STRATEGIC MANAGEMENT ANALYSIS OF WALMART
Introduction
Company history
Walmart is among the largest retailers with wide global coverage. Walmart was started by Sam Walton as a small retail enterprise in 1950 in Bentonville called Walton’s 5&10. Thereafter in 1962 in Rogers, Arkansas, Sam Walton opened his variety store at the age of 44 (CNBC TV18, 2018). In just five years, the Walton family had 24 stores valued at close to $12.7 million in sales. It was incorporated in 1969 and a year later began trading in stocks as a publicly held company. The company was listed on the New York Stock Exchange in 1972 whereby it became among the fastest-growing companies in the 1980s (CNBC TV18, 2018). Its global sales reputation such as making more than $100 billion sales in a year since 1997 enabled the company to at the top of the Fortune 500 ranking of America's largest companies for the first time in 2002 (Walmart, 2020). Walmart has had a long history in the retail market landscape over the years, now close to six decades since its inception.
An enterprise that started as a retail outlet by Sam Walton has grown over the years to what is now a global fortune owned by the Walton family. The founding Chief Executive Officer, Sam Walton, stepped down in 1988 but remained actively involved in decision making until he died in 1992 (Walmart, 2020). For a long time, the company has been managed as three major divisions: Sam's Club, Walmart International, and Walmart U.S. (Walmart, 2020). The first Sam’s Club opened in Oklahoma in 1983, the first Supercenter opened in Washington, in 1988. By 1990, Wal-Mart became the number-one retailer in the United States. Sam Walton’s goals for great value, serviceman leadership, and great customer service are what have made Walmart evolve to what it is today
Company’s present conditions
On the global outlook, Walmart continues to be among the top performers in retail sales. According to O'Connell (2020), Walmart has had a fairly constant financial performance over the last several years whereby the company generated close to 514.4 billion US dollars in its global net sales in 2019. Notably, these figures showed positive growth in its global financial fortune since it was an increase of 2.9 percent compared to the previous fiscal year (Forbes Media 2020). The largest international market is in Mexico with more than 2400 store locations (Walmart, 2020). In 2019, its Walmart U.S holdings segment alone made a majority of its earnings which was up to about 65 % of total sales that generated over 331 billion dollars (O'Connell 2020). These figures contributed to the largest share of its operating income in 2020 and the forecast for revenues from Walmart U.S segment continues to be promising going forward. According to the forecast report by Forbes, Walmart was expected to grow its e-commerce sales to more than 11% of its total revenues in 2020, and more than 600 billion dollars in global sales (Figure 2). The later report, adjusted this projection due to the economic slump caused by the COVID-19, whereby Walmart expects the growth in e-commerce sales in 2020 to slow down to about 30% compared to the 37% growth experienced in 2019 (Forbes Media 2020). The fact that global sales projections were not mentioned makes it a matter of waiting to see the real numbers going forward.
For millions of consumers spanning across several countries, Walmart is their main source of household goods and more. 2018 saw Walmart announce its plans to increase starting wages to $11 per hour and other benefits for the more than 1 million associates. Walmart also acquired Flipkart in India, Art.com, Bare Necessities, and initiated a merger process with Asda and Sainsburys in the United Kingdom (Sims 2018). 2018 also saw Walmart venture into the subscription-video space by developing a low-cost option with the hope of competing with players such as Amazon (Sims 2018). In 2018, Walmart closed 63 Sam's Club locations in major cities across the U.S. this largely unforeseen and sudden liquidation of these stores lead to over 11,000 workers losing their jobs (Peterson 2019). According to Peterson, The disenfranchised employees filled lawsuits that made the company spend substantially in litigation, settlements, and job realignments. This drastic move was meant to secure the future of this retailer by converting the stores into e-commerce distribution centers which were seen as a promising opportunity.
Other than the physical stores and retail outlets owned by Walmart, it also has an e-commerce division that has a wide clientele. The e-commerce sales which are about 8 % of the total sales (in 2019), are expected to more than double from the 2017 figure of $15 billion to around 38 billion in 2020 (Forbes Media 2020). The company increased its online base after the acquisition of Jet.com, an e-commerce website, for US$3.3 billion towards the end of 2016. In 2017, the company acquired other retail entities with e-commerce platforms such as Moosejaw for approximately $51 million, Bonobs online fashion store for $310 million, ModCloth, and Parcel deliveries based in Brooklyn (Martínez, Galván & Alam, 2017). According to Forbes (2020), after the acquisition of Jet.com and others onto its online channel, Walmart was able to experience substantial growth in 2017, 2018, and 2019, respectively as shown in (Figure 1). This minor acquisition into Jet.com also enabled it to benefit in 2017, when Jet acquired ShoeBuy.com and renamed it Shoes.com.
Over the past few years, Walmart has had its successes mired in robust and strategic moves in the retail market. According to O'Connell (2020), at the end of fiscal 2017, Walmart had expanded its physical locations substantially by opening more outlets both in the US and international markets. The company was operating more than 11 thousand stores worldwide as of the 2019 fiscal year and this is likely to increase as it ventures into newer markets (O'Connell 2020). In 2017, Walmart launched a free two-day- shipping offer on a wide range of products which boosted its 2017 U.S market sales by 1.6 % from the 1% growth in the 2017 fiscal year (O'Connell 2020). The companies launched the Project Gigaton which was meant to encourage suppliers to help reduce greenhouse gas emissions and chemicals footprint helped the retailer gain by increasing its appeal to customers. In the same year, Walmart changes its Sam's Club's president and CEO, which was a move aimed at reinstating confidence in its selected high-end customers in the running of the clubs.
Company’s mission and objectives
The mission and vision statement of Walmart Inc. are modeled according to the ideals of the company’s founder, Sam Walton. The mission is “to save people money so they can live better” is also synonymous with its slogan, “Save money. Live better.” The strategic decisions made by Walmart are a direct manifestation of this mission. The statement identifies its approach which is enticing to customers but fails to mention its products or services. its vision which is to “Be the destination for customers to save money, no matter how they want to shop” was put forward as from 2017 (Ferguson, 2019). Walmart uses price as a selling point to attract target consumers as exhibited in many of its strategies. The goal of the company is to become a reputable international brand.
Strategic Group Map
The strategic group map is widely used in strategic management to group companies that operate within an industry that have similar business models or strategic factors. Walmart is a strategically placed company in the retail industry, which has a wide variety of companies. In this case, the retail industry has many companies such as Amazon, Costco, Aldi, Big Lots, Dollar Tree, Target, and Whole Foods Market. The strategic group map is designed to assess the market position of selected retailers in the industry. I constructed the map using two variables, which are the distribution channels and geographic coverage (Figure 3: Strategic Group Mapping). There were various variables I could have chosen to base my analysis on such as the extent of product diversity, the extent of branding, marketing effort, or pricing policy. However, I found the two variables I chose to be more objective in assessing the position of each of the players in this retail industry since they compete by selling the same products at different prices.
Analysis of Competitors
Both the international and the US retail industry has a good number of well- placed competitors. Therefore this analysis is conducted on Wal-Mart’s major domestic and international competitors to quantify their competition intensity. The group map constructed will help in understanding how the competitors perform based on the two variables, distribution channels, and geographic coverage
Domestic competitors
Target Corporation, is the second-largest domestic competitor to Walmart in the US retail market that deals in general merchandise. Target Corporation is cited as one of the direct competitors to Wal-Mart since it also endears to customers using a low price strategy, online shopping options, and a one-stop-shop approach. It has over 1800 stores spread across the United States and is expected to expand in the next few years (Target Inc.2020). Additionally, it has a wide distribution network amongst other operational factors that make it similar to Walmart.
Dollar General Corporation and Dollar Tree, Inc operate as a discount retailer. Dollar General Corporation operates mainly in the southwestern and eastern United States with over 13000 stores in 43 states. The wide variety of its stores make it well placed to offer a one-stop experience (Dollar General 2020). Dollar Tree Inc. operates not only in the United States but also in Canada. Under its subsidiaries, The Dollar Tree chain, and Family Dollar chain, Dollar Tree, Inc. operates more than 13,800 stores in the United States only and others in Canada (Dollar Tree, 2020).
Wal-Mart’s Sam Clubs face great competition from the Costco Wholesale Corporation. Costco runs membership warehouses with both branded and private-label merchandise for a wide range of its products. Its wide network of 501 warehouses as of 2016, its website enables it to reach a lot of customers (Costco Wholesale, 2020). Also, Costco has an international presence in many countries such as Korea, Spain, and Australia, Japan, Taiwan, Canada, United Kingdom, and also countries where Walmart has a wide market such as Puerto Rico and Mexico (Costco Wholesale, 2020).
International competitors
Amazon, in so many ways, offers a big threat to Wal-Mart, more so its e-commerce platform. Amazon is mainly an online-based platform where buyers can get a wide variety of products from vendors and third-party sellers (Amazon, 2020). Amazon has for a long tie enticed customers using its Amazon Prime subscription plan which allows for free two-day shipping on a lot of eligible items (Amazon, 2020). Among the big players in the online-video subscription platform that Walmart is also venturing into, happens to be the same Amazon.
The largest competitors to Walmart in the international market are Metro Group Germany-based multinational wholesale corporation), Tesco PLC (British corporation), and Carrefour (French multinational retailer). Tesco PLC has over 6,900 stores spread across 11 countries in Europe and Asia including major consumer markets like the United Kingdom, India, Malaysia, and China (TESCO PLC, 2020). Carrefour operates physical stores in over 30 countries and has growing e-commerce and m-commerce platforms. Carrefour also has a principle of providing a wide variety of high-quality items at the lowest prices, thus giving Walmart formidable competition in strategy (Carrefour, 2020). The Metro Group has three segments namely, the Metro Cash & Carry, Media-Saturn, and Real Metro that have specific trade lines in Europe and Asia (Metro, 2020).
Industry Environment Analysis
Walmart is the largest retail corporation of discount department and warehouse stores in the world. This section analyses the retail industry where Walmart and other competitors are placed based on Porter's Five Forces of analyzing competitive environments: Rivals, Buyers, Suppliers, New Entrants, Substitutes.
Rivalry among Competing Sellers (Strong): the retail industry a very strong rivalry among the competitors. The many retail outfits have been shown to have a relatively low switching cost for customers moving between retailers. Additionally, numerous companies in the retail industry also happen to have similar corporate and marketing strategies to the same target clients (Joseph & Kuby, 2015). For example, the customer endearing strategy as putting in the mission statements of both Wal-Mart and Target, both entail the use of a low-price strategy to attract customers. This makes rivalry a negative force for industry profitability
Threat of New Entrants (Weak): In the retail industry, the reputable players are well-established companies which have many cost advantages in their business models, for which new entrant find it difficult to match. Such advantages arise from economies of scale, favorable market locations, and strong partnership deals with major suppliers (Maphwanya 2019). More so, venturing into a major business in the retail industry requires new companies to have a large war chest such as high capital investment and expansion financial capabilities to compete with the already established retailers (Timilsina 2015). As such the threat posed by new entrants in this industry is weak and a positive force for industry profitability.
Threats of Substitutes (Strong): The retail industry has a very strong threat of substitutes. The fast technological advancement in the 21st century is quickly changing how people and corporations function (Meadows & Meadows, 2016). This has made online shopping to be the new trend globally due to e-commerce platforms that also allow for shopping and e-payments. The traditional companies that have been slow to adopt this model have lost a lot of sales to online retailers. The threat of substitutes such as online retail platforms is a negative force for industry profitability, more so for slowly adapting brick and mortar companies
Suppliers’ Bargaining Power (Weak): there is a high number of suppliers in the retail industry, that make the bargaining power to Wal-Mart be weak. In this case, companies like Wal-Mart can change their supply chains with ease due to the numeracy of substitute players in the production industry (Maphwanya, R. (2019). Most of the suppliers depend on the sales made by a big retailer like Wal-Mart, to get a share of the market revenues, and as such hurting the realties would jeopardize their businesses since few retailers push large volumes of products. This week supplier’s bargain power makes it a positive force for industry profitability.
Buyers’ Bargaining Power (Moderate-strong): the abundance of retailer companies and low switching costs for customers makes buyer’s bargaining power moderate to strong. The wide variety of products sold by Wal-Mart is consists of standardized products that are also stocked by other retailers. Although buyers’ power reduces slightly because most of their purchases are essential goods such as groceries, this is only a minor factor since there are many substitute grocery stores in the industry.
References
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Appendix
Figure 3: Comparable sales growth of Walmart U.S. in the United States from fiscal year 2006 to 2020*