General Environmental Factors Affecting Wal Mart Management Essay

Age of citizens increases. (Americans, like those in many developed nations, are getting older.)

Increase of senior citizens in America. (Those aged 65 and above will rise from approximately 35 million in 2000 to 86.7 million by 2050. By 2050, it will make up 20.7 percent of a projected population of nearly 420 million.)

Increase of female workers. (According to the U.S. Department of Labour, women comprised 46 percent of the labour force in 2006. The percentage of women over the age of 46 in the labor force has risen 23% in 44 years to 59% in 2004.)

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Income level of Americans increases. (Wal-Mart also attracts an affluent segment, with household incomes of at least $75,000 that accounts for 26 percent of its customer base. The distance of income between rich and poor are getting bigger. From 1967 to 2005, top income quintile had 80.8% increased in mean income; bottom income quintile had 34.5% increased in mean income.)

Ethnic and gender diversity in the U.S workforce is on the rise. (In 1995, whites/ non-Hispanics made up 76% of the workforce, but this is projected to decrease to 68% in 2020.)

Education level increases. (Increasing returns to education have created a bifurcation in income distribution.)

Economic

Increase in Wal-Mart net income. (Over the past decade, Wal-Mart doubled its store count, tripled its revenue, and nearly quadrupled its net income.)

Free trade agreement. (Bilateral and multilateral free trade agreements are continuing to shape the markets.)

Customers are price sensitive. (Shoppers likely have lower price elasticity, a relatively lower switching cost, but a higher sensitivity to brand reputation.)

Political/Legal

Lawsuits are providing ample fodder for Wal-Mart competitors to inflict reputation damage.

Wal-Mart faced multiple accusations, charges, and lawsuits, many resulting in fines, including environmental violations, child labour law violations, use of illegal immigrants by sub-contractors, and allegedly poor working conditions for associates.

Wal-Mart has become a “poster company” on political issues related to trade, health care, the environment, discrimination, worker pay and general anti-corporate sentiment.

Wal-Mart breaking the antitrust laws. Many activists contend that Wal-Mart is breaking antitrust laws by using its power to micromanage the market, carefully coordinating the actions of thousand firms from a position above market.

Government intervention. Government in Inglewood, California, Cedar Mill, Oregon and Vancouver, Canada have rejected Wal-Mart expansion plans.

The “plaintiffs allege that they were not provide meal and rest breaks in accordance with California law, and seek monetary damage and injunctive relief”.

Wal-Mart is alleged to have “engaged in a pattern and practice of discriminating against women in promotions, pay, training, and job assignments.

Sociocultural

Eco-friendly practices. Wal-Mart launched its global environment sustainability initiative in 2004 and has since taken action toward several sustainability goals: sell 100 million compact fluorescent bulbs by 2008; reduced packaging by 5% by 2013; buy fish from certified fisheries; sell “more organic and environmental friendly products”; and make company facilities and trucks more energy-efficient.

Discrimination of female workers. Wal-Mart engaged in a pattern and practice of discriminating women in promotions, pay, training and job assignment.

Customers are more particular about purchases (People are getting more knowledgeable and broad minded)

Global

Free trade agreement. Bilateral and multilateral free trade agreements are continuing to shape the markets.

Trade barriers reduced. Globalization trend that began in the 1990s persists. Trade barriers continue to come down around the world and as technology enables greater access to information, the world is becoming one mega-market of labor, capital, goods and services.

The world is becoming one mega-market of labour, capital, goods and services as technology enables greater access to information.

Increased in competitions. Wal-Mart face strong sales competition from other discount, department, drug, variety and specialty stores and supermarkets, many of which are national, regional or international chains, as well as internet-based retailers and catalog businesses.

Wal-Mart opened its first Sam’s Club warehouse in 1983 and its first international store in 1991, and the company’s national and international multiplatform expansion continues.

The company’s rapid expansion brought its total retail store presence to 6,782 units worldwide as of February 8, 2007.

Technological

Radio Frequency identification (RFID) is expected to play a major part in the next evolution of supply chain management in the retail industry.

Wal-Mart’s legendary inventory management capability is driven by its advanced Texlon barcode system which could track sales price, inventory levels of each product, keep a history of quantities sold, record trends and predict future needs.

Unabated growth of electronic commerce and the increasing pervasiveness of broadband Internet access in most developed countries.

All Wal-Mart suppliers must participate in Retail Link, a computerized system in which they plan, execute and analyze their businesses.

Wal-Mart has beefed up pro-community, pro sustainability, pro-health care information on its Web site, on its television ads, and in its annual report.

The Wal-Mart logistics team uses an Internet-based Transportation Link system that complements a Backhaul Betty telephone voice-response system to help them move goods. For example, to ensure greater supply chain visibility, satellite-based tracking technology is being installed in the Company’s entire fleet of over-the-road trailers.

Wal-Mart’s technological supply-chain sophisticated is intended to provide “value for customers, associates and shareholders.”

Physical environment

Wal-Mart faced multiple accusations, charges, and lawsuits, many resulting in fines, including environmental violations, child labour law violations, use of illegal immigrants by sub-contractors, and allegedly poor working conditions for associates. Therefore, Wal-Mart strategies include sustainability efforts and localized charitable giving to help portray it as being a responsible corporate citizen and a good neighbour.

Wal-Mart has beefed up pro-community, pro-sustainability, pro-health care information on its Web site, on its television ads, and in its annual report.

Wal-Mart creates value for customers with a highly efficient and innovative supply-chain management operation.

The corporate plan, encompassing previous change initiatives as well as newer ones, rests on “five pillars”: “broadening our appeal to our customers, making Wal-Mart an even better place to work, improving operations and efficiencies, driving global growth, and contributing to our communities.

Based on the company’s external and internal environmental analyses, outline the primary factors impacting Wal-Mart’s strategy. Organize these factors by Stakeholder Group (Lecture 1 Slide #26) to prioritize expectations and identify conflicting pressures on the organization.

Primary factors impacting Wal-Mart’s strategy

Lawsuit cases. Wal-Mart faced multiple accusations, charges, and lawsuits, many resulting in fines, including environmental violations, child labour law violations, use of illegal immigrants by sub-contractors, and allegedly poor working conditions for associates.

Savaglio V. Wal-Mart Stores Inc.

The “plaintiffs allege that they were not provided meal and rest breaks in accordance with California law, and seek monetary damages and injunctive relief.” A jury ruled in favor of those plaintiffs and awarded them a total of $198 million.

Dukes v. Wal-Mart Stores Inc.

Wal-Mart is alleged to have “engaged in a pattern and practice of discriminating against women in promotions, pay, training and job assignments.” These law suits are providing ample fodder for Wal-Mart opponents to inflict ongoing reputation damage.

Increasing returns to education have created a bifurcation in income distribution. For example, the bottom quintile has seen its mean income increase 34.5 percent in real term from 1967-2005, whereas of 80.8 percent over the same time period. Average income growth for the bottom three quintiles was only 30.4 percent. The typical Wal-Mart customer is in the middle-income quintiles.

Understaffing issues. “I would say that some customers are happy, but most not… [M]any workers feel they are being overworked due to mainly understaffing issues, which causes workers to treat the customers worse, then causing customers to become upset. Many customers have at one time been [Wal-Mart] associates and understand how things are handled at each store level and can relate. Personally, [I] believe that overall morale a few years ago was much higher with workers, and that attitude was passed along to the customers. Today many customers feel that [Wal-Mart] only wants them for [their] money, and does not care about them. “by Anonymous Wal-Mart Manager.

Mismanagement of the lower management in terms of employees, retail stores and products.

Employee

“…[so] my secretary and I hopped into a company van, shot down to Sam’s Club, loaded up four shopping carts of hamburgers, hotdogs, beverages, and all the fixings, got to the checkout, pulled out my Visa, and then found out that Sam’s club didn’t accept Visa. After a few minutes of arguing with an unhelpful and unsympathetic manager, I left all four carts at the checkout and have never been back since.” by Brian S.

Retail stores

“[Wal-Mart has] a problem with blight. They leave behind in some cases blight by opening a new Supercenter and leaving their old stores empty. They need to have a plan for communities and not leave those huge buildings empty. In Hood River, the community didn’t want Wal-Mart to open a Supercenter because they would leave the old store vacant, and Wal-Mart listened. They didn’t open the Supercenter.” by Fred G.

“I shop at Wal-Mart very infrequently because I find it hard to find things, [and the store is] often not very clean. There doesn’t seem to be well-laid-out aisles like Target; it is more of a jumbled maze. However, one plus …” by Crystal B.

Products.

“[Wal-Mart needs better] price marking, more UPC scanners in the store. I see something and the price is ambiguous. They don’t mark the prices. They can also make checkout faster. Why is it so slow? I don’t go to Kmart anymore because a lot of times the UPC should be in the computer. Wal-Mart is also getting worse at this.” by Fred G.

Increased competition. Wal-Mart face strong sales competition from other discount, department, drug, variety and specialty stores and supermarkets, many of which are national, regional or international chains, as well as internet-based retailers and catalog businesses.

New entrants of retailers/ competitor

As trade barriers continue to come down around the world and as technology enables greater access to information, the world is becoming one mega-market of labor, capital, goods and services. Bilateral and multilateral free trade agreements are continuing to shape markets.

Hazardous waste problem prompted by Wal-Mart.

Wal-Mart has become a “poster company” on political issues related to trade, health care, the environment, discrimination, worker pay, and general anticorporate sentiment. Many activists even contend that Wal-Mart is breaking antitrust laws by using its “power to micromanage the market, carefully coordinating the actions of thousands of firms from a position above the market.” Concerns about Wal-Mart’s handling of hazardous waste have prompted local, state, and federal officials in the south western US to initiate official actions.

Capital Market Stakeholders

Strengths

Wal-Mart is the number one retailer of general merchandise in North America.

Wal-Mart has the most retail stores worldwide.

Wal-Mart is the cost leader of discount retail market in United States.

In total, as many as 312,423 shareholders held common stock in Wal-Mart on March 16, 2007.

Weaknesses

Wal-Mart’s online business has not been a significant source of revenue.

Opportunities

Joint venture as well as mergers and acquisition may increase competitiveness.

Wal-Mart seeks markets where it feels that there is potential for it to become a top retailer, an opportunity that did not exist for it in Germany (or South Korea).

Threats

Lawsuits cause Wal-Mart reputation damage, business loss, expansion restriction and lagging stock price.

Variety of competition nationally, regionally and locally. There are more substitute products because of intense competition.

Target, Kroger and family Dollar Stores are all growing revenue faster than Wal-Mart, thus threatening its dominance.

Product Market Stakeholders

Strengths

Customers have many alternatives for each products and services that Wal-Mart provides.

Creates value for customers with a highly efficient and innovative supply chain management operation which combines tough, low-cost procurement tactics, leading-edge information systems and “rocket-science” logistics.

In order to provide lower prices than its competitors, Wal-Mart has developed a unique relationship with its suppliers.

Along with electronic data interchange, suppliers receive purchase order information and supply invoices electronically, thereby lowering expenses and increasing productivity.

Suppliers must meet Wal-Mart’s strict lead-time and shipping requirements by using the technology and complying with operating procedures.

These strategies include sustainability efforts and localised charitable giving to help portray it as being a responsible corporate citizen and a good neighbour.

Technological Supply Chain sophistication. All Wal-Mart suppliers must participate in Retail Link, a computerized system in which they “plan, execute, and analyze their businesses.” Along with electronic data interchange, suppliers receive purchase order information and supply invoices electronically, thereby lowering expenses and increasing productivity.

Product differentiation. For these types, the Wal-Mart Stores segment is concentrating on developing unique, innovative products and providing distinguished brands to better appeal to its core customers as the low-price leader on well-known brands.

Weaknesses

However, customers have few alternatives for the large-scale discount superstore or warehouse shopping experience.

Opportunities

Internet access is pervasive in most of the developed countries.

Radio Frequency identification (RFID) is expected to play a major part in the next evolution of supply chain management in the retail industry.

Threats

For customers, switching retailers would be easy for them in well-served areas.

Organizational Stakeholders

Strengths

Wal-Mart has good decision makers, strategic leaders and Board of Directors.

Better benefits for employees. In its public outreach, Wal-Mart also stresses its benefits to suppliers and communities, as well as its commitment to providing affordable health care and competitive wages for its associates.

Weaknesses

Poor relationship with employees, communities, and governments.

Many workers feel that they are being overworked due to mainly understaffing issues, which causes workers to treat the customers worse, then causing customers to become upset.

Opportunities

More women are joining U.S workforce.

Threats

Wal-Mart will need to struggle against the urge to centralise operations and eliminate decision making from the frontlines where managers have face-to-face contact with customers.

(c) Review Wal-Mart’s business-level and international strategies and evaluate their potential for success, given the strategic inputs outlined above. Determine their strategic fit with the environment identified in part (a).

Business Level Strategies

Twenty five senior Wal-Mart officers meet via weekly video conferences “to review the company’s ongoing performance, focus on initiatives to drive sales and customer service and address broader issues”.

Low-cost strategy. It offers a wide assortment of good quality merchandise, the lowest possible prices, guaranteed satisfaction with what you buy, friendly, knowledgeable service, convenient hours, free parking, and a pleasant shopping experience.

Technology. RFID enables retailers to track inventory locations, store shelving status, packages en-route to and from suppliers, warehouse, shelves and even shoplifting.

Wal-Mart Segmentation – products are unique, innovative and providing distinguished brands to better appeal to its core customers as the low-price leader on well-known brands.

Online service. The Wal-Mart logistics team uses an Internet-based Transportation Link system that complements a Backhaul Betty telephone voice-response system to help them move goods.

Wal-Mart’s operational effectiveness goals of improving return on investment, comparable-store sales, and working capital productivity are setting the agenda for its business-segment strategies.

International Strategies

The availability of retail stores.

Wal-Mart International includes “wholly owned operations in Argentina, Brazil, Canada, Puerto Rico, and the United Kingdom; the operation of joint ventures in China; and the operation of majority-owned subsidiaries in central America, Japan, and Mexico.

Wal-Mart seeks markets where it feels that there is potential for it to become a top three retailer, an opportunity that did not exist for it in Germany or South Korea.

Determining the appropriate product offerings for each location.

Wal-Mart is pursuing strategies which include sustainability efforts and localised charitable giving to help portray it as being a responsible corporate citizen and a good neighbour.

Potential for Success

Give more rebates to customers.

Hire minority and retirees in the workplace.

Categorize products in an organized order.

Open more counters for customer.

Keep up their environmental sustainability efforts.

With the meeting held via video conference, Wal-Mart officers will be able to update each other on the company’s performance and thus increase their company’s sales and reputation.

Wal-Mart still stands an advantage over other competitors as it utilizes its relentless core generic strategies of cost leadership to conduct their business.

Advancement in technology such as the usage of RFID, Texlon barcode system, Retail Link and so forth indirectly ease their business activities. No doubt, it will enhance productivity and drive up sales.

Penetration of markets through joint venture and foreign subsidiaries help boost up Wal-Mart’s markets and apply their resources efficiently.

Determine their strategic fit with the environment identified in part (a).

Eco-friendly practices. Wal-Mart launched its global environment sustainability initiative in 2004 and has since taken action toward several sustainability goals: sell 100 million compact fluorescent bulbs by 2008; reduced packaging by 5% by 2013; buy fish from certified fisheries; sell “more organic and environmental friendly products”; and make company facilities and trucks more energy-efficient.

Trade barriers reduced. Globalization trend that began in the 1990s persists. Trade barriers continue to come down around the world and as technology enables greater access to information, the world is becoming one mega-market of labor, capital, goods and services.

The company’s rapid expansion brought its total retail store presence to 6,782 units worldwide as of February 8, 2007.

Wal-Mart’s legendary inventory management capability is driven by its advanced Texlon barcode system which could track sales price, inventory levels of each product, keep a history of quantities sold, record trends and predict future needs.

Cost leadership. Highly efficient and innovative supply chain management which combines tough, low-cost procurement tactics, leading-edge information and rocket-science logistics.

With differentiation, Wal-Mart is staying “out of front” to the rapid changes in external environment.