The key objectives of this report are to conduct a strategic audit of Wal-Mart based on the given case study, thus to exploring the different aspects of theories and perceptions of strategic management.
The report has been prepared based on the information given in the case study as well as secondary resources such as books, journal articles, and online documents.
There are six main sections included in this report, in which each section is written to address the answers to each question outlining the required issues. The first section gives a brief introduction to the company and identifies the strategic factors that have the most impact on Wal-Mart. Section two outlines the futuristic orientation of Wal-Mart taking its key competitors into consideration. Section three identifies the strategic moves of the company. Section four evaluates the effectiveness of the Wal-Mart strategies with the use of company’s financial and non-financial performances. Section five appraises the future of Wal-Mart and the probable efficacy of the actions which the company is taking or proposes to take. Lastly, section six concludes the report.
Wal-Mart Stores, Inc. (branded as Wal-Mart) is an American public corporation which was founded by Samuel Moore Walton in July 1962 with the opening of the first Wal-Mart discount store in Rogers, Arkansas.
Wal-Mart, headquartered in Bentonville, Arkansas, was incorporated in Delaware in October 1969 and instigated selling shares of stock in 1971 (Bowen et al., 2009). Due to its diversification practices, the company grew rapidly in 1980s and by 1991, with its first store in Mexico, Wal-Mart stepped into the international expansion of its business (Pereira et al. 2002). (Please refer appendix A for the Timeline of Wal-Mart).
At present, Wal-Mart is the largest retailer in the world owing more than 8,400 retail units under 55 different banners in 15 countries. The company operates its business through various formats across the world. In US it operates in formats such as discount stores, super centers, neighborhood markets and club stores. Wal-Mart functions its retail stores under three types of segments namely, Wal-Mart U.S., International, and Sam’s Club (Global Data, 2010).
As of 31 January 2010, the Wal-Mart US segment comprises of 3,708 units and includes company’s “mass merchant concept” which operates under the brands Wal-Mart and walmart.com. The company’s International segment consists of 4,112 units operating in Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico, and U.K. Sam’s Club include 596 warehouse membership clubs in the US as well as samclub.com (Wal-Mart annual report, 2010; Mergent, 2010).
Wal-Mart is best known for its low pricing as well as its wide range of merchandises. These merchandises include food, clothing, footwear, accessories, toys, consumer electronics, and furniture. Through its website, it sells products such as downloads of music and movies. Moreover, Wal-Mart launched “Wal-Mart Marketplace” in August 2009, which increases inventory by patterning with other online retailers (Euro monitor International, 2010).
During the fiscal year ended January 2010, Wal-Mart recorded revenues of US$ 405, 046 million, which is an increase of 1% over the previous year. Furthermore, the operating profit of the company increased by 5.05% and the net profit of the company was US$ 14,335 million in 2010, an increase of 6.98% over 2009 (Wal-Mart annual report, 2010; Global Data, 2010).
Figure: SWOT Analysis of Wal-Mart (Author’s work. Source: Global Data, 2010; Euro monitor international 2010; Data monitor, 2009).
Since its establishment in 1962, Wal-Mart has developed a strong brand name and has a great popularity among hundreds of millions of customers around the globe. It has a high status for “value for money, convenience, and wide range of products” all in one-stop-shop (Marketing Teacher, 2010).
The company offers diversified products and brands in its assortments to suit the needs and wants of its customers. The diagram below illustrates the products offered by Wal-Mart.
Table: Private Label Portfolio
Apparel (Kids, Men &Women)
Health &beauty products
Consumer electronics
Toys &games
Lawn and garden items
Jewelry &accessories
Automotive products
Home furniture &furnishings
Sporting merchandise
Pet supplies
House ware
Grocery
Athletic Works
Bakers &Chefs
Canopy
Dura brand
Equate, Ever start
Faded Glory
George
Great Value
Home Trends
Mainstays
Member’s Mark
No Boundaries,
Ol’ Roy
Ozark Trail
Parent’s Choice
Puritan
Sam’s Choice
Sam’s Club
Secret Treasures
Spring Valley
White Stag
Hence, through this extensive products and brand portfolio, Wal-Mart is capable of attracting, retaining and serving a broad customer segment (Global Data, 2010; Euro Monitor international, 2010).
Wal-Mart has a total of 8, 416 units worldwide, the wide store and distribution network facilitates the company to cater to its customers more effectively and efficiently. Hence attract more customers and as a result increase its revenues and profitability (Global Data 2010).
Wal-Mart has activated a numerous strategic business programs in order to achieve competitive advantage and draw a broad customer base. These programs include;
Table : Marketing Programs
Guarantees that customers are offered the lowest prices for goods daily and prices will not fluctuate due to influences from promotional offers.
Assurance to convey its cost savings from its internal and external activities to the customers through low prices.
Ensures that the individual stores hold products precise to the demographic needs of the local neighborhood.
Thus in general, these marketing programs have helped Wal-Mart to attract and retain a large loyal customer base (Global Data, 2010; Data monitor, 2009).
Wal-Mart has a leading market position in the US with approximately 75% of its revenues are generated from the domestic market. Hence the company is ranked 1st by Fortune 500 as one of America’s largest corporations (Cable News Network, 2010). In addition to the US, Wal-Mart also has a strong grip on the Mexican, Puerto Rican markets and has wide operations in Central America, Brazil, Canada, and Japan. These provide Wal-Mart with economies of scale, generate a stronger brand awareness and customer loyalty, and hence give strong brand equity and thereby penetrate the market more successfully and make high revenues (Global data, 2010; Data monitor, 2009).
Although Wal-Mart has been success in most emerging markets (for e.g. Wal-Mart’s high performance in Mexico through increased profits in 2008 & 2009), the company remains highly reliant on its domestic market (US) for the majority of its revenues. Hence most of its stores (4,304 units) are located in the US, generating a total of $ 304.9 billion revenues, contributing to 75.3% of the total revenues in the 2010 fiscal year (refer appendix for graphical view of sales by segment). Thus, during an economic turmoil, the concentration on the US market could possibly result in reduced sales and revenues due to less consumer expenditure and high inflation rates (Euro monitor international, 2010; data monitor, 2009; global data, 2010).
The company was accused of digressing from the “US minimum wage laws”. These include roughly 63 wage-and-hour class actions which are imminent against Wal-Mart for defrayal. Wal-Mart was also charged of violating the “California labor law for meal break provision” to its workforce in 2008, which resulted in court ordering the company to pay a compensation of more than $170 million. In the same year, company was again accused of breaching the “Missouri hazardous waste laws and regulations”. Further, Wal-Mart is also involved in gender discrimination cases charged imposed by “former and current female employees of Wal-Mart’s US retail and warehouse club store”. Hence, Wal-Mart’s involvement in these legal issues can be seen as an adverse effect on its brand image. Moreover, inauspicious outcomes of these law suits lead to additional expenditure for Wal-Mart that may affect its overall profitability (Euro monitor international, 2010; data monitor, 2009; global data, 2010).
Due to its poor performances in certain key markets, Wal-Mart had to withdraw its operations from Germany and South Korea. In both cases, company failed to identify and respond effectively to the needs and wants of the customers where as its global competitors had been flourishing in those markets. Hence this incapability to acclimatize to the domestic market conditions might be a foremost challenge for Wal-Mart in its future growth in international market segments (Data monitor, 2008; global data, 2010).
The company was implicated in a number of product recalls during the recent times. For instance, Wal-Mart removed the “EB brand fitness ball” due to numerous complaints on the “balls bursting” surprisingly which resulted in certain damages to the users. Thus these constant products recall result in high operational costs and most importantly it leads to unfavorable publicity and loss of confidence among customers and avoid them from buying Wal-Mart products.
US currently have the highest per capital health care spending in the world. Thus the increased aging population and more health conscious people have given a great opportunity for Wal-Mart. Thus the company implemented its first co-branded in-store clinic in February 2008, which is planned to further expand by the end of year 2010. These clinics, known as ‘The Clinic at Wal-Mart’, are attached to the local hospitals in Wal-Mart’s areas of operations. Consequently, Wal-Mart could expect to detain a considerable market share in the pharmaceutical retail business (global data, 2010; data monitor, 2009).
The growing demand for private product label throughout the world, particularly in the US, has been intense during the past few years. Hence Wal-Mart offers a wide range of private labels such as Athletic Works and Canopy. Thus this allows the company to capitalize on the increasing demand for these products and thereby the company would acquire low operational costs and gain higher margins (data monitor, 2009; global data, 2010).
The company operates its business in numerous key international business regions. Hence despite the economic turmoil, majority of the people are purchasing opulent and lifestyle merchandises. Thus Wal-Mart could focus on these emerging new markets in order to gain more market share and increase profitability (global data, 2010).
The company operates its business under various formats in the US namely discount stores, supermarkets, neighborhood markets and Sam’s clubs. Hence due to various factors such as increasing fuel prices, consumer debt levels, high pricing of consumer goods and rising inflation rates, consumers are seeking out for stores where they can purchase everything under one roof. Thus this propensity has enhanced supercentre, and hypermarkets to increase its annual sales. Therefore this is an excellent opportunity for Wal-Mart to increase its sales by converting the existing discounting stores into supercentres (Global Markets Direct, 2010).
In order to provide low priced goods to its customers, Wal-Mart requires a great deal of assistant from its suppliers. Thus supplier’s capability of delivering goods at low cost is crucial for the company. To ensure quality and the standard of the products, Wal-Mart follows certain laws with its domestic and international suppliers. However, the company faces numerous challenges in locating these types of suppliers. Furthermore, factors such as delivery of goods on time, political and economical stability of the supplier’s country, financial requirements, labor issues, and availability of raw materials are some of the key challenges faced by the company that have a direct impact on the sales and revenues (global data, 2010).
The retail business in which Wal-Mart operates is highly competitive. Hence the company is confronted by severe competition from retailers in the domestic market (US) as well as retailers operating overseas. The competition faced by Wal-Mart varies from the selection and availability of products, services offered to its customers, locations of the stores, store hours, convenience and most importantly the price of goods. Thus failure to keep up with these conditions could greatly affect the financial performances of the company (Global data, 2010; Global Markets Direct, 2010).
The recurrent changes in the US labor laws have limited the company in filling the vacant positions at the stores. It is also faced with assorted external factors such as lack of qualified individuals in the local market, unemployment, wage rates, shifting demographic and new employment and labor laws and regulations. Hence, these factors could negatively affect the Wal-Mart’s financial performances (Global Markets Direct, 2010).
Furthermore, economic conditions such as declining economy in the US that affects the consumer spending due to inflation, high tax rates, high fuel charges, high interest rates and etc., hence these conditions have a negative impact on the company’s operational activities and financial performances in both the US and International market segments (Global data, 2010).
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