Walmart: Internal and External Analysis

Founded in 1962 by Sam Walton, Wal-Mart Stores Inc. is one of the pioneers of discount retailing, along with Kmart and Target. Wal-Mart in US has been solely “responsible for selling 35 per cent of all pet food, 24 per cent of all toothpaste, the largest volume of jewellery, groceries, DVDs, CDs, toys, guns, diapers, sporting goods, bedding and much, much more” (Ramaswamy, 2004 cited in Hanson, 2008, p. 580-581). The company’s success has resulted in many constantly observing it for new wisdom on management and strategy.

But the recent years proved to be challenging for Wal-Mart as analysts are doubtful of the company’s ability to maintain the pace of growth that it has shown in the previous years. Wal-Mart has to face competition from big players like Carrefour, Metro and Tesco as well as new entrants such as Dollar General.

Besides that, Wal-Mart has taken advantage of its massive base of power to force suppliers to do more for less. Employees are also dissatisfied with the company’s lack of employee welfare.

External Environment

Wal-Mart is one of the major players in the retailer industry. It has its own store brands in addition to selling the national brands in US. Being the main retailer in US, it has garnered enough power to negotiate the prices with the suppliers. Recently, it has an ‘image issue’ due to the lawsuits it is facing, the loss of jobs indirectly linked to it as well as the declaration of bankruptcy or the shutting down of many retailers and manufacturer.

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Sociological Factors

The giant retailer has been accused of paying its employees as low as US$8.23 which amounted being below the federal poverty line for a family of three. The company has also been sued for forcing its employees to work overtime for free. Another lawsuit against Wal-Mart is about the discrimination of women in top management. While about 90 per cent of Wal-Mart associates are women, only 15 per cent are in the top management positions. It is also suggested that Wal-Mart may be hiring illegal immigrants in violation of the law.

Ethical Factors

Wal-Mart is such a powerful company that its decisions will have a direct impact on all its suppliers and might even result in them filing for bankruptcy or shutting down, causing thousands to lose their jobs. In an ethical way, the retailer does not weigh the consequences or try to reduce the impact as long as the decision is beneficial to itself.

Industry Environment

Potential Threats of Substitutes

Small -scale retailers such as Dollar General which catered to the low-income customers are proving to be among the companies that Wal-Mart needs to be wary of. While the target market seems to be the fastest growing segments of the population in US, the suppliers are also generally satisfied working with Dollar General, as compared to Wal-Mart and its suppliers.

Intensity of Rivalry (International Market)

Penetrating into the international market has been quite difficult for Wal-Mart because it is not as powerful and reputable as it is in US, unlike the major international players such as Carrefour, Metro and Tesco. There are more competitors that Wal-Mart has to face in the international market.

Competitor

Current Strategies

Competitors like Carrefour are using their longer experience in the international market to their advantage. Carrefour has been accused of leaning on suppliers to choke Wal-Mart’s supply lines. Another strategy Carrefour employs is to demonstrate a new variation of the ‘Everyday Low Price’ where its employees are found in Wal-Mart’s parking lots to distribute fliers, showing price comparisons with the prices at Wal-Mart at an almost real-time basis.

Assumptions

Major retail players like Carrefour and Tesco believe that they have the upper-hand in the international market as they are more experienced and understand the markets better. Besides that, they already have established reputations among the suppliers and will be more credible as a retailer as compared to Wal-Mart.

Internal Environment

Reputation with Customers

By providing low prices for customers especially those living in the rural areas, many are grateful that they can save up. In addition, Wal-Mart has become so powerful that it is able to sell well-known brands at lower prices and thus proving the superior value it brings to its customers.

Capabilities

Wal-Mart is equipped with first-hand information about consumer preference data by having suppliers to attach remote frequency devices (RFID) technology in all their packaging to track individual items sold in the store. To improve efficiency of all business transactions with the suppliers, Wal-Mart’s suppliers also have to an electronic data interchange (EDI) called Retail Link that will track all business transactions with the giant retailer.

Core Competency

In the recent years, most of the sales of more than 30,000 suppliers are done through Wal-Mart and this puts the retailer in a very favourable position for negotiation of the prices of the products. With great foresight about the retail industry, the company is always ahead of the rest especially in terms of efficiency and delivering its promise to its customers.

Stakeholders of Wal-Mart

Suppliers

The suppliers have become over- reliant on Wal-Mart and need the retailer more than the retailer needs them. Thus when Wal-Mart is determining the prices and thus drawing out significant price concessions from its suppliers, they are willing to comply and absorb any additional prices to make the giant retailer appease.

Besides that, the suppliers also have to meet the terms set by Wal-Mart, such as the automated technology demands to have the Retail Link for their business dealings with Wal-Mart and the RFID technology in all their packaging. Suppliers are also expected to show up just when they are needed in the case of deliveries as they will be due for payment for any delivery that they miss or delay.

Employees

Employees have sued Wal-Mart for numerous reasons, showing their dissatisfactions with the company. Wal-Mart has been accused of making the employees work overtime without any allowance, paying low wages and involved in unfair labour practice against women in separate occasions.

SWOT

(S)trengths

Has its own logistics as well as its own trucks and a private satellite

A systematic and controlled management practice with the suppliers

First-hand data about customer preference, more insight into the target market

(W)eaknesses

Wal-Mart’s image problem where the supplier are intimidated by it

Ignores price increase- resulted in the suppliers shutting down, be forced into a merger/ transfer the production overseas

Indirectly linked to thousands losing their jobs

(O)pportunities

Wal-Mart as a willing teacher, constantly educating the suppliers with new technique to tackle cost control and efficiency – more would be ready to work with it

(T)hreats

Unreliable employees because of how they are treated by Wal-Mart

Upstart chains like Dollar General contesting Wal-Mart’s position in the US retail market

Review of Present Situation

Though Wal-Mart is a powerful retailer in US and around the world, it does not maintain a positive image with its suppliers and the public. It may be looked upon in cases where people analyse its success but people may remember the negative aspects of the company better.

Recommendations

Create a positive image of Wal-Mart

To avoid being blamed for all the jobs lost when a supplier could not live up to Wal-Mart’s expectations, the retailer should try to such situations whenever it can. For example, it could compromise with a supplier regarding the prices of the stocks when the prices increase. Other than that, it can donate to charitable organisations as a way of showing that the retailer also cares and gives back to the society. Wal-Mart could also create a fund to aid jobless people until they get another job.

Gain employees’ loyalty

References

Ramaswamy, K. (2004). Wal-Mart Stores Inc.: Dominating Global Retailing. In D. Hanson, P. J. Dowling, M. A. Hitt, R. D. Ireland & R. E. Hoskisson (Eds.) Strategic Management: Competitiveness & Globalisation (pp. 577-590). Australia: Cengage Learning Australia.

Tsao, A. (2003, September 26). Wal-Mart’s Stock: No Bargain Here. BusinessWeek Online. Retrieved from http://www.businessweek.com/bwdaily/dnflash/sep2003/nf20030929_9676_db014.htm