Analysis of Wal-Mart Company - Case Study Example

?EXECUTIVE SUMMARY Company history Discount retailing emerged in the United s in mid 1950s. At this time, consumers had become increasingly better informed and were more willing to make their purchases from cheaper self-service products that were fairly standardized (Bradley & Ghemawat, 2002). The first Wal-Mart store was opened in 1962 in a market that already had several large discount chains such as King’s, Korvette’s, Woolco, Zayre etc., but with a different plan for growth in comparison to its large competitors. Sam Walton’s key growth strategy for Wal-Mart was to open stores in isolated rural areas and small towns typically with populations of 5,000 to 25,000 that all the other major discount chains were ignoring and provide them with goods and services at competitive prices. This way Wal-Mart was able to tap into the market segment that previously had to drive up to four hours away to the cities to do their shopping. However, this preference for rural areas meant that Wal-Mart had to endure a more costly distribution channel than its competitors. To mitigate against this weakness, Sam Walton took the company public in 1972 to raise the capital required for Wal-Mart to build its own warehouses to serve its “boondocks” stores (Bradley & Ghemawat, 2002) and thus lower its cost of goods sold. In the 80s Wal-Mart finally came of age. It opened its now phenomenal Sam’s Club members-warehouse store in 1983, its first Supercenter in 1988, and by the end of that decade it had revenues in excess of US $26 billion from 1,402 Wal-Mart stores and 123 Sam’s Clubs (“Walmartstores.com: History,” 2011). Company key facts Presently, Wal-Mart operates in three business segments: Wal-Mart and Sam’s Club in the United States, and Wal-Mart International in 14 countries and Puerto Rico. Its retail stores are organized under 53 different banners across the world. It has a workforce of 2.1 million associates worldwide who serve customers and members more than 200 million times per week. In the fiscal year 2010 the company achieved sales of US $405 billion (“Walmartstores.com: About Us,” 2011). Products and services Wal-Mart U.S. is a one-stop shop. It has divided its business into six strategic merchandise units across its various store formats namely: grocery, entertainment, hardlines, apparel, health and wellness and home merchandise. Within these merchandise units there is an array of products and services to be found. In addition to that, Wal-Mart U.S. segment also offers financial services and products, markets lines of merchandise under its private-label store brands – such as Parent’s Choice, Great Value, No Boundaries, etc. – and also markets lines of merchandise under licensed brands such as Disney, Black & Decker, Just My Size etc. (“Wal Mart Stores Inc (WMT.N) Company Profile | Reuters.com,” 2011). Sam’s Club also offers its membership a collection of products and services online at www.samsclub.com. Company’s vision statement and purpose Wal-Mart has continued to embody within its corporate culture the vision of its founder, Sam Walton, who came up with the organization’s purpose: “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 to save and have a better life.”(Farfan, n.d.). This belief has been engrained into the organization through unique sets of best practices that are carried out daily within Wal-Mart. For example managers are encouraged to be open and accessible to all employees through the open door policy, questions from anyone – supplier, customer or employee – need to be answered on the same day (the sundown rule), and associates must make eye contact, greet and offer help to customers who come within a ten feet radius (the 10 foot rule). The open door policy makes Wal-Mart’s associates to feel appreciated and thus increases their commitment to better customer service. The sundown rule ensures that there is a quick turnaround of solutions to solve any issue that arises, which goes a long way in increasing the effectiveness of processes and heightened customer satisfaction. The 10 foot rule makes the shopping experience at Wal-Mart memorable to their customers and as such enhances customer retention which is many times cheaper than acquiring new customers. External Factors Evaluation For Wal-Mart to sustain its competitive advantage of low cost leadership and its marketing concept of Every Day Low Prices it needs to consistently innovate, increase efficiency and seek ways to lower its cost of goods sold. One way of doing this is through merging with or acquiring organizations that have established competencies in the area that Wal-Mart seeks to expand in. Through mergers and acquisitions Wal-Mart can achieve three things: it can use the other organization’s competencies to counter barriers to market entry, maintain its cost efficiency through economies of scale and it can increase its market share which makes the industry become more concentrated and thus lowers the prevalence of zero sum competition based on price (“Benefits of Mergers and Acquisitions,” n.d.). It is clear that mergers and acquisition offer Wal-Mart the ability to exploit the opportunities made available by economic factors within its industry. For example in Japan, Toru Noda, Wal-Mart Japan CEO clearly stated that the firm is considering using the acquisition approach in Japan as well (Reuters, 2010). Political factors such as globalization trends, worldwide trend towards similar consumption patterns, and internet and communication technologies have literally made the world flat. These coupled with the emergence of homogenization, disappearance of national tastes and preferences, and improved mass transport and communication (Guha et al., 2009) across the globe have created a bigger market space thus offering huge corporations such as Wal-Mart the opportunity for expansion. In this increased market there are also a greater number of competitors and substitute products from other locales. One of the best ways to tackle this new environment is through mergers and acquisitions that allow leveraging the incumbent’s knowledge to develop a competitive advantage in the new markets. That is why in Wal-Mart’s External Factors Evaluation matrix we see a higher and similar weighting for mergers and acquisition, and opportunities for expansion. Whereas the opportunity for expansion into new markets is immediate, and the benefits of mergers and acquisition such as increased economies of scale and increased market share are available they are based on the premise of a ready and available market. Inasmuch as Wal-Mart may pursue these strategies abroad, it must think of how to sustain its competitiveness locally, in the U.S. In the External Factors Evaluation matrix this opportunity is referred to as market development. Previously, Wal-Mart grew by knowing its competitors intimately and copying their best ideas (Bradley & Ghemawat, 2002). However, now it is a market leader and therefore it is the one being imitated. This implies that it must continuously innovate and utilize market development to retain its huge market share. Finally, the continuation of the company’s current strategies of super centers that has enabled it leverage on the resultant economies of scale and increased product lines under its merchandising units has not been fully exploited and therefore continues to offer an opportunity for Wal-Mart to exploit. The bigger Wal-Mart has grown, the greater its scrutiny has become as it is now viewed as a bully destroying the local retail environment in the downtowns of small towns and using its connections at Capitol Hill and in various government agencies to prevent unionization of its workers (Hayden, Lee, McMahon, & Pereira, 2002). The gravity of this threat is reflected by its higher weighting because the negative sentiments expressed by the communities where Wal-Mart is located could reflect the feelings of Wal-Mart’s consumers who may decide to protest by boycotting or supporting its rivals (Fitzgerald & Wirtz, 2008). The union issue has been debated for a several years and by itself, without the support of the community, bears a low threat to the company. The other big threat for Wal-Mart is its continued focus on the mass market and negligence of the niche market. For example Costco has continued to outperform Sam’s Clubs in the world of warehouse clubs by focusing on the niche market of small business owners (Maier, 2005). Several players are emerging to cater to the niche market segments that are being ignored by Wal-Mart. The cumulative effect of these new players poses a big threat to Wal-Mart and as such explains the higher weighting assigned to it in the External Factors Evaluation. Global recession has a negative impact on consumer spending and outlook. This would translate into fewer purchases which would hurt Wal-Mart’s strategy of low cost leadership, because low cost strategies only make sense when they are accompanied by high buying volumes. Competitive Profiles Matrix Wal-Mart is clearly dominating on critical success factors because the total weighted score is higher in comparison to Target’s and Kmart’s (Adam, 2009). However, Wal-Mart needs to be aware that Target has a better response towards global expansion and customer loyalty, two external factors that according to Wal-Mart’s External Factors Evaluation matrix are a key opportunity and a key threat. As earlier seen Wal-Mart is facing big threats from its local community critics and not following consumer preferences. By having a weaker response to customer loyalty Wal-Mart risks losing its market share to Target. If this happens Target’s increased market share will improve its financial position and the higher market share would attract greater advertising revenue. The possibility of this happening is captured by (Linn, 2007) when she gives the example that Target are not trying to be all things to all people and the fact that it has less detractors. It is therefore imperative that Wal-Mart strengthens its customer loyalty strategies. References Adam. (2009, August 15). CPM (Competitive Profile Matrix). MBA Tutorials. Retrieved February 28, 2011, from http://www.mba-tutorials.com/strategy/85-cpm-competitive-profile-matrix.html Benefits of Mergers and Acquisitions. (n.d.). . Retrieved February 28, 2011, from http://finance.mapsofworld.com/merger-acquisition/benefits.html Bradley, S. P., & Ghemawat, P. (2002, November 6). Wal-Mart Stores, Inc. Harvard Business School. Farfan, B. (n.d.). Wal-Mart Stores Mission Statement - Vision, Mission, Purpose, Headquarters, Founders Facts, and Trivia About Wal-Mart Discount Stores Chain. Retail Industry. Retrieved February 27, 2011, from http://retailindustry.about.com/od/retailbestpractices/ig/Company-Mission-Statements/Wal-Mart-Mission-Statement.htm Fitzgerald, T. J., & Wirtz, R. A. (2008, January). The Wal-Mart effect: Poison or antidote for local communities? - fedgazette -. Publications & Papers | The Federal Reserve Bank of Minneapolis. Retrieved March 8, 2011, from http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3033 Guha, B., Maji, S., Rout, I., Roy, S., Dasgupta, A., & Dutta, P. N. (2009, March). Strategic management Report on Wal-Mart. Retrieved February 28, 2011, from http://webcache.googleusercontent.com/search?q=cache:VUZHRjHM300J:www.scribd.com/doc/14211832/Strategic-management-Report-on-WalMart+Strategic+management+report+on+Wal-Mart&cd=1&hl=tl&ct=clnk&gl=ph&source=www.google.com.ph Hayden, P., Lee, S., McMahon, K., & Pereira, M. (2002, September). Mike Pereira, Published Documents, Op-Ed, Wal-Mart. A Case Study on Wal-Mart Stores Inc. Retrieved February 28, 2011, from http://mike-pereira.com/subpage/docs/walmartcs.htm#iii3 Linn, A. (2007, June 20). Target thrives in Wal-Mart's shadow - Business. msnbc.com - U.S. business. Retrieved February 28, 2011, from http://www.msnbc.msn.com/id/19293533/ns/business-consumer_news/ Maier, M. (2005, May 1). How to Beat Wal-Mart. CNNMoney.com. Retrieved February 28, 2011, from http://money.cnn.com/magazines/business2/business2_archive/2005/05/01/8259679/index.htm Reuters. (2010, February 23). Wal-Mart Japan CEO: will actively seek M&A. Reuters.com. Retrieved March 8, 2011, from http://www.reuters.com/article/2010/02/23/us-walmart-japan-idUSTRE61M1HC20100223 Wal Mart Stores Inc (WMT.N) Company Profile | Reuters.com. (2011, February 25). . Retrieved February 27, 2011, from http://www.reuters.com/finance/stocks/companyProfile?symbol=WMT.N Walmartstores.com: About Us. (2011). About Us. Corporate Portal, . Retrieved February 27, 2011, from http://walmartstores.com/AboutUs/ Walmartstores.com: History. (2011). History. Corporate Portal, . Retrieved February 27, 2011, from http://walmartstores.com/AboutUs/297.aspx  Read More