Critical Analysis of Wal-Mart - Case Study Example

Critical analysis of Wal-Mart Student name: Institutional affiliation: Date: Introduction This paper critically analyzes Wal-Mart which is considered the biggest employer globally. Wal-Mart is a multinational retailer running large discount stores and warehouses and has been in operation for more than fifty years. The company’s sales revenue is over 400 billion annually and is among the most valuable companies globally. The company fares better than its competitors including Target, Sears, and Home Depot among others. In conducting the analysis, the paper starts with an analysis of the company’s internal environment within which the company operates. In this regard, the company’s internal strengths, opportunities, threats and weakness have been analyzed (Wendell, 2006). The analysis then focuses on the external environment where a PESTLE analysis has been carried out before conducting a five forces analysis. The results of the analysis portray a strong company that has a lot of opportunities at its disposal. It is thus hoped that if the company can take advantage of these opportunities, it will be a stronger company in future and hence a good investment option. Critical analysis of Walmart SWOT Analysis Strengths -Scale of operations -high competence in information systems -it offers a wide range of products -it adopts a cost leadership strategy -it has an international scale of operations Weaknesses -the company faces negative publicity -the company has little differentiation -Its strategy can easily be copied -it is faced with high employee turnover and labor related cases Opportunities -expanding into emerging markets -investing in own label products -healthy eating products -invest in online shopping Threats -Increased competition -rising commodity prices -increased resistance in indigenous markets The above SWOT analysis has been explained below; Strengths One of the major strengths of Wal-Mart is its scale of operations. It is the largest retailer globally having made more than $400 billion in revenue in 2016 while having 11,545 stores. Thus, owing to its large scale of operations, Walmart is able to exercise strong buyer power on suppliers so they can reduce prices (Hyde, 2015). This also allows it to achieve higher economies of scale compared to its competitors. This results in lower prices to its customers which is its major strength. Another strength lies in Wal-Mart’s competence in information systems. This helps it achieve significant cost savings as its information systems are able to track various types of operational information in real time. This results in effective management of its logistics and supply chain which is a vital factor for its success. Another strength is that it offers a wide range of products than its competitors. This helps it attract more customers to its stores. The company also adopts a cost leadership strategy hence being able to attract more customers by selling its products at lower prices. Another strength lies in its international operations thus diversifying its income sources. Weaknesses Walmart has a few weaknesses. Owing to its large labor force of more than 2 million people, Walmart faces many labor related disputes and hence law suits annually costing it millions of dollars. The company has also been accused of poor work conditions which results in reduced employee morale and hence high turnover. Thus, the company incurs a lot of costs in training new employees while this also has a negative effect on its reputation (Michelle, 2012). Another weakness is Wal-Mart’s little differentiation compared to its competitors. This is a threat to the company’s future were commodity prices or consumer incomes to increase. This would affect its low cost leadership strategy hence eroding its main competitive advantage. The company also suffers from negative publicity owing to its questionable practices including bribery and poor working conditions thus damaging corporate reputation. Opportunities A major opportunity that Wal-Mart should take advantage of is the growth in emerging markets in order to increase its revenue growth. The retail market has on average grown by 5% and hence the company ought to increase its presence in the emerging markets so as to sustain the company’s future growth. There is an opportunity for Wal-Mart to take advantage of the rising acceptance of own label products which have increased by over 40% in the last decade. Thus, Wal-Mart ought to increase its private label products in its stores to earn higher profit margins (Lu, 2016). Another opportunity exists of the rising trend toward healthy eating and hence expand its grocery stores thus expanding its income streams. Another opportunity exists in the online shopping growth that has been on the size. Since Walmart is the largest offline retailer, it should expand its online presence thus reaching more customers and increasing its revenues. Threats A major threat for Wal-Mart is the increasing competition from the traditional and online competitors with companies like target, Costco, Tesco and Amazon putting a lot of efforts in eliminating Wal-Mart’s cost leadership strategy. This poses a threat of increased competition to the company in future. There is a threat in increasing commodity prices that squeeze the company’s margin hence eroding its competitive advantage. Wal-Mart also faces a threat from increasing resistance from local communities. This is because its superstores have a negative impact on local retailers who are at times forced to close shop wherever Wal-Mart establishes a store which affects both the retailers and the community. PESTLE Analysis of Wal-Mart The following is a detailed analysis of the political, economic, social, technological, environmental and legal factors which are the external factors that impact Wal-Mart Wal-Mart’s Political Environment Wal-Mart operates in differing political environments which have significant effect on the company’s financial stability and hence profitability. Due to political stability in the various countries where Wal-Mart operates, the company has been able to attain growth. This has seen the company open thousands of stores and become the largest retailer globally. It should however be noted that in regions that have political instability, the company operates in a business environment that gives it slower growth prospects. In South Africa for instance, the company has been unable to expand owing to bad politics. Back at home, Wal-Mart is a major player in the political scene through donations to political courses. The company has also been accused of various issues such as locking employees in store at night as well as fake sustainability display (Greenhouse, 2011). In 2006, Wal-Mart was the largest corporate political contributor. Wal-Mart’s Economic Environment Economic factors play a great role in a company’s stability and success. Wal-Mart operates in favorable economic environments in the various markets where it operates which provides it with business opportunities and hence opportunity for growth. With various economies recovering from the global economic crisis, this has had a positive effect on the company’s sales and profitability. The company has also used this as an opportunity by offering discounted prices on various products hence attracting more customers even during economic recession. The company recognizes the role of customer’s disposable incomes and hence pursues a discount strategy in responding to economic pressures. This assures it of increased market share at all times. The increased unemployment in the various markets where the company operates has also exerted pressure on it to offer its products at prices that appeal to customers. This is in line with Wal-Mart’s strategy of low cost leadership. Wal-Mart’s Social Factors The social or cultural factors prevailing in the various markets that Wal-Mart operates in influence the customer’s preferences as well as perceptions. For instance, Wal-Mart operates in markets characterized by differing consumer demographics. In U.S for instance, the market’s ethnicity is majorly composed of whites, African American and Asian (Wilson, 2016). The market is also composed of various religious beliefs such as Christians and Muslims. On the other hand, consumer behavior and hence preferences have greatly changed with more emphasis being placed on healthy consumption. As such, a great opportunity exists for the company to take advantage of the emerging trends on healthy lifestyles as well as the cultural diversity. This will help the company increase the healthy products it provides while increasing the variety of products it offers in line with the varying cultural preferences. Wal-Mart’s Technological Factors Wal-Mart Company has been using modern technology for marketing purposes which is core to its success. The company takes advantage of internet and social media in advertising and selling its various products. Thus, technology is Wal-Mart’s foremost concern for its marketing and sales functions. The company should therefore make use of technology in increasing its business automation, business analytics while increasing mobile device usage among consumers. The company has also continued to increase its online presence thus greatly boosting its revenues. Wal-Mart’s Environmental Factors The modern consumer is increasingly supporting businesses that are conscious of the need to conserve the environment. In other words, there is an increasing trend towards business sustainability as well as support for environmentally friendly products. Such issues as conservation, deforestation, green energy use, waste, insecticide use, air pollution among other environmental concerns greatly determine the way Wal-Mart conducts its business (University Alliance, 2014). The company thus is involved in various environmental conservation projects in line with the current trends. However, Wal-Mart ought to improve its operational efficiency in a bid to attain business sustainability. This could be done through technological innovation as well as improved policies and standards on the products the company sells at its stores in a bid to address the various ecological factors prevailing in the market. Wal-Mart’s Legal Factors Wal-Mart operates in differing legal environments and is hence affected by the various laws and regulations prevailing in the jurisdictions. Some of the laws include the truth in advertising laws, laws on seeking punitive damages, consumer protection laws as well as laws against misleading discount prices. Other laws include those on food safety, employment regulations and taxation laws. Thus, Wal-Mart must be careful to observe these laws and regulations regardless of the jurisdiction in which it operates so as to ensure smooth running of its stores while avoiding unnecessary penalties. Wal-Mart’s Porter’s Five Forces Analysis The Porter’s five forces analysis is an analytical tool by Michael Porter representing the forces that shape the overall competitive landscape in the industry. Such forces include the bargaining power of buyers, the bargaining power of suppliers, the threats of new entrants, the threat of substitute products and rivalry among existing firms. The following is Wal-Mart’s five forces analysis; Competitive rivalry among existing firm’s –strong The company is in intense competition with many other retailers and supermarkets both at home and in the various other markets where it operates. Some of its major competitors include Sears, K-Mart and Target with target being the stronger competitor (Boundless.com, 2016). The competitors just like Wal-Mart continue to experience tremendous growth in their domestic and foreign markets and hence pose a great competitive force to Wal-Mart. Threat of substitute products or services-Weak The company sells many products ranging from groceries, entertainment, health and wellness products, hardlines, hardware, apparel, home furnishings and household appliances. Owing to the abundant range of products that Wal-Mart sells, the threat of substitute products could be argued to irrelevant. This is because the retailer offers a wide range of products including their substitutes thus reducing the impact of the threat of substitutes. Bargaining power of Suppliers –Weak The bargaining power of Wal-Mart’s suppliers is weak owing to its size and scope. The company is able to secure the lowest prices from the suppliers and hence it is able to sustain its cost leadership competitive advantage. In 2015 for instance, Wal-Mart paid its suppliers 13.5 billion dollars. Owing to its size, Wal-Mart is able to secure supplies at low prices while requiring suppliers to ensure quality as well as other requirements on employee insurance, employee health and safety, food safety among others. Bargaining power of buyers-Weak This refers to the ability of buyers to put Wal-Mart under pressure. However, individual customers have limited bargaining power with Wal-Mart though if all customers were to demand for high quality products at lower prices, Wal-Mart would have to adapt to the expectation. It is also to be noted that customers in the retail sector where Wal-Mart operates are considered to have a lot of bargaining power as there are many alternatives where they can buy (Emek,2007). With a lot of information being available to consumers, they are able to check for prices from different stores hence giving them a lot of power. The threat of new entrants The most important field as far as the threat of new entrants is concerned is the m-commerce and e-commerce where Amazon currently leads. In addition, the number of independent retailers is rapidly declining as is the case with the malls that house major chain stores. Despite the fact that there are no major barriers in starting up a store in most jurisdictions, it is a bit hard to establish supply contracts and hence be able to effectively compete. As such, Wal-Mart faces a strong threat of new entrants. Conclusion Wal-Mart being the biggest retailer and employer globally has its greatest strength in its size and is hence able to benefit from economies of scale. The company has heavily invested in information technology and logistics enabling it to save on operation costs and is hence the cheapest option. The company thus uses cost leadership as its best competitive advantage and is a n important strategy followed by the firm. Numerous opportunities exist for the company as discussed above. The company has been noted to fair well as far as internal and external environments are concerned. In addition, the company’s five forces analysis portray the company as strong and able to compete strongly in the market. As such, the company ought to take advantage of these strengths to harness the opportunities identified above. This will see the company grow stronger than it is now thus becoming an even better investment option. References: Wendell, C2006, The Wal-Mart Revolution, New York, Taylor& Francis. Hyde, R2015, How Wal-Mart model wins with “Everyday Low Prices, Retrieved on 9th August 2016, from; http://www.investopedia.com/articles/personal-finance/011815/how-walmart-model-wins- everyday-low-prices.asp Michelle, G2012, International marketing and Wal-Mart missed opportunity, Cambridge, Cambridge University Press. Lu, C2016, Incredibly successful supply chain management: How does Wal-Mart do it?, Retrieved on 9th August 2016, from; https://www.tradegecko.com/blog/incredibly-successful-supply-chain-management-walmart Greenhouse, S2011, Wal-Mart cuts some health care benefits, New York Times. Wilson, K2016, The successful cost leadership strategy of Wal-Mart, Retrieved on 9th August 2016, from; http://winaungko.blogspot.co.ke/ University Alliance, 2014, Wal-Mart keys to successful supply chain management, University of San Francisco. Boundless.com, 2016, Success and failure: Strategies to improve success, Retrieved on 9th August 2016, from; https://www.boundless.com/marketing/textbooks/boundless-marketing-textbook/products-9/new-product-development-71/success-and-failure-strategies-to-improve-success-360-10625/ Emek,B2007, The causes and consequences of Wal-Mart’s growth, Journal of Economic Perspectives, vol. 21, no.3, pp. 169-177. Read More