WALMART

I.

BACKGROUND OF THE COMPANY

Wal-Mart is a public company, active in the retailing industry. It was

founded by Sam Walton and his brother J.L. (Bud) Walton in 1965, with the
opening of the first Wal-Mart store in Rogers, Arkansas. Nowadays, Wal-Mart
owns 8,500 stores worldwide, employing more than 2million employees and
headquartered in Bentonville, Arkansas, United States. Since 2009, Mike
Duke is CEO of the company.
Wal-Mart runs different chains, which have different main target
groups. The divisions of Wal-Mart are separated into891 Wal-Mart discount
stores, 2,612 discount centers, 602Sams Clubs and 153 neighborhood
markets. The discount stores, neighborhood markets and superstores are
mainly targeting the broad customer base, whereby mostly low- and middleincome customers make the majority of all customers. These three divisions
are mainly differentiating through size of the store, size of the city where he
store is resident and the number of employees.
The discount stores are mostly sized between 50,000 and 100,000
square feet, employing 220 employees in average, while the superstores
have 186,000 square feet in average and employ between 200 and
550workers. The neighborhood markets have usually round about 40,000
square feet and employ between 80and 100 people.
In addition to these three divisions, the Sams Club division is a
membership-only business and has more than 45 million registered members.
It mainly offers groceries and general merchandises in large quantities. One
can say that the Sams Club segment found a niche market, because it is
often used by owners of small sized businesses. However, also non-members
and private customers that want to try out the offers can join the club by
buying one-day memberships or paying surcharges as a percentage of the
price of the purchase.
In 2009, Wal-Mart reported $404 billion of revenue and a net
income of $13.6 billion. Since 2002 (except for 2006) Wal-Mart was ranked
number one on the Fortune 500 list (an annual list published by Fortune
magazine that ranks the top 500 U.S. corporations with the highest gross
revenue).Outside the U.S.-market, Wal-Mart is active in 14 countries,

including 4,200 stores and 600,000 employees. Especially the Mexican and
Canadian market (1,200, respectively 318 brands) are important markets for
Wal-Mart.

II.

STATEMENT OF THE PROBLEM

III.

OBJECTIVES

IV.

INDUSTRY ANALYSIS
A. ANALYSIS OF THE MACRO-ENVIRONMENT
1. Demographic Environment
Several demographic factors can influence Wal-Marts returns. One
example is the level of income of customers within the different
countries Wal-Mart is operating in. They offer low cost products with
the best value to the following three groups of shoppers for Wal-Mart
stores:

The brand aspiration low income shoppers

The price sensitive affluent", wealthier shoppers who love deals
The value price shoppers, folks who like low prices and cannot afford
much more
With the help of this classification, Wal-Mart can locate their divisions
properly so that it matches customers expectations and fulfill their
demands. Another demographic constraint for Wal-Mart in the next
decades will be the aging population. From year to year there exists a
bigger amount of older people who have special needs and
requirements that have to be fulfilled by a retailer. Wal-Mart has to
adapt on the one hand their product range but on the other hand
also the shopping conditions their stores provide to older customers.
By special product offers or support activities for old customers they
can attract this increasing customer group and win them over.

2. Social/Cultural Environment
There are several social and cultural aspects which might have an
influence on Wal-Marts sales. First of all it is possible to say that WalMart concentrates their operations on the continental US market and
14 other countries which are not part of it. Examples are Argentina,

Brazil, Honduras, etc. As we can conclude from their website, WalMart is not present in any European countries at the moment. During
the past Wal-Marts target customers came from the lower middle
class or poorer segments. During the recession in2008/2009 they were
clever enough to recognize new trends within their customer groups
and tried to use them to enlarge their customer base. Now that also
people out of the middle and upper-middle class started to review more
carefully their expenditures, Wal-Mart was able to benefit from
this situation. Customers asked for inexpensive food and cheaper
goods and Wal-Marts stock rose about 50% during this time. But not
only the recession but also the steady improvement of their stores
attracts a higher-income audience.
All in all we can describe Wal-Marts customers as easy
shopper. They want to be able to buy all they need by
doing one
stop at a Wal-Mart store. Wal-Marts huge quantities and broad
product assortment enables them to fulfill exactly these demands.

3. Political/Legal Environment
Wal-Mart has not only a well established brand image within their
target customer groups. By being the No. 1 corporate political
contributor, they are additionally highly recognized on the federal level.
In year 2006 they supported with $943,455 the US election cycle.
Political instability and the lack of resources caused fuel prices to rise
during the last years. This affects Wal-Marts operations and returns in
two ways. On the one hand customers have less money in their
pockets and are only willing to spend less during their shopping trips.
On the other hand transportation costs for Wal-Mart itself are rising.
This increase in costs cannot be balanced by offering higher prices
because it exists the risk that customers wont come back. Because of
Wal-Marts strategy of extremely low prices, they were several times in
conflict with government regulations according to predatory pricing.
Several experts claimed that Wal-Mart offered prices which were
intended to drive competitors down. Wal-Mart has to be very careful
with this behavior because the fines for violating this law are extremely
expensive.

4. Technological Environment

When we take a look at Wal-Marts distribution activities we can

conclude that technological aspects play an important role for the
company. To be able to organize their highly automated distribution
operations and their huge amounts of items in stock they have to make
use of latest technologies. With the help of their private satellite
communication systems and the point-of-sale bar code scanning they
ensure that everything is linked with each other and orders are placed
at the right time at the right place. To satisfy customers demands it is
urgent to have all needed items available as quick as possible.
Additionally the technological tools facilitate the work of all employees
within the company. The other way around technological advancement
can also be seen as a negative impact on Wal-Mart. As we all know
rapid changes in technology lead to shorter product life cycles.
Especially retailers like Wal-Mart which handle very broad product
assortments and huge amounts of items are less flexible in changing
their product lines. This could be a disadvantage towards smaller
competitors which are maybe more capable of offering newest
products.
5. Economic Environment
Economic factors like unemployment and economic growth have an
influence on Wal-Marts sales. Although there was a global instability
of the finance banking sector, which continues to affect trade between
countries creating liquidity problems, Wal-Mart was still able to keep on
growing and increasing their sales. This was caused by the fact that at
this point of time also higher income groups were forced to take a
closer look at their expenditures. Another reason can be that one of the
industries that faced least effect from the crisis was the food industry
due to the fact that population was still in need of consuming. This
industry represents one of Wal-Marts most important ones.
A high unemployment rate can have on the one hand positive
influences for Wal-Mart and on the other hand also negative ones. It
depends which customer group is affected by the unemployment.
Because of the fact that Wal-Mart offers products for very low prices
their customers are mainly people from lower income classes.
Unemployment can force people from originally upper income classes
to reduce their expenditures and save money. This would be a chance
for Wal-Mart to enlarge their customer base. Wal-Mart has to observe
this trend to be able to react in the right way. Otherwise it would have a
huge influence on their sales.

B. COMPETITIVE ANALYSIS

Threat of
New Entrants
LOW

Bargaining
Power of
Suppliers

Intensity of Rivalry
among Existing
Competitors

Bargaining
Power of
Buyers

LOW

LOW

HIGH

Threat of
Product
Substitutes

HIGH

1. Intensity of Rivalry
Rivalry among competing firms is low. There are three main
competitors in this industry, namely K Mart, Sears and Target. All of
them follow a low cost strategy, but none can beat Wal-Marts. WalMart goes to great lengths to maintain low-price leadership. Since they
can afford to set prices below competition all the time their value
chain activities must be flawless and their cost saving measures are
innovative.
In 2009 Wal-Mart was trying to bring a legislation under way which
required all employers to provide health insurance to employees. WalMart itself already provides insurance to all its employees. If this
legislation became active, many of Wal-Marts competitors would have
to struggle with the costs this brings along and give Wal-Mart a
strategic advantage since they will not have more costs than they
already have. While its competitors will have to save money
somewhere or increase prices, Wal-Mart can continue with its low cost
approach. At this point in time the risk of rivalry among competing
businesses is low for Wal-Mart.

2. Threat of New Entrants

Threat of new entrants is low. There are only few rules
regarding market entry and basically any business can enter. However,
Wal-Mart is a strong presence and makes it difficult for firms to
establish themselves in this industry. The biggest problem is that WalMart has economies of scale due to their size. A new business will
have large scales and this is hard to afford. Besides that, Wal-Mart
draws customers through wide Marketing. A new business would also
have to rely on large and expensive Marketing campaigns to increase
understanding and knowledge of its business. Consequently, huge
sums of capital are required to successfully enter this industry.
3. Bargaining Power of Suppliers
Bargaining power of suppliers is low. This force affects the level of
competition in any industry, but as a general rule it can be said that
competition gets fiercer when:
- there are many suppliers
- there are only a few good substitute raw materials
- the costs of switching raw materials is especially costly.
Usually, it helps both the business and the supplier when they enter
into a closer relationship with more visibility, an agreement on fair
prices and better cooperation.
The volume of Wal-Mart's orders is so large that suppliers
bargaining power is fairly low. Suppliers do not want to lose this big
customer and are willing to reduce products prices accordingly.
Wal-Mart sells mainly undifferentiated and standard products. For
these, the costs of switching raw materials are low, lowering the
bargaining power of suppliers further.

4. Bargaining Power of Buyers

Bargaining power of buyers is high. When there are many

customers or when customers buy large volumes their bargaining
power is high, affecting the level of competition. Competition
is particularly high in industries with little product differentiation, which
is the case with Wal-Mart. Therefore, Wal-Mart is forced to offer the
lowest prices, or the customer will go buy the product somewhere else.
Besides that, the number of customers in this industry is huge,
increasing customer bargaining power further.
5. Threat of Product Substitutes
Threat of Product Substitutes is high. Wal-Mart's biggest competitor
in this segment is Target, which produces more upscale and
chic products than Wal-Mart at inexpensive prices. Wal-Mart is still
cheaper than Target, but those customers who want superior quality
and are willing to pay slightly more for it might swap. Another substitute
alternative is online shopping. Here, customers can find cheap
alternatives since online businesses do not need real stores and on
site staff, can save this money and therefore reduce product cost.
V.

ENVIRONMENTAL ANALYSIS
After studying the case of Wal-Mart, we did TOWS analysis which has
become helpful to know about Wal-Mart's position as below:
A. EXTERNAL AUDIT
1.) THREATS
a.
b.
c.
d.
e.

Fast changing technology (e.g. online shops)

Fierce price competition in retail industry.
High Bargaining Power of customers.
Instabilities due to external factors (e.g. unemployment).
Laws requiring more investments to employee benefits.

2.) OPPORTUNITIES
a.
b.
c.
d.

Trend towards Online Shopping

Potential of European Market.
Customers of higher income group
Trend towards "one-stop shopping experience"

e. Trend in sustainability awareness.

B. INTERNAL AUDIT
3.) WEAKNESSES
a.
b.
c.
d.
e.

Lack of presence in many developed countries.

Failure of entering foreign markets.
No formal mission statement.
Continuous product recalls.
"Everyday low-prices" could be connected to low quality.

4.) STRENGTHS
a.
b.
c.
d.
e.

Well established brand awareness.

Cost leadership in comparison with competitors.
Continuous growth
Control over suppliers.
Profitable organization of distribution channels.

VI.

GENERIC STRATEGIES
A. OVER-ALL COST LEADERSHIP
B. DIFFERENTIATION
C. FOCUS

VII.

ALTERNATIVE COURSES OF ACTION

VIII.

CONCLUSION/RECOMMENDATION
Wal-Marts strategy of being a low cost leader is very successful. This
same strategy should be maintained and focused in the future. To sustain its
success, Wal-Mart should capitalize on its current strengths, minimize
weaknesses, capture opportunities, and limit threats.
The companys adoption of cutting edge technology to learn about
customer demand and needs as well as to achieve high operation efficiency
must be done on a regular and ongoing basis. Maintaining Wal-Marts culture
and practices is very important to maintain success. The trademark Saturday

morning meetings should be resumed to weekly, because it is very Wal-Mart

and it helps strengthen Wal-Marts associates spirit. The company can get
larger and larger, but the companys uniqueness should not be fading or
being replaced.
Currently, Wal-Mart only attracts price sensitive customers, those who are
more quality obsessed or brand conscious are not shopping at Wal-Mart.
Wal-Mart should not change or do anything to minimize this weakness
because the companys strategy is being a low cost leader, and it is
impossible to satisfy all the market segments. It is believed that companies
that stretch thin in different market segments can easily be stuck in a position
without a target market.
Wal-Mart has strong opportunities to enter more markets in Europe and
Asia. However, its current growth strategy of both widening product ranges
and expanding geographically put the company at risk of stretching its
resources, losing operation control, and weakening strategy coherence. It is
recommended that Wal-Mart focuses its growth strategy on expanding
product ranges to meet various demands. As for international expansion, it
should only focus on the markets that it can do well, such as Canada and
Mexico. It should consider dropping any international markets that are not
performing well (i.e. any unsuccessful markets in Latin America). Before
entering Asia and Europe markets, market research should be done
thoroughly and Wal-Mart should only focus on a few markets that have the
best potential and less competition. The companys past international
expansion faced strategic and organization issues, and therefore, its success
has been inconsistent in foreign markets. This is a sound evidence of losing
focus and losing control.
By maintaining its strengths, Wal-Mart can continue to beat the
competition and minimize its threats. Wal-Mart has responded well to the
pressure from environmentalists, womens and childrens rights advocates,
and anti-globalization activists. Although these pressures do not currently
affect Wal-Marts bottom line but successes in responding to them have
helped form and maintain a positive image for the company. It should
continue its programs of ethical sourcing and environmental sustainability.
Regarding low wage issue, it should maintain its current pay schemes. First,
the rates are slightly above the general retail trade. Second, Wal-Mart offers
other benefits in addition to basic salary, including profit incentives, stock
purchase plan, and promotion opportunities.
By continuously focusing on its strengths and finding ways to increase
operation efficiency, Wal-Mart will stay ahead of the price competition from
rivals, and deter potential competitors from entering the markets.