Analysis of Wal-Mart as Worldwide Leader in Retailing - Example

Running Head: Wal-Mart Analysis Wal-Mart Analysis Name Course Tutor Date Vision and Mission Statement Vision “To become the worldwide leader in retailing” Mission “Wal-Mart’s mission is to help people save money so they can live better" Wal-Mart is a large retail Business Corporation based in the United States. The company runs retail chain stores and department stores in over 100 different countries. Impliedly, its vision of being the world retail leader ha been realized. In the United Kingdom, Wal- Mart operates more than 340 outlets by the brand name Asda, dealing mainly with non-food items. Wal-Marts Chinese operations are characterized by joint ventures and ownership of subsidiaries. At the same time, in attempts to live up to its ‘low pricing’ business mission, the company has been known for its affordable items. Discount retailing, another mission fulfillment strategy, enabled Wal-Mart gain cost leadership over most of the other grocery stores in the US. In the United States, Wal-Mart operates Discount Stores, Neighborhood Markets and Super-Centers. The cost leadership has also been partly due to their economies of scale which means that they can charge prices lower than those of their competitors and still retain their profit margin. Other causes for the cost leadership include that they have positioned themselves as low cost payers as well as effective management of its stakeholders i.e. customers, suppliers and employees (Hitt, et al. 2008). External Environment Assessment Threats to substitutes It is not easy to beat Wal-Mart purely on products substitution. Unlike its fierce rivals, Wal Mart retail stores provide a wide product distribution network. The company encourages establishment of partnerships and has an efficient online marketing strategy. On the other hand, Best Buy Corporation is a specialty store dealing with electronics and software products and is competitive in the UK market. Carrefour has an efficient distribution network mainly in china and Europe. It is therefore imperative that prospective partners and suppliers do extensive research to determine the business conditions, opportunities and expectations offered by each retail store. Wal-Mart is the largest retail and grocery store in the US market. Statistics show that during the year 2008, it accounted for about 21% of the total annual expenditure on groceries. Sales for the year were about 45% more than those of its 5 closest rival combined together! But in spite of this it faces stiff competition from similar companies and the factors leading to this include the following issues relation to external environmental analysis. Scope of concentration and balance Concentration of business within the industry will highly determine the level of rivalry. If the industry is operating under a monopoly, then competition is not an issue. But in instances where the number of businesses dealing in with similar commodities is high, there will be fierce competition between these businesses. The extent of concentration of other competing grocery stores can be classified into two categories. There are the regional discount retailers that offer competition only in the given areas where they are located. An example of these stores includes Roses and ALCO. The common remedy adopted by these stores when Wal-Mart enters into their localities is improving on their marketing strategies. However, there are other larger stores that offer competition to Wal-Mart on a national level. These stores include Target Corporation, K-Mart, Kohl’s and Sears. These stores offer similar grocery items just as Wal-Mart and they have their stores distributed in various states within the country. For Wal-Mart to beat this kind of competitors, they have had to adopt aggressive advertising campaigns as well as giving special offers to their existing clients in order to retain them. There is a concentration between the scope of concentration and the balance of the market. When the industry is fragmented, then there is no need to look for balance. Dominance of one store to the others translates to this store setting competitive rules within this particular industry which subsequently makes the industry attractive to other investors. But when for instance two or three large stores have market share that is within 10% of each other, then this industry is termed as balanced and the levels of rivalry re very high thus the industry is unattractive. Rate of growth within the industry The grocery stores’ industry within the US market has a projected positive growth. When this rate is higher than the prevailing rate of inflation, then the businesses are able to grow without necessarily taking each other’s market share. Currently, there is a global recession which means that the rates of inflation have increased that the rate of growth within the grocery retailing industry. This has led to an increase in the levels of competition that has translated to making the industry unattractive. The best way that stores such as Wal-Mart can use in evaluating their competitive position is coming up with comprehensive quantitative analysis that will encompass their performance and that of the rivals for the last couple of years. Diversity of other competitors This is where Wal-Mart should put into consideration the strategies that they use when deciding on where and what to invest in. in instances where rivals such as Target and K-Mart are using similar strategies, it would be advisable to get the niche market where to concentrate more. When two or more large stores are targeting similar markets, then rivalry is high thus the industry is unattractive. One of the generic strategies suggested by Michael Porter is the focus strategy where the businesses are expected to concentrate on a particular market segment where they feel that they can fully maximize on their returns. Ratio of fixed cost to the value added Just like any other business, the main reason why the Wal-Mart stores were established is to earn profits. Rivalry within the industry can be evaluated by based on the ratio of fixed cost to added value that prevails within the industry. For instance, if the fixed costs are low and the value added is high, then the businesses are at the growth rate of their life cycle which means that the rivalry levels are relatively low and thus industry is attractive. For Wal-Mart to come up with the exact ratio of the fixed costs to value added, they need to use some analysis tools. Break even analysis will enable the stores identify the point at which they can operate without incurring losses or profits. It is at this level that the business should operate if they are to remain competitive. For the established businesses such as Wal-Mart and K-Mart, they usually operate a level that is higher above this point. The reason for this is that these businesses have the advantage of economies of scale (Spulber, 2007). Thus their fixed cost is spread over a larger sales margin. Some hypothetical figures on some of Wal-Mart’s margins include average gross profit margin of 48.3% while the average for the entire industry is 26.5%. The operating profit margin is 12.6% while that of the industry is 8.5%. The net profit margin for Wal-Mart is 7% while the grocery market’s average is 3.4% (Hummer, 2006). Product differentiation This is one of the generic strategies named by Porter as ways of gaining competitive advantage over ones rivals. Product differentiation involves making products or services that have unique attributes not offered by the competitors. For the grocery business, there are various ways that a firm can differentiate its products from others. Wal-Mart has for a number of years been packaging the products at the grocery store in unique ways. This includes pairing items that are used together then pricing them at lower prices tan if they were to be offered separately. Subsequently, Wal-Mart can gain a competitive advantage if the quality of their products is higher than what the rivals are offering. In the grocery retailing business, this is a very important aspect as freshness of items such as vegetables is vital for retaining of customers. An industry that has high product differentiations is very attractive as the competition is lower. Therefore each business has the capability of maintaining its own clients depending on the preferences of the customers. Level of competition from foreign firms The degree of competition that a firm faces from foreign firms depends on the ease of penetration into the market. When there is no entry barriers set for foreign companies, then their penetration into the US market will be higher. Some of the foreign competitors within the US market include Tesco (Britain), Metro from Germany and Carrefour from France. Although their prices within the domestic market are not as low, they are giving Wal-Mart a real run for their money. To counteract on this competition in the domestic market, Wal-Mart embarks on investing in the foreign markets. Thus their overall market share in the international market is not affected by the presence of foreign businesses in the domestic market. Their stores are distributed across the continents especially in South and Central America and Asia. In 2008, they opened a store in Britain where they sought to compete with Tesco in its domestic market (Ram, 2008). Unfortunately, the international competitors have competing presence in counties such as China, Japan and England where over 60% of Wal-Mart’s foreign revenue comes from. Capacity utilization The normal range at which any industry should run is 80-85% of its capacity. If the capacity is below this level, then the industry is likely to experience irregular overcapacity which increases the competition as firms try to capture this unutilized capacity. Corporate ventures Most of the stores that rival with Wal-Mart offer variety of other services such as retailing, gas fueling and even financial services (Fishman, 2006). But since of the stores within the US market offers the grocery services, rivalry is high which makes the industry quite unattractive to investors. Presence of exit barriers One of the reasons why Wal-Mart is facing competition from many firms is due to the difficulty experienced when exiting this industry. This has led to the smaller firms merging to form larger businesses which offer higher competition. In German, the company pulled out of the market due to unsuccessful ventures. SWOT Analysis The management of Wal-Mart needs to choose the retail company to use in reaching their target markets based on their distribution strategies and business models. Strengths Low pricing: Wal Mart business model emphasizes low prices for a wide variety of commodities. The company focuses mainly on popular products. For online customers, the company has a Site –To –Store program which facilitates shipping of commodities and enables customers to buy goods online. Sound governance: In terms of governance, the company is led by a board of directors, elected by the shareholders every year. The company has a wide range of products which are offered at different rates and sizes. This way, the customers have diverse choices to make based from the stocks. Wal mart encourages partnerships: However, prospective partners need to carry out extensive research to determine and establish if their product is right. On the other hand, the prospective supplier must be ready to comply with Wal Marts business conditions and expectations. Weaknesses The company has weakness in its legal aspects of its business management. This weakness emanates from the fact that the company’s management is not keen on legality of matters such as labor matters and employee rights that may cause both negative publicity and down fall of a business organization. The company’s business environment is diverse and complex resulting into challenges in employee management, compliance to regulatory standards and legal and ethical complications (Walton, 2004). Critics accuse the company of poor workplace practices (Panitch & Swartz, 2003). Trade union groups, politicians, employees and shareholders have criticized the company’s employee management policies. These issues have tarnished the company’s public image. Threats Competition: The Company is faced by stiff competition from the industry. In terms of competition, Wal Mart faces stiff competition especially in some of its subsidiaries based in foreign markets. In German for instance, the company pulled out of the food market after persistently recording a market share of only 2%. Carrefour, one competitor, is a large cooperation that deals with retail hypermarkets. Carrefour is based in France and has full operations in china, United Kingdom, Brazil and Argentina among other countries. In china, Carrefour has over 155 hypermarkets with plans of opening the 95th Carrefour store at the center of Xian city (Carrefour, 2008). However, in the United Kingdom the company sold its subsidiaries to other retailers Best Buy, another competitor, is a retailer company based in the United States and deals with consumer electronics. (Stapleton, 2007).The company has operations in china, Mexico, Canada and Turkey. Best Buy owns 50% of the Car phone mobile company in the UK. The company plans to open superstores in Europe and other foreign markets. Opportunities Globalization: despite the competitive challenges, the company continues to replicate its business model in the international market with great success. The retail industry has a large room from growth, due to the ever increasing demand. This way, the company has a chance to use the growth opportunities to expand its products’ base so that the sales volume increases. Globalization, and the associated benefits present the best opportunity for Wal-Mart Inc. The management of the organization can tap these potentials by developing products that fit the markets and expand the products base, based on the segmentation model adopted. At the same, time globalization offers opportunity to serve a wider market, learn from other players and import technical know how. Ability of the industry players to thrive through third and fourth party modes of distributions is another opportunity which can be used to the advantage of the organization. The company has an opportunity to sell its non tangible assets like franchise to partners in other regions of the world. In the process, more market will be served and the brand name mad more popular Retail companies present a big opportunity for product distribution in the global market. Technology: The Company has an online retail strategy (Walton, 1993). Recommended Corporate Strategy To ensure that there is fulfilling market penetration, market development and product development, the company needs to develop and align its strategies with the corporate plan. Good public relations of the corporation play a critical role in sales improvement and brand development through the creation of customer loyalty to the organization’s products and services. Careful research on the market conditions should be done to cultivate the development of strategies that work in promoting the company image through advertisements, and contribution to the society. The development of good company image is achieved by providing quality products and services, and development of programs that encompasses the communication with internal employees, customers and other business partners. The knowledge of availability of technological products is important for the customers as this present them with a varied range of products to choose from. For the corporation, an effective communication outside the organization is of paramount importance in winning the confidence of consumers and other stakeholders in an effort of increasing sales through good public image (Forman & Argenti, 2002). Since Wal-Mart has businesses in several countries, it is important therefore that its operations adhere to the laws and regulations of each of these countries. This provides the basis for business operations, and increases the market opportunities. Faced with the challenges of high levels of competition and changing environment, HP should embark on strategies aimed at producing cheaper and better products and services for its customers. The changes that are instituted by the management should accommodate the employees, current and potential customers, and should serve the function of contributing towards the community so that the public image of the organization is built. The recruitment of qualified employees and their periodic training should be conducted in order to foster the production of quality and unique products. Annual financial position of the organization should be computed and communicated for investors to make choice of where to put their money in. It is advisable for the organization to form mergers with other companies providing distributional services to improve the sales. However, the customers should be notified of the changes on the distribution channel to avert confusion (Forman & Argenti, 2002). References Forman, J. & Argenti, A. (2002). The Power of Corporate Communication: Crafting the Voice and Image Your Business. New York: McGraw-Hill, pp 37-55. Hummer, R. (2006), WMT: Competitive and Financial Analysis. Retrieved April 26, 2010, from http://fisher.osu.edu/fin/courses/sim/rosenfieldreports/wmt-hummer.doc. Fishman, C., (2006), Wal-Mart Effect: How the World's Most Powerful Company Really Works-- And How It's Transforming the American Economy, Penguin Group Hitt, M., A., Ireland, R., D. & Hoskisson, R., E., (2008), Strategic Management: Competitiveness and Globalization: Concepts & Cases, Cengage Learning Panitch, L. & Swartz, D. (2003). From consent to coercion: The assault on trade union freedoms. Ontario: Garamound Press. Ram, V. (2008). Wal-Mart Takes on Tesco at Home, Forbes . Spulber, D.F. (2007), Global Competitive Strategy, Cambridge University Press, London. Walton, S. & Huey, J. (2004). Sam Walton: Made in America: My Story. New York: Bantam. Walton, S. (1993). Sam Walton: Made in America: My Story. New York: Bantam. Read More