First Individual Case

Wal-Mart Stores, Inc., in 2010

Submitted By: Ankita Kumari

Introduction In less than 25 years, Wal-Mart has risen to become the largest discount retail stores in the world and has proven that the type of operation that they have is successful and effective. Although they are the industry leader, in the recent years their sales growth rate has not experienced such of an increase. The decrease of the slowing growth rate from their previous years has begun to develop problems and serious concern for the company. They are now faced with the attempt to understand the symptoms and causes of the problem and how to regain their growth strength. Wal-Marts External Environment: Threat According to the S-C-P model, Wal-Mart is facing local environmental threat in industries. These are the threat of rivalry, the threat of buyers. Wal-Mart is facing stiff competition from both traditional competitors and specialty retailers, e.g., Kmart, Target, Costco and Best buy in electronics etc. The internet posed an increasing threat to Wal-Mart as more people became comfortable with shopping online. Customers are lured by internet shopping because of steep discounts offered. Wal-Mart has also reduced the price gap compared to its competitor and this might cause shoppers to switch to other retailers. Opposition and resistance from communities is another threat to Wal-Mart. Wal-Mart faces almost no threat of entry because Wal-Marts economy of scale eliminates the immediate threat of new entrants into the market. Threat of substitutes is also not very apparent due to the fact that the number and size of Wal-Mart is much greater than any other supplier. Opportunities An overall reduction in the profitability of firms, a slowdown in the introduction of new products and an increase in the amount of international competition signifies that Wal-Mart has reached the stage of mature industries. Wal-Mart can put emphasis on increasing quality of service, a focus on reducing manufacturing costs and increasing quality through process innovations. It has a great opportunity to look for new locations and store types, target overseas market, put efforts on social welfare for better image and build its own brand. The Asian market is virtually untapped by the retail world. By having an untapped market it gives a huge opportunity for companies to expand. It promises unlimited potential for growth and profits. An opportunity facing the industry is that internet shopping is growing. To take advantage of internet shopping, the industry can aggressively work on online retail sales. Wal-Marts Internal Capabilities Strength Internally analyzing with the VRIO system, Wal-Mart tends to still prove their strength. One of their largest strengths is the distribution system. Cross-docking practice has helped WalMart reduces the cost of sales by 2 to 3 percent and most major retailers have found it difficult to duplicate. Wal-Mart had pioneered the use of technology in retail operations and possesses significant advantages over its competitors. Their use of the EDLP (Every Day Low Prices) executes the most success in being the lowest prices compared to their competitors. With the use of EDI, Wal-Mart possessed a substantial advantage in information about supply and demand, which reduced both the number of items that were either overstocked or out of stock. IT supports Wal-Mart efficient procurement. Wal-Mart enjoys a huge economy of scale as it has tremendous buying power. Wal-Mart produced $405 billion in revenue in 2010, and possessed 3500 total stores in the US. Net

sales, operating income as shown in table 1 indicates this company will not be going away anytime soon in the future. Growing EPS and DPS shown in table signify that Wal-Marts management believes that the growth can be sustained. Weakness There are several areas of concern for Wal-Mart. It is frequently criticized for its employment practices, labor relations problems and community related problems. Wage issues, workplace rights abuses and numerous legal issues have tarnished its image. Wal-Mart has been criticized for depressing wage growth in the U.S. Community relations' problems are bound to exist with a corporation the size of Wal-Mart. Complaints mainly arise from community groups accusing Wal-Mart of driving small local retailers out of business and taking away their job. Perception of customer is that Wal-Mart offer low quality products. From 2006 to 2010, the companys net sale is decreasing as shown in table 1 is another sign of its weakness. Employee turnover is quite high in Sams club compared to its competitor Costco, i.e., 45% vs. 23% according to 2003 data which is another huge concern. Current Issues Communities are hesitant to welcome Wal-Mart into their local areas. They are worried to have a negative impact on local small business and high unemployment. Hence they look into Wal-Marts impact on their community before offering tax breaks and incentives to drive local employment. Wal-Mart International is a fast-growing part of Wal-Marts overall operations. Wal-Mart had tried a variety of approaches and faced a diverse set of challenges in the different countries they entered because they approached international operations with much the same philosophy they had used in the United States. One problem which is considered is that of Wal-Marts being applicable in the sense that competitors or new players find it easy to imitate Wal-Marts ability to attract suppliers by offering higher cost and value for their products. This becomes an unintended problem for Wal-Mart because it compromises the reputation of the company by offering quality products because consumers always attached the company in offering lower prices. Being so, WalMarts specialty of offering its customers the lowest price in the market still remains a problem that should be given attention. Wal-Mart is the largest retail store in the United States and is larger than any other retail chain in the world. Hence, Wal-Mart is always the centre of controversy on social issues. Its reputation is at stake by decades of criticism and legal troubles. It had become a symbol of capitalism that had run out of control. Wal-Marts brand image is at stake as it is being criticized for low wages. Recommendation With many great opportunities and strengths, Wal-Mart may need to focus attention on potential threats and weakness. There are a few recommendations to help the company expand, maintain reputation, increase brand image and decrease social backlash.

The company faces criticism from community groups, unions, etc. Wal-Mart should participate in more local community events by sponsoring reputable non-profits in each of its locations. They should be active in this work. Philanthropic activities will increase its visibility. By connecting to local schools, the company can regain trust in parents, the next generation of shoppers, and community activist that may have an unfavorable review of them. Wal-Mart also needs to send its store managers and executives into local communities to give their time in the community in a meaningful way. It would also be a plus if salaried store managers were permitted to work on community projects on company time, rather than being encouraged to do things on their own time. This will increase brand loyalty also. Wal-Mart should focus internationally to expand its business. Its strategy in international expansion should be Think globally and Act locally. The stores must be willing to bend their uniformity and consider the reaction of the local culture. It should find strategies to compete, such as analyzing their customers and providing better products and service. Also, China and India hold great potential in providing new market expansion to increase sales. Wal-Mart should establish political connections and find acquisition to expand its brand or operations. It will need to win local support of political leaders which Wal-Mart has not successfully established foreign or domestically. The retailers will need more legal representation and strategy to guide its expansion in global markets. Wal-Mart needs to work better with governments, not against them, to adjust to the various markets and achieve success overseas. This strategic action will help in increasing its profitability ratio shown in table 2. Wal-Mart has the highest sales per square foot, inventory turnover, and operating profit of any discount retailer. This puts Wal-Mart at advantage to purchase products from suppliers in bulk. Wal-Mart should establish strategic partnerships with most of their suppliers, offering them the potential for long-term and high volume purchases in exchange for the lowest possible prices. As shown in exhibit 4 in case most of the suppliers received over 15 percent of their sales from Wal-Mart.

Wal-Mart has been accused of hurting small businesses and disrupting the markets in many small town communities. This lowers the purchasing power of the community, although as the price leader approach appears to save customers money to live better. Small businesses can employ more workers and in return they will shop at Wal-Mart with higher purchasing power. Wal-Mart should help empower small business, not to compete against them, but to provide wholesale options and support to help them succeed. With proper distribution to other small business as a supplier, Wal-Mart can help the small businesses to grow and still generate revenue. It must find a way to comprehend the microeconomic impacts that would offset healthy, local, economic environments. It must demonstrate precisely how it can be a good neighbor. Wal-Mart might have to spend more money and more time to implement the aforementioned strategy ideas. Bad press is simply not good for the bottom line in the long term, and it can't get much worse than it has regarding labor relations. A friendly corporate image is more than a smiley face that slashes prices. Putting their own people out helping the public is what makes a company visible. Working with governments and being sensitive to local cultures instead of working against them will benefit the company in the long term. By implementing these suggestions, they would be better positioned to defend themselves against their critics.

Annexure
Table 1
Fiscal Year Ended January31 in Billions except per share data Net Sales Net Sales Increase Operating Income Earnings per share Dividend per share

2010

2009

2008

2007

2006

$ 405.0 1.0% $24.0 3.72 1

$401.0 7.3% $22.8 3.35 .95

$ 373.8 8.4% $22 3.16 .88

$ 344.8 11.6% $20.5 2.92 .67

$308.9 9.8% $18.7 2.72 .60

Table 2
Profitability Ratios ROA ROE

2010 .084 .20

2009 .081 .21

2008 .078 .19

2007 .077 .18