Wal-Mart

Wal-Mart
Moses Mialou Miyen Professor: Ciprian Vasile Stan BPS 4305-501 04/07/2013

!e"uti#e Su$$ary: This paper is addressing external, internal, financial analysis and recommendations for Wal-Mart store. It is going to work the readers through some major materials that the article is talking a out. The paper is going to explain technology reakthroughs that WalMart has used to facilitate its performances throughout its usiness scheme. !ll these fantastic achie"ements are expected to come from Wal-Mart#s management teams. !s

$ well as the potential strategies that Wal-Mart focuses on to ecome num er one

successful among the retail industry. These potential strategies include its "alue chain analysis and %W&T and 'I(& analysis. The Wal-Mart#s mainstream management teams use them to determine the future usiness performance.

%ntro&u"tion Wal-Mart was founded from the idea of a franchise. In 1)*$, Mr. %am Walton had modified Wal-mart to ecome a producti"e company through his potential usiness plan. +e had initiated the policy of ,selling cheap- to con"ene customers to sa"e money in shopping at Wal-mart store. It started to operate in a small town in !rkansas and finally expand into many cities across the .nited %tates. With this approach of selling for low prices, Wal-Mart has ecome popular in many local communities. Wal-mart has a high potential to ser"e local people y ring jo s to them. Through this simple strategy, Walmart has managed to generate more re"enues to uild many stores in many locations in the .nited %tates. /ow ,it has uilt more than 012 discount stores and a out $312 supercenters- 45onathan Matusit6, p3$7. Wal-Mart is e"erywhere in the .nited %tates, therefore it is "ery easy to attract customers to shop at local stores near y the communities across 12 %tates. In 1)02s, Wal-Mart had proposed its warehouse distri ution plan. %o it egan to uild its own warehouses so that it could purchase in "olumes and store merchandise. This strategy cuts down Wal-Mart8s costs and gi"es more control o"er operations and merchandise has to e accumulated for sales. It makes it easy to ad"ertise for specific smaller regions and that could cost less too. In addition Wal-Mart egins to operate its

9 own pharmacy in local stores including auto ser"ice centers. /owadays, Wal-mart has ecome a glo al multinational enterprise. It entered into foreign countries to in"est through partnership with other companies in a oard. !lso Wal-mart makes alliances with some oil companies to make its own gas stations in the .nited %tates. The ottom line is that Wal-mart has an excellence workplace, customer ser"ice and always low prices. Wal-Mart always focuses on three asic principles: respect for indi"idual, ser"ice to our customers, and stri"e for excellence 4 www.walmartstores.com7. Wal-Mart also manages supply chains using a num er of methods. These supply chains contain a lot of suppliers with high potential o jecti"es. Wal-Mart promotes dynamic inno"ati"e responses to take ad"antage of communications and focuses on using computeri6ed systems to keep track of its in"entories. !dditionally, Wal-Mart uses electronic data interchange 4;<I7 systems for records keeping. The ;<I system makes it easy to e"aluate "arious acti"ates. Wal-Mart utili6es this system to track items that are rought for its distri ution centers. The system indicates that goods are chipped out to local stores. Wal-Mart has a out 122,222 suppliers which ha"e increased its annual sales 4;dward +umes, $2117. Wal-Mart ecomes an engine of jo s creation in the .nited %tates. !lso it commits to promote en"ironmental goals y producing more efficient energy. Wal-Mart has launched some renewa le, 6ero waste and created products that would sustain its resources 4$2117. In addition Wal-Mart has proposed some strategic management that promotes initial deployment of retail =in>? for efficient information to promote etter ser"ice to its common customers 4=arry =apide, $2117. !ternal 'nalysis

@ a( Wal-Mart always targets rural locations to influence customers and gi"es them opportunities to spend more money at a closer store. Aor customers# point of "iew, the prices are always low at Wal-Mart stores compare to its competitors# prices. Wal-Mart always ecomes a major player of usiness plan that rings ser"ice to local residents at rural locations. Wal-Mart always uses the location strategy to target a large num er of customers in mo"ing stores near y. That is why Wal-Mart often succeeds and continues to generate high sales profits among its competitors. !ccording to Bhind Meriem and +e, =ing, ,Wal-Mart has in"ol"ed in shaping the market landscape o"er decades and expected to increase throughout the world.- !lso they ha"e mentioned that ,the glo al cost estimation is a out C11.1 trillion dollars and continued to grow to C$2 trillion within the next decades- 4$2117. Wal-Mart contri utes larger portions of financial into the economic in the .nited %tates. !lso it has participated to implement some measures that minimi6e en"ironmental impact in its usiness operations and its suppliers. Wal-Mart proposes to in"est money into the waste reduction in the world 4$2117. These days, the en"ironmental impact has ecome a hot topic that it reDuires ig usinesses to pay for the protection of y

en"ironment. Elo ally, Wal-Mart experiences challenges and pressure enforced

go"ernments to participate in en"ironmental campaigns. With this en"ironmental threat, Wal-Mart has, in fact, committed to make a difference for a etter tomorrow y reducing the climate impacts 4$2117. Fesides, Wal-Mart has a series of proposals to impro"e climate impacts y launching a project of shopping plastic ags recycling strategy e"erywhere in local stores that are situated in the .nited %tates. !ccording to Bhida Meriem and +e, =ing $211,

1 showed that ,one to four trillion shopping plastic ags has een estimated to e used in local stores in the .nited %tates and around the glo e-. The local stores are responsi le for reinforcing collection of shopping plastic ags from customers. ;ach local store can introduce some techniDues such as gi"ing customers who return empty shopping plastic ags discounts. This strategy encourages local shoppers to collect and keep empty shopping plastic ags to return them to their local stores. This is "ery important project for protecting en"ironmental impact within Wal-Mart neigh orhood communities. )( *+e sta,e+ol&er analysis: Wal-Mart determines to attract more groups of in"estors such as stakeholders, employees, customers, community, interest group and go"ernment through its market shares. These groups are the engines that support its large growth in term of their participation in sur"ey orientation e"ents. %imilarly, the relationship among these groups has contri uted to increase financial sustaina ility which has impacted analysis aspects. Wal-Mart has looked into the issue of demographic, sociocultural, political, and legal, technology, economic and glo al trade. They are important for usiness growth and failure ecause these groups do not pro"ide eDual opportunities. Wal-Mart looks at what can pro"ide more producti"e, for example demographic, technology and glo al trade attri ute for usiness growth whereas political, legal and sociocultural feature to usiness failure. Therefore, Wal-Mart must di"erse its products ased on demographic situation to meet the needs of these groups. Through looking at the ig picture, Wal-Mart can produce more supplies such as a y lotions, pets# supplies and other different products. In addition, Wal-Mart supports employment for more women into its workforce. Ei"en that, Wal-Mart has opportunities to in"est more young

* generations as their health and fitness concerns 4FookG %trategic management *e7. WalMart happened to succeed from in"ol"ing these groups into its projects y identifying stakeholder analysis. !ccording to =awrence 5.White, ,Wal-Mart had attempted to create its own ank in 5uly, $221 from .tah charter and federal deposit insurance.- This attempt was not succeeded ecause there was too much de ates on whether nonfinancial companies could own anks. !lthough some nonfinancial companies such as +ome <epot own the ank, it turned out it is illegal for nonfinancial companies to o tain anks 4$22)7. Wal-Mart tried to adopt an opinion of some powerful stakeholder to shape its projects. The stakeholder analysis seemed an important discipline that can e successfully used to win project ut it failed 4$22)7. Therefore, ,it was unfortunate for Wal-Mart to withdraw its anking

application as it has remained in pu lic minds. Bongress had considered putting in place a legislation to for id nonfinancial companies to own anking industry- 4$22)7. Ei"en such en"ironment, it ecame challenging for Wal-Mart to extend its di"ersification

strategy. The failure of Wal-Mart in o taining the anking has ecome a success to its competitor retailers in the .nited %tates. "( Porter-s fi#e for"es analysis: Wal-Mart utili6es fi"e forces analysis for its usiness in examining competiti"e en"ironment. !ccording to fi"e force analysis, competition among ri"al retailers dri"es profits in a negati"e. Aortunately, Wal-Mart stri"es for competiti"e ad"antage o"er its ri"als. The strength of ri"alry among competition "aries across retailers. The application of ratio is not the only measure for Wal-Mart in term of its performance and distri ution of market share. If the ri"alry etween Wal-Mart and other competitor is low, hence it must e regulated. Aor Wal-Mart

0 to pursue an ad"antage o"er its competitors it can match from se"eral competiti"e progresses. Therefore Wal-Mart could lower its prices to gain a short-term y impro"ing products differentiation such as feature and implementing inno"ation to manufacture its products 4p927. Wal-Mart uses distri ution channels such as "ertical integration for profits. %u stantially, the iggest threat is fierce competition. Target and other retail stores are the main competitors for Wal-Mart here in the .nited %tates. These retailers indeed ha"e experienced competition from wholesalers such as Bostco. The research indicates that ,Bostco could make C9**2 million while Wal-Mart had o"erspent C$*922 million, ut it shows that Wal-Mart is the ig player to draw more in"estors,- 4(amon Borona, $21$7. Wal-Mart, as a key player, has applied cost leadership strategies to gain competiti"e ad"antage. In the past decades, most retail stores ha"e failed to contest with Wal-Mart#s ,e"eryday low prices.- The reason is that Wal-Mart has a arrier to entry for economic of scale. Its strength for supply chain management could not e easily

replicated with sufficient resources 4Hingyi +uang, 'incent (. /ijs >arsten +ansen and ;ric T. !nderson, $21$7. In this case, Wal-Mart and Target compete to distinguish who could offer the lowest prices so that to uphold a profit margin 4$21$7. Wal-Mart has low threat for new entrants as some retail stores ha"e no chance of eating prices immediate during entry. Ei"en the economies of scale, rand recognition, ser"ice, and "ariety of products offering for Wal-Mart continues to impro"e on daily asis 4$21$7. In addition, the existing retail stores could afford to drop prices low so that to push a new competitors out of market. Aurthermore, suppliers do not ha"e power o"er Wal-Mart as its argains put pressure on suppliers to reduce their price margins low.

3 Therefore Wal-Mart has always recei"ed disappro"al for such practice. .nfortunately, there is no way around ecause consumers demand for products Duality at a low price 4$21$7. Meanwhile ,suppliers might ha"e sold half of their Duantity to Wal-Mart stores which pro a ly makes up less than what Wal-Mart sales. Wal-Mart has ecome the championship on this strategy to make a good argain with its suppliers. Ainally, WalMart is now facing technological ad"ancement in locations that do not ha"e ad"ance technology such as !frica. This costs Wal-Mart some money to train its employees a oard. %nternal 'nalysis Wal-Mart has generated more re"enues in .nited %tates and around the world. In fact, it continues to ecome the championship in the retailer industries. There are some retail stores that are competing intensi"ely with Wal-Mart such as Target. ,;ach of these retailers operates its own usiness strategy- 4(amon Borona, $21$7. /ow Wal-Mart has dou led up Target store through its strategic management of fashioning to attract customers with e"eryday lower prices. In $223, ,it had generated more illion of dollars in sales worldwide whereas Target falls ehind during the recession- 4$21$7. Wal-Mart and Target ha"e different usiness formats, "isions and goals, and always targeting same consumers. !lso Wal-Mart has pro"ided more market share than Target ecause it is the largest retailer in si6e. Wal-Mart ecomes a multinational enterprise as it expands its usiness internationally. The research indicates that the sales re"enues in $223-$219 etween oth of WalMart and Target are C9030)), C@21*20, C@23$1@, C@$13@), C@@*)12, C@*)1*$ and C*99*0, C*@)@3, C*1910, C*09)2, C*)3*1, C09921 sales respecti"ely. The financial

) ratios of Wal-Mart are $@.9*, $@.1$, $1.90, $1.$*, $1.2$, and $@.30 while Target#s financial ratios are 9$.1*, 9$.21, 92.$*, 92.3*, 92.3*, and 92.93. The sales re"enues and financial ratios of Wal-Mart and Target are oth consistence from $223 - $219 e"en if there is slight change, oth ha"e "ery much stay the same etween those years. Target has generated less re"enue and higher financial rations while Wal-Mart has generated higher re"enues and less financial ratios. !ll in all oth of these competitors ha"e stayed consistently 4 www.morningstar.com7. comparing oth sales re"enues and financial ratios generated y in"esting in enterprise marketing expense, the data shows that Wal-Mart generated more a"erage sales per dollars whereas Target generated more financial ratio. This indicates that Wal-Mart has more sale re"enues and Target gained more in financial ratios. )( Boming to the %W&T and '(I& analysis, Wal-Mart ecomes the est positioned retailer worldwide. It has constantly esta lished usiness o jecti"es that are accepta le glo ally. In addition, Wal-Mart has focused on cost leadership strategies in offering low prices in e"eryday low costs. It has efficient procurement and logistics system that strongly impro"ed and sta led its financial performance: meaning it always has positi"e cash flows for rein"estment in operations 4(ichard F. Areeman, $2117. &n the other hand, Wal-Mart has significant weaknesses to depend on the .% markets to maintain strong sales. Wal-Mart has proposed a mass market approach to generate opportunity in order to attract specific market segments. The extensi"e range of products limits its a ility to gi"e direct attention to all its customers. It has focused more on competitors. Wal-Mart uses AIA& method of accounting for in"entory in the ..%. and international markets. That

12 might not successfully support its strategy of e"eryday low prices 4$2117. Wal-Mart has a '(I& that gi"es its more ad"antage in the markets. The products "alua le, rarity, imita le and organi6ation are what make Wal-Mart more successful among the retailer industries. !s Wal-Mart continues to grow larger, its management has ecome an issue. !ccording to William <. %poehr, Wal-Mart had accused of "iolating the Aoreign Borrupt Iractice !ct 4ABI!7: a law regulating all .% firms and foreign firms doing usiness in .% not ri e, particularly for .% firms doing usiness o"erseas. ,This accusation has cost Wal-Mart more than 11 million for ongoing internal in"estigations as well as cost associated with se"eral lawsuits in Mexico,-4$21$7. Wal-Mart has more chances to expand its usiness into countries with emerging economies. There are also opportunities to re"i"e growth in the .% markets for inno"ations in technologies and further integrate "alue chain to increase efficiency. The unsteady economic climate in the .nited %tates will continue to impact on its performance negati"ely. Wal-Mart might lose more customers to focus on its competitors if these competitors are going to e a le to de"elop their "alue propositions than the simple offering of e"eryday low prices. The glo al exposure continues to expose WalMart to currency risk, political influences, and other uncertainties that could affect its operations. BonseDuently, its cost leadership strategies create intensi"e price competition may create a serious risk to profita ility. Wal-Mart is the largest retailer that is dedicated to focus on its usiness philosophical of sa"ing people money 4$21$7. The international tariff arriers could e a ig threat to Wal-Mart stores in a oard if it attempted to transport goods from the .nited %tates.

11 "( *+e #alue "+ain analysis makes Wal-Mart a uniDue retailer. The "alue chain

concepts ased on idea that the main purpose of a retailer has to create "alue for users of its products and ser"ices. ,!lso "alue chain analysis has identified primary acti"ities that create "alue for customers and support acti"ities that pro"ide necessary information for performance of primary acti"ities- 4%cott /. Iaul, $2117. Wal-Mart has the largest "endor shares of supplies around the world. It has reputation for tough argaining that has ena led to pass the sa"ings to its customers. This ad"antage is sustaina le simply in the standardi6e le"el that competitors would catch up with similar systems for a period of time 4$2117. In Bhina, the ,!mericans ha"e well-de"eloped "iews a out Wal-Mart in changing the landscape of the retail sector and manufacturing sector,- 4$2117. The "alue chain analysis consists of "arious categories such primary acti"ities and support acti"ities. The text explains these categories in difference formats ased on how each category is utili6ed 4%trategic Management, *e7. Wal-Mart uses oth primary and support acti"ities to grow its usiness efficiency. The primary acti"ities that include in ound and out ound logistics, operations, marketing and sales, ser"ice and margin as well as support acti"ities which include general administration, human resource management, technology de"elopment and procurement are the cornerstones for WalMart#s success among the retail stores in the ..%. and a road 4*e7. The ottom line, "alue chain analysis is the important relationship among the acti"ities in the paragraph oth in Wal-Mart retailer as well as etween its suppliers, customers and alliance partners. Strate.y i&entifi"ation Wal-Mart#s current strategy focuses on pro"iding more ser"ice to its customers y offerings ,e"eryday low prices.- Fy looking at the "alue chain, Wal-Mart continues to

1$ extend its ser"ice throughout the world. The strategy identification has pro"ided WalMart with more opportunities to "iew its usiness glo ally. %ince the Wal-Mart started to open more stores outside the .nited %tates, its profit margins has increased. Burrently, Wal-Mart#s strategy has focused on changing some or all of its usiness marketing. !ccording to Iaul F. ;llickson, %anjog Misra and +arikesh %./air, Wal-Mart has continued to make a huge change in its usiness y using ,repositioning dynamics and pricing strategies.- Aor example Wal-Mart introduces more changes in how it has managed its in"entory through electronic data interchange system. Wal-Mart has made some deals with its suppliers y using ;<I system to control its "alue chain. ,The repositioning dynamics and pricing strategy- Wal-Mart to use now has much impact on other retail industries 4$21$7. Fy using this strategy, Wal-Mart ecomes a dominant retail in the markets. These authors ha"e descri ed a out how WalMart dominates the markets in twenty first century. Wal-Mart has always focused on three asic principles: respect indi"idual, customers ser"ice, and excellence. With these ser"ices Duality, Wal-Mart has ecome num er one retailer that pro"ides local people with needs. Therefore Wal-Mart has een descri ed in term of how ,larger scale was to hand in hand with lower prices in le"eraging information technology with uying power to sDuee6e suppliers and tighten margins and staking out a dominant position in retailing sector as a low-cost leader- 4$21$7. /e"o$$en&ations a( Wal-Mart has three potential strategies that are market penetration, market

de"elopment and product de"elopment. !s Wal-Mart ecomes the largest retailer, it has sought to increase its market share for goods and ser"ices in current markets through

19 igger marketing effort. This strategy is appropriate for Wal-Mart to attract more shareholders to in"est in the usiness. In addition Wal-Mart increases its marketing campaigns so that to attract and maintain most customers. Fy doing this, Wal-Mart has o tained a distinct ad"antage of controlling markets and that would oost up Wal-Mart#s economies of scale against its ri"als. In fact, Wal- Mart has the power to influence the markets in its own directions ecause of its culture is "ery well costumed for this type of strategy. The Wal-Mart#s management has deep-rooted in employees who are elie"ed to e the core "alue reDuired to impro"e at increasing its market penetration. )( Airst, $ar,et penetration0 its e"ery day low pricing and policy campaign could

always ring positi"e impact and increase opportunities a"aila le to employees. !s the market share increases, it would also egin to add more "alua le to the product offered in that location. With this in mind, Wal-Mart might not ha"e to raise the costs in this kind of situation ecause of consumers# reaction needs. Wal-Mart continues to use this strategy to contact local tele"ision station and purchase ad"ertisement space which can e

accomplished through circular ad"ertisement and newspaper. The costs in"ol"ed in market penetration are not almost as great as with market de"elopment. !ll in all, WalMart has a etter chance of succeeding as it is the only large discount retailer in the area. The ad"antage of market penetration strategy is almost direct result that increases market share, sales and consumers recognition. If this strategy is going to fail it may create high competition. Mar,et &e#elop$entG Wal-Mart has used this strategy ecause it matches with its core "alues and does ha"e many potential areas of opportunity at home and a road. This strategy has pro"ided the needed capital and human resources to expand and helped Wal-

1@ Mart managements to compete within the retail industry. It is also an appropriate strategy to promote and expand the interest in all aspects of the usiness for in"estment. Wal-Mart continues to use this strategy to transfer current employees to difference stores in order to increase the role of success for new locations. Wal-Mart has more societal influence that can impro"e the Duality of life in the region of expansion. The costs of market de"elopment strategy are high ecause it could in"ol"e construction for facilities to use for organi6ing distri ution networks. ;"erything should e organi6ed in a way that placed and operated for shortest period of time and the market de"elopment strategy is reDuired some months to implement. The ad"antages of this strategy are to increase sales, market share, capital in"estments and customer satisfaction. Whereas the growing of Wal-Mart in si6e is the disad"antage of this strategy which possi ly increase poor sales, increase expense and competition, possi le, decrease market share and profit margins for the markets. Pro&u"t &e#elop$ent strate.y increases sales in impro"ing and modifying current goods and ser"ices. In addition product de"elopment strategy is a uniDue capa ility of dri"ing Wal-Mart into high market share with its other di"isions. Ideally, Wal-Mart operates in many distinct di"isions under its authorities. Wal-Mart used this strategy to launch its di"isions into the mainstream position to ecome leading retailer in the market. !lso, Wal-Mart does not in"est in research and de"elopment it might only open this category to finance the opportunity a"aila le in its di"isions. Wal-Mart8s culture is "ery capa le to implement product de"elopment strategy as its employees and management ha"e to enefit enormously from it. !lso its marketplace power would e large enough to ring down e"en the largest competitors in the usiness regions with correct Duantity of

11 research and de"elopment. The core "alues of Wal-Mart ha"e opportunities to e a le to ser"e pu lic and offer the est possi le prices. "( %n "on"lusion0 Wal-Mart could e successful if it is pursuing market penetration

strategy which is the est strategy that is easy and least costly. Wal-Mart may gain more ad"antages for choosing this particular strategy o"er the other two strategies. Though some of these ad"antages ha"e common characteristics etween the potential strategies, it is elie"ed that the cost of picking market penetration is less than the other potential strategies. The potential of expanding too fast would increase o ligations: therefore WalMart could not admire to pick the market de"elopment strategy ecause its result might e positi"e or negati"e. Market penetration strategy is the simplest strategy for Wal-Mart to apply due to its financial state. !lso, Wal-Mart has distinct ad"antages as outlined in the internal analysis. The most important policy is the ,e"ery day lower prices- and some other programs a"aila le that Wal-Mart issues. Therefore, market penetration strategy is a win-win situation for Wal-Mart.

/eferen"es 1. 5onathan Matusit6 and =aura =ord ,Elo ali6ation or Ero ali6ation of Wal-Mart in the .%. ! Dualitati"e !nalysis- 5ournal of &rgani6ational transformation and social change, 'ol. 12 /o. 1 !pril, $219, 13-122. $. We siteG www.walmartstore.com 9. ;dward +umes, y 'ijay %athe, ,The ook re"iew- force of /atureG the unlikely story of Wal-Mart#s Ereen re"olutions. /ew JorkG +arper Fusiness, $211, $*1 pp hard ack.

1* @. =arry =apide, ,Integrated demand signals update- 5ournal of Fusiness forecasting spring $211. 1. Bhida Meriem and +e, =ing. ,%ustaina ilityG eyond recycling an exploratory study of retailers# en"ironmental efforts in the .%!- 5ournal of Fusiness and retail management research. 'ol. 11 issue $ !pril $211. *. <ress =umpkin %esner Mc/amara, ,%trategic management *e. 0. =awrence 5. White, ,Wal-Mart and FanksG %hould the twain meetK ! principlesased approach to the issues of the separation of anking and commerce- L $22) Western ;conomic !ssociation international. 3. (amon Borona, ,Is Bostco etter than Wal-MartK ! Bomparati"e analysis ased on enterprise marketing efficiency- /ational .ni"ersity, 'ol.0, /o $, $21$. ). We siteG www.morningstar.com. 12. Areeman, (ichard, F. !lice &. /akamura, =eonard I. /akamura, Marc Irud#homme and !manda Iyman, ,Wal-Mart inno"ation and producti"ityG a "iewpoint- Banadian 5ournal of ;conomic , 'ol.@@ /o. $ May,$211 11. William <. %poehr, ,BonseDuences of disconnects of MTone at the Top# at the Institutional and operational le"el- Ainancial executi"e, <ecem er $21$, www.financialexecuti"es.org. 1$. %cott /. Iaul, ,Watching Wal-Mart in Bhina,- edited y !nita Bhan I=( Iress, $211, ook and the arts and new la or forum. 19. Iaul F.;llickson, %anjog Misra and +arikesh %. /air, ,(epositioning <ynamics and pricing strategy,- L $21$ !merican Marketing !ssociation, 5ournal of Marketing research.

10