SWOT Analysis: Wal-Mart Inc.

(Walmart Swot Analysis)

A. Internal Environment
Strength Weakness Remark
I. Management Infrastructure + + + Wal-Mart has been able to install and maintain a
management team that is performing superiorly over its entire existence. This is foremost a
consequence of the remarkable leadership abilities of its founder Sam Walton. He is often
described as having been a very charismatic figure. The challenge that lies ahead is to
perpetuate this spirit and not to become an ordinary organization like many of its
competitors servicing top level management more than the customer. For that task it will
need an equally outstanding and humble leader on its own.
1. Corporate Level Management
+ + + The credo of always low prices is the corporate mission and is had proved to be
successful. In fulfilling this mission, Wal-Mart always emphasized not to increase margins
but to pass on its benefits and advantages received to its customers in order to offer them
the best price. Because the war over the retail customer is mainly a price war, this should
be the route to success in the future, as well.
2. Business Level Management + + + Wal-Mart operations are split into Wal-Mart Stores,
Sams Clubs and International Wal-Mart. As of mid 2005, the Company had 1,289 Wal-Mart
stores, 1,816 Super centers, 555 Sams Club and 92 Neighborhood Markets in the United
States of America. Internationally, the Company operated 11 units in Argentina, 152 in
Brazil, 261 in Canada, 47 in China, 89 in Germany, 16 in South Korea, 706 in Mexico, 54 in
Puerto Rico and 291 in Great Britain. These are stocked by 110 distribution centers around
the world.
Wal-Marts success is based on its concentration of a single-business strategy, namely low
prices, service, and a smile. This strategy has achieved superior performance over the last
three decades without relying upon diversification in other fields to sustain its growth and
competitive advantages. The inherent risk is that all eggs are put in one basket.
This risk is mitigated by diversifying internationally, which Wal-Mart is now emphasizing.
Thereby it can profit from its strong domestic base. As in the US, Wal-Mart tries to utilize its
superior supply chain management and their superior logistics. With its computer system
Wal-Mart can track how much of one item has been sold on any given day, and if an item is
not selling well, they will ship it out to another store where it might be sold faster. Contrary
to common industry standard and as Wal-Mart has done in the past in the US, it will, if
possible, build the warehouse first, preferably in a free trade zone, and then group the retail
outlets accordingly. Opportunistic buying of merchandise is equally important to deliver on
the right price. Service from when the customer walks in the store to when he/she leaves
rounds up the picture.
All of these strategies are not proprietary, they are even common sense, and may easily be
copied. However, as opposed to many of their competitors Wal-Marts management was
able to actually implement these policies, which principally seems to be the result of a high
morale in its workforce and accordingly good work ethics.
It appears to be essential to hold this spirit up in the future and not to rest on the laurels of
the past. The enormous size of Wal-Mart is believed to its biggest asset as it gives Wal-Mart
leverage over its suppliers and envied economies of scope and scale, however such
economies are not endless and the bigger they are the less they will increase significantly.
The key to success for management is not to be overwhelmed by the bureaucracy that
inevitably comes with any large organization. One may not remember well but General
Motors seemed invincible in the past, too.
3. Functional Level Management + + Wal-Mart refers to its employees as associates, and
encourages managers to think of themselves as servants. Each shift at every store starts
with a store-wide meeting at which managers discuss with hourly associates daily sales
figures, company news, and objectives for the day. The Wal-Mart spirit is legendary,
including things like the cheer (Gimme a W ), however that suits, perhaps, the
American mindset better than, for instance, the European.
Wal-Mart has done only an average job in caring about the details of its foreign operations
lacking a feel for adapting the assortment of its goods to local taste (not acceptable, but
justifiable) and even worse local standards and regulations. The latter should be obligatory
for a global company that sees itself as a local player in each market.
II. Human Resources
1. Recruiting, Staffing, Training + + According to its own mission statement it was founded
on the belief that open communications and the highest standard of ethics is necessary to
be successful. This resulted in the open door communication policy that helps
management to become aware of and address issues in a timely and effective manner.
Secondly, Wal-Mart has adopted a statement of ethics to guide its employees in the
continued observance of high ethical standards such as honesty, integrity and compliance
with the law in the conduct of Wal-Marts business. Extended codes of conduct apply for
senior management, in particular for financial personnel.
In sum, Wal-Mart still possesses the ability to recruit, train and unify its workforce behind
one strong idea, the Wal-Mart way, much the same way a start-up company often does.
This is a unique capability in the industry.
2. General As said before, Wal-Mart refers to each of its employees as associates,
(thereby borrowing from J.C. Penney, as freely admitted). This is supposed to give each
employee the feeling of being important to the entire organization. In the same line of
thought Wal-Mart does not engage professional models for photo shootings in their
brochures but exclusively uses its own employees. Yet, in stark contrast hereto, the majority
of Wal-Marts employees earn below the so-called poverty line, often no more than $250 a
week. In addition they are asked to pay more than twice the industry average for health care.
This inconsistency may backfire some day when the employees seek not only spiritual but
secular support from their employer.
III. Research and Development
+ + + It may be common belief that a retailer need not to have extensive R&D at the core of
its business and, accordingly, information thereon is scares. However as described below
(IV. Procurement) Wal-Mart is in the first line a brilliantly organized logistics company no
wonder the CEO and former COO of the company was hired away from a trucking company.
Wal-Mart is always at the forefront of new technology: scanner cash registers, handheld
devices, satellite tracking of goods etc. Its computer system is believed to be one of the
largest and most sophisticated computer systems in the private sector at all. This may lead
to the conclusion that Wal-Mart has, indeed, a strong R&D department. The ability to track
down streams of goods in the market is at the same time a unique marketing tool also
constantly improved by R&D. For a retailer, Wal-Mart is truly high tech.
It will be essential for R&D to maintain this unique capability vis-* -vis its competitors.
IV. Procurement
1. Supply Management + + + The supply management is, in my opinion, the often
underestimated key to the success of Wal-Mart. Due to superior information technology,
enterprise resource planning and inventory control systems, as well as logistics, Wal-Mart is
able to identify the goods the customer demands most and to restock its supermarkets
accordingly on a daily basis. This capability is unmatched in the retail industry. In contrast,
its competitors need on average a week to adjust their assortment of goods. Wal-Mart is
able to do so because of a satellite based information system that collects the data
gathered in each market through its scanner cash registers on a real time basis. This data is
processed to a central computer based at Wal-Mart headquarters, beamed to warehouses
spread all over the country, and the individual market is delivered accordingly the very next
day. That gives Wal-Mart also the possibility to regroup and relocate merchandise within the
market in order to improve sales and actually measure the results thereof almost
immediately. Wal-Mart also makes use of an algorithm which allows it to forecast the
quantities of each item to be delivered more exactly, based on the inventories in each store.
2. Purchasing + + Due to its size Wal-Mart has huge bargaining power over its suppliers,
thus getting lowest prices in the industry. Yet, one can not squeeze the margin out of
suppliers indefinitely. Secondly, Wal-Mart has always stressed opportunistic buying of
merchandise in fact a truckload of sandals bought out of bankruptcy for 5c and sold for $1
each was Sam Waltons first discount experience. A big plus for Wal-Mart is its ability, and
willingness, to share its logistical data with its suppliers to manage the supply more
efficiently.
V. Manufacturing/ Operations + This category is only applicable with limitations. The
manufacturing and operations of retailer is its logistics, see above. Secondly, part of the
operations is identifying a location for new outlets and markets. Wal-Marts strategy is
characterized by two unique tactics: Contrary to common wisdom, Wal-Mart started off not
in the densely populated metropolitan areas, where more purchasing power exists, but in
the rural areas, thus building a strong home base for expansion with no or minor
competition. Second, it builds the distribution center first and then groups the retail markets
around it in order to streamline logistics. Both moves proved to give it a competitive edge.
Wal-Mart will have to follow this line of thought in its global expansion.
VI. Marketing/ Service
1. Product + + + Wal-Mart sells a wide variety of tangible products: everything from
pharmaceuticals to hardware, even guns. No retail sector is left out. About 60% of sales are
non-grocery items. It also sells gas (presumably at a loss to attract people to other
products). Wal-Mart is also investing in a private label strategy (Wal-Marts Ol Roy dog
food became the biggest seller of dog food in the United States) which it believes offers
better prices for its customers. In addition it sells some financial services through its credit
card operation. The intangible product Wal-Mart sells best is its own profile, with supposedly
everyday low prices, service and smileys.
2. Price + + + Wal-Mart claims for its organization everyday low prices. So do a lot of other
retailers (Sears: lowest prices in town etc.). However, Wal-Mart seems to deliver on that
promise and this is what distinguishes Wal-Mart from the competition. Then again it can
afford low prices because the costs are lower and the margins are higher than those of the
competition due to superior efficiency in its logistics.
3. Promotion Wal-Marts promotion profile is low. Wal-Mart does not regularly advertise in
newspapers. It banks on advertising by word of mouth from its customers by delivering to its
promises. So far, it is very successful. It is emulating thereby Marks & Spencer, the famous
incumbent British retailer. Instead of classic advertising, Wal-Mart, from time to time,
supports social causes (Buy American; an environmental friendly, green product line).
This strategy is not very creative though should be maintained as it massively saves cost.
The success does not come without burden: Wal-Mart has to face increasing criticism from
pressure groups (WalMartWatch etc.).
4. Place + + Domestic: Wal-Mart is ubiquitous with a strong base in rural America. It is
currently in the process of conquering the metropolitan areas, however sometimes facing
local resistance (e.g. New York City) and fierce competition.
Globally, Wal-Mart has still a long way to go to become truly global. Though the number of
1,700 stores is impressive, Wal-Mart is, with the exception of Canada and Mexico, not a
major player in the respective market. As the examples from Europe show it is not the only
retailer that knows how to sell quality at always low prices. Nonetheless, Wal-Mart has to
stick to its strategy to use its US profits to expand overseas. I would confine any expansion
to certain key markets with good public traffic infrastructure, because this a requirement of
Wal-Marts logistics based business model.
B. External Environment
Opportunity Threat Remark
I. Competition
1. Power of Purchasers As a retailer Wal-Mart is, of course, solely dependent on the
individual customers. Up until now the customers have shown significant loyalty to Wal-Mart,
even though competitors like K-Mart have almost identical offers. However, the customer is
not married to Wal-Mart and, as the retail industry has often proved, changes are quick to
come. It took Wal-Mart only 40 years to drive household names like Sears, A&P or K-Mart
near or into bankruptcy. Minor threat.
2. Power of Suppliers + + + Wal-Marts bargaining power, as the industry leader, is
enormous. This will give the company a competitive advantage over its rivals. Bargaining
power will surely increase once Wal-Mart becomes truly global. This is a clear opportunity.
3. New Entrants As stated above, it took Wal-Mart only 40 years to become the worlds
largest retailer. Retailing is, in principle, not a proprietary, but a fragmented industry.
Barriers of entry compared to high tech industries are low. However, as economies of
scale, and thus sufficient capital, are important to compete on price, Wal-Mart as the
industry leader has a clear advantage. Yet, on a global basis even colossal Wal-Mart holds
only a tiny fraction of the entire retail market. Successful newcomers tend to arise
unexpectedly, like Target Supermarkets in the US or German Lidl supermarkets in
Europe driving massively into the territory of French giant Carrefour. New entries to the
industry are a medium level threat.
4. Substitutes Not only will new entries to the market pose a threat to Wal-Mart but
also other channels of retailing, in particular internet retailing and specialized retailers that
may eat into the hold-all assortment of Wal-Mart. Smaller outlets for quick shopping may
prove to be more convenient as large supermarkets, especially in non-rural areas into which
Wal-Mart is moving.
5. Rivalry Overall, rivalry is very intense. Competition is primarily on best retail prices.
Wal-Marts main competitors in the discount retail business domestically include Kmart and
Target, along with smaller regional chains. Wal-Marts move into grocery has also
positioned it against major grocery chains such as Kroger, Publics, and local grocery chains.
In the Sams Club warehouse business, Wal-Marts chief competitor is Costco that is slightly
larger than Sams in terms of sales.
Wal-Mart by its sheer size can utilize best on its economies of scale and economies of
scope. The former by setting low prices for its suppliers and the latter by incorporating new
products easily in its line of merchandise due to its existing highly efficient infrastructure.
6. Life Cycle + Retailing, fulfilling everybodys everyday needs, will by definition never be
in decline, albeit expansion by increasing the number of stores might slow down
significantly as the markets saturate.
II. Economics Evaluating the opportunities in retailing with regard to the economy, is
forecasting the economy itself because, in general, retailing is mimicking the economy as a
whole.
1. Domestic Growth of GNP + + However, Wal-Mart has shown that it is able of growing
rapidly even at times of slow or no economic growth of GNP after the burst of the internet
bubble economy in 2001 till today. It seems that with the economy now slowly but surely
recovering, Wal-Mart may not only grow through expansion, which will not work indefinitely,
but by internal growth. Yet, increased growth may mean that consumer spending will switch
to high price, high quality merchandise, not available at Wal-Mart.
2. International Growth of GNP + + + Huge opportunities exist outside the US. This is
particularly true for emerging economies like Brazil and China, their people catching up with
Western standards of living on a broad base and a fast pace. By setting foot in these
regions, Wal-Mart is already capitalizing thereon. Expanding overseas may mitigate cyclical
changes at home.
3. Interest Rates, Inflation + Interest rates are historically low, so investment in new
outlets is relatively cheap. Inflation is low too, not leaving much leeway for price increases.
Neutral.
III. Legal/ Politics/ Diplomacy
1. Domestic + + Knowing the legal and political environment, Wal-Mart should have no
difficulty dealing with it domestically. Labor laws are still favorable for the type of
employment Wal-Mart has to offer to its associates.
There might be some conflict with non-rural communities not inclined to have Wal-Mart set-
up shop in their neighborhood.
2. International + Wal-Mart seems to be puzzled over the fact that in foreign countries the
law (and voltage for that matter, [see Argentina case]) is different from the US, and not all
laws are made to fit Wal-Mart. Complaining about the fact that in Mexico all merchandise
must be labeled in Spanish, and alleging that enforcing such regulation is specifically
targeted against Wal-Mart [see Mexico case], may seem awkward, when in the US a cup of
coffee must be labeled Caution: Contents Extremely Hot (in English), else a ruinous law
suit will follow. European building laws on supermarkets are not stubborn. They apply
equally to everybody (it might well be that the Europeans do not want their cities and
countryside look like Detroits inner city or Rogers, Arkansas). However, Wal-Mart is quickly
adapting. Its success in China proves that even non democratic systems can be fertile
ground for its expansion. Yet, the change of mind of Chinas government seems not
surprising as Wal-Mart buys goods worth $18 bn ($9 bn direct, $9 bn indirect according to
www.walmartfacts.com) each year from Chinas manufacturers.
Ironing out the minor missteps, the international legal environment is very well suited for
further expansion as Wal-Mart is already proving.
IV. Socio Culture + + This may be the hardest category to evaluate. The Wal-Mart
business model was initiated in rural areas, offering a wide variety of low price general
merchandise under one roof to aim at one-stop shoppers. This concept did not only fit well
the countryside but also in suburban neighborhoods. If this can be translated into successful
expansion in strictly metropolitan areas is to bee seen. Here Wal-Mart will face the
competition of more highly focused and highly efficient niche players each of them nibbling
at a certain part of Wal-Marts assortment of goods. I think the trend, in general, will point
towards people shopping for their daily needs even more at discount stores since only price
does matter, whereas demand for longer lasting goods such as electronics, music and
books, cars, clothing will be satisfied at specialized internet and/or niche retailers (with the
exception of home appliances however).
Furthermore the one-stop shopping does not go down that well in Europe, where shops are
closer by and people rather tend to shop in the city centers. Admittedly, that is about to
change noticeably. What may appear peculiar in other countries, and for Wal-Marts
employees there, is the so-called Wal-Mart spirit (Gimme a W ). This had to be
changed in Germany for instance.
As shopping at Wal-Marts heavily relies on the use of the automobile, it is to be seen
whether the concept works in third world countries in which public transport is prevailing.
V. Technology + The only technology dramatically changing the way people shop would
be the internet. However, the infamous failure of internet grocer WebVan has shown that
groceries and other daily merchandise are not the products that sell well over the web.
Else, Wal-Mart has proven to be the industrys technology leader in its crucial supply
chain management. As long as it stays on top there, it has to fear only competitors to
narrow this gap, which gives Wal-Mart significant cost advantages.
Threats and opportunities are balanced.
VI. Market Seg-mentation (Demo-graphics) + + The population in the US is increasing,
which will inevitably result in more retail customers. That is obviously good for the entire
industry, including Wal-Mart.
Wal-Mart has shown that its approach in the US, namely no off-price sales, no coupons,
rebates or other gimmicks, but everyday low prices, is far reaching and bridging all sorts of
geographic, demographic, and socio-graphic gaps. Its sophisticated logistics gives Wal-Mart
also the possibility to regroup and relocate merchandise between its market in order to
improve sales and adapt to socio-graphics that it will measure by the very shopping patterns
of its customers in its markets. The possible, but not verified differences between rural and
suburban environment on the one hand and metropolitan on the other have been discussed
above.
Overseas the picture is slightly different. Population is sharply increasing in the emerging
economies, however falling in Western Europe.
Often Wal-Mart had been ignorant of adapting to local taste, customs and regulation in its
assortment of goods, albeit that has changed for the better. In particular in Germany, where
the consumer is very price sensitive and supermarkets (and consumer electronic retailers)
are more price competitive than anyplace else in the world, Wal-Mart had to realize that it
had never offered always low prices but high ones. In a desperate effort to change that,
Wal-Mart is now selling many items below cost. Though no numbers have been made
public, it is supposed to bleed cash in the billions and has faced several law suits under
anti-dumping (predatory pricing) legislation. Wal-Mart has recently improved by further
acquiring existing supermarket chains and internal expansion, realizing economies of scale.