Walmart Analysis of the Past and Current Strategy Using Porters Five Forces Model and SWOT Concepts - Report Example

INTRODUCTION Sam Walton, an American, founded the now global largest retailer company Walmart in 1962. The corporation runs warehouse stores and large discount department stores. Walmart’s objective is changing their customer's lives by enabling them to save money through economic strategies within the company ensuring better lives for their clients. The company was officially incorporated as Walmart Stores.Inc in 1969 and subsequently launched its Initial Public Offer (IPO)in the New York Stock Exchange in 1972. Walton’s startup continued to experience rapid growth and by the 1990s Walmart rose from a regional to a national giant. By the year 2000, it was Americas number one retailer. Its diverse shopping experience, whether in a store, online or in a mobile store was a key focus to the customers adapting to the changing and emerging technology. Currently, Walmart is the world's largest and arguably the most popular retailer with last year’s sales soaring to a staggering $476 billion. Walmart Analysis of the past and current strategy using Porter’s five forces model and SWOT concepts Business environment and the market can be analyzed by several approaches. SWOT, PESTEL and Poster’s five forces model. They are tools used to conduct analysis and help companies in making strategic decisions. I am going to utilize two of the above tools; SWOT and PESTEL to analyze Walmart. SWOT analysis is the short form for Strength, Weaknesses, Opportunities and Threats. It is a framework that is used to evaluate those four components of business or project. Strength and weaknesses are internal factors of an organization while opportunities and threats are factors that externally relate to the organization. Walmart SWOT analysis. SWOT analysis of Walmart provides insight on both internal and external factors that are important in the business strategy of the company progress in the retail industry. Though these forces differ over time, the development of Walmart relies upon the ability of the company to draw advantage from its strengths. In addition to notwithstanding the weaknesses of the firm, the strengths are way more important considerations. Walmart can utilize these strengths to make good use of its opportunities in the retail market. The company can likewise utilize its strengths to balance the threats to its business. These are crucial elements in guaranteeing Walmart's continues dominance as the leading retailer across all the continents. Walmart's SWOT analysis demonstrates that the firm can have long haul achievement potential through forceful worldwide expansion, particularly in developing nation’s retail markets. Strengths: Well recognized brand- Walmart being the leading retailer in the world with $482 in revenue draws a lot of advantage over its competitors. The term Walmart itself makes a client differentiate the store from a myriad of other stores in the industry. It is unmistakable. Economies of scale- The Company can utilize the strong buyer ability on suppliers to decrease the prices. It has an advantage over the competitors of the capability of achieving higher economies of scale. This results to lower prices which is passed on to customers. Customer loyalty Walmart has a platform where customers can have a section of products from a wide range. This helps in attracting more customers. Advanced technologies- The corporate is competent in information systems that help in achieving significant cost savings. Effective Supply chain management and logistics are also boosted by the extensive technologies that Walmart has invested in. Weaknesses: Walmart has been involved more than a few times in lawsuits concerning labor. This has cost the company a lot in terms of money and reputation. Walmart has employed a large numbers of workers and therefore this brings it at the forefront as an object of attention from both the media and government. It is difficult in keeping consistency in the quality of management and decision making due to the large size of the company. Walmart has little differentiation in comparison to its competitors. This might be a significant disadvantage in the future to the company if the price of commodities is increased or if the average earnings of consumer rises. For this situation, the strategy of low-cost leadership wouldn’t be as powerful as it present is and Walmart’s main upper-hand would dissolve. Reduced overall revenues with a goal of keeping cost of products lower than competitors. Walmart is present in relatively few nations around the world Opportunities: Internet growth provides Walmart an opportunity to serve a bigger market with technological capability. Online retailing has been a trend thus an opportunity to reach more customers. As health concerns continue to develop, grocery products will have a higher demand and a need for expansion of stores selling this products will arise. Unexploited market that would raise the corporate’s builds room for expansion. Walmart as a recognized brand has an opportunity to partner with reputable companies providing services such as healthcare insurance. Threats: Walmart currently has a staff of 2.2 million. This in return results in high cost of maintaining their wage bill which is a factor in its diseconomies of scale. Walmart is facing stiff competition to new entrants, e.g., Costco who are offering better offers to clients. Other rivals such as Aldi and Lidl are gaining grounds in Europe. Online stores such as eBay and Amazon are gaining the advantage of the E-Commerce strategies since it is more efficient and has a superior global market. Technological advancement. Innovations in the technology sector are bringing the cost of doing business slow. Rivals employing this technology will offer same products at lower prices thus beating Walmart which its principal selling point is low pricing enabling customers to save money. PESTEL ANALYSIS OF WALMART PESTEL is a short form for; Political, Economic, Social, Technological, Environmental and Legal which all are external factors which impact a business. Discussed below are the PESTEL factors affecting Walmart. Political factors One key responsibility of the government of the day to the private sector is to provide an enhancing and sustainable environment for doing business. A conducive environment results to thriving of businesses which catapult a country’s Gross Domestic Product (GDP). Otherwise, a political instability leads to total fail of the corporate sector. An environment can either be supportive or discouraging. By carefully observing Walmart’s expansion trend. The retail store has witnessed rapid growth in countries with strong and stable forms of governance. In contrast, developing countries are victims of political uncertainty, and this creates slow growth prospects to existing and new entrants players in the corporate arena. In evidence of this, Walmart has only been able to successfully establish 25 new retail stores in developing countries thus proving nature of political environments indeed matters for the growth of the private sector. Economic Factors Strong economic factors in a country ensure high probabilities of local industries in succeeding in their respective industries compared to weak economic policies in any given environment. Foreign investors will also always direct their investment focus where growth prospects are high. The economic slump witnessed in 2008 negatively affected most retail firms. Walmart, however, was able to survive the harsh economic times by offering discounted prices on most products thus appealing new customers and keeping existing ones. Its low-cost approach has led to a consistent increase in the company’s market share even during a financial crisis. Social Factors Spending habits in a population are highly affected by the prevailing economic conditions. Walmart was able to gain customers focus during the global financial crisis which resulted in high rates of unemployment. Consequently, consumers increased their preference with lower prices but of good quality. This led them to Walmart thanks to its pricing approach. The company was perfectly able to respond to the consumer's social needs. Technological Factors The retail industry has witnessed rapid technological advancement which has increased operational efficiency and excellence. Integrating the new technologies places a firm in a leading position among rivals in the industry. One significant trend in the retail market is E-Commerce. Walmart has evolved the shopping experience by enabling consumers even shop at home. Mobile applications in hand-held devices are also aiding customers in locating products they wish to purchase in the stores. Legal Factors A retail store is bound to observe and abide by several legal factors in any jurisdiction. One of the major issues is relating to employment practices. A firm should offer, non-biased opportunities when recruiting its staff regardless of their ethnic, religious, gender, age or racial basis. In this area, the management of Walmart has severally been accused of unfair and equal employment procedures of its personnel. Environmental Factors Apart from the profit-oriented operations of business, firms are expected to engage in active activities that benefit the society in which it operates . Such non-charitable initiatives by a company creates a cordial relationship between the enterprise and the community. It’s a good marketing strategy too. Walmart has focused on environment-friendly undertakings, e.g., recycling of non-biodegradable substances and reduced greenhouse gas emissions thus being at the forefront of a safe and healthier world in which we live in. RELEVANT INFORMATION ON WALMART Competitive advantage For any business to thrive, it has to beat and be outstanding among its rivals. That distinctive feature has to be unique for a firm to be the leader in its respective industry. Walmart has mastered this concept so well that it comes second to none in the retail industry. It's several strategic plans ensure it gains that competitive advantage over its peers. Discussed below are the policies the company employs for competitive advantage. Low –Cost Leadership Walmart has correctly integrated Information systems in its operations to lower the costs of end products to its customers. The retail company makes use of a legendary inventory replenishment system which makes orders to suppliers to replace products as soon as clients make their purchases at the cash register. Each product's barcode when scanned at the counter from all stores, simultaneously sends a purchase transaction to a central server at Walmart’s headquarters and directs them to respective suppliers. This instantaneous transfer of orders ensures the firm does not incur wastage regarding resources on keeping huge inventories in its stores. This also ensures demand of products by customers is always met without shortage. The efficient inventory system makes Walmart spend way less in their operating costs compared to their competitors, e.g., Sears. FUTURE STRATEGIES Technology Walmart spent $10.5 billion in Technology in the fiscal year 2015. The figure was a high value compared to its competitors. The other firms who came close to investing the same amount were even from different industries, mostly the financial sector. Most of this resources will be used in shifting the shopper behavior which is in a big way turning to e-commerce. Through its newly launched mobile app Savings Catcher, Walmart estimates 80% of its clients now own smartphones the reason behind the changing shopping paradigm. The company has launched the Walmart’s Innovation Labs to incubate and implement high-end tech policies aimed at sustaining the retailer’s dominance in the sector. Its E-commerce headquarters are based in the Silicon Valley (California) with the company hiring 1000 employees last year to revolutionize the e-commerce platform and enable it to compete with online retailer’s heavyweight Amazon. The firm's investment in tech guarantees survival and maintain its might in the retail sector in future and beyond. In contrast with the benefits of the information age, Walmart’s, superior profit margins could be on the declining end. Clients can now search for and find all necessary information about a product online. Comparing prices between different vendors will be relatively easy which could see Walmart lose a slice of their price-sensitive customers. Competitors will also provide products with even lower cost margins resulting to price wars. To curb this Walmart will have to develop more superior technology which could lock out rivals and also by producing highly distinctive products. The company could also merge with threatening startups to ensure dominance. Massive dependence on technology will lead to cut in manpower. Currently, Walmart has more than 2.2 million employees. Laying off staff might be harshly criticized by Human rights organizations which could in return subject the company to a negative attitude by clients. This could be solved by radical expanding programs which would absorb the existing staff in new stores and also educate them on new technologies. Going Global No organization in the 21st Century with a compact future strategy can ignore the strength of globalization. Enhanced by the rapid growth in technology the target market of the firm is becoming borderless by targeting clients from all parts of the world. Currently, Walmart operates in 27 countries, and there is dire need to expand to even developing countries. One serious challenge the giant retailer is facing is the Supplier problem. Exploiting far markets means having different suppliers. Supplier intimacy will be critical to Walmart’s entry in distant markets. However, this can be well tackled by existing policies which have worked elsewhere. The excellent chain supply mechanism can be used to ensure timely and low-cost means of doing business between suppliers and Walmart. Another challenge poised for Walmart in its quest to expand worldwide will be diverse culture. Language barrier and pricing problems are challenges Walmart encountered in its early years. With the evolving the world seems smaller, the severity of the two problems might be lesser with the phenomena of the global village, but where they exist, Walmart must solve them in a satisfactory manner. References Fleisher, C.S. and Bensoussan, B.E. (2002) Strategic and competitive analysis: Methods and techniques for analyzing business competition. 3rd edn. United States: Prentice Hall. Smithson, N. (2015) Walmart SWOT analysis & recommendations - Panmore institute. Available at: http://panmore.com/walmart-swot-analysis-recommendations-case-study. Marketing Teacher. (2014). Walmart SWOT - Marketing Teacher. Available at: http://www.marketing.teacher.com/walmart-swot Apte, U. and Karmarkar, U. (2007). Managing in the information economy. Berlin: Springer. Filip, F. (2007). MANAGEMENT INFORMATION SYSTEMS: Managing the Digital Firm - 9th edition, authors: Keneth C. Laudon and Jane P. Laudon (Book Review). International Journal of Computers Communications & Control, 2(1), p.103. Davidson, H. (2016). PESTEL/PESTLE Analysis & Recommendations - Panmore Institute. [online] Panmore Institute. Available at: http://panmore.com/harley-davidson-pestel-pestle-analysis-recommendations Stock.walmart.com. (2016). Walmart Investor Relations - Investors - Financial Information - Annual Reports & Proxies. [online] Available at: http://stock.walmart.com/investors/financial-information/annual-reports-and-proxies/default.aspx GotAbout. (2016). SWOT Analysis of Walmart. [online] Available at: http://www.gotabout.info/swot-analysis-of-walmart/ Read More