Measurement of Success of Wal-Mart - Case Study Example

? Business Strategic Plan and number: submitted: Contents Introduction 3 Company 3 Wal-Mart resource and capabilities 3 Current direction 4 SWOT Analysis 4 Recommended Strategic Plans 6 1. Opportunities in emerging markets 6 2. Online shopping 6 3. Local merchandising 7 4. Diversification of product offerings 7 Measurement of success 7 Conclusion 8 References 9 Introduction Focal point of any business strategy is to determine key resources and capabilities of a firm and how a firm can use its resources to achieve competitive advantage. As the consumer demands are ever changing, this industry has also constantly evolved over the years. Emergence of new entrants and constant innovation by the existing firms in this industry has induced tough competition. Companies are now planning strategies to increase the sustainability of their organization’s growth. The present report aims to identify the business drivers of Wal-Mart retailer and prepare an effective strategic plan for future growth and development. Company description Wal-Mart is the largest corporation in the world. It is also the biggest private employer in the United States of America (Yoffie & Wang, 2002). However, the company was first established as a self-service discount store by Sam Walton, in the year 1962. At the end of 1993, Wal-Mart was one of the top discount departmental stores in the world. The company is headquartered at Bentonville, Arkansas, United States. The company has established more than 8500 stores across the globe. Product portfolio of the company includes, apparel, warehouse club, footwear specialty, cash & carry, supercenter, superstore, discount store, hypermarket, supermarket. Wal-Mart resource and capabilities The brand name of Wal-Mart has become synonymous to value for money over the course of time. Wal-Mart follows a low cost and leadership strategy (Johnson & Scholes, 1999). Macroscopic view of Wal-Mart’s competitive strategy shows that the company uses resource based model in order to develop a value chain proposition which cannot be matched by competitors. Though Wal-Mart shows little adaptability to its formats in overseas expansions, most of its store operations are leaders in their local areas (Colla & Dupuis, 2002). The fundamental principles followed by the company are providing everyday low prices, commit to customer service and maintain technological superiority and establishing loyalty among suppliers and associates. Supermarkets of Wal-Mart in international location have less financial risk due to bulk sales. About 10 billion dollars are saved by the American customers by shopping at Wal-Mart (Buffet, 2003). Competitive advantage for Wal-Mart lies in its ability of cost differentiation and strong distribution channel across the globe (Van Weele, 2009). Current direction Global economy is decelerating due to various reasons such as Euro zone crisis and economic recession which started in the year 2008. Retailers such as Marks & Spencer, John Lewis, Target, Wal-Mart, Kohl and others are struggling to maintain sales growth while other retail players such as Nordstrom, Saks and Neiman Marcus have recorded same store sales growth of 12% last year (Arnold, 2002). Global retailers are facing following trends to change the dynamics of business operation. This has compelled organizations like Wal-Mart to make strategic plan in order to remain profitable and competitive in this dynamic market (Simon et al., 2011). The objective of the current strategic direction will be to evaluate the resources and capabilities of the retail gain and make appropriate recommendations for future planning. SWOT Analysis In order to understand the internal and external strengths and weaknesses, a SWOT analysis of Wal-Mart has been done. Strengths With revenue of more than 400 million dollars, Wal-Mart is undoubtedly one of the largest retailers in the world. As a result of large operational scale, the company can exercises strong power on suppliers in order to reduce the prices. Big size also allows higher economic scale and larger competitive edge. Wal-Mart has created a strong brand image in last 50 years. This strong brand image has not only attracted new customers but has also successfully increased trust and loyalty among shareholders. Value for money, product diversification, presence in various locations of different countries over the globe has provided significant contribution in making Walmart a global leader in retail industry. Marketing capability and efficient customer service are other important strengths for the company. Strategy for cost leadership, large international operations, wider range of products and competency in information systems are other strengths of the company. Weaknesses Every year, the retail giant faces lawsuits related to labor laws. A lot of money is spent in these lawsuits. The company has also been severely criticized for its low wages, poor conditions at work, female discrimination and unpaid overtime. Apart from litigation costs, the company is also worried about its damaged corporate reputation and very few skilled workers are willing to join this organization. Employee turnover is another weakness and it is high and increases overall costs of the firm. However, the major weakness which the company is facing in the current business environment is lack of differentiation. This might be a serious future threat if income of consumer or general commodity price increases. The strategy of cost leadership won’t work in this case and competitive advantage might be lost. Opportunities The biggest opportunity for Wal-Mart lies in emerging markets. Retail market is constantly growing at an average rate of 5 percent and has opened many channels for Wal-Mart’s future growth and expansion. The retail giant’s penetration is very low in Asian and middle-east market which the company needs to increase in order to sustain growth. Private label product sales have seen an increase in the past few years. This means consumers are now accepting in-house brands produced by Wal-Mart. Thus, increasing its share of private label products will lead to huge profit margins. Apart from that, the current trend towards healthier eating habits is also a big opportunity for the company. The company can expand its grocery range and increase its share from the current trend. Adding merchandise according to the local preferences and taste is another opportunity which can be captured by Wal-Mart. Online shopping has seen a tremendous growth in the past few years. Being one of the biggest offline retail, Wal-Mart has huge opportunity in online selling. Having cost leadership advantage, the company can provide strategic offering like free pick and drop facilities, free shipping etc and gain quick customer recognition. Threats Online competitors as well as newly established brick and mortar companies are the biggest threats in current business environment. Retailers are using online channels to increase market penetration and offer product in accordance with demand of customers. Companies like Amazon, Target, Tesco and Costco have put huge efforts in eliminating price differentiation enjoyed by the retail giant Wal-Mart. As a result, not much of the pricing strategies of Wal-Mart can be differentiated from others. Establishment of superstores generally wipes out the smaller and nearby stores of the locality. As a result Wal-Mart often suffers resistance and hatred from local community. This sometimes damages the brand image of the retail giant. Recommended Strategic Plans In order to make an effective strategic plan, it is important to understand the company’s internal strengths and weakness and external threats and opportunities. From the SWOT analysis, the main factors chosen for strategic plan are; 1. Opportunities in emerging markets As it has been discussed earlier that emerging markets are becoming hot destinations for global retailers such as Wal-Mart, Tesco etc. With the rising income and standard of living, consumers are opting more and more for big retail outlets and departmental stores as compared to smaller groceries and kirana stores. The overall cost of labor is also cheap compared to other developed countries. Thus there is a huge opportunity of profit in these emerging markets. Also most of the business of Wal-Mart is concentrated in countries such as Brazil, US and China. In order to obtain a sustainable growth and advantage, the retail giant should expand in emerging markets. Apart from India and China, other emerging markets include South Africa, Myanmar, Sri Lanka, Peru etc (Sternquist, 1997). 2. Online shopping Digital presence (social media, mobile, web traffic) of retail network has increased manifold in recent years. 40 % of retailers are banking on social networking sites for increasing online presence while remaining 60% still believe that web trafficking is the best way to improve online presence. Global report suggests that online retailing is showing a growth potential of 15% while offline trade channels are growing at a rate of 7% for last two years. Till now Wal-Mart has been an offline retailer selling in brick and mortar format. This presents an overflowing opportunity for the retail giant to increase its customer base manifolds. The company can implement online sales channel in order to offer products to time constrained customer. Also the company has an already established advantage of cost leadership over others. This can be an added advantage while competing with other online competitors. 3. Local merchandising Customers are becoming more demanding due to hypercompetitive nature of the market. Retailers have shifted their focus from selling merchandises to offering product associated with customer trials such as right quality, right price and superior service. Retailers are changing their offering in accordance to local culture and taste. In order to optimize the opportunities in this changed market dynamics, Wal-Mart will need three things: Proper market research on taste and preference of local customers Developing analytics engine such as demand forecasting, store clustering, campaign tracking, price mapping and basic assortment planning of the local area where Wal-Mart has been established (Ghemawat, 2007). Technology integration such as Enterprise Resource Planning (ERP), RFID (Radio Frequency Identity) is needed in order to create an effective value chain. 4. Diversification of product offerings Consumer needs are constantly changing. In order to meet the ever changing demands, the company should always follow the current trends. For example, the present social environment is becoming more and more health concern. As a result, products such as organic food, fat-free and cholesterol free food products are in demand. In order to capitalize on this opportunity, the company can include new products and offerings. Wal-Mart can thus add organic food section and medicine segment in their retail format with an intention to diversify product offering. In order to fulfill demand of space constrained and low population market, Wal-Mart can also open scalable retail version of stores for underdeveloped economies (Grant, 2010). Measurement of success Measurement of success plan is an essential step in order to find out the milestones as well as loopholes of the strategy. Success measurement also helps in identification of mistakes. The various ways for measuring success are as follows: Return of Investment (ROI) ROI is the first criteria for measuring the overall success. The overall revenue will be subtracted from the investment in marketing and communication and the result will be compared with the previous performance. Growing base of customers Another criterion to find out the success of the strategy is to find out if your customer base has increased or expanded. This can be understood by analyzing the sales figure in newly established markets. To find out increase in new categories, evaluation of category sales can be done. This will help in finding out the overall sales and revenue achieved by newly established categories (Barchan, 1999). Consumer and employee satisfaction The company can opt for various consumer and internal employee surveys in order to find out the overall perception of consumers and employees towards the strategies. Conclusion From the above analysis it is clear that the present market trends in the retail industry are changing and to remain profitable and gain competitive advantage, the company should focus on an effective marketing plan. The company operates in many countries such as China, Brazil, Us etc. The choice and brand of food and other daily products vary from place to place. For a continuous and sustainable growth in the market, the company should perform continuous market research to keep itself updated about the latest trends and preferences in the areas where the retailer is operating (Rugman & Hodgetts, 2003). In the above report, the major strategic opportunities evaluated were international expansion, online retailing and local merchandising. These strategies were formulated after proper SWOT analysis of Wal-Mart. In order to measure the success of these strategies, ROI calculation and finding out new customer base and increase in customer as well as employee satisfaction were few of the methods employed. References Arnold, S. J. (2002). Lessons learned from the world’s best retailers. International Journal of Retail & Distribution Management, 30(11), 562-570. Barchan, M. (1999). Measuring success in a changing environment. Strategy & Leadership, 27(3), 12 - 15. Buffet, W. (2003). Walmart. Fortune. 147(4), 41-48. Colla, E. & Dupuis, M. (2002). Research and managerial issues on global retail competition: Carrefour / Wal-Mart. International Journal of Retail & Distribution Management, 30(2), 103-111. Ghemawat, P. (2007). Redefining global strategy: Crossing borders in a world where differences still matter. Harvard: Harvard Business Press. Grant, R. M. (2010). Contemporary strategy analysis. Hoboken, New Jersey: John Wiley & Sons. Johnson, G. & Scholes, K. (2002). Exploring corporate strategy text and cases. United Kingdom: Pearson Education Limited. Rugman, A. M. & Hodgetts, R. M. (2003). International business. England: Pearson Education Limited. Simon, A., Kumar, V., Schoeman, P., Moffat, P. and Power, D. (2011). Strategic capabilities and their relationship to organizational success and its measures: Some pointers from five Australian studies. Management Decision, 49(8), 1305 - 1326. Sternquist, B. (1997). International expansion of US retailers. International Journal of Retail & Distribution Management, 25(8), 262-268. Van Weele, A. J. (2009). Purchasing and supply chain management: Analysis, strategy, planning and practice. Stamford, Connecticut: Cengage Learning EMEA Yoffie, D. B. & Wang, Y. (2002). Wal-Mart in 2002. Boston: Harvard Business School Publishing. Read More