wal-Mart had 129 distribution centers located at different locations all over the US. Over 80,000 items were stocked in these centers. Wal-Mart’s own warehouses directly supplied 85 percent of the inventory, as compared to 50-65 % for competitors. Shipping costs for Wal-Mart is about 3 % which is lower than its competitors, 5%. The distribution centers ensured a steady and consistent flow of products to support the supply function (Wal-Mart’s Cost Leadership Strategy, 2004).

Wal-Mart’s logistics infrastructure was its fast and successful transportation system. The distribution centers were serviced by more than 3,500 company owned trucks. To make its distribution process more efficient, Wal-Mart also uses a logistics technique called cross-docking. In this system, the finished goods were directly picked up from the manufacturing plant from suppliers, and then directly supplied to the customers. The system reduced the handling and storage of finished goods, eliminating the role of the distribution centers and stores (Wal-Mart’s Cost Leadership Strategy, 2004).

SWOT Analysis for Wal-Mart Store Inc..

Strengths

Reputation Brand Name: Wal-Mart is a powerful brand and pioneer in the retail industry with the wide spread network of stores. It has a reputation for low price, convenience and a wide range of products all in one store for customers. Wal-Mart has captured about 10% of the retail market in the U.S. and continues to expand. Wal-Mart stores continue to open all over the country making Wal-Mart a household name. Wal-Mart has also been widely acknowledged for its social responsibility actions. The company has donated to a variety of charitable organizations and has been accredited for bringing jobs and wealth to less developed communities.

Offer Low Prices: Wal-Mart uses its enormous size and buying power to pressure its suppliers into extremely low prices, offering orders of high volumes of merchandise in exchange for low prices. The good thing about Wal-Mart is that its shifts the low cost advantage to customers and available the products at lower prices. It has loyal customer base because it meets the expectation of customer by always delivering the goods at lower prices at compare to its competitors.

Expand Global Market: Wal-Mart has aggressively expands its international market over the past few years and has experienced global expansion. For example its purchase of the United Kingdom based retailer ASDA.

Technology: Technology is strength to Wal-Mart with its inventory control system that was recognized as the most sophisticated in retailing. The technology linked all the stores to the headquarters and the company’s distribution centers. It also enables the warehouse of which the goods are ordered, and direct the flow of goods to the store and proper shelves.

Supply chain and logistics management: Supply chain and logistics management are one of the strengths of Wal-Mart. This allows Wal-Mart to utilize the Just- in-time inventory concept and avoid the pilling up inventory to save the extra cost for maintaining inventories in the warehouses.

Human Resource: Wal-Mart always keen to provide training to their employees to improve the customer service level. The firm hire locally, provides training programs for its employees. Wal-Mart also gets its employees involve and encourage them to make use of words like: we, us, and ours. It also provides stock ownership and profit sharing with great contribution from the H. R of the firm. Wal-Mart was named one of the best 100 firms to work for.

Cross-docking inventory system: Using the cross-dock technique, Wal-Mart was able to effectively leverage their logistical volume into a core strategic competency. Wal-Mart operates an extensive satellite network of distribution centers serviced by company owned trucks. Its satellite network sends point of sale (POS) data directly to 4,000 vendors. Each register is directly connected to a satellite system sending sales information to Wal-Mart’s headquarters and distribution centers.

Weaknesses

Employee turnover: Wal-Mart has high employee turnover which costs more money and time for company to train the new employee.

Bad publicity: Wal-Mart is currently facing a gender discrimination lawsuit. Their female employees accuses that they were discriminated against in matters regarding pay and promotions. And also, Their female managers were accounted for the minority group in the company.

Lock of flexibility: Wal-Mart sell very wide range kinds of products for example like clothes, food, pharmacy or stationary which lack of flexibility compare with other more focused competitors. Other competitors may have the ability to make changes and improve on a certain product lines when the needs of their customers change. Wal-Mart, however, may have too much merchandise and not be able to focus in on sectors that need to be improved.

Some products have poor quality: Although Wal-Mart provides low price of products, however, customers sometimes complain about the poor quality of few products.

Facing difficulty in International market: It is hard for Wal-Mart to expand their business out of US to totally different countries all around the world. Moreover, Wal-Mart has to facing different culture and customer behavior in different countries, for example Wal-Mart facing difficulty to expand the market in China.

Opportunities

Customers: Because Wal-Mart provides low price to their customers, so they are able to attract more customers. Furthermore, customers basically are able to purchasing everything in one store that satisfied their needs. Wal-Mart 24 hour’s stores also satisfied their customers.

Diversified store types: Wal-Mart’s different store types and new locations provide more opportunities to exploit new market. Stores diversified from local, small-based sites to large super centers.

International Expansion: No doubt that continued expand the international market is a huge opportunity for Wal-Mart. Wal-Mart’s oversea stores have experienced significant growth. There are actually tremendous opportunities for future growth in developing countries and Asian markets than in the United States such as China and India. Creating strategic alliances and licensing agreements with other global retailers are ways to move into different countries.

Threats

Competition: Wal-Mart faces different strong competitions locally and internationally. Wal-Mart main competitors are including Kmart, Target, Carrefour and Costco wholesale. In 2010, the Net Profit Margin for Wal-Mart is 3.59%, Target 4.22%, Costco wholesale 1.69%, Carrefour 0.38%, respectively (Hoovers, 2010). Target is Wal-Mart’s direct competitor in the US, offering a range of general merchandise in a similar store format (Wikinvest, 2010).

Economy Recession: The revenue for Wal-Mart is affected by economy recession. Good economy is an opportunity for great business, because customers will have more money to spend. If the economy is great, there will be more jobs and people will shop more. However, if the economy is bad, there will be fewer jobs and people will shop less. Also, with the high price of gasoline and its effect on the economy, Wal-Mart will certainly be affected the most.

Strategy imitation: Wal-Mart strengthens its competitive advantage on low-cost products. Other competitors may imitate their low-cost strategy to take over their market shares.

Low Brand Loyalty: In the retail industry, customers would like to choose the product with the lowest price. In other words, customers do not care about the brand or which retail stores, if Costco has the exactly same chips that sell cheaper than in the Wal-Mart, then customers will choose to buy the chips in the Costco not Wal-Mart.

TOWS MATRIX

STRENGTHS

WEAKNESSES

Reputation Brand Name

Bad publicity

Offer Low Prices

Lock of flexibility

Expand Global Market

Some products have poor quality

Technology

Facing difficulty in International market

Supply chain and logistics management

Employee turnover

Human Resource

Cross-docking inventory system

OPPORTUNITIES

OPPORTUNITIES-STRENGTHS

OPPORTUNITIES-WEAKNESSES

Customers

Build on its already efficient distribution system to further expand in the U.S and globally.

Wal-Mart should be awareness and strict to control of the quality of the product in order to keep their customers basis.

Diversified Store Types

Expand diversified store types to International market in order to increase profit in International market.

Set higher employment standards through enhanced training to keep their employees have best performance.

International Expansion

Duplicated the successful delivery logistic management and the distribution centers into International market.

Continue to build on cost efficient pricing and production due to expansion.

Go into new markets and buy out their local retailers to gain market share.

THREATS

THREATS-STRENGTHS

THREATS-WEAKNESSES

Competition

Buy raw materials or products from local suppliers to hold a better political status within the local community further to compete with their competitors.

Human resource department should set a benefits long-term promotion program or standard and training program for their employees in order to decrease the employee turnover.

Economy Recession

Create their own brand of products and increase the quality of products in order to establish customers’ loyalty.

Establish joint venture partnerships or long-term relationship with local retail companies to get the advantages in the International segment.

Strategy imitation

Develop strong R&D and technology to enhance the competitive advantage and avoid imitation from other competitors.

Low Brand Loyalty

Five Forces Analysis for Wal-Mart Store Inc.

Threat of entrances – Low

The threat of new entrance in the grocery and discount retailer industry is very low. New entrants have to face with the strong low-price competition among exist giant retail companies like Wal-Mart, Costco and Target. New entrants need to invest large amount of capitals to establish their brand recognition, service, and variety of product offerings that Wal-Mart, Target, and others competitors continue to improve on each day. In addition, existing companies can drop prices lower in order to force a new competitor out of the market. Therefore, the threat of entrances is low.

Power of buyer-High

Customers have many choosing opportunities and consider about products very details. They want the product now and they want it with the best service, best quality and reasonable price. Customers also enjoy increasing choice of products and choose one product that has the best quality and better price. For example, if customers find out Target sells an exactly product that has better quality and price than Wal-Mart, and then they will choose to buy it in Target instead of Wal-Mart.

Power of Suppliers: Low

The bargaining power of suppliers is very low. Wal-Mart is very famous on giving pressure to their suppliers to cut their price lower and lower in order to offer the lowest price to their customers. On the other hand, become the supplier of Wal-Mart is a very fierce competition. In 2004, about 10,000 new suppliers applied to become Wal-Mart vendors. However, only about 200, or 2%, were ultimately accepted by Wal-Mart (Gwendolyn Bounds, The Wall Street Journal). Therefore, the bargaining power of suppliers is low.

Rivalry – High

The competition in the US grocery and discount retailer industry is very high. The main competitors for Wal-Mart in the local market are Kmart and Target. These companies also have to face competition from wholesalers such as BJ’s, Costco and even the international market such as Carrefour. Wal-Mart has adopted a cost leadership generic strategy. In the past, most companies have not been able to match Wal-Mart’s strategy “everyday low prices.” However, Wal-Mart’s barrier to entry (economies of scale) and strength (supply-chain management) can be easily imitated with sufficient resources. Therefore, retailers are in a fierce competition that see who can offer their customers the lowest price.

Threat of substitute – Low

The threat of substitutes in this industry is low because only few companies have ability to offer such a variety of products available instantly and also low prices. One possible substitute is online shopping; however, customers usually do the online shopping for clothes or other stuffs but not for food or grocery shopping. Therefore, the threat of substitute is low.

B. Strategic direction

Key Strategic Issues

Issue #1: Open too many new stores close to existing stores lead to new stores taking over the market shares from existing stores.

Status Quo

Wal- Mart depends on opens many new stores and expands into new market to increase the long-term sales and income growth. However, because of Wal-Mart’s large size of expansion, new stores are effects the sales on existing stores. For example, Wal-Mart builds a store relatively close to an already existing store, the new store might take away customers from the old store thus decrease the sales in existing stores (Wal-Mart, 2010).

Evolutionary Change (Incremental Improvement)

In order to solve this problem, Wal-Mart expands their business segment into international market instead of domestic market. For example, Wal-Mart opened 5 times number of stores in the international market in 2010 compared to domestic stores; most of stores are in Mexico, China, and Central America (Wal-Mart, 2010).

Revolutionary Change (Huge/Drastic Change)

Wal-Mart is also aggressively to open business segments in India if the country opens up the sector to foreign direct investment. India has retail market more than 1 billion; no doubt India is a huge opportunity for Wal-Mart. However, retailers that carry multiple brands (like Wal-Mart) are restricted to wholesale outlets in India. After India’s policy change, Wal-Mart is allowed to expand superstores and generate revenue in India (Wal-Mart, 2010).

Specific tactics to implement the strategy

Wal-Mart needs to establish long-term relationship or joint venture with local retail company to get into the market in India. Although in 2006, Wal-Mart announced that it had tied up with Bharti Enterprises Ltd. (Bharti) to get into the Indian retail sector. Bharti was a diversified company, and one of the biggest mobile telephone service providers in India (Wal-Mart and the Indian Retail Sector, 2007). However, because of the government policy, the small retailers’ groups and the Left parties against allowing the company into India are all the barriers that Wal-Mart has to face it.

Issue #2: International competitors

Status Quo

In order to expand and improve the sales revenue for the economy recession especially in the domestic market, Wal-Mart has been aggressively expand its business segment into international market. However, the local big retailers or small retailer’s groups are against Wal-Mart to get into their market to take over the market shares because of its low price strategy (Wal-Mart, 2010).

Evolutionary Change (Incremental Improvement)

Improve its supply chain, logistic and technology segment to lower its delivery and operation costs in order to compete with local big retailers such as Britain’s Tesco, France’s Carrefour, and Germany’s Metro (Wal-Mart, 2010). On the other hand, retail business segment is hard to create products differentiation, because commodity products are all the same for customers. The only way that gains the market shares for retail stores is not only low price but also quality of products. Therefore, Wal-Mart should awareness of its quality of products to attract more customers even in the international market.

Revolutionary Change (Huge/Drastic Change)

Wal-Mart should acquire and purchase the local retail companies in order to get into the international market. On the other hand, establish long-term relationship with local suppliers to have the win-win situation for their cooperation.

Specific tactics to implement the strategy

In the beginning of year 1, 2 and 3, Wal-Mart should first focus on improving its supply chain, logistic and technology improvement in order to compete with local big retailers on its lower operation, delivery costs and high quality of products. For the long-term tactics, Wal-Mart should deeply penetrate into the local market, understand different cultures and customers behaviors and then cooperate with local suppliers to establish long-term partnership.

Personal assessment

SWOT Analysis of myself in relation to the organization (What can I offer to the organization?).

Strengths:

International expansion (China): Wal-Mart is extremely aggressively penetrated into the market in China. Also, no doubt that China has 1.3 billion populations which accounted for the most majority population in the world, creates a huge business opportunity for Wal-Mart. Therefore, Wal-Mart needs a manager who can speak fluently Mandarin and English, and really understand about Chinese culture and Chinese customers’ behavior. Hence, I can offer Wal-Mart my knowledge to develop more opportunity in China’s market in order to maximize the profits.

Weaknesses:

Lock of working experience: Even though I can speak fluently Mandarin and understand the Chinese culture and customers’ behavior; however, I still lack of working experiences. I do have some part time working experience such as working in starbucks, but do not have full time working experiences.

Opportunities:

Because of my professional knowledge (bachelor and master degree are both business management) are expertise on this field which can offer Wal-Mart a professional employees or manager. Moreover, my family also has business in China, Hangchow, which makes me has understanding and interested about China. I can provide Wal-Mart establish partnership with local suppliers and establish long-term relationship with them to compete with local retails’ competitors.

Threats:

Many applicants around the world: There is still having many talented applicants around the world apply to get into this company. Some of the applicants have high education degree and business knowledge and also have ability to speak many different kinds of languages. Therefore, I am in extremely fierce competition.

Not every business segment in Wal-Mart is my expertise: I have weakened and lower advantages compared to local American because of the speaking and cultural differences. Furthermore, the company does business in many different retail formats, including supercenters, food and drugs, general merchandise stores, cash and carry stores, membership warehouse clubs, apparel stores, soft discount stores and restaurants. However, not every business segment in Wal-Mart is in my field of expertise.