WalMart Strategic Analysis

Executive Summary

Wal-Mart is considered an outstanding business given its success story since inception. The business operates under the retail industry and has recorded constant growth rates becoming the largest retail business in the world. After commencement, the management established several stores in rural towns before venturing in the metropolitan areas.  This has been the trend used by the business, and perhaps one of the secrets to success. To this date, most of the stores are located in towns.

The core business is divided into four sections. This includes Supercenters, Neighborhood markets, Sam’s Club, and Wal-Mart Stores. The largest segment is occupied by Wal-Mart Stores (Wal-Mart Annual Report, 2005). Wal-Mart revenues have been on the rise and it was the first company to reach a billion dollar within nine year of operation in 1979.

Wal-Mart is currently enjoying rapid growth with great prospects of expanding to the world market.

Industry and Company Description

WalMart operates under the retail business industry. Its retail stores are of various formats operating worldwide. These includes restaurants, retail stores, discount stores, hypermarkets, supermarkets, neighborhood markets, warehouse clubs, supercenters, apparel stores, and Sam’s Clubs (Vance & Scott,1994). In addition, the company also operates online retail business via samsclub.com and walmart.com.

The stores offer a wide range of products that includes meat, bakery, beverages (both alcoholic and nonalcoholic), dairy, frozen foods, produce, dry grocery, and floral. Other products include health and beauty products, household chemicals, baby products, pet supplies, and paper goods. The company store’s also supplies electronics, photo processing supplies, cameras, toys, cellular phones, and books. In general, the company supplies all essential household goods as well as luxuries. The company has also ventured in banking with the main service aimed at consumer lending. The banks also provide financial services as well as products such as wire transfers, bill payment, check cashing, and money orders.

WalMart operates retail stores that include grocery and discount stores. The industries are driven by price as they engage in the sale of similar products. Apart from price, the industry is also driven by convenience and quality. In order to have an upper hand in the market, WalMart devised a strategy of providing products conveniently and at reduced prices. This occurred through introduction of one stop supercenter offering wide range of products at low prices.

Since inception in 1945, the company has continued on a growth trend that has seen it spread globally (Roberts & Berg, 2012). It has achieved this through constant renewal of the strategies to align well with the growing and changing industry. WalMart International has continued to expand its branches through strategic acquisitions and internal growth. The company has also exploited the online market so as to further expand its market scope.

The company enjoys competitive advantage in the industry as it has been able to divide its large business into manageable segments. WalMart is the largest retail company. Its operation requires a strategy that will take full advantage of the market. Under these considerations, the management is able to plan effectively for their specific channels of operation.

The functional areas have supported their corporate strategy as the company has emerged the largest retail store in the world. The company has adopted a strategy in which individual functional area develop their marketing plan that is still aligned to the overall goal of the company. These functional areas define their own mission that supports the overall corporate mission in a synergistic manner. These functional areas include finance, distribution, marketing and retailing.

The company’s mission statement does not compare to that of its competitors. The company emphasis is on low pricing and convenience. The mission statement makes the business aim at lowering prices of their products compared to their competitors so as to gain more customers. This has steered growth of the company to the global scale.

The leadership of the company has embraced the mission statement by developing various ways of minimizing pricing. This includes studying local markets so as to assimilate local cultures into the business with an aim of introducing low prices.

The company’s vision is to remain the best and most widespread one stop retail store. This is supported by the strategic plans of the various functional areas. In each area, the management sets goals that culminate in achievement of the overall company goal. The vision statement concerns globalization. The main vision is to continuously expand operations globally while promoting ownership of ethical culture.

Competitive Position

Five Forces Analysis

Table 1: Five Forces Analysis

It is essential to understand how the company stands in the market based on Porter’s Five Forces Model. The first force examines the bargaining power of buyers. For Wal-Mart, customers do not bargain for higher quality, low prices or better services as these have already been established in the business’ philosophy. The company utilizes many pricing philosophies that include Rollback, Low Price, and Special buy. This ensures customers enjoy the lowest price possible. The company enjoys loyalty from large number of customers who are motivated by the low pricing.

The second force to consider under Porter’s model is the bargaining power of suppliers. In some instances, suppliers may threaten to raise prices or compromise on the quality of purchased goods. This scenario does not occur for Wal-Mart as it has a large pool of suppliers to pick from. This raises competition that leads to lower prices and higher quality goods. Therefore, the company is able to maintain its pricing philosophies.

The next force to consider is the threat brought about by new competitors. Wal-Mart is not scared by this threat because of its ability to utilize economies of scale. This reduces the cost of production by spreading it over the number of units produced. The company has the capacity to produce in large scale thus lowering the costs. Moreover, the company’s product differentiation has strong brand identification that gains customer’s loyalty. The company also enjoys secure distribution channels and utilizes technology to remain customer-focused.

The fourth force under Porter’s model is the threat brought about by substitute products. There are competitors who have attempted to imitate the unique business system adopted by Wal-Mart without succeeding. The customer service employed by the company is excellent and unique to its value chain. The company attempts to make shopping at its store an experience that guarantee customers’ satisfaction (Roberts & Berg, 2012).

The final force in Porter’s Model is as a result of rivalry intensity among competitors. The main competitors that fight to control the retail market with Wal-Mart are Target, Sear and Kmart (Soderquist, 2005). Sears’ finds it difficult to beat Wal-Mart due to higher prices resulting from higher overhead costs. On the other hand, Kmart’s poor service to its customers led to low customer appeal. This occurred when Wal-Mart was concentrating on customer satisfaction.

SWOT Analysis

Table 2: SWOT Analysis

Sam Walton declared during creation of Wal-Mart in 1962 that the business would adhere to the core values as hereby stated: “Respect for the individual, service to the customers and striving for excellence” (Wal-Mart Annual Report, 2005, 4). At the present moment, the focus of the business is geared towards providing customer satisfaction. The emphasis that customers are the pillars of the business has made Wal-Mart extremely profitable. The success of the business is as a result of the strength of its corporate strategy.

The company has not only dominated the American retail market, but has also exploited new retail sectors and expanded in international markets. The corporate strategy requires the company to sell at the lowest price, high quality and brand name products. The company strives to maintain low prices through use of well established warehousing and advanced electronic technology.

The linkage between vendors speeds up the delivery process. The company also utilizes its own private satellite communication system to aid in distribution. The company’s financial strength resulting from huge profits and revenues is supplemented by brand acceptance in the local market. Further strength is drawn from the ability to utilize various pricing philosophies to ensure customer satisfaction.

There exists numerous opportunities that are yet to be exploited by the business. This includes focusing on growth markets such as China and India, formation of strategic alliances with other global retailers, among others.

The success of the company has not come easy. The company still faces serious challenges posed by its competitors. Price competition is a serious threat for Wal-mart especially when dealing with products from low-cost regions. This is because the cost of production has significantly reduced making it difficult to use price as a competing factor.

A weakness that may be experienced by the business is that it is not well known globally. The competitors may use the opportunity to go global at the expense of Wal-Mart. Another weakness is presented by cultural suppressions that demoralize the employees.

Ethical Business Practices and Social Responsibility

According to Wal-Mart - Sustainability Progress 2007-2008, the company does adhere to the ethical practices and engage in social responsibility activities. The company has an ethical standards team comprising two hundred associates. This ensures the company commits to ethical actions around the globe. The team is in charge of implementing effective ethical sourcing programs.

Since the company does not own or operate any factory, it relies fully on its suppliers. The ethical standards team verifies that the factories adhere to the local and company’s ethical standards. The standards cover: discrimination; underage labor; health and safety; compensation; right of audit by Wal-Mart; environment; hours of labor; freedom of association among others.

After every year, the company analyses the audit reports from various factories and includes it in an annual ethics report. The report is used to review terms with certain suppliers who have failed to meet the ethical standards. It also serves as a basis for strengthening the ethical standards. For instance, the company added environmental criteria among the ethical standards in 2006. This covered solid and liquid wastes and air emissions.

It is notable that some changes in ethical practices were not considered when rating the companies. An example is the environmental criteria. The complexity of the situation requires collaboration with various stakeholders including government and other non-governmental organizations to address the situation.

Competitive Strategy

Wal-Mart has several factors that give it a competitive edge in the market. This has seen the company grow from strength to strength while maintaining a leading position in the industry. Firstly, the strategy to operate in a multi store format allows the company to extend its customer base. The major types of stores are Supercenters, neighborhood markets, Sam’s Club and discount stores. The method has enabled Wal-Mart to embrace more customers resulting in improved sales and profits.

The company also employs backward expansion strategy when entering new markets. This involves opening stores in small towns first before venturing into the metropolitan areas. The stores are usually located within a radius of two hundred miles from the distribution center to ensure efficient delivery from the trucks.

Another strategy employed by the company involves cost minimization. For instance, the company is able to reduce costs through its inventory management and distribution system by locating regional distribution centers in areas offering lower labor and transportation costs. Centralization of its activities also aids in the competitive advantage. Linking of all operating units via the company owned satellite helps in speeding up inventory replenishment.

Global expansion is another key strategy that has boosted the company’s brand name (Vance & Scott,1994). The expansion has enabled the company obtain more market share globally. The company has also factored in cultural differences in its expansion plan. This has enabled the company operate they stores differently depending on the local needs. In addition, the company has acquired several local supermarkets and employed the natives to manage the business.

The company has embraces use of technology in achieving low-price strategy. This is the strongest competitive edge that the company utilizes to grow its business. Firstly, the company controls its inventory via electronic product code (EPC) or bar code system. Doing so enables the company to trace its inventories on stock and checkout its customers. This brings efficiency on the working environment.

The company has a variety of store types in which there are large numbers of stores. This gives the company a higher market share in the different category of products. This means that the company makes high volume purchases at lower price from suppliers. It enables the company to sell its products at lower prices and still experience positive effects on the gross profit margin.

Foreign Market Operations

Wal-Mart still has numerous opportunities in the international market. It can utilize e-commerce to explore this opportunity or carry its business model to the foreign countries. The company has already started expanding beyond the United States market, and are there still many chances that the business can explore.

The company has not introduced all the store types outside the United States. In most cases, one or two types of store have been established in the international market. Wal-Mart need to fully exploit the potential of all its stores outside the United States since the company has the necessary resources and needed experience. Therefore, success on the international market will depend on integration of experience and resources.

Wal-Mart should also explore e-commerce as the world is transforming towards digital generation. The existence of internet has dramatically changed people’s lifestyle. The awareness of this market will help the business approach it more aggressively so as to gain market share. Wal-Mart has efficient distribution channels and upstream sources. For them to explore the online market fully, it will require development of more downstream channels to reach the market via online shopping.

Diversification Strategies

Wal-Mart invests its money efficiently. The company has maintained above eight percent return on assets since 1993. This demonstrates that the company is able to make over eight cents profit in every dollar invested in its assets. Since the business involves retail stores, the company demonstrates diversity in attempting to generate more value for its stockholder.

The company has employed a system that has failed in several other organizations. This is the Just-in-Time Inventory (JIT) system. It is applied in all Wal-Mart stores. The system was used to by the management to control warehouse inventory (Roberts & Berg, 2012). The system was used to eliminate investments in the inventory by allowing arrival of materials when needed. However, increase in the inventory turnover can increase resulting in higher profit margin for the company. Elimination of safety stock requires extensive coordination to ensure suppliers deliver as scheduled.

Strategy Execution

Wal-Mart is structured such that there is a corporate management that oversees the activities of the whole company. Under the corporate management is the management of the various types of store. The develop they own mission, vision, and value statement but all work together to realize the organization’s goals. The success of Wal-Mart is pegged on this strategy. The functional areas produce superior innovative models that have made Wal-Mart the leading company in the retail industry.

The different types of stores help capture a wide range of customer base. Through such structure, Wal-Mart is able to expand its operations to the international market efficiently. The future of the business seems to be in international market and e-commerce. The structure that the business has adopted will go a long way in helping the business achieve such objectives. This will happen as long as the business is still capable of integrating its existing resources and efficient operation.

Wal-Mart will need to manage several alternatives for them to maintain their competitive edge. One of the important elements that the business needs to maintain in order to maintain its competitive advantage is the business structure. Secondly, the business needs to adhere to its horizontal integration. As it has been the trend whereby more retail businesses are performing dismally in their local markets, Wal-Mart should seize such opportunities to increase its market share.

Vertical integration is also important for Wal-Mart if it is to maintain its lead in the market. This will include acquisition of some key suppliers to lower cost of sales so as to compete effectively with other retailers. The final step involves embracing technology to aid in expansion in the world market. This includes new developments like e-commerce.

Wal-Mart needs to recognize that the domestic market will soon be saturated if growth trend remains the same. The business needs to take global and e-commerce more seriously. It is commendable the strides Wal-Mart has made in venturing some international markets. However, not all types of store under Wal-Mart are being introduced. In addition, as people get used to online shopping, Wal-Mart should be quick to recognize the opportunity and move with speed in gaining market share. In conclusion, one can argue that the future of Wal-Mart will rely on global and e-commerce.