Strategic Analysis of Walmart - Research Paper Example

Walmart’s strength lies in its cost leadership strategy which allows the retailer to stay competitive in the long run. Walmart has also leveraged a sophisticated information system that has optimized its supply chain thereby reducing costs. Further, Walmart has the advantage of a wide scale of operations, with its stores extending beyond the boundaries of the US and in global markets. But Walmart’s weaknesses include little differentiation, high labor turnover, and legal lawsuits.

Competitors

Costco:

Costco is a discount retailer dealing in electronics, furniture, hardware, home décor, office supplies, grocery, and so on. Its target market belongs to low to medium income groups as it is positioned as a wholesale discount retailer. Costco generated revenues of $112,640 million in 2014 (Costco Wholesale Corp, 42).

Costco’s strength is its large employee pool and brand equity. The retailer has loyal customers and a large membership club chain. In addition, Costco is also a large retailer of wine. However, it offers absolutely no protection to its employees. Due to competition, its market share has remained stagnant which is why the retailer must expand its customer base.

Target:

Target is a retailer and merchandiser which sells a variety of items – apparel, accessories, shoes, electronics, grocery, and other household items – at a discounted price. In 2013, Target made total revenues of $72,596 million (Target, n.pag.). Target has its presence in the US, Canada, and India reflecting that its market is segmented based on countries. Its market offerings are targeted towards a wide range of people including children, men, women, families, and so on. As such, its consumer segment is quite diverse and spans all age groups.

Target has a positive image among the stakeholders for having a diverse culture, being clean and design-centered, and providing high-quality products. However, Target lags behind in terms of its reach, unlike Walmart which has an international presence worldwide. Although Target brands itself as a value retailer, its products are at high prices relative to Walmart.

Financial Comparison

Table 1. Financial figures for Walmart and its competitors for the year 2014.

Walmart

Costco

Target

Total sales (million)

$473,076

$110,212

$29,333

Gross profit (million)

$112,521

$11,754

$21,827

Net income (million)

$16,695

$2,058

$1,971.0

Strategic Groups

The corporate strategy includes any of the growth, stability, and retrenchment strategies that are used by companies operating in the long run.

Walmart focuses on a growth strategy as is evident in the retailer’s international expansion. Walmart is trying to reach more global markets by expanding its operations worldwide. This has enabled the company to increase its consumer base and generate high revenues.

Costco also focuses on a growth strategy which means that the company is looking to increase its sales revenues by opening more warehouses in the United States as well as across the borders. This is why Costco is opening new stores in the international market to reach new customers. 

Target also follows a growth strategy which is why it has allocated more resources for growth and expansion. The company also aims to invest in new projects thereby diversifying its business portfolio and growing its products.

Five Forces Analysis

The threat of substitute products: All three retailers sell similar products although Walmart has a greater variety in its offerings as compared to other retailers.

The threat of new entrants: All three retailers are faced with the challenge of new entrants especially from Europe as cost leadership can be exploited by other retailers as well. This is why the international expansion of Walmart involves the acquisition of smaller stores.

Buyer bargaining power: Having a large customer base, large order volumes can mean greater buyer bargaining power. In the case of the three retailers, a large number of customers means greater bargaining power.

Supplier bargaining power: Greater optimization of the supply chain has meant lesser bargaining power among suppliers. Also, partnerships with suppliers have implied greater control over prices.

Competitive rivalry: The retail industry is very competitive with Walmart, Costco, and Target positioning themselves as discount stores, which means greater cost leadership.

Positioning Strategy

Walmart, Costco, and Target are positioned as discount stores that provide greater value for lesser prices. Yet Walmart and Costco are more aligned with cost leadership whereas Target has slightly higher prices. Target additionally focuses more on quality.

Adaptive Strategies

Walmart and Costco’s adaptive strategies focus on adjusting to regional forces. This includes responding to customer preferences in the different geographical markets where they expand.