Business Analysis of Wal-Mart - Research Paper Example

? Business Analysis of Wal-Mart AFFILIATION: Table of Contents Table of Contents 2 Business Analysis of Wal-Mart 3 Introduction to Wal-Mart 3 Financial Statements Analysis 3 Competitor Analysis 5 Technological advancements by Wal-Mart 7 Impact of Globalization on Wal-Mart’s Business Strategy 8 Benchmark Analysis 8 References 11 Business Analysis of Wal-Mart Introduction to Wal-Mart Wal-Mart is among the top ranked discount stores in United States of America (USA) and it is also leader of the country’s retail industry (Parker, 2012). The store was the first one to introduce the concept of providing low price goods and services to customers at their convenience by locating its stores nearby customers’ residency. In 1962, first Wal-Mart store was opened in Rogers, Arkansas. According to Freeman (2006), Wal-Mart is given the top ranking in terms of the total sales that are made by the store alone. The retail offers variety of products that comprise of family apparel, electronics, household needs, electronics, fabrics, jewellery, shoes, crafts, health and beauty products and lawn and garden accessories along with pharmacy store, Photo processing centre and Tire and Lube Express (Walmart Stores, 2012). In 1991, Wal-Mart opened its first store in Mexico and marked the beginning of its international operations. Currently, Wal-Mart has about 10,185 stores and also locations of clubs in almost twenty-seven countries; it is employing more than 2.2 million people who are serving approximately 176 million numbers of customers every year (Next-Generation Wal-Mart, 2012). The annual growth rate of store is about 22% in country and internationally it is about 58% (Ambartsoumian, 2011). Financial Statements Analysis In order to evaluate the performance of any business, it is important to analyze its performance both from its financial statements and by doing comparison with its competitors. First, it is important to review the performance of Wal-Mart in the last couple of years which can be extracted from evaluation of its financial statements. The summary of financial performance of Wal-Mart is represented in the form of table after analyzing its Balance Sheet, Income Statement and Statement of Cash Flows (ttm stands for Trailing Twelve Months): The above table shows that company’s performance is increasing despite recession going on in the world. Management of the store is effective as is evident from the ratios of Return on Assets and Return on Equity; it shows that management is performing its function properly so that store’s performance gets boosted. Wal-Mart’s financial statements’ analysis shows that it is still in multi-billion bracket and is also paying off good amount of dividends to its shareholders. One area of concern is total debt to equity ratio which is higher; the company that is performing well has lower debt to equity ratio. The main reason for increase in debt is its heavy investment done in technological avenues which were done via loans from banks and financial institutions. The current ration of store is also less than 1 which is not a good indication because it shows that current assets of store are less than current liabilities. Although considering its stock market performance which is showing increasing trend but there are some issues internally that needs to be addressed. Since the competition in retail industry is getting competitive, it is mandatory for the stores to ensure that they can compete with the existing and new entrants in the market. Overall, financial health of store is fine and smoothly progressing in retail industry; it is expected to grow exponentially worldwide. However, the main area of concern for management team is its current ration and rise in expenses; the team will have to ensure that it is able to pay off its debts well within agreed time period. Competitor Analysis The main competitors of Wal-Mart are Target Corporation and Costco. According to Ambartsoumian (2011), discount retailers growth performance levels have not been severely impacted despite global recession taking place; however, big giants of retail industry are facing stiff competition for small drug and other retail stores who are continuously expanding their product lines for attracting more customers. As of financial year ending 2011, the entire store sales of the country were same as 8.6% which was last year; Costco had 12% and Target has 4.1% gain (Vatalyst, 2012). The detailed analysis of Wal-Mart, Target and Costco revealed that each one of them has a strong presence in the market and have market capital of about $187.9 billion, $35.4 billion and $34.6 billion respectively (Cote, 2009). In terms of growth rate, Wal-Mart had 10% growth in 2011 as compared to 2010; while, Costco and Target had 3.11% and 9.13% respectively. When gross profit margin is compared with that of Wal-Mart which was 25%, Target had 30% while Costco had 12.64%. EBITDA margin of Target of 10.88 shows that it is way ahead of competitors; Costco has lead in same-store sales growth of 7%, while Wal-Mart declined by 0.6% and Target’s increased by 2.1%. Target even had highest leverage with debt to capital of 50.38%; on the other hand, Wal-Mart and Costco had 41.17% and 15.03% respectively. Further details about all three stores are given in following table (as of December, 2011): Source: Wal-Mart Stores Inc. (2012) Technological advancements by Wal-Mart In terms of technology, Wal-Mart is the market leader; it was the first discount store to set up a well-integrated supplier network so that inventory in the store can be properly managed (Freeman, 2006). The store has been doing experiments with various Social Networks, Mobile payments systems, Mobility and Online-Store integration; the main purpose of using the technology is to have influence on inventory of store so that it can serve better to the community (Wal-Mart Next Generation, 2012). It has been found that Wal-Mart never aims to become number one online sales mart; it continues to improve online experience so that there is strong synergy with its physical stores (Cote, 2009). Its main competitors on online stores are Amazon.com and Best Buy; Amazon is steadily diversifying from its media store to general store and now has extended its inventory to include toys, electronics, consumer goods and other items (Parker, 2012). Amazon is positioning itself as IT provider that is offering cloud computing and ecommerce services as well. Best Buy is also trying to capture a good market share. Currently, the market share of Amazon is 60%, Wal-Mart has about 22% and Best Buy 14% (Wal-Mart Next Generation, 2012). Target has been in partnership with Amazon for long time and is now considering phasing out its e-reader Kindle; Target has even signed deals with Apple for its range of products. In terms of share of sales, Amazon has small lead in comparison with Wal-Mart; its share is 39% and Wal-Mart’s 33%, followed by Best Buy 23% and Target 4%. Value per order of Wal-Mart is $189 while that of Amazon is $103. In terms of technological innovations happening worldwide, Wal-Mart is still a step ahead with its competitors and has been successful in gaining competitive edge in the market. Although its market share online is comparatively low as compared to Amazon but still it has strong market presence and share of sales as well. Impact of Globalization on Wal-Mart’s Business Strategy Since Wal-Mart is becoming a global brand, it has to remain well-aware of changes happening across the world. Wal-Mart has been competing in retail market with low priced goods of good quality. Wal-Mart aims to provide ample job opportunities and encourage efficient production so that store’s profits rise and contribute something beneficial for country’s economy (Basker, 2007). By taking advantage of economic globalization and technological advancements, Wal-Mart has been able to revolutionize the logistics of supply chain management. Wal-Mart has successfully changed the relationship between suppliers and retailers by helping the retail industry position itself as the main driving force (Freeman, 2006). In order to have low-price strategy, it imports supplies from low wage countries such as North America and China which enhance efficient production and lower the costs. According to Parker (2012), trade with consumers has proved to be beneficial as they are given wide range of products at such low prices but one negative point is that there is heavy reliance on trade; when some disruption will occur such as shortage of fossil fuels or environmental disasters like floods or earthquakes, then it will observe ripple down effects to the global supply chain that starts from supplies and ends till consumers (Cote, 2009). Benchmark Analysis Benchmarking analysis is the tool used for comparing among various companies operating within the industry and this tool is widely used in place of competitive analysis as it gives a wider picture. The main competitors of Wal-Mart are Target and Costco and the benchmark analysis of the three companies on various factors reveals reasons why Wal-Mart is considered as the benchmark in retail industry. In terms of products, all three stores are offering same merchandise that incorporates clothing, toys, gardening equipment, electronics, consumable items and many more. Wal-Mart is well-known for diverse range of products that it offers to its customers at low prices and its enhanced brand value gives it a competitive advantage over all other retail stores. Costco major line of products comprises of apparel, electronics, furniture and patio; it means its hard-line products sell more than soft line. Likewise, Target is aiming to sell high end products by focusing its approach on small stores and opening separate grocery sections in big retail outlets; it has had grocery sections now in its stores to be able to compete with Wal-Mart. In terms of best practices, Wal-Mart is the leader as it is offering high end brands at discounted prices. In addition to providing quality products, it provides best customer service and makes valuable contribution in the community by being environmentally friendly and creating new jobs in the market. Target and Costco are also trying to be all rounder by not only providing few products to the customers; they are stocking proper inventory, charging reasonable prices and providing value added services to consumers and community. Wal-Mart has the reputation of having the most efficient and well-developed supply chain system that ensures that inventory is well-maintained and there is no issue in logistics systems. Although Target and Costco have developed their operational processes and procedures by setting Wal-Mart’s Logistic systems as their benchmark but uptill now they have not been able to meet Wal-Mart’s standards. Both competitors will have to streamline their processes and operations so that they can match the level of Wal-Mart’s systems and it can be done by taking advantage of IT systems. Hence, retail industry in USA is getting tougher and companies present in the market have to increase their efforts to gain their market share so that they can compete in the market. With the right products or services along with efficient operational processes and procedures and implementation of best practices, retailers entering this industry will be able to survive and prosper in the retail sector. References Ambartsoumian, E. (2011, October 12). Target, Wal-Mart And Costco: Retail's Competitive Environment. Seeking Alpha. Retrieved August 13, 2012 from http://seekingalpha.com/article/298995-target-wal-mart-and-costco-retail-s-competitive-environment Basker, E. (2007). The Causes and Consequences of Wal-Mart’s Growth. Retrieved August 13, 2012 from http://econ.missouri.edu/working-papers/2006/wp0611_basker.pdf Cote, D. (2009). As retail sales improve, is this a good time to invest in retail? Retrieved August 13, 2012 from http://www.helium.com/items/1358291-investing-in-retail-stocks?page=1 Freeman, R. E. (2006). The Wal-Mart Effect and Business, Ethics and Society. Academy of Management Perspectives, 20(3), 38-40. Next-Generation Wal-Mart (2012). Next-Generation Wal-Mart=Amazon.com? [Web blog comment] Retrieved August 13, 2012 from http://architectsoul.blogspot.com/2011_08_01_archive.html Parker, K. (2012, January 5). Will Wal-Mart Become A Technology Leader? Retrieved August 13, 2012 from http://seekingalpha.com/article/317697-will-wal-mart-become-a-technology-leader Vatalyst (2012, May 5). Why Wal-Mart Beats Its Competitors. Seeking Alpha. Retrieved August 13, 2012 from http://seekingalpha.com/article/562821-why-wal-mart-beats-its-competitors Wal-Mart Stores (2012). Walmart Corporate Information. Retrieved August 13, 2012 from http://www.walmartstores.com/AboutUs/ Wal-Mart Stores Inc. (2012). Competitors Analysis. Retrieved August 13, 2012 from http://finance.yahoo.com/q/co?s=WMT+Competitors Read More