Wal-Mart Analysis of Strategy, Marketing and Business

A unique feature of Walt-retailing is that it is virtually recession proof because in times of economic recession, consumers flock discount retailers. Wal-Mart is the world’s largest retail industry (Fortune, 2003) and it is the largest private employer in the United States of America (Yoffie 2002). Wal-Mart sells a wide variety of good ranging from households to jewelleries, etc. The company is known for its price philosophy as “Every Day Low Prices” which makes Americans save about US$10 Billion by shopping at Wal-Mart (Buffet 2003). Its revenue accounted for 15% of the whole Unites States’ retail industry in 2011 excluding automobiles. Also International sales have increased 14.3% to $10.3 billion. Wal-Mart revenues are forecast to approach $700 billion in 2011 and it has four large scale retail formats; Wal-Mart stores, SAM’S CLUB, Wal-Mart Supercentres and Neighbourhood markets.

• Wal-Mart’s VISION

“We people save money so they can love better.”

• Purpose:

Sam Walton said it best,

“If we work together, we’ll lower the cost of living for everyone …we’ll give the world an opportunity to see what it’s like.”

• MISSION STATEMENT

“We people save money so they can love better.”

• ETHICS

As we approach Wal-Mart’s 50th anniversary, we celebrate our tradition of integrity that has always served as the foundation of our culture. We lead with integrity by demonstrating honesty, fairness and objectivity in everything we do, and it continues to be critical to our success.

 

EXTERNAL ENVIRONMENTAL ANALYSIS

The PESTEL frame work is used to analyse the dynamic and unpredictable environment in which Wal-Mart operates in, by identifying the forces that have the most important impact on Wal-Mart’s performance (Appendix 1 analyses the PESTEL frame work).

PORTER’S FIVE FORCES

Stable growth, expertise management, operating efficiency and competitive pricing make Wal-Mart a strong company when assessed using porters Five Forces Model.

Is the retail industry an attractive one? An analysis into Porters forces (Appendix 2) is necessary for the retail industry to examine whether it is an attractive industry or not.

The discount retailing industry is very unattractive for potential newcomers; however, it remains an attractive industry for the already established key players like Wal-Mart. The threat of potential entrants is low as entrance barrier are very high. The company has grown very fast leaving n room for new competitors. It has planned to open 45 to 55 new discount stores and 200 to 210 new supercentres. Hence, potential competitors in the retail industry would have to act quickly so as to have a strong business strategy like Wal-Mart. However, Wal-Mart is not essentially successful as its sales might fall because of small retailers or corner shops which possess as a threat to the company, as customers would go to the corner shops rather than having to shop in big stores like Wal-Mart due to convenient location.

Also, entrance barriers and low supplier bargaining power can make an industry attractive as Wal-Mart is a very dominating customer which is used as an advantage for them as its suppliers are keen on providing favourable payment terms, etc. so as to maintain the company as its customer hence they will keep prices low. However, the suppliers can exert power by threatening to raise prices or reduce its quality of purchase even though there are many suppliers in the market.

Buyers who are the end consumers do not have bargaining power as Wal-Mart has established its price philosophy in its report as “”Every Day Low Price”, “Rollback”, and “Special Buy”. However, the buyers can decide to go to its competitors in search of similar/same products or services, in this way the buyers do not have to use their bargaining power.

The threat of substitute does not apply to Wal-Mart as they have a unique business model; hence other competitors trying to imitate the company have been a failure. It also maintains a “satisfaction guaranteed” program to promote customer good will and acceptance. However, its competitors like Kmart and Target can decide to create a better strategy that will outshine that of Wal-Mart.

Finally, the extent of completion rivalry does not present an intimidating threat to Wal-Mart as the company is larger and more profitable than the other few direct competitors with a market share of 32.3% in the U.S as at Oct. 2011

THE VALUE CHAIN

Lynch 2003 defines value chain as the link between key value adding activities and their interfaces with the support activities. Value chain has been applied to Wal-Mart’s strategic evaluation tool because it used to distinguish the strengths and weaknesses in value adding processes (Audrestsch 1995). The value chain of Wal-Malt is demonstrated in the diagram below: An analysis into Wal-Marts value chain in found in appendix 3

 

CORE COMPETENCES

Wal-Mart’s core competencies are the general business practices that it uses to carry out their business activities. They are therefore an important tool for a firm’s overall strategy. The analysis of Wal-Marts core competencies come from its inventory management and supply chain management. The company has a core competency of maintaining and distributing its inventory throughout the supply chain. More so, Wal-Mart is so very good at managing its supply chain that it results in minimising both the amount of inventory it carries and the number of times items are out of stock in its store. Its competitors have the ability to main their inventory level and they have their own core competencies as well but Wal-Marts own can never be matched or outweighed. Wal-Mart has other core and distinctive competencies which can be seen in Appendix 4. In 2011, Wal-Mart was ranked the 2nd based on its supply chain compliance (Wal-Mart report 2012). However, its competitors like Target can outshine them if they decide to create a better core competence strategy.

• DISTINCTIVE CAPABILITIES

Kay (1993) explains distinctive competitive advantage in terms in terms of distinctive capability which is analysed below

Wal-Marts distinctive capabilities can be analysed below (Wal-Mart report 2012):

• Architecture

Wal-marts has internal architecture from its associates and the way it manages its one million associates thus allowing it to enjoy special relationship with its suppliers who go the extra mile of establishing their offices close to Mal-Mart’s headquarters hence transporting goods would be cheaper and convenient. Also, its culture leads to innovation and learning.

• Reputation

The reputation Wal-Mart enjoys come from the fact that it is known to be the number one retailer both in the United States and all over the world for its standards and keeping its promise established itself as the lowest price retailer in the world with its pricing philosophy as “Every day Low price.”

• Strategic Asset

The founder Sam Walton, even though he doesn’t exist anymore played a strategic asset in which Wal-Mart still imbibes in its company’s culture and it benefit benefits from the brand and the market position strategy been established.

• Innovation

Mal-Mart is known to be very innovative, for example, the company uses VSAT for its warehousing and cross docking techniques in which its competitors are not up to date with. Also, it has changed its store formats and also changing its adaptations to suit local markets

STRATEGY FORMULATION

SWOT Analysis

Wal-Mart operates retail stores in various formats across the world. In the US, the company operates from a number of retail formats including discount stores, supercentres, neighbourhood markets and Sam’s clubs. It has a wide range of products and service offerings under one-roof and convenience shopping environment positioned as one-stop retail outlet for household products. However, Wal-Mart faces stiff competition from numerous local and international key players. Intense competition can have a negative effect on the revenues and profitability on the company. The SWOT analysis for Wal-Mart can be seen below: (See appendix 6 for detailed explanation)

(S)TRENGTHS

• Large scale of operations, worldwide
• One-stop retail destination
• Efficient working capital management
• Strategic business programs

(W)EAKNESSES

• Self-cannibalization
• Involvement in numerous legal issues.
• Continuous product recalls

(O)PPORTUNITIES

• Global food safety initiate standards
• increasing demand of online sales
• Acquisition of distribution services

(T)HREATS

• Intense competition
• Price matching program by Target
• Foreign currency circulation

ENVIRONMENT BASED OPTION

PORTER’S GENERIC STRATEGY

Analysing Porter’s generic strategy model (Appendix 6), Wal-Mart is positioned within the price leadership and or the cost focus; however, it might be perceived that Wal-Mart is not positioned in a niche market therefore; the company should be placed in the cost leadership level. Wal-Mart is known as a price leader because they sell variety of goods to various people at the lowest price possible. Also, since individuals in all market segments are price sensitive, Wal-Mart can successfully operate as a low price leader since all their efficient logistic system and distribution relations. Finally, Wal-Mart has blanked the U.S in stores that meet the needs of all consumers such as discount stores, supercentres, and Sam’s clubs and high exposure and sales of large quantity of goods allows Wal-Mart to keep prices low. However, Porters generic strategy states that only one strategy should be used by an organisation at time but Wal-Mart falls into the category of cost leadership as well as cost focus proving that it’s not very applicable to PORTER’S GENERIC STRATEGY. See Appendix 7 for more analysis on porter’s five forces

COMPETITIVE ADVANTAGE

This involves the analysis of both generic strategy and value chain approach which gives a sound understanding of Wal-Mart’s competitive advantage. E.g. when two or more firms compete within the same market, one firm possesses competitive advantage over its rivals thus making high profit (Grant 2012). Wal-Mar’s capability to outshine its rivals is achieved with its ability to perform better than its competitors.

Wal-Mart has been able to achieve competitive advantage from:

• Cross docking
• Supply chain management
• Communication strategy with suppliers and associates
• Location and market strategy
• Cost strategy
• Inspiration from Sam Walton
• Knowledge management
• Innovation and I.T
• Warehousing and inventory management

Wal-Mart has been able to achieve and maintain the following above advantage and many more but its competitors have not been successful in replicating them.

CORPORATE LEVEL STRATEGY

BCG Matrix

The BCG matrix is not used for every product but for particular product types within an organisation product portfolio. The analysis BCG matrix is used to know the growth potential of different types of stores adopted by Wal-Mart and its resources allocation.

It briefly appears the new store format ‘Neighbourhood markets’, which is exceeding expectations as it has been out of new markets thus placing putting itself under the star (Figure 6). The traditional discount store continues to be Wal-Mart’s main concept even though it is slowly been changed into other formats due to ever changing continuous shopping styles buy it still makes profit and high sales (Figure 6). The ‘supercentres’ and ‘SAM’S CLUB’ have made themselves very successful in terms of its growth rate. Finally, Wal-Mart global focus is on the ‘Discount store’ and ‘Supercenter’ with some having SAM’S CLUB Style.

Diversification

The analysis of Wal-Mart diversification

Johnson and Scholes (2003) mentions that business change can lead to demand for new products and the expense of already produced one. To expand and diversify Wal-Mart’s product mix, it is important to implement internal development when new products are made. The nature and extent of diversification should be put in place when creating its corporate strategy and diversity portfolio. Due to the changing needs of Wal-Mart’s customers, it can introduce new product line which would need the attention of R&D leading to increased spending.

Innovation is a major driver for the development of Wal-Mart’s products, e.g. it can create a portfolio for its different types of store all over the world which would be designed to have different shopping experience and different store types can be developed. Wal-Mart can command a premium price from the special value added. The management of technological innovation is very much involved in decision making. Wal-Mart has to exploit their internal strengths and reduce their internal weaknesses so as to reach a competitive advantage. However, Wal-Mart’s competitors can improve their diversification strategy which possesses as a threat to Wal-Mart.

CULTURE

The culture based theory is a very useful in representing the political, symbolic and structure of a company.

Analysis of Wal-Marts culture

Culture consists of various layers of values, beliefs, action and many ways of doing business within and outside of a company it is very important to understand a company’s culture in adaptation for future strategies. It can be analysed through the observations of how a company would behave including its daily routine, rituals, etc. (Veliyath et al. 2005). Walt-Mart’s culture is very unique and distinctive in relation the amount of growth it has achieved today. Small and medium firms find it very difficult to build and maintain a good customer service but Wal-Mart has always made it is foundation which makes it an example of a good customer service firm. Mal-Marts corporate citizenship helps develop the community with programs like education, etc. (Wal-Mart report 2011). E.g. the Wal-Mart’s code Adam program which was a tribute to a lost child in a retail store that helps prevent children from getting lost in stories today hence making it safer for families to shop. More so, Wal-Mart’s Ten Foot Rule and Sundown Rule helps to promote that employee should treat customers’ right, the first time and always. The everyday morning cheers act as a ritual to cheer and energize the associates by making them part of the organization. Associates’ acting as greeters at the entrance of every store worldwide is a unique way of making customers happy and welcome.

LIST OF APPENDICES

Appendix 1: PESTEL Analysis

Appendix 2: Wal-Marts Porters five forces

Appendix 3: Value chain

Appendix 4: Core competences

Appendix 5: Distinctive capabilities

Appendix 6: SWOT analysis

Appendix 7: Porter’s generic strategy

Appendix 8: Cultural web

PESTEL FRAMEWORK

• (P)olitical factor:

This arises majorly as multinational companies are exposed to a large amount of risk when entering a new market and this can have a negative effect on Wal-Mart because the company has become a symbol of American culture which will be a target if there are any opposition to the political view of the United States.

• (E)conomical factor

Wal-Mart’s sensitivity is high here due to the fact that its sales model depends on low margins of profit and high volume of sales which can changed easily when there is an economic surge or depression hence it will affect their low priced which will not be important to customers and their goal of high volume of sales would be threatened.

• (S)ocial factor

This defines the issues of social forces when analysing foreign markets and the society it is in. social forces can cripple a corporate business especially if they are unchecked. Wal-Mart model is adopted to suit the American society and their attitudes but would lead to a clash if foreign countries are aware of the social difference, therefore; Wal-Mat has to change the model to avoid the clash.

• (T)echnological

This refers to the changes in innovation in technology and the extent of its effect to companies. Technology is known to change all the time creating better, faster and more efficient ways of doing things. Wal-Mart has been a leader in implement new technology to improve efficiency. However, in relation to other countries, change may not be fast which leaves the systems unusable hence Wal-Mart needs to limit its growth to the countries that can support the technology.

• (E)nvironmental

Wal-Mart has had an environmental issue before as they sold furniture that was produced using wood from a natural reserve. They were heavily criticised and forced into dropping the product line completely which made the growth in that field to be altered.

• (L)egal

Wal-Mart’s performance has had a great impact from various government legislations and policies, e.g. FRC (Food retailing commission) Mintel report 2004.

Porter’s five forces

• The bargaining power of suppliers

Wal-Mart has been a dominating customer to its suppliers hence it used this as a hedge for them. Wal-Mart handpicks its suppliers and has a good standing relationship so as to maintain its price philosophies. The company is the largest customer to companies such as Gillette, P&G and Kraft Foods, so in order for Wal-Mart to satisfy and maintain itself as a customer, its suppliers are keen on providing favorable payment terms, discount terms, discount and priority dates. These strong business relationships are visible throughout Wal-Mart’s increasing success. In fact “Wal-Mart buys more than 68,000 U.S. suppliers” (Wal-Mart report, 2012).

• The bargaining power of buyers

Wal-Mart is not monopolistic; hence it offers goods that are substitutable by competing organizations. Customers do not have to bargain with Wal-Mart for low prices, higher quality or more service as Wal-Mart has already established these issues in its business philosophy. Its pricing philosophy includes “Every Day Low Price”, “Rollback”, and “Special Buy” (Wal-Mart report 2012) which helps its customers to get the lowest price as possible. Due to low switching costs in the retail industry there tends to be lack of customer loyalty but this is not so for Wal-Mart as its pricing advantage is the most important factor for customers. That’s the major reason why Wal-Mart’s growth and profitability have grown because its customers are very pleased with the chain of low prices and convenient locations.

• Threat of potential new entrants

Wal-Mart does not need to worry about the threat of new entrants because they can use economies of scale in which its cost of production can be spread over the units of produced goods hence it declines as the volume increase (Quickmba, 2005). The company has been growing very fast thus leaving less room for new competitors. The fiscal year ending 2011, the company has planned to open 45 to 55 new discount stores and 200 to 210 new supercenters domestically. The company also plans to open or expand 120-130 units in existing markets so as to become a global place. Its sales has increased 1t 12.3% in 2011 hence potential competitors in this market will have to act quickly so as to have a strong business strategy to enter the Wal-Mart dominated market. Also, Wal-Mart possesses strong strategies like technology, strong brand identification, customer loyalty so as to make its customers stay focused.

• Threat of substitute

Many Wal-Marts competitors have tried effortlessly to imitate Wal-Mart’s unique and successful business strategy, but failed. Wal-Mart has an excellent customer service that is unique to their value chain and everything possible thing is done to ensure that shopping at Wal-Mart will be an experience. Wal-Mart maintains a “satisfaction guaranteed” program to promote customer goodwill and acceptance (Keener 2005).

• The extent of competition rivalry

Competition within the retail industry does not present an intimidating threat to Wal-Mart as the company is larger and more profitable that the other few direct competitors who are; Target, K-Mart which faced bankruptcy, Sears’ and Costco who competes with Mal-Mart’s SAM’s club division. Target represents the robust competitor for Wal-Mart but unlike Wal-Mart, Target aims to sell expensive and fashionable merchandise. With 1,494 stores owned by Target, it doesn’t present a major threat to Wal-Mart global store but fair competition to the domestic stores. K-mart decline in customer appeal has made it not possible to provide satisfactory service for its customers while Wal-Mart has concentrated on customer satisfaction, complaints of poor customer service, this made Kmart not able to maintain constant low prices with its name-brand products (Keener 2005). In summary, Wal-Mart is very much ahead of the competition and overall, the leader in the industry with a secure market position.

THE VALUE CHAIN

• Inbound logistics

This are found at the initial stage of the value chain as they make the earliest opportunity to create value and the element of this stage is known to have an upstream function. Wal-Mart’s primary role of receiving inventory has been planned right from the point of production in which the company is not involved in. it has integrated system such as key suppliers that communicate data and sales information and stock status so it can be replenished in time, also, shipments are timed, slotted and planned in an orchestral way.

• Operations

Wal-Mart mains a lean approach to inventory. The company has created a strategy of replenishment called the Cross-Docking where incoming goods are offloaded into outgoing trucks without stocking them up for even few hours. Operation is the second upstream function in the value chain that helps services and products to be provided, e.g. opening every day in relation with trading hours, etc. ). Ananth Raman of Harvard business school mentioned that “Wal-Mart will rather extract fat from the process than extract from the supplier’s profit” (Fortune 2003). This statement clearly means that the working style of Wal-Mart with vendors would allow a successful situation.

• Outbound logistics

This is the third stage of the value chain that is related to delivering the product to the customer. Wal-Mart adds value to its home delivery service and other tangibles like parking facilities, etc. are improved. Here goods are transferred within 48 hours of receipt from its suppliers and replenishment is done regularly thus doubling the industry (Goddard 1997)

• Marketing and sales

Wal-Mart adopts a simple and effective marketing strategy that is managed to be replicated globally apart from being the focus of its strategy. The Every Day Low Price is simple and hence it eliminates advertising by pushing sales since Wal-Mart has successfully sold the philosophy to the customers that it sells its products at the lowest possible price everyday (O’Higgins et al. 2002) which makes it the most interesting characteristic of Wal-Mart.

• Service

‘People greeters’ which happens to be Wal-Mart’s aggressive and proud hospitality manner is the bedrock of its success in the highly competitive market (O’Higgins and Weigel 2002).

Core competences

Core competencies can be defined by Prahalad and Hamel 1990 as the collective learning of the organisation, resulting from the coordination of different production skills and multiple streams of technology. Wal-Marts core and distinctive competences are:

Wal-Mart core competencies

• Logistics system
• Price leadership system
• Work force
• Power over distributors and dealers to buy products at low prices and maintain low prices of existing products.
• Distributors
• Wal-Marts distinctive competencies
• Bigger stores
• Offer low prices
• Continual improvements to service and customers
• Ability to enter new geographical areas successfully
• Adding stores successfully
• International operations
• Technology in management systems
• Combination of Wal-Marts competencies
• Logistics system
• Management systems for better serving customers
• Buying power over distributors or dealers
• Ability to enter new markets by either joint venture or acquisition
• Adding stores and making them bigger for more products and higher sales level.

DISTINCTIVE CAPABILITIES

Wal-Marts distinctive capabilities can be analysed below (Wal-Mart report 2012):

• Architecture

Wal-marts has internal architecture from its associates and the way it manages its one million associates thus allowing it to enjoy special relationship with its suppliers who go the extra mile of establishing their offices close to Mal-Mart’s headquarters hence transporting goods would be cheaper and convenient. Also, its culture leads to innovation and learning.

• Reputation

The reputation Wal-Mart enjoys come from the fact that it is known to be the number one retailer both in the United States and all over the world for its standards and keeping its promise established itself as the lowest price retailer in the world with its pricing philosophy as “Every day Low price.”

• Strategic Asset

The founder Sam Walton, even though he doesn’t exist anymore played a strategic asset in which Wal-Mart still imbibes in its company’s culture and it benefit benefits from the brand and the market position strategy been established.

• Innovation

Mal-Mart is known to be very innovative, for example, the company uses VSAT for its warehousing and cross docking techniques in which its competitors are not up to date with. Also, it has changed its store formats and also changing its adaptations to suit local markets.

SWOT Analysis

(S)trengths

Wal-Mart is the largest retail company in the world and it enjoys a strong market position in the US, the company has derived 75% of its revenues from the U.S and investment from the US is used in making Wal-Mart one of the leading corporations in the world. Wal-Mart operates around 3,615 stores worldwide and in FY2011, the company got about 25% of its revenue from international operations (from countries in Central America, Puerto Rico, Canada, Brazil, Japan and the U.K). Large scale of operations globally greater economies of scale and better bargaining power to the company. Mal-Wart has also positioned itself as a destination retailer for household needs. It offers wide variety goods like household products, etc. it also offers financial services such as order sales and wire transfers in store. Wal-Mart has long trading hours which enables consumers to shop at their convenience. Mal-Mart has many strategic business programs to gain competitive advantage such as “everyday low pricing”, etc, finally, Wal-Mart has efficient working capital management mechanism as it continuously maintains a negative working capital. This shows that the company is able to sell and receive payment for inventory before it pays off its suppliers thus ensuring an efficient cash flow and generates income out of the available cash at hand.

(W)eaknesses

Wal-Mart is facing self-cannibalization in the process of opening new stores in the US. FY2011, the company and its capital efficiency method created a new method for calculating the negative impact of new stores based on store sales. Self-cannibalization occurs because the new store opening has an adverse effect on existing outlets thus leading to reduced sales from existing outlet which would impact Wal-Wart’s business performance in the long run. Wal-Mart is also involved in numerous legal issues which possess as a weakness because it may affect the brand image and also its result and profitability. Finally, Wal-Mart has been involved in so many product recalls, and the continuous recalls they have would lead to adverse publicity and loss of confidence among customers hence will stop them from buying the company’s brand.

(O)pportunities

In February 2008 Wal-Mart has become the first nationwide US grocer to adopt Global Food Safety Initiative (GFSI) standard which helps to build customer loyalty and increase private label sales. The increasing demand for online sale is one of Wal-Mart’s opportunities as they got about $156 billion in 2009.

(T)hreats

Wal-Mart is facing stiff competition from large number of retailers locally and internationally like Tesco, Target, etc.; however, intense competition can adversely affect revenue and the company’s profitability. Target, the company’s biggest competitor, is bringing back its price matching program, which it was dropped in 2002, hence if target successfully launches this program and spreads the program across the US, Wal-Marts existing market share will be reduced. The performance of Wal-Mart’s international segment is affected by foreign currency fluctuations and this can lead to fluctuations of the foreign exchange which would affect the company’s international planning process.

PORTER’S GENERIC STRATEGY

http://drmullibusinessmanagement.wikispaces.com/file/view/PortersGenericStrategiesMatrix/194461444/PortersGenericStrategiesMatrix

Wal-Mart is in the cost leadership category, with a distributing number of demographic categories and geographic areas. They provide low prices and sell a large number of varying goods which makes their operation to be broken into many types of stores like supermarkets, hypermarkets and minimarkets. Wal-Mart superior logistics system makes it possible to reach all markets the right goods thus giving Wal-Mart a competitive advantage