Discuss about the Strategic Management for Wal-Mart Case Study.
Strategic analysis is the process of evaluating the position of company in relation to its external and internal environments. There are various frameworks and models of strategic management which can be used by an organization to analyze the external and internal factors of the environment. This report is focused on the strategic analysis of Wal-Mart Organization considering the growth and changing retail landscape given in the case study. As per the given case, Wal-Mart is a multinational corporation that is engaged in offering retail services to a larger population all over the world. The company has been a strong force for enhancing the living standard in most of the rural trade areas. This report analyzes both internal and external environment of Wal-Mart under changing landscape of retail industry. To analyze these environmental factors, different strategic frameworks are used such as SWOT analysis and Porter’s Five Forces analysis. Additionally, it includes the financial analysis of Wal-Mart on the basis of its growth in the given case study. At the end, recommendations are given which can be used by Wal-Mart to resolve the strategic issues and attain sustainable competitive advantage in global retail industry.
Wal-Mart is an international company that offers retail services to the population across the world. The organization was founded in the year 1962 by Sam Walton and it has its head office in Arkansas, US. Wal-Mart is operating its business with an effective and attractive mission statement i.e. “Saving people money so they can live better”. It is an American retail company that operates a chain of supermarkets, grocery stores and discounted stores. The products of the company include electronics, clothing, footwear, jewelry, toys, photo finishing, home and furniture, movies and music, party supplies and pet supplies. In addition to retail products, this company also owns and runs its brands such as Great Value and Sam’s Choice. Under these two brands, the company produces its own goods and products. The case study shows that Wal-Mart has experienced a significant growth till 2015 and it is able to expand its operation in more than 28 nations including United Kingdom, Brazil, India, Japan, Canada, Africa, Central America, Mexico etc. The current figures show that it has 11,718 clubs and stores in 28 nations. Between 2010 and 2015, Wal-Mart in US was able to double its sales of its products. The company is taken various strategic actions to expand its business in different nations and differentiated its products and services in other sectors.
To analyze the external factors in the environment, Porter Five Forces can be used. It includes five forces such as industry rivalry, bargaining powers of buyers, and bargaining power of suppliers, threats of new entrants and threats of substitutes.
Rivalry in retail industry is moderate for Wal-Mart as the company is a leading player in the market. From the given case, it can be stated that there are various firms with different sizes and they are competing in this industry. Rivalry among current players is high in retail sector. However, the Wal-Mart is market leader due to its effective pricing strategy. Among them, Costco and Target are most significant contenders. Other players do not pose a vital competitive pressure on Wal-Mart. Apart from this, Best Buy; Sears, Ames, Woolworths and Kmart are not very powerful to pose competitive threat to this largest retailer. Thus, when it comes to rivalry in retail sector, Wal-Mart is always king. It shows that strength of industry rivalry is medium in retail sector.
For Wal-Mart, the bargaining power of customers is not very high. It is primarily for the customers who do not make big purchases. It can be analyzed that cost and convenience of shopping are two significant aspects that to large level restrict customers’ bargaining power. Most of the Wal-Mart’s customers are families and middle income people and they switch by looking the prices of products. Switching cost is not higher for the people except that they may not get the similar lower prices and shopping convenience with other company that they can have at Wal-Mart. The major reason behind the reduction in bargaining power is its lowest pricing strategy. Overall, it can be concluded that this is weak force for this retail giant.
Wal-Mart is one of the first retail giants to invite suppliers to partner with the company. The case shows that supplier like Procter & Gamble had built office in Bentonville and worked together to share data of procurement. Bargaining power of its suppliers is low due to various reasons. There is a large population of suppliers that has strong potential to affect companies like Wal-Mart. Higher availability of supplies make it very difficult for the suppliers to affect the retail companies. The major reason behind this is that switching costs for Wal-Mart is very low and company can switch from one supplier to another without having any major costs. The case study indicates that it is very easy for Wal-Mart to attempt backward integration than its vendors to integrate forward. The company has developed an ethical guideline for its suppliers, if any of the suppliers do not comply with guidelines, it will be removed from Wal-Mart’s list.
The threat of new entrants poses moderate pressure on Wal-Mart. This is because Wal-Mart is the largest among retailers and it will need a huge investment to develop a brand image like Wal-Mart. It is very difficult to have a supply chain and distribution network like Wal-Mart. Financial capital and other resources assist the company to overcome the risk of new entrants. The price advantage of Wal-Mart has assisted it to gain a significant market share. Overall, it is not a powerful force.
For Wal-Mart, threat of substitutes is medium because there are some other substitutes where people can shop their retail and grocery products. Mostly, people prefer to shop at their nearby retail or departmental store as they find it more convenient. In addition to this, online retailers also pose threat to Wal-Mart as online shopping offer more convenience to customers where they do not have to go or pick the products from stores. But still, these substitutes are not able to provide products on as lower as Wal-Mart. Thus, this is medium threat for Wal-Mart.
One of the major strengths of Wal-Mart is its extensive and effective supply chain and logistics system. The organization has a core competency engaging its utilization of information technology to assist its international logistics system. For instance, it can see that how the products are performing in different nations, store by store. The second strength of Wal-Mart is that company has a strong financial position in international retail industry. In 2015, it has become world’s largest retailers and largest organization with the revenues of US$ 485651. It assists the organization to grab the attention of more suppliers and investors. It can be seen that company has grown significantly over past few years and it has experienced international expansion in 28 countries. Additionally, lower pricing strategy of Wal-Mart is biggest strength that helps the company to increase its customer base.
Apart from these strengths, Wal-Mart has some weaknesses which affect the growth of organization in international retail industry. Because of acquisitions in South Korea, Germany, Canada and expansion of business in United States has resulted in lower quick ratio. In addition to this, debt equity ratio of company is above the critical level i.e. 1. As Wal-Mart offers its products across various sectors like stationary, grocery, clothing and food, it may have rigidity of its more focused competing brands. One of the most impactful weaknesses of Wal-Mart is that its business model is very easy to imitate. These factors can affect the profitability of organization.
Wal-Mart may have various opportunities which can support the organization to overcome the above weaknesses and potential threats faced by Wal-Mart. Retail industry in America has experienced a significant growth which can act as a growth engine for Wal-Mart to make investment in developing nations. It can expand its business by establishing strategic partnerships and collaboration with already established brands in that country. New store types and locations offer the company opportunities to exploit market development. The company can diversify from larger super markets to local sites. It will enable the organization to increase customer base from rural areas.
However, Wal-Mart is a largest retailer in terms of revenues, but still the company is confronting various threats in retail industry. One of the major threats to Wal-Mart is intense competition from other international retailers such as Amazon, Costco, Target and Tesco. These companies are working on developing an effective pricing strategy and providing excellent shopping experience to their customers. Moreover, emerging companies are using new and updated technologies under their operations that make the business cheaper and faster. It can challenge the low cost operations of Wal-Mart. It is facing the challenge of how to grow and sustain its lower prices in changing landscape of retail industry. Increasing wages are also putting pressure on profits when costs are increasing in China.
As mentioned above, Wal-Mart is the largest retailer in terms of revenues that shows that financial position of this retail giant is good in US and international market. The financial statements in case study indicates that in the end of year 2016, the store revenues of Wal-Mart has decreased by -0.7% and declined to $482,130 million. The exhibit 3 in the case study shows the comparative performance of its major competitors such as Amazon, Target, Costco, and The Kroger Co. It indicates that revenue of Wal-Mart in 2015 is largest as compared to other competing brands. Considering the figures of financial performance table, it can be stated that Target is more profitable than Wal-Mart when the gross profit market, ROA, ROE and net profit margins are overlooked. But it is not a full indicator that Target is performing better than Wal-Mart as Wal-Mart is giving dividends more than Target Corporation. In terms of gross profits, Target Corporation is leading over other organizations in the table. Moreover, there is a great downfall in the growth rate. In the year 2005, the CAGR of Wal-Mart is 14.9% that was reduced to 3.5% at the end of 2015.The number of Wal-Mart’s stores are more than other retailers as the company is continuously making expansion in emerging nations. Considering the human resource issues, the organization has announced investment of $2.7 billion in the development of its workforce.
Thus, it can be concluded that Wal-Mart has good financial position currently. Despite of comparatively lower gross profit rate, the company is able to increase its revenues more than others. Sales per store have been increased in the duration of last five years. Currently, the company is effectively managing its assets that will enable the company to increase its sales in the coming years. It will lead the organization towards future strategic success and ability to enhance sales.
Conclusion and Strategic Recommendations
It is hereby concluded that Wal-Mart is largest retailer in the international retail industry. The external environment of the company shows that overall impact of Porter’s five forces is moderate for the growth of Wal-Mart. Furthermore, the company can use its strengths and opportunities to overcome threats and weaknesses. The financial analysis shows that company holds a better position as compared to its competing brands.
Under strategic recommendations, it can be stated that Wal-Mart needs to implement some effective strategies to attain sustainable competitive advantage. Currently, this company has adopted cost leadership strategy that assists it to attract more customers. It is hereby recommended that company should use differentiation strategy in the future so that it can gain more competitive edge against other competing brands. It should make its products and services different from other organizations. The company should adopt effective and modern information technology sources that will enhance its operational efficiency. This generic strategy will assist the organization to develop its business internationally and overcome the threat of intense competition. It should offer the premium products also and it should make investment on advertising and marketing activities. In addition to this, Wal-Mart should conduct training and development programs for its employees. The employees should get the wages according to qualifications and work. It will improve the company’s position and brand image among the targeted population in Australia and other foreign nations.
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