CompanyAnalysis: Wal-Mart Stores Incorporation
CompanyAnalysis: Wal-Mart Stores Incorporation
Wal-Martis an America-based company that operates in the retail industry. Thecompany was started in 1962 by Sam Walton. Its major products includecash and carry, footwear and apparel, superstores, hypermarkets,discount stores, warehouse clubs, and supermarkets (Wal-Mart StoreIncorporation, 2014). The company deals with the retail of householdgoods and focuses to diversify into non-household products, such asused cars. Its operating divisions include Wal-Mart stores, Sam’sclub, Wal-Mart International, Vudu, Private label brands,entertainment, and Wal-Mart global e-Commerce.
Theterm value drivers refer to different factors that promote or affectthe creation of value in an organization. Wal-Mart has four majorvalue drivers that account for its success since the onset of itsoperations as a retail business. First, collaboration helps themanagement in ensuring that all the stakeholders are informed aboutthe goals of the organization, which helps them maximize its value inthe long-run (Cameron, 2006). Secondly, the retail firm embarks on aclear definition of value (including the maximization of value forthe shareholder wealth) for the organization. Third, the firm hasmanaged to tie the recognition and reward systems for value creation,which has helped employees concentrate on more on value creation thanthe desired outcome (Cameron, 2006).
Overthe years, Wal-Mart has established a powerful retail brand. Thecompany has a reputation of value for money, which is based on itsstrong foundation (Mishra, 2013). In addition, the availability of alarge number of goods under a single store makes its customerssatisfied and happy.
Wal-marthas low market share outside the United States market segment. Thecompany has established a system of keeping its employees’ wages atminimum level. At times Wal-Mart customers are curious about thequality of products on the shelf (Mishra, 2013).
Mostof the international retail markets, especially in Asia, areuntapped, which means that Wal-Mart still have an opportunity toexpand its operations in emerging markets. In addition, Wal-Mart hasan opportunity to enter the international markets through jointventures. Moreover, the U.S. inflation rate has forced customers todivert from expensive products to cheap ones, most of which can besold through retail stores (Mishra, 2013).
Wal-Martis likely to face stiff competition at local, as well as theinternational levels. Competitors (including Burlington stores) havebeen gaining control over the international market ahead of theWal-Mart stores (Mishra, 2013). Moreover, Wal-Mart is at the risk ofpolitical influence given the fact that it operates in a different(about 14 countries) countries.
Wal-Marthas made extensive use of the modern and emerging technologies toenhance its competitive advantage over its competitors. For example,Wal-Mart was among the first retail stores to implement the point ofsale system, which allows the company to identify all items sold,find their prices in the given computer database, and prepare anaccurate sales receipt (Rita, 2000). In addition, Wal-Mart dealsdirectly with manufacturers, which allows it to manage the supplychain effectively in spite of its large size.
Theinfrastructure owned by Wal-Mart includes 2485 stores, 682supercenters, five neighborhood stores, and 457 Sam’s clubs(Mishra, 2013). About 60 % of the managers started working withWal-Mart as hourly associates, which gave them an opportunity to getvaluable experience. Wal-Mart applies computer-based technology,which has allowed it to implement the just-in-time model, thusreducing the overhead costs associated with storage. When makingorders, Wal-Mart works together with suppliers to ensure that costsare reduced, and profits are realized by both parties.
Salesrevenue realized by Wal-Mart account for the merchandise that isadvertised nationally. Wal-Mart schedules its services in hours thatare convenient to its customers, which is 7.00-11.00 from Monday toSaturday and 10.00 am-8.00 pm on all Sundays (Mishra, 2013). Thechain store ensures that its operations are environmentally friendlyby running a recycling program for car batteries, plastics, andaluminum cans. Wal-Mart uses the last-in, first-out approach in thestore and Sam’s Club segments.
Althoughgrocers are likely to enter into the same industry as the Wal-Mart,it has established an outstanding distribution system that acts as anentry barrier (Seang, 2014). Currently, Wal-Mart has several rivals(including K-Mart, Sears, and Target) that operate in the sameindustry, most of which are experiencing tremendous growth. Wal-Martconsumers have little or no bargaining power, which has caused theconsumer groups to raise complaints. Wal-Mart has a large marketshare, which gives it the power to give its suppliers with the threatof switching to other suppliers, which in turn reduces the bargainingpower of suppliers (Seang, 2014). Retail market does not have manysubstitutes, but online shopping seems to be a viable alternative.Although Sam’s wholesale is owned by Wal-Mart, it serves a suitablecomplement that enhances its profitability.
Wal-Mart’scorporate culture emphasizes on hard work, a value that was derivedfrom its founder Sam Walton. Wal-Mart has created a perception amongemployees that those who work hard and participate in a profitsharing program earn more, become, happy, and rich (Mayes &Allen, 2000). The company is based on values (such as civicmindedness, politeness, wholesomeness, and genuineness) which havemade it one of the most admired firms.
Wal-Marthas been using horizontal integration as a strategy to enhance itscompetitiveness in the retail industry. Although it is amultinational company, it does not produce its goods, but depends ona large number of suppliers. It pressures its suppliers to lowerprices since it has the capacity to act as a principal client, whichallows selling products at a cheaper price compared to itscompetitors (Rigsbee, 2013). In addition, Wal-Mart established Sam’swholesale as a subsidiary operating in the same industry, which is apart of its horizontal integration.
Wal-Marthas established a trend of entering into strategic alliances withdifferent firms with the objective of increases its competitiveness,profitability, and market share. For example, a strategic alliancebetween Wal-Mart and McDonald’s resulted in a store with a storewhere McDonald’s is given a section to conduct its operations inCalifornia, and Oxnard stores that are owned by Wal-Mart (Rigsbee,2013). In addition, Wal-Mart have announced the establishment of astrategic alliance with Li & Fung, which will increase its globalscale by improving the quality of goods, speeding up the entry intothe international market, and reducing the cost of differentproducts.
Typesof corporate diversification
Wal-Marthas been focusing on two major types of corporate diversification.First, by increasing the number of stores that are located indifferent places, the company has managed to increase itsgeographical diversification. For example, the company opened its5000th store in November 2014 in Greenbarier, which will increase itspresence in the United States (Wal-Mart Store Incorporation, 2014).Secondly, Wal-Mart has been increasing its profitability and growththrough product diversification. For example, the company has a planto start selling used cars in order to increase its revenue (Ramsey,2008).
Costsand benefits of vertical integration
Wal-Martfocuses on forward vertical integration, which means that it owns thewhole of its supply chain. The company sells directly to theconsumers, thus eliminating the middlemen between the company and theend consumers (Santa Clara University, 2014). This ensures thatconsumers get the products at a lower price, thus increasing theWal-Mart’s profitability and competitiveness. Wall-Mart has notmanaged to initiate backward integration given the high cost ofmanufacturing. However, Wal-Mart has managed to reduce the number ofmiddlemen between it and the manufacturers, thus reducing the cost ofsales and increase returns.
Theprimary goal of Wal-Mart is to retain its position as the largestretail company by selling at lower prices and diversified itsportfolio as well as the geographical presence. However, there areseveral challenges that the company should overcome for this goal tobe realized. The present study has four major recommendations for themanagement of Wal-Mart. First, Wal-Mart should embark on onlinemarketing and selling in order to take advantage of the rapidtechnological advancement. Failure to do this, its competitors willembrace the new technology and take advantage of the current trendswhere many people are shopping online. Secondly, Wal-Mart shouldincrease consumer’s bargaining power in order to avoid the negativeimage that is being portrayed by different consumer groups. Third,Wal-Mart should increase its market share outside the United States,which is an effective way of retaining its position as aworld-leading retail company in the long-run. Fourth, Wal-Mart shouldtake advantage of its current reputation to enter into emergingmarkets (including China) ahead of its competitors (such Target) thatis growing at a tremendous rate.
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