INTRODUCTION
Wal-Mart Stores, Inc. was established by Sam Walton in 1962 as an American public corporation operating a chain of large, discounted department stores. It is well-known for being the largest private employer in the world and ranks fourth among utility or commercial employers. Thanks to its impressive revenue, Wal-Mart continues to hold its position as the largest public corporation internationally.
Wal-Mart is a prominent company that employs 1.8 million people across over 6,700 stores in 14 countries.
With an average weekly sales of $6 billion, it serves around 175 million customers per week.
As the largest grocery retailer in the United States, it holds approximately 20% market share in the retail grocery and consumables business.
Moreover, Wal-Mart is also the leading toy seller in the U.S., and it owns and operates Sam’s Club, a North American company.
Wal-Mart consists of three business segments: Wal-Mart Stores, Sam’s Club, and Wal-Mart International. The company operates as a discount store and implements a cost leadership strategy. According to the Fortune 500 index, which evaluates corporations worldwide based on their total sales, Wal-Mart is ranked first.
Purpose of the case:
The purpose of this case study is to analyze the history and environments of Wal-Mart, both external and internal. We will conduct a SWOT analysis, evaluate its business strategy and performance measures, and provide strategic recommendations.
It is crucial to acknowledge that Wal-Mart’s past achievements are no longer sustainable in today’s competitive market. Consequently, there is a perception that the company’s stock is no longer profitable. President Lee Scott is deliberating whether adjustments should be made to Wal-Mart’s direction or if the efforts undertaken in recent years will ultimately yield positive outcomes.
ANALYSIS OF EXTERNAL ENVIRONMENT
Wal-Mart’s success or failure is greatly influenced by its external environment, which encompasses various elements. The company’s long-held power has undergone a shift with the emergence of competitors like Target and Kroger. This shift resulted in the smallest percentage increase in sales for new stores in 2006.
Despite facing threats such as competitors growing at a much faster rate and various issues like lawsuits, environmental concerns, political matters, and problems related to employees, Wal-Mart’s growth has suffered. To assess the external environment, the analysis considers elements related to the general scenario, industry, and competition.
GENERAL
The general environment of Wal-Mart comprises six dimensions of society. Wal-Mart lacks control over the factors that impact each dimension. Therefore, Wal-Mart needs to comprehend and strategize around each aspect. These dimensions include:
Economic
Wal-Mart is especially worried about how the current economic situation is affecting rural areas, where stores that serve smaller populations are being hit hard. However, Wal-Mart’s advantage over its competitors lies in its strategy of offering low prices. When the economy is going through a downturn, people look for ways to save money while still being able to buy essential items, and that’s exactly what they can do at Wal-Mart because of their affordable prices. The increase in oil prices also has a negative impact on both businesses and consumers. Moreover, Wal-Mart faces challenges when it comes to expanding internationally and dealing with governments due to the ongoing war in Iraq countries; this makes it difficult for them to enter foreign markets.
Sociocultural Wal-Mart’s objective is to attract customers from different income brackets. Initially, it focused on low to moderate-income households but has now expanded its customer base to include higher-income segments as well. However, the challenge lies in trying to accommodate everyone since meeting every individual’s needs is not feasible. Prioritizing one group may lead others to feel neglected, a concern that Wal-Mart acknowledges and aims to address.
< p > Global The trend towards globalization in the 1990s continues to expand worldwide across various industries. Trade barriers have been reduced, with both bilateral and multilateral free trade agreements being signed. Additionally, technological advancements have facilitated access to foreign markets. For Wal-Mart to achieve success on a global level, it is crucial for them to comprehend the best practices in each country they operate in. Initially, they expanded into Mexico, Brazil, and Argentina before venturing into Europe and Asia. Currently, retail companies are witnessing certain globalization trends such as price sensitivity, expansion from major cities to rural areas, and the establishment of comprehensive shopping centers that cater comprehensively to consumer needs.< /p >
Technological advancements in the retail industry are constantly occurring. One notable progress is the use of radio frequency identification (RFID) technology, which helps retailers track and manage merchandise movement, ensuring a smooth transition from warehouse to store shelves. RFID also helps prevent shoplifting incidents. Additionally, electronic commerce has become crucial in retail technology due to improvements in broadband infrastructure and increased internet accessibility in many developing countries.
Wal-Mart, a technology leader, has heavily invested in optimizing and maximizing their operational efficiency. Their reliance on the internet for consumer lifestyle is evident through various advancements. The company boasts its own private satellite network, manages logistics via warehouses and distribution centers, utilizes RFID technology, and employs extended point-of-sale (ePOS) systems for seamless checkout and customer service experiences. Additionally, they utilize intelligent inventory management (IIM), enabling real-time visibility into inventories throughout the supply chain. These technological investments facilitate quick decision-making processes.
Political/Legal: Wal-Mart has become widely known for various political issues such as trades, health care, the environment, discrimination, and worker pay. It is also accused of violating antitrust laws. Wal-Mart is often perceived as the micromanager within the industry market, as it coordinates the actions of numerous firms beyond the market.
Wal-Mart’s environmental practices have caused worries among environmentalists because of its immense size and influence. To tackle this issue, Lee Scott has collaborated with Conservation International to completely overhaul Wal-Mart’s environmental strategy. The suggested alterations involve improving the efficiency of their vehicle fleet by 25% in three years, with a long-term objective of doubling it within ten years. Moreover, they aspire to decrease energy consumption in their stores by 30% and solid waste by 25% over a span of three years.
Lee Scott aims to invest $500 million annually in environmental technologies. Officials at various levels of government in the United States have taken measures regarding Wal-Mart’s handling of hazardous waste. Politicians are expressing discontent and criticizing Wal-Mart for its inadequate wages and healthcare benefits. Lee Scott had made a commitment to raise wages by 6% in specific stores, but critics argue that wage limits will nullify this increase. Certain cities have implemented legal restrictions to prevent the establishment of Wal-Mart stores in specific areas.
Government entities in Inglewood, California, Cedar Mill, Oregon, and Vancouver have all declined Wal-Mart’s expansion plans. Additionally, the company’s image has been tarnished by legal conflicts such as the Dukes v. Wal-Mart Stores class-action lawsuit. This lawsuit uncovered a systematic bias against female employees, who experienced unjust treatment when it came to promotions, compensation, training, and job assignments.
Demographic: The population of individuals aged 65 and older is increasing, resulting in a diverse workforce at Wal-Mart with different ethnic groups. Sensitivity and non-discrimination are vital. Overall, people are living longer and becoming more technologically skilled. Companies can embrace these changes but face challenges related to age and technology. Sam Walton emphasized the importance of staying ahead of change by stating, “Everything around you is always changing. To succeed, stay ahead of that change.”
COMPETITORS
Although Wal-Mart faces competition from other discount retailers, both domestically and internationally through e-commerce, as well as the challenge of securing prime retail locations with high foot traffic, it still holds its position as the leading retailer in 77 out of the top 100 general merchandise markets in America. However, compared to its competitors, Wal-Mart’s financial ratios are average. For instance, Target boasts higher margins with an operating margin of 5.87 percent and a net margin of 3.23 percent. One factor contributing to Wal-Mart’s lower margin is its grocery department, which generates lower profits due to slim profit margins.
CONCLUSION
Wal-Mart, the biggest discount retailer, is currently encountering difficulties as its major rivals have outpaced its growth. The corporation’s public perception has suffered, resulting in legal disputes and worries regarding corporate social responsibility. Consequently, the company’s expansion within its domestic market has been impeded. This case study explored different facets of Wal-Mart’s retail enterprise, encompassing external influences, internal challenges, and business strategy principles. Ultimately, an assessment was carried out to pinpoint the issues and propose solutions for rectifying them and determining the organization’s future course.
