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Strategic Analysis of Wal-Mart

Executive Summary 3
1. Company Background 4
2. External Strategic Analysis 4
2.1 PEST Analysis 4
2.1.1 PEST Analysis conclusion 4
2.2 Porter's Five Forces Analysis of Wal-Mart 5
2.2.1 Porter's Five Forces Model Conclusion 5
2.3 Opportunities and Threats Analysis 6
2.3.1 Opportunities and Threats Analysis Conclusion 6
3. Internal Strategic Analysis 7
3.1 Strength and Weakness Analysis 7
3.1.1 Strengths and Weakness Conclusion 7
4. Strategy Formulation 8
5. Recommendations and Conclusions 9
References 10
Appendices 12

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Strategic Analysis of Wal-Mart

  1. 1. UNIVERSITY OF BRADFORD 2014 STRATEGIC ANALYSIS OF WAL-MART INC. MODULE: UNDERSTANDING STRATEGIC MANAGEMENT by: AANCHAL SAXENA C O L L E G E O F B A N K I N G A N D F I N A N C I A L S T U D I E S UOB : 12032303
  2. 2. 2 | P a g e Contents Executive Summary.........................................................................................................................3 1. Company Background..................................................................................................................4 2. External Strategic Analysis...........................................................................................................4 2.1 PEST Analysis................................................................................................................................4 2.1.1 PEST Analysis conclusion .....................................................................................................4 2.2 Porter's Five Forces Analysis of Wal-Mart.......................................................................................5 2.2.1 Porter's Five Forces Model Conclusion .................................................................................5 2.3 Opportunities and Threats Analysis................................................................................................6 2.3.1 Opportunities and Threats Analysis Conclusion.....................................................................6 3. Internal Strategic Analysis............................................................................................................7 3.1 Strength and Weakness Analysis....................................................................................................7 3.1.1 Strengths and Weakness Conclusion ....................................................................................7 4. Strategy Formulation..................................................................................................................8 5. Recommendations and Conclusions .............................................................................................9 References ...................................................................................................................................10 Appendices...................................................................................................................................12
  3. 3. 3 | P a g e Executive Summary The report focuses on Wal-Mart Company. Wal-Mart Company (also known as Wal-Mart Stores Inc.) handles retail stores in different formats across the globe. In the United States, Wal-Mart operate the following retail store forms such as discount stores, supercenters, neighborhood markets, Sam’s clubs and market side. Outside the country, Wal-Mart operates in Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, India, Honduras, Guatemala, Mexico, Japan, Nicaragua, UK and Puerto Rico etc. (Jurevicius, 2014). Each week, more than 250 million customers and members visit their 11,156 stores under 71 banners in 27 countries and e- commerce websites in 11 countries (News.walmart.com, 2014). Wal-Mart claimed themselves as an epitome of sustainability, corporate philanthropy and employment opportunity. Wal-Mart was established in 1962 when they first open Wal-Mart discount store in Rogers Ark. Wal-Mart became incorporated organization on October 31, 1969. The organization’s share started trading on OTC markets in 1970. When Wal-Mart is first opened, the main purpose of people to help people to save money. Today, this mission is more valuable than ever to their customers and members across the world (About Us 2014). The main vision of the company is “Saving people money to help them live better,” but their vision statement related to Global ethics is to “promote ownership of Wal-Mart's ethical culture to all stakeholders’ globally” (Walmart, Statement of Ethics 2014). This report discusses how internal and external factors can have an impact on the country. Each analysis is concluded with evidences. This paper also discusses some of the strategies deployed by the Corporation Currently. Also, the recommendations for the company's future prospects.
  4. 4. 4 | P a g e 1. Company Background Name Wal-Mart Stores Inc. Logo Industries Served Retail Geographic Areas Served Worldwide Headquarters Bentonville, USA Founder Sam Walton (1962) Current CEO Doug McMillion Revenue $473 billion Employees 2.2 million 2. External Strategic Analysis In order to understand the strategic position of a business, we must identify external factors that could impact company's performance. External analysis of Wal-Mart has been carried out using tools such as PESTLE analysis, Porter's five forces analysis and its Opportunities and threats 2.1 PEST Analysis Defined as a tool or a technique which is used by various marketers in order to determine the external impact on the environment. The acronym of pestle analysis is Political, Economic, Social, Technological (Allen, 2014). Refer to table 1 in appendix for analysis. 2.1.1 PEST Analysis conclusion  Wal-Mart has emerged to be a symbol of the American culture, and it is prone to becoming a target by any political faction if their views clash with that of the Americans. This can severely hinder company's growth in certain regions.  Rules and regulations also play a key role, for example, the sales for 2013 February were low due to the delay in income tax refunds. (Irwin, 2014)
  5. 5. 5 | P a g e  Wal-Mart being a multinational corporation is severely affected due to various economic reasons. They follow a low margin of profit and high volumes of sales strategy, if the economy faces a recession depression, their goal of high volume of sales will be threatened and thereby impacting its profits. Also if US plans to moderate the increase in the number of supercenters with a view of leveraging capital assets which is designed to increase returns and sales in the US, could impact Wal-Mart(Nyakreal, 2013).  Wal-Mart needs to adapt to the societal norms of the countries it operates in as they can be very different from the US and can have clashing opinions. It needs to respect international labor laws and minimum wage requirements of certain countries.  Wal-Mart deploys effective use of technology, offers e-shopping in various countries. It also has an app for Smartphone users(Walmart.com, 2014). Also uses social network sites for promotions. 2.2 Porter's Five Forces Analysis ofWal-Mart That is used by managers in order to determine the competitive forces in the business environment by identifying its threats and opportunities (Hill and Jones, 2013) Refer to diagram 1 in appendix for analysis 2.2.1 Porter's Five Forces Model Conclusion  The threat of potential entrants is considered low as a new firm cannot achieve such high economies of scale which is enjoyed by the existing firms. It requires great deal of managerial experience to be able to handle worldwide operations of the global firm smoothly.  Threat of substitutes is considerably low as no other company can offer such competitive prices along with offering wide range of products to choose from.  The competition between existing firms is high. There is cut throat competition to emerge as the winner. Lowest Pricing is one key strategy adopted by Wal-Mart that gives them an edge over others. Many offers are available each day to lure in the customers.  Bargaining power of suppliers is low. Being a giant firm, Wal-Mart enjoys a supremacy on its suppliers. It is in a position to negotiate well.  Bargaining power of the buyer is considered moderate to low. Wal-Mart can lure in customers through low prices, however, customer loyalty and outlet location plays an important role.
  6. 6. 6 | P a g e 2.3 Opportunities and Threats Analysis Table 2 in Appendix shows the Opportunities and Threat Analysis of Wal-Mart. 2.3.1 Opportunities and Threats Analysis Conclusion OPPORTUNITY  Retail market growth in emerging markets- 2012 saw the growth in retail markets by 5% on an average, creating more opportunities for Wal-Mart. The company can also expand into emerging countries and have a greater market share.  Acceptance of own label products – private label products sale has increased by 40% over the last ten years, which indicates the increase in customer acceptance of supermarket products when compared to national brands.  Online Shopping growth- online sector grew by 4.7% in the year 2011, thus Wal-Mart was able to achieve revenues $197 billion. They have even launched a mobile app for making the shopping experience for the users faster and effective. THREATS  Increased competition – Wal-Mart faces immense competition from competitors like Tesco, Target, and Carrefour etc. These firms try their level best to eliminate price differentiation.  Increasing resistance from local retailers- Wal-Mart group of companies face high level of resistance from the local retailers. The main reason is the shutting down of local retailers of the country as they cannot cope up with the competition they face from Wal- Mart.  Increase Product Prices- If the cost prices of products increase, due to various reasons such as hike in fuel prices, currency fluctuations, tariffs etc it can pose as a threat as Wal- Mart thrives on low profit margins for its products and this strategy would no longer be effective.
  7. 7. 7 | P a g e 3. Internal Strategic Analysis The internal analysis of Wal-Mart has been carried out using strength and weakness analysis. 3.1 Strength and Weakness Analysis Table 3 of appendix shows the analysis 3.1.1 Strengths and Weakness Conclusion STRENGTHS  Large Scale of operations – Wal-Mart is one of the biggest retailers worldwide. Due to this large scale of operations they can effectively achieve high economies of scales which in turn lead to reduction of prices and will be passed on to consumers, Wal-Mart can practice strong buying power on its suppliers in order to trim down the prices.  Wide varieties of products – Wal-Mart being the biggest retailer can provide wide variety of products like entertainment, grocery, home products etc. tailored to the needs of its customers, Compared to any other competitor retailers. Also, giant retailers can offer branded as well as localized products to customer. Thus, wide range of products and services offered by an organization like Wal-Mart help to lure in a lot of customers.  Cost leadership strategy - Key strength factor for Wal-Mart as it helps the corporation to become a low cost leader in the market. To be the low cost leader, the corporation ought to sell their products and services at the lowest price possible compared to other competitors and also without any extra charges. Therefore, this strategy helps the company to achieve high economies of scale and also attract in tons of customers WEAKNESSES  Lawsuits – A major weakness of the corporation is the various lawsuits faced by it relating to labor every year which costs the company a huge sum of money. Gender Discrimination, low wages, extra hours are some common reasons. This in turn has an impact on the company.  High employee turnover – The employee turnover in the corporation is high which in turn increases the firms costs as the new employee needs to be trained every time when recruited. Poor paid jobs are a major reason for this high rate of turnover.  Less differentiation – another main weakness is that Wal-Mart Company has less or no differentiation compared to its competitors.
  8. 8. 8 | P a g e 4. Strategy Formulation According to Anthony Henry (2008), strategy formulation can be defined as a process of evaluation of a strategy or choosing the most appropriate strategy in order to achieve the organizational goals and objective. Some of the current strategies used by Wal-Mart Are:  Product strategies– Wal-Mart provides plenty of products such as Sam’s Choice, Great value, Mainstays etc. They operate with various suppliers and customers in order to test the quality of their products. After conducting several test, Wal-Mart had changed the quality and formula for Great Value products and also they designed various products based on customer feedback such as unusual ice cream flavors like mocha, cake batter etc. (Boyle, 2009)  Service Strategy–Wal-Mart trains their employees on solving issues and meeting the needs and wants of customers. Wal-Mart provides various services such as online shopping where customer can purchase groceries via online. Also with the help of “Scan & Go” mobile app, customers are able to search prices, coupons and navigate aisles, scan the barcode of the product and make payments as well. Therefore, increase customer conveniences (Tode, 2014).  Retail Strategy –With the help of Neighborhood market concept, Wal-Mart are able to establish these neighborhood markets in urban areas thus replacing supercenters or convenient stores. These stores are usually smaller in size and they mostly focus on groceries and fresh products(Lutz, 2014)  Marketing communication strategy- In order to retain their lost customers. Wal-Mart had introduced the new ad campaign called “Save money, Live Better” which focuses on low prices and gaining customers trust. (The Huffington Post, 2014). With the help of social media platform, they are able to advertise their products, conducts Questions & answers with their customer and so on. Thus builds strong relationship and brand loyalty(Moth, 2014). Also, Wal-Mart uses both the emergent and prescriptive approach. The mission of Wal- Mart is to sell cheaper goods, the long term objective is to grow and continually adapt. The strategic reason for using prescriptive approach is that Wal-Mart achieves its long term goals which is being done with the help of consumers.
  9. 9. 9 | P a g e 5. Recommendations and Conclusions  The low cost strategy adopted is very successful and should be continued to implement.  Adoption of cutting edge technology to learn about customer demands must be done on a regular basis.  Maintaining culture and practices is also a key driver for success.  Currently, Wal-Mart attracts price sensitive customers only, those who are more quality obsessed are not a huge customer base. Thus, Wal-Mart should still stick to this strategy as its impossible to satisfy the demand of all the market segments  Wal-Mart has strong prospects of entering into the Asian and European markets , but however the current growth strategy of widening product ranges and geographical expansion put the corporation at a risk of losing operational control, along with resources being stretched too much. Thus Wal-Mart should focus primarily on product expansion strategy and whereas, for expansion internationally, it should first research the market well and focus on areas where it can do best. Also, it can close down certain operations in countries that aren't performing well.  If Wal-Mart continues to work on its strengths it can effectively tackle threats and also it has always responded well to pressure from other groups.
  10. 10. 10 | P a g e References  Allen, M. (2014). Analysing the Organisational Environment. 1st ed.  Boyle, M. (2009). Wal-Mart Gives Its Store Brand a Makeover. [online] Businessweek.com. Available at: http://www.businessweek.com/bwdaily/dnflash/content/mar2009/db20090316_585298.ht m [Accessed 5 Dec. 2014].  Corporate.walmart.com, (2014). Walmart Ethics & Integrity. [online] Available at: http://corporate.walmart.com/our-story/ethics-integrity [Accessed 4 Dec. 2014].  Entrepreneurial-insights.com, (2014). [online] Available at: http://www.entrepreneurial- insights.com/bargaining-power-of-buyers-porters-five-forces-model/ [Accessed 7 Dec. 2014].  Hill, C. and Jones, G. (2013). Strategic management. Mason, OH: South-Western, Cengage Learning.  Irwin, N. (2014). Why Wal-Mart’s bad news could be good news for the economy. [online] Washington Post. Available at: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/21/why-wal-marts-bad- news-could-be-good-news-for-the-economy/ [Accessed 5 Dec. 2014].  Jurevicius, O. (2014). Walmart SWOT analysis 2013 | Strategic Management Insight. [online] Strategicmanagementinsight.com. Available at: http://www.strategicmanagementinsight.com/swot-analyses/walmart-swot-analysis.html [Accessed 2 Dec. 2014].  Kneer, C. (2005). The Wal-Mart Success Story. [online] Google Books. Available at: https://books.google.com.my/books?id=Z7OJgRJonhAC&pg=PA3&dq=porter%27s+five +forces+walmart&hl=en&sa=X&ei=CQiSVJq7ComD8QXOxICgCQ&redir_esc=y#v=onep age&q=porter's%20five%20forces%20walmart&f=false [Accessed 9 Dec. 2014].  Lutz, A. (2014). These Smaller Wal-Mart Stores Could Replace Supercenters - Business Insider. [online] Business Insider. Available at: http://www.businessinsider.my/wal-mart-neighborhood-market-strategy-2014- 8/#.VJHNISuUf0c [Accessed 4 Dec. 2014].  Moth, D. (2014). How Walmart uses Pinterest, Facebook, Twitter and Google+. [online] Econsultancy. Available at: https://econsultancy.com/blog/61827-how-walmart-uses- pinterest-facebook-twitter-and-google/ [Accessed 7 Dec. 2014].
  11. 11. 11 | P a g e  News.walmart.com, (2014). Walmart Announces Senior Management Changes. [online] Available at: http://news.walmart.com/news-archive/2014/12/10/walmart-announces- senior-management-changes [Accessed 3 Dec. 2014].  Nyakreal, E. (2013). SWOT and PEST Analysis of Wal-Mart - Top Best updates. [online] Top Best updates. Available at: http://kenyayote.com/swot-and-pest-analysis-of-wal- mart/ [Accessed 5 Dec. 2014].  Stock.walmart.com, (2014). Walmart Annual Reports. [online] Available at: http://stock.walmart.com/annual-reports [Accessed 7 Dec. 2014].  The Huffington Post, (2014). Walmart's New Ad Campaign Renews Focus On Low Prices. [online] Available at: http://www.huffingtonpost.com/2011/04/11/walmarts-ad- campaign-prices_n_847340.html [Accessed 8 Dec. 2014].  Tode, C. (2014). Walmart ramps up mobile in-store strategy to save customers time - Mobile Commerce Daily - Multichannel retail support. [online] Mobilecommercedaily.com. Available at: http://www.mobilecommercedaily.com/walmart- ramps-up-mobile-in-store-strategy-to-save-customers-time [Accessed 6 Dec. 2014].  Ungar, R. (2013). Walmart Pays Workers Poorly And Sinks While Costco Pays Workers Well And Sails-Proof That You Get What You Pay For. [online] Forbes. Available at: http://www.forbes.com/sites/rickungar/2013/04/17/walmart-pays-workers-poorly-and- sinks-while-costco-pays-workers-well-and-sails-proof-that-you-get-what-you-pay-for/ [Accessed 7 Dec. 2014].  Walmart.com, (2014). Walmart Mobile - Walmart.com. [online] Available at: http://www.walmart.com/cp/Walmart-Mobile-App/1087865 [Accessed 4 Dec. 2014].  Kiran R. & Jhamb D. (2011). A strategic Framework for Consumer Preferences in Emerging Markets. Journal of Emerging Knowledge on Emerging Markets. 3 - (OPPORTUNITIES IN EMERGING MARKET  Watson A. & Ahn (2009). The Dynamic Competitive Effects of Wal-Mart’s Store. July 16, 2012. https://webspace.utexas.edu/rbw264/www/papers/AWPaper2p2.pdf
  12. 12. 12 | P a g e Appendices 1. Table 1 shows the PEST analysis for Wal-Mart Inc. Political  Multinational companies are exposed to a relatively high amounts of risk when they enter a new market or country.  political stability is a key factor for flourishing in the host country  the political forces can negatively or positively affect its operations. Economic  an economic depression or a surge can affect an MNC if it operates in that country's economy.  currency exchange fluctuations can also have a major impact on importing and exporting of goods.  prices of oil and gas are a key determinant as well.  the world's economic condition decides its purchasing power. Social  social forces can cripple a corporations' business if they were left unchecked.  Quality is always a major lookout point for consumers.  every MNC needs to comply with the social standards of the host country as well. Technological  technology is ever changing and people always flock towards faster, efficient and better way of doing things.  companies that can integrate this factor well, always possess an advantage over competitors.
  13. 13. 13 | P a g e 2. figure 1 Shows the Porter's Five Forces Analysis of Wal-Mart Inc Threat of Potential entrants  Discountretail industryisahighlycompetitive environmentwithmostlybigplayerscompeting for marketshares.  Price ismainlythe keyfactorfor competition.  Existingcompanieshave establishedstrongand stable suppliernetworks.  Wal-Mart has a superiorlogisticsanddistribution system,cuttingedge technologytosupportall phasesof itsoperation,awell-establishedbrand name,a large numberof storesnationwide,and a deepfinancial resource.  Wal-Mart alsohas cost advantage overits competitorsdue toitslarge purchase volume.  Wal-Mart can deterpotential entrants. Threat of Substitutes  Consumerscanbuy fromsmall mom-and-pop storesor specialtystores,butthese storesdonot offera wide range of products,nor dotheyoffer competitiveprices.  On-line purchase canbe a substitute meansfor shopping;however,itmaynotbe a goodchoice for goodsthat are consumeddailybecause shippingcostsmayleadto higherfinal prices, and shippingtime candelaythe need’s fulfillment Supplier'sPower  In general,mostsuppliersrelyonretailersto distribute theirproductstothe endconsumers; therefore,the role of retailersinthe distributionchannelsiscritical.  Wal-Mart not onlycarriesa wide range of products,butalso possessesthousandsof storesinthe U.S.and worldwide. This combinationplacesWal-Martina verystrong negotiationpositionwithsuppliersandgivesit great flexibilityinchoosingandworkingwitha wide range of suppliersandvendors. Wal-Mart is“both desiredandfearedbymanufacturers”.  Witha fleetof 4,000 trucks,Wal-Mart alsohas capabilitytoindependentlyoperate partof its transportationlogisticswithoutrelyingsolely on outside vendors.  Wal-Mart alsocarriessome of itsown Great Valueprivate-label productstailoredtolocal demand. Threat of Competition  Thisis a mature industry.  There are few butlarge competitors,whodominate the majorityof the market.  Price isthe focusof competition,andfirmsare forcedto cut cost to stay competitive. Buyer'sPower  Switchingcostsof buyersislow.  Buyersare price-sensitive. Theycanbe easilyluredtocompetitorstobuyproducts that are offeredata lowerprice.  The differentiationinthe productsand brandsamong differentdiscountretailstores inthisindustryislow.  Since mostof the productsofferedare commodity,buyersusuallychoose the store that isclosestto theirhome ortheir workplace forconvenientshopping.  Wal-Mart providesawide range of products and services,andoffersverylow prices. In addition,ithasmanystoresservingdifferent geographical areas. Hence,ithasa large and loyal customerbase.
  14. 14. 14 | P a g e 3. Table 3 shows the Opportunities and Threats analysis of Wal-Mart Inc. Opportunity  Retail market growth in emerging markets  Acceptance of own label products  Online shopping growth Threat  Increased competition  Increasing resistance from local retailers.  Increase product prices 4. Table 4 Depicts the Strength And Weakness Analysis of Wal-Mart Inc. Strength  Large Scale of operations  Wide varieties of products  Cost leadership strategy Weaknesses  Lawsuits  High employee turnover  Less differentiation

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