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OVERVIEW

When Sam Walton founded the first Wal-Mart in 1962, the idea of bringing in a discount shopping store into rural America was almost unheard of, except for the local five and dime stores. When Walton noticed that he had a lot of competition from regional discount chains, him and his wife Helen traveled the country to study other new retailing concepts, and were convinced that it was the wave of the future. With Walton's vision, Wal-Mart grew to be a multi-billion dollar, international company, operating about 4,600 stores around the world.

Wal-Mart competes in many industries that include: 5331- Retail-Variety stores, 5411 Grocery stores, 5311-Department stores, 5812-Eating Places, 5399-Miscellaneous General Merchandise store, and 5912-Drug stores and Proprietary stores. Since there are several industries to choose from, our group chose to go with retail-variety stores, SIC code 5331. These establishments are primarily engaged in the retail sale of a variety of merchandise in the low and popular price ranges. Sales are made on a cash and carry basis, with the open selling method of display and customer selection of merchandise.

SWOT MATRIX INTERNAL FACTOR EVALUATION (IFE)

KEY INTERNAL FACTOR

WEIGHT RATING WEIGHTED SCORE

STRENGHTS 1. Well established brand awareness 2. Cost leadership in comparison with competitors 3. Continuous growth 4. Profitable organization of distribution channels 5. Control over suppliers WEAKNESSES 1. Lack of presence in many developed countries 2. Failure of entering foreign markets 3. No formal mission statement 4. Continuous product recalls 0.13 0.1 0.08 0.08 3 2 1 2 3 0.39 0.2 0.08 0.16 0.18 0.18 0.13 0.1 0.09 0.05 4 4 4 3 4 0.72 0.52 0.4 0.27 0.2

5. Everyday low price could be connected to poor 0.06 quality TOTAL 1

3.12

STREGHT
1 .Well established brand awareness

With their more than 8,500 stores, Wal-Mart represents the number one retailer in the world. By providing 15% to 25% lower prices for grocery products than the average retailer store68 Wal-Mart can support their strong brand attribute of offering everyday

low prices. As shown within a study Wal-Mart is the only retailer in the U.S. that carries two brands which are directly identified and connected to Wal-Mart by more than 52% of all American women.

2. Cost leadership in comparison with competitors

Wal-Mart makes use of the cost leadership strategy which gives them a competitive advantage. In the beginning, when Wal-Mart was not that well known, they had to develop economies of scale and find as many ways as possible to reduce costs. One way was to cut down overhead costs, keep the inventory level as low as possible and gain high control over suppliers. Today they are able to keep their concept of everyday low prices on offer.

3. Continuous growth

Wal-Mart is a continuously growing company. From their foundation in 1946 until today they developed a network consisting out of 891 discount stores, 2612 Supercenters, 602 Sams Clubs and 153 Neighborhood Markets. When taking a look at the net sales from year 2007 up to 2009 one can see an increase from $344.7 billion to $401.2 billion. Important to mention in this case is that although there was a financial crisis within these years Wal-Mart was still able to keep on growing

4. Control over suppliers

All in all it is possible to say that many of Wal-Marts suppliers totally depend on this collaboration. The majority receives more than 30% of their revenues from the huge retailer. Because of increasing debts and financial problems Wal-Mart founded the Supplier Alliance Program that they offered some selected supplier to give them a new financing option. With the help of this program Wal-Mart wants to ensure the steady flow of inventory. From the view point of suppliers it makes them even more dependent on Wal-Mart.

5. Profitable organization of distribution channels

By making use of latest technology Wal-Mart creates highly automated distribution operations. To be as cost effective as possible Wal-Mart frequently orders their stock and maintains a close connection with their vendors. WEAKNESES
1. Lack of presence in many developed countries

At this point in time Wal-Mart is mainly present in continental US and additionally 14 other countries. It is important to mention that they are not present in Europe yet, except for the United Kingdome. Other developed countries such as Australia are not entered yet either.

2. Failure of entering foreign markets

The unsuccessful entrance in the German market symbolizes a significant example for this weakness. In the year 2007 Wal-Mart finally decided to sell 85 German stores to its competitor Metro. Because of poor inter-cultural management and a poor approach to international marketing Wal-Mart lost a lot of money. They had to realize that simply trying to convert the American way of retailing to Germany did not work out.

3. No formal mission statement

The mission statement should give an answer to the question What is our business. Within the mission people can identify the companys main purpose and objectives. This is especially important for employees to ensure that everybody knows in which aspects

the company is engaged in and that everybody is working in the same direction. Therefore a lack of a formal mission statement can lead to an internal weakness.
4. Continuous product recalls

The company image is always suffering if it comes to product recalls. In the year 2007 for example Wal-Mart had to recall several toy products which were produced in China. What huge impact this has for the image shows a customer study made afterwards. This study documents that 39% of respondents were more fearful to buy products from WalMart in comparison to 22% for their competitor Target.

5. Everyday low prices could be connected to poor quality

There are several people who believe that Wal-Mart offers low quality just because their prices are so extremely low. Everybody knows that if a company always offers way lower prices than competitors, it is in need of cheap production and operations.

EXTERNAL FACTOR EVALUATION (EFE) KEY INTERNAL FACTOR WEIGHT RATING WEIGHTED SCORE OPPERTUNITY 1. Trends towards online shopping 2. Potential of Europe market 3. Customer of higher income group 4. Trends towards one stop shopping experience 5. Control over suppliers THREATS 1. Fast changing technology 2. Fierce price competition in retail industry 3. High bargaining power of customer 4. Instable due to external factor 5. Law requiring more investment into employee benefits TOTAL 0.2 0.13 0.07 0.05 0.05 1 2 3 3 3 2 0.4 0.39 0.21 0.15 0.1 3.07 0.15 0.13 0.1 0.07 0.05 4 3 4 4 3 0.6 0.39 0.4 0.28 0.15

OPPORTUNITY
1. Trend towards Online Shopping

Online Shopping is a new technological trend and provides huge potential to interested businesses. The amount of time consumers spend shopping online is increasing rapidly. For those businesses that are already active in the market, opening online stores can lead to additional sales. Besides these points, products from online stores can usually be marketed at lower prices than their equivalents in retail shops. This is due to cost savings. Online stores do not need retail stores nor do they need sales staff and other costs associated with these stores

2. Potential of European Market

Half a billion people live in Europe37 and the GDP per capita was $32,900 in 2010. It can be said that Europe has a very large buyer market and that the money generating potential is very promising.

3. Customers of higher income group

The higher income group is an opportunity for Wal-Mart. Experts says that the people from higher income groups spend about 40% more on retail articles than people from the lower income groups do. Consequently, they are seen as potential candidate to boost sales considerably.

4. Trend towards one-stop shopping experience

One stop shopping is a trend as it allows customers to buy everything they need at only one store, saving them the trouble of spending extra time and traffic to go to another store to buy other products they need. The advantage for businesses providing a one stop shopping experience is that it keeps customers longer in the store and that they are more likely to buy all their needed products there instead of going to a competitor.

5. Trend in sustainability awareness

The consumers awareness in sustainability issues rises and they begin to favor products from businesses that focus on sustainable production.41 Businesses that do not put more pressure on the environment than necessary are preferred42 as well as products that are as biological as possible. Threats

1. Fast changing technology (e.g. online shops)

This issue provides a threat as it gets increasingly difficult to always stay on top of technological trends and to use them in creating a competitive advantage. An example for Wal-Mart is the online shop development. Some businesses like Amazon and EBay developed a well working technology incredibly fast which helped them in their rise to industry leadership.

2. Fierce price competition in retail industry

In the retail industry, especially in food and clothing exists fierce price competition. Prices decrease and as a consequence so do profit margins. Businesses have to develop new ways of saving costs to stay competitive in the industry.

3. High bargaining power of customers

Customer bargaining power is high in the industry due to the large number of customers. Besides that, product differentiation is low in Wal-Marts case which also has a strengthening effect on bargaining power of customers. Consequently, customers are very price sensitive and perceptible to lowest price offer, which drives down Wal-Marts profit margin.

4. Instabilities due to external factors (e.g. unemployment)

Instabilities that arise from external factors, like unemployment, can affect the retail industry because peoples feelings of security change. This aspect is influenced by psychological factors. People who are insecure about what is going to happen are more likely to save their money than to spend it. This has a negative effect on businesses.

5. Laws requiring more investments into employee benefits

Wal-Mart employs 2,100,000 employees. If the U.S. government decided to bring a new legislation under way requiring businesses to invest more money into employee benefits, this would mean huge costs for the big employer.

SWOT Matrix This matrix is an important matching tool. It matches key external and internal factors and helps us to develop four types of strategies: SO (strengths- opportunities) strategies, WO (weaknessesopportunities) Strategies, ST (strength-threat) strategies and WT (weaknesses-threats) strategies

SO Strategies

1. Introduction of a premium product line (S1, S3, O3)

The introduction of a new premium product line would make Wal-Mart more appealing to high-income customers. Obviously, the products within this product line should have a satisfying quality and therefore cost more than a standard product of a similar product group. If Wal-Mart succeeds in convincing the customers with a higher income (which usually do not buy at Wal-Mart) that they are able to offer premium quality products for a fair price, than they have the chance to gain some steady customers out of this group. However, it will be necessary that Wal-Mart can ensure and maintain the highest quality standards for this product line. High income customers would probably not come back to Wal-Mart if they are not satisfied with the quality of their products at first try.

2. Extensive sponsorships in Europe (S1, O2)

Extensive sponsorships in Europe could increase Wal-Marts chances of succeeding in Europe. Even though, Wal-Marts brand awareness in Europe is not as high as in the United States, most of the Europeans will link the retailing business to Wal-Mart. However, before entering a European market the brand awareness could be further increased through sponsorships. Sponsoring of sports events, fairs, concerts or festivals are possible ways of improving the chances of Wal-Mart to gain ground in the respective market and even offer Wal-Mart the possibility to gain more experiences about the local culture

WO Strategies

1. Enter European countries through joint-ventures (W1, O2)

Wal-Mart has a recognizable lack of presence in many developed countries. This lack could be filled by making use of the potential that exists in the European market (W2, O2). At the moment Wal-Mart operates mostly in the US, despite the UK as the only European country. Due to the fact that they already have a strong presence in the US, increasing sales even more would be difficult to realize but therefore in Europe. Wal-Mart needs to be aware of the fact, that in Europe the brand awareness will not be as high as in the US. Factors like customer buying behavior, cultural aspects and competitors, will influence their operations in Europe. The entry can be performed by doing joint-venture. This is a partnership between two (or more) partners to form a joint venture in the new market. Reasons for that might be complementary technology or management skills and it increases the speed of the market entry and saves additional costs.

2. Improvement of general image through environmental friendly operations (W5, O5)

Furthermore Wal-Mart could make use out of the growing trend towards sustainability. According to the CEO Mike Duke sustainability is an important part of Wal-Marts culture (O5). They strive for being supplied by 100 percent renewable energy, create zero waste and sell products that sustain their resources and the environment. 80 Right now there does not exist a time frame for this goal. An implementation within the near future could lead to an improvement of Wal-Marts image. Customers would recognize that Wal-Mart is not just searching for the cheapest way of production and supply but also for the most environmental friendly one. Quality and sustainability play an important role within their operations. (W5)

ST Strategies

1. Backwards integration and take over the function of suppliers (S2, S4,T2, T3)

Wal-Mart is cost leader in the industry and this is to a great degree due to their high bargaining power over suppliers. Wal-Mart was able to negotiate supplier prices down to a minimum but at this point there are no more savings to be realized from this area. However, price competition in the retail industry is fierce and customers have high bargaining power. Consequently, Wal-Mart has to find new ways to lower prices to keep its status of cost leadership in the market. A suitable strategy to follow is: backwards integration in doing so, Wal-Mart takes over the supplying function and can look for new ways to save costs in this area.

2. Target people with financial uncertainty by more aggressive best deal marketing (S1, S2, and T4)

During the economic crisis, many people from the higher income group turned to Wal-Mart. The same applies to people who are unemployed. The feeling of insecurity and the desire to save costs where possible can be used by Wal-Mart to target these people and bind them to Wal-Mart through offering the lowest prices.

3. Improve existing e-commerce by investment into IT and online presence (S1, S2, S3, and T1)

If Wal-Mart invested more money and resources into its online presence, they might profit from it in the long run. It might lead to higher sales, Wal-Mart will be able to save more costs in online sales and is therefore in a position to stay cost leader, and the businesses strong brand image can help in reaching the target group more easily. This can only be achieved with an increased investment in IT to develop a superior online shop system.

WT Strategies

1. Improved customer satisfaction trough better quality management (W4, T3)

Because of the extremely high bargaining power of customers Wal-Mart has to keep their customers as satisfied as possible. Because of the fact that within the retailer business there exists much more supply than demand customers do have a lot off power. Continuous product recalls can harm the company image and motivate customers to switch to competitors. Therefore WalMart should improve their quality management to avoid future product recalls. They should have clear requirement for all their suppliers. This would ensure that they only collaborate with high quality suppliers. By making use of regular statistics and accurate capturing of information and data it is easier to control suppliers. If it still comes to product recalls Wal-Mart can directly identify the source and decide on follow up activities.

Space Matrix `The Strategic Position and Action Evaluation (SPACE) matrix is a matching tool, which helps to determine if either an aggressive, conservative, defensive or competitive strategy is best fitting to the company. The different average scores regarding to their financial-, stability-, competitive, and industry-position lead to a X- and Y-coordinate, through which a graph can be drawn that shows which type of strategy (aggressive, conservative, defensive or competitive) is most attractive.

SPACE MATRIX INTERNAL POSITION FINANCIAL POSITION INVESTMENT RETURN INVENTORY TURNOVER OPERATING PROFIT LIQUIDITY PROFIT MARGIN STRATEGIC EXTERNAL POSITION SCORE STABILITY POSITION 4 3 4 6 6 TECHNOLOGICAL CHANGE RATE OF INFLATION SCORE -3 -2 STRATEGIC

PRICE CHANGE COMPETITORS -2 DEMAND AND VARIABILITY RISK INVOLVE IN BUSINESS -4 -3

AVERAGE SCORE = 4.6 Y-AXIS = 4.6-2.8=1.8 COMPETITIVE POSITION MARKETSHARE

AVERAGE SCORE 2.8

SCORE INDUSTRIAL POSITION -2 GROWTH POTENTIAL

SCORE 5

PRODUCT RANGE PRODUCT QUALITY PRODUCT LIFE CYCLE CUSTOMER LOYALTY

-2 -4 -5 -4

PROFIT POTENTIAL FINANCIAL STABILITY RESOURCE UTILIZATION EXTEND LERVERAGED

6 5 4 5

AVERAGE SCORE -3.4 X-AXIS (-3.4)+5.0=1.6

AVERAGE SCORE 5.0

When looking at the final result, one can see that the graph with the directional vector point (+2.2|+1.8) is positioned in the aggressive sector. This means that the organization is in a good position to use its internal strengths, take advantage of external opportunities, overcome internal weaknesses and avoid external threats. For these reasons, market penetration, market development, product development, backward integration, forward integration, horizontal integration or diversification are feasible strategies dependent on the circumstances. In the case of Wal-Mart one could focus on using their control over their suppliers to apply backward integration, which means taking over or seeking increased control over their suppliers. Additionally, the lowest price strategy applied by Wal-Mart is the right way to penetrate the respective markets in order to compete aggressively against their competitors and putting them under pressure.