Retail giant in the world - Essay Example

Wal-Mart Inc. – The Retail Giant in the World Module Wal-Mart Inc. – The Retail Giant in the WorldWal-Mart Stores Inc. USA founded by Sam Walton 1962 with a single retail shop in Rogers, Akansas is the largest retailer in the world today. Its annual turnover of US$ 285 billion surpasses the Gross National Product figures of many countries in the developing world. The company boasts of impressive profit figures of US$ 10.3 billion for year 2004 and reports claim that the profits have increased by over 10% for the fiscal year just concluded. With its Corporatre head qurters in Bentonville Akansas, the company operates 99 distribution centers and transport offices in USA to service the operations of its 5,246 Wal-Mart stores out of which 1,587 are located internationally.The company has received a host of prestigeous accolades including being named as the “Retailer of the Century” by Discount Store News and being awarded the Ron Brown Award for outstanding entrepreneurial leadership. “In 2002, Wal-Mart became No. 1 on the FORTUNE 500 list and in 2003 and 2004, Wal-Mart was named "Most Admired Company in America" by FORTUNE magazine” (“At A Glance” 4).  The Wal-Mart’s history dates back to 1945, when Sam Walton opened the 1st retail outlet in Newport, Akansas with a capital of US$ 20,000. This initial outlet operates a franchise outlet of Butler Brothers chain. Subsequently three more outlets were opened under franchise agreements and profit sharing practices were introduced with his managers, which largely contributed to the rapid growth of the business. Encouraged by the success of his retail business, Sam Walton opened the first true Wal-Mart in 1962 in Rogers Akansas. Expanding the number of outlets based on the success of the initial outlet, Sam Walton replicated the winning formula to grow the Wal-Mart Chain. The company was incorperated as Wal-Mart Stores, Inc.in 1969. It was first listed on the New York Stock Exchange in year 1972. In year 1990 the company becomes the largest retailer in USA. Its foreign operations start in 1991 with a store in Mexico city. Since then the company has grown locally and intenationally with a host of strategic acquisitions such as the Woolco- canda, ASDA-UK and Amigo- Pueterico. With its masisve sclae of operation, Wal-Mart ranks as the world’s largest company in terms of revenue. The company holds 9% of the US retail storemarket share where out of every $100 spent in U.S. retail shops, $ 8.90 is spent every year at Wal-Mart. It’s scale of operations will rank at 33rd place if Wal-Mart is treated as an economy of its own, surpassing over 100 countries in the world (“Wal-Mart” 2). Over 138 million customers per week are catered to by Wal-Mart stores across the world. 82% of American households have made at least one purchase at Wal-Mart during an annum. Its scale of operations is big enough to impact on the US economy itself. “Wal-Mart increased the US economys overall productivity by three-quarters of a percent by highly efficient distribution systems and pressure on suppliers to be more efficient” (“Wal-Mart” 8). Wal-Mart also operates the largest private sattalite communication system which links its suppliers and stores located globally. Wal-Mart stores fall in to 5 categories differentiated by store layouts and product range. These include Wal-Mart Discount Stores , Wal-Mart Supercenters, Wal-Mart Neighbourhood Market, Sams Club and Wal-Mart International. The company also operates Wal-Mart Online to capitalise from the increasing popularity of internet retailing business. Wal-Mart Discount Stores operate on average of 100,000 square feet floor space and carry general merchandise, as apparel, electronics, health and beauty aids, toys, sporting goods, and household products. Wal-Mart Supercenter with an average floor space of 187,000 square feet offers supermarket merchandise including food items along with the general merchandise available at its Discount Stores. These Supercenters feature exprsess lube centers, movie galery, salon, bank branch and few fast food outlets as McDonalds and Dunkin Donuts. All outlets operate pharmacies.Sams Club which operates on deep discounting basis caters to small business owners who are members of the club. The company’s online retailing site offers digital music downloads, holiday travel packages and similar innovative products in addition to the supermarket product lines.The company has also moved in to personal finance field by offering financial services such as Wal-Mart credit cards. In addition to its US operations, the company operates 1,587 outlets in 15 foreign countries including Argentina, Brazil, Canada, China, Germany, South Korea, Mexico, Puerto Rico and UK. In UK, Wal-Mart outlets are operated under brand name ASDA. ASDA generates approximately 50% of the overseas revenue of Wal-Mart. Largest number of outlets are in Mexico where 678 stores are located. In Brazil, it added 140 new outlets by acquiring the operations of another retailer “Sonae”, which bolstered its position to third largest retailer with 300 outlets (Boyle 3). In Canada, 260 outlets are being operated. Despite its aggressive expansions in overseas markets, the company has experienced setbacks in countries such as Japan and Germany Wal-Marts marketing strategy is to capture a wide market share through product offerings, which are appealing to a wide strata of the society. Its marketing campaigns are firmly hinged on its slogan, "everyday low prices" where the company offers certain products at 25-30% less than the normal market prices. These low prices are achieved through the increased efficiency levels of Wal-Mart suppliers who are driven hard by the company to reduce costs and reduce supply prices. Part of these cost savings is then passed on to its customers as low prices. The company operates its in store television network airing product ads, music and news. This network is viewed by over 130 million people a month placing it as the 5th largest network in America. Wal-Mart spends approximately $500 million on its advertising annually. In 2003, “Wal-Mart’s tab was $456 million” (Mandese 13). Its advertisements in TV carry the famous “people greeters” and highlights Wal-Marts social activities as well as high level of minority representation in terms of African Americans and Hispanic Americans. In the US market the closest competitors of Wal-Mart in terms of department stores are Kmart and Target. With the Wal-Mart’s entrance in to grocery retailing new competition is posed from supermarkets such as Kroger, Giant, Eagle and Safeway. Costco is the main competitors for the Sams Club. Small operators such as Family Dollar has succeded in competing with Wal-Mart in geographically focused areas. Internationally, the company competes with global retailers such as Tesco, Sainsburry , Carrafoure and other national opertators in the foreign markets. In USA, the scale of Wal-Mart’s operations are such that the closest competititor’s revenue figures are not even one third of Wal-Mart’s (“Wal-Mart” 4). Wal-Mart has an impressive track record in its financial performance and with its annual revenue of US$285 billion and a net income of US$10.3 billion for year 2004, it holds 14% of US grocery market and 9% of total retail market. The company also accounts for 20% of US retail toy business. Oversease operations generate $ 56 billion of the revenue. Such continued financial success has boosted the Wal-Mart stock prices from US$ 5 cents in 1975 to US$ 62.50 in 2005. Such impressive financial performance of the company has also made the combined fortunes of the Walton family to top even Bill Gates and stands at US$ 100 billion. The company’s success is largely attributed to economies of scale; productivity derived from its highly efficient supply chain and also its high tech Information Technology systems. Wal-Mart is reported to have a 48% productivity advantage over its competitors giving them a firm competitive edge. Another key factor contributing to the success of the company is the great deal of attention paid in site selection. “The company claims it analyzes potential locations to find those that would support "one and a half" store” (Wal-Mart 9). The employment effect of companies in the scale of Wal-Mart is significant. The companu is the largest employee in USA, Canada and Mexico, with over 1.7 million employees. In line with its founder Sam Walson’s principles, Wal-Mart refers to its employees as associates. Wal-Mart employees are placed on company stock option shemes which encourage them to think of the company as their own. However, the company is know to drive its workforce with aggressive productivity targets and this may have contributed to the high level of employee turnover rates which is around 50% and considered higher than the normal industry averages. In a study of employment effect of Wal-Mart, it was found that “Wal-Marts entry into a county increased net retail employment in that county by 100 jobs in the short term and a long-run statistically significant net gain of 50 jobs” (Basker 3). With the masive growth of the company, it has been the center of many contravosies and criticism has been aimed at Wal-Marts employee practices as well as trading practices. The company’s cost effective square architecture, commonly refered to as “Big Box Stores” has been criticised for being drab and unesthetic for the city landscape. The relentless pressure applied on suppliers for lowering prices and increasing efficiencies have been widely criticized. In recent reports by Human Rights organisations as Oxfam and Friends of the Earth, retailers such as Wal-Mart and Tesco have been widely citicised for their purchasing practices of agricultural products from developing countries. The company has also been prosecuted for predetory price behaviours and driving out competitors.Sourcing merchandise from cheaper international locations such as China instead from US suppliers is a hotly debated issue. "Frontline" series aired by Public Broadcasting Service carried a program titled; "Is Wal-Mart good for America?" where it was reported that Wal-Mart’s imports from China are approximately US$ 15-20 billion (Bartlette 10). Wal-Mart is reportedly the 8th largest trading partner of China ahead of Russia and UK. In conclusion it can be noted that Wal-Mart has come a long way since its first outlet in Rogers Arkansas was opened. The company has grown vastly in its home grounds and now expanding aggressively across the globe. The success of the company lies in the economies of scale; the sophisticated information technology systems and the highly efficient supply chain management. While the company has succeeded in attaining impressive financial performance and gaining market shares through attracting consumers, some of its strategies have been widely criticized. Most of the criticism is focused on the company’s pursuit of high productivity and low cost which is derived from its employees as well as suppliers. However, such criticism is widely offset by the savings the Wal-Mart offers its consumers through its every day low price strategy. Thus, it is most likely that the company will continue to grow from its already giant status to a global retail behemoth. Works Cited Page “At A Glance.” Wal-Mart Facts .com. 15 Feb 2006. Basker, Emek.. “Job Creating or Destruction :Labour Market Effects of Wal-Mart Expansions” Jan 2004. 19 Feb 2006. < http://econwpa.wustl.edu/eps/lab/papers/0303/0303002.pdf> Bartlett, Bruce. “A Distorted lens on Wal-Mart” 19 Dec 2005. 16 Feb 2006 Boyle, Matthew. “Wal-Mart vs. the world: Overseas expansion is critical to growth, but success beyond the U.S. will be difficult.” FORTUNE 19 Dec 2005. 20 Feb 2006 < http://money.cnn.com/2005/12/19/news/fortune500/walmart_fortune_1219/ > Mandese, Joe.. “Comparison Shopping: How the Kmart/Sears merger will impact TV and its ad agencies” 22 Nov 2004. Broadcasting & Cable. 20 Feb 2006 "Wal-Mart.". Wikipedia, The Free Encyclopedia. 9 Feb 2006. 20 Feb 2006 . Read More