Strategic Analysis of Walmart

  Strategic Analysis of Walmart Corporation

     Introduction:

Walmart, an American retail brand was incorporated in 1969 in Delaware. It is the biggest retail brand of America and has seen fast growth in the recent years. Today, it has more than 11700 stores as well as numerous e-commerce websites under 65 banners in 28 markets from which it serves more than 270 million customers every week. Walmart provides  a very large assortment of quality merchandise and services at affordable prices to its customers. The central attraction of Walmart’s value proposition are its Everyday Low Prices.  If the brand has reached a leading position in the retail market then it is because of its attractive pricing strategy. Its business is divided into three main reportable segments that include Sam’s club, Walmart US and Walmart International. Walmart launched its first e-commerce initiative in the year 2000 and since then its latest investment in international business expansion included the purchase of a large stake in the Indian e-commerce website Flipkart. In 2018, it employs 2.3 million associates of which 1.5 million are working in US whereas 0.8 million are working abroad. Its Revenue for the fiscal year 2018, ending January 31 was $500.3 Billion.

Walmart competitors

   External Environment of the US Retail Industry:

Walmart is at the helm of the US retail industry followed by the likes of Costco and Best Buy.  Several reports on the economic output of the US retail industry have showed that it is the lifeline of the US economy. Apart from its large contribution to the national GDP, the retail industry is also known for being the largest employer in the American economy.  The retail industry has been through challenging phase and it has seen various ups and downs in the past decade. Growth has returned since after the recession. A few things that  have kept growing important in the context of the retail industry are technology, operational efficiency and customer orientation. Sales in the retail industry are expected to have surpassed $28 trillion by 2020. Retail has also grown at a whopping speed challenging the growth of traditional retail with Amazon at the helm of the commerce growth globally.  The US retail industry is also the largest employer in US that  employed more than 29 million people in 2012. These were the people employed directly in the retail industry whereas the figures can be far higher and past 40 million if we include the people it employs indirectly. Apart from that, as per 2012 figures it generated 1.2 trillion dollars in employment directly. Walmart, Kroger, Costco and the Home Depot are some of the brands that  hold the largest market share in the US Retail industry.

 Industry Demand Determinants and Profitability drivers:

There are several factors that affect demand and drive profitability in the retail industry. Apart from economic and technological, there are demographic factors that also affect demand in the retail industry. The retail industry too is highly susceptible to the economic factors. During the recession, its growth was affected by the decline in disposable income across households. Low unemployment during the recession led to lower disposable income which in turn led to lower spending by people and financial loss for the retail industry. High disposable income and higher level of employment drive sales and income in the retail industry. In the recent years, US and various other nations have seen higher economic activity and higher employment that  has led to growing sales and revenue for Walmart and other major retail players. It was for the first time in the history of Walmart that  its revenue crossed the 500 Billion dollar mark.  There are other factors too including demographic and technological that are affecting the sales and growth of retail industry. The changing demographic composition of the US population also affects sales. The millennial generation is a tech savvy generation that likes shopping online and a personalised shopping experience. The brands that are investing in technologies like AI and commerce are experiencing higher sales and financial growth. The millennials constitute a larger section of the US population and brands are reformulating their sales and customer service strategies to grow closer to the customers. They are investing in AI for a more personalised inside the store and online shopping  experience. Growing e-commerce sales is also a sign that brands must leverage the power of the internet to grow. The growth of e-commerce is also a sign that a large part of the retail battle will be found online in coming years.

     Porter’s Five Forces Analysis of the US retail industry:

The US retail industry is made up of a large group of small and big retail brands. Walmart and Costco are leading in the retail industry with their low prices and large assortments of merchandise and services. While the US retail industry is marked by heavy competition, growth in the recent years was primarily supported by higher digitisation and better economic activity. This is Porter’s five forces analysis of the US retail industry.

Bargaining power of suppliers:

The bargaining power of suppliers in the US retail industry is low. The big brands like Walmart & Costco buy in bulk and are able to press the suppliers for lower prices.  Moreover, apart from a  few of the bigger brands the smaller suppliers do not hold any major clout. They are bound to offer their products on lower prices or risk losing business. There are more than one lac small and big businesses that are the suppliers of Walmart. Moreover, the suppliers are required to follow the rules set by the business. The immense bargaining power of the big retailers like Walmart also comes from their financial clout.

Bargaining power of buyers:

Control is in the hands of the customers or the buyers in the 21st century. Retail brands are doing every thing to keep their customers happy and satisfied. Apart from everyday low prices, retail brands like Walmart are also focusing on better customer service as well as leveraging technology to provide a better and personalised  customer experience. Some of the factors that moderate the bargaining power of the buyers are the brand image, low prices, quality products and services and high level of customer service. The overall bargaining power of customers in the retail industry is moderate to high. The bigger brands like Walmart and Costco enjoy higher loyalty.

Threat of substitute products and brands:

The threat of substitute products in the retail industry is high because of the high number of retail brands in the market. The threat gets moderated in case of the larger brands like Walmart and Costco because of their competitive advantage in the form of lower prices and a wider product assortment.

Threat of New entrants:

The threat of new entrants is moderate because it will not require a very large investment for a new brand to enter the retail market and it is why several foreign brands are also in a race to enter the US market. However, in case of the bigger brands this threat is low because of the high level of loyalty that they enjoy as well as their international presence. The overall threat remains moderately low. In case of the large brand like Walmart or Costco, switching costs can be high for customers since all brands do not sell at as low prices.

Level of competitive rivalry in the retail industry:

The level of competitive rivalry in the retail industry is very high. There are several influential and financially strong players in the market like Walmart, Krogers, Costco and Bets Buy. Apart from them, there are hundreds of small and big players adding to the intensity of competitive rivalry including the e-commerce giant Amazon. The overall competitive rivalry in the retail industry is highly intense.

    Walmart Core Competence:

The core competence of Walmart is its everyday low prices that it has used to grow its market share by increasing customer base. The brand offers a large range of good quality products and services and that too at very low prices which can sometimes be much lower than the nearest competitor. In this way the brand has been able to obtain very high level of customer loyalty. Its low prices and high focus at customer service have helped the brand build an image of America’s friendliest retail brand.   Walmart buys in bulk from its suppliers which allows it to obtain products at extra low prices and it passes on the benefit to the customers. Its another core competence is customer service. Its customer centred business strategy also focuses on high degree customer convenience. Higher customer convenience means higher popularity and  faster growth in customer base. A third core competence that is enabling its growth in the recent years is technology. Walmart is investing in e-commerce and  purchased a large stake in Indian brand Flipkart apart from its own website in 28 countries. These are some of the main sources of competitive advantage. In past Walmart was known to pay its staff very less to minimise its operational costs and to protect its price advantage. however, its financial strength allows it to retain its advantage while paying its staff well. During the recent years, it increased the basic wages as well as benefits for its associates.

      Walmart SWOT Analysis: 2018

Strengths:

– Strong financial performance – Walmart’s fiscal year ends at January 31st and it is when the brand publishes its annual report. In 2018, the brand crossed the 500 Billion dollar mark in terms of revenue for the first time. Net sales of the brand reached past 495 Billion. Fiscal 2018 has been very good in terms of financial performance. Compared to the last year, Walmart’s revenue rose by around 15 Billion dollars.

– Large assortment of quality products and services – The primary strength of Walmart is its pricing strategy and apart from that its wide range of quality products and services. Its merchandise mix consists of three main categories that include grocery, health and wellness and general merchandise. The general merchandise include entertainment, apparel, hardline and apparel products. Apart from these Walmart offers fuel and financial services and related products.

– Brand image – Overtime, Walmart created a customer friendly brand image. This is a major strength for the brand which has helped it acquire higher popularity as well as increase its market share and customer base. Its low pricing strategy and customer orientation have made it America’s most favorite retail brand.

– Market share and large customer base – Walmart’s pricing strategy and quality have helped it acquire the largest market share of all the US retail brands.

– International presence – Walmart’s international presence has continued to grow stronger in thee years. India is still not open to Foreign direct investment but Walmart entered the Indian market by buying a large and controlling stake in the Indian e-commerce brand Flipkart. Apart from US, Mexico is the largest market for Walmart with the number of stores there in 2017 at 2411. Its 2018 revenue from Walmart International was 118.1 Billion dollars.

– Growing e-commerce and digitisation –  Walmart took its first step in E-commerce in 2000 and since then it has come a long way and its commerce initiatives cover a large number of markets. Its several websites operate under 65 banners in 28 markets. Growing focus on e-commerce and digitisation are also going to help the brand acquire faster growth.

Weaknesses:

– HR issues – One major problem with Walmart and its organisational culture since always has been that the brand has been trying to cut down on operational costs to grow its price advantage. However, this has a negative effect on the human resources and drives attrition rate high. During the recent years, Walmart has increased the wages but yet, the HR environment and culture at Walmart needs to be innovated to provide the workers with security and satisfaction.

– Negative image  of a large finance hungry corporation – However, friendly Walmart may be to its customers, it has also acquired the image of a finance hungry corporation that is eyeing a larger pie of the retail market continuously. This image happened because of its poor record in supply chain and HR. While it has managed its reputation and image somewhat better during the recent years, it will need to focus more on CSR, ethics and HR management to shed its old image completely.

Opportunities:

– Growing e-commerce operations – E-commerce can be a major area of opportunity for the Walmart brand. Apart from US all the major markets including the ones in Asia Pacific are seeing higher sales online. Moreover, focusing on its online channels will also help Walmart combat Amazon’s challenge.

– Changing consumer shopping habits – The demographics of the global population are changing and the shopping habits of the millennial generation are much different from that of the baby boomers.  However, studying these habits and catering to their needs offers faster opportunities of growth to the brand. This generation of consumers likes to shop online and is a high tech savvy generation. Understanding its shopping habits and using technological innovation to provide it with a  better shopping experience will help increase sales.

– HR Management – This is also an area where Walmart needs to innovate to establish  culture that encourages creative, collaboration and innovation. It will help the brand manage a better reputation and create a positive work environment which is good for productivity.

Threats:

– Intense competition from other retail and wholesale brands – Retail industry is marked by intense competition and there are several retail and wholesale brands. the competitive pressure from the online brands like Amazon has also kept increasing which has led to Walmart focusing more on technological innovation and lower prices. Competition is one of the biggest challenges in the retail industry and a primary threat to growth. To overcome tis pressure, Walmart will need expand to more markets and increase its online presence.   

– Increased legal and regulatory pressures –

The legal and regulatory pressures have increased in the retail industry and this has led to brands focusing more on compliance. This increases the compliance related expenses and in case of non compliance the fines can be immense.

– Stronger dollar internationally affecting profits – Economic factors too have a major impact on the profits of the international brands. A stronger dollar can have an adverse impact on the profit of the American brands. Fluctuation in the currency exchange rates can lead to lower profits.

                                         Walmart Value Chain Analysis

Walmart’s excellent value chain is also an important reason that the brand has been able to grow its business successfully. the value chain includes al the activities starting from product conception to marketing, sales and after sales service. All these stages add value to the product and managing them efficiently helps a brand grow its business performance.   The Value Chain Analysis tool was introduced by Michael E Porter. Walmart has optimised its value chain very well. Here is an analysis of the primary and support activities down Walmart’s value chain.

Primary Activities:

Inbound logistics:

Walmart has a large and global supply chain that consists of more than 100,000 suppliers of various sizes. These suppliers are located al around the globe from which Walmart sources the products that it sells at its stores and clubs. Since it buys in bulk from its suppliers, it is able to press them for lower prices. The fresh category products are sourced from the suppliers located close to its stores and clubs. Walmart has managed its supply chain very well with the help of technological tools including apps and software.

Operations:

Walmart’s business is arranged into three main categories -Walmart US, Walmart International and Sam’s club. In 2018, its total number of stores reached 11718. Out of the total, 5358 were located in US and 6360 were located internationally. It serves its customers under 65 banners in 28 countries through its stores and e-commerce websites.

Outbound logistics:

Walmart has managed an excellent and extensive distribution network. “For fiscal 2018, approximately 78% of Walmart U.S.’s purchases of store merchandise were shipped through our 157 distribution facilities, which are located strategically throughout the U.S.” Remaining of its merchandise was shipped directly from the suppliers. Walmart has managed an excellent private fleet of trucks but also hires private careers to ship perishable grocery merchandise. It also has 30 dedicated fulfilment centres that it uses to ship merchandise to its customers that have purchased from its online platform.  Walmart uses its distribution centres for cross docking the material received form the suppliers which can then be forwarded to the stores. Apart from reducing the transportation and storage costs, it also reduces inefficiencies in the system and Walmart stores are replenished easily and immediately.

Marketing and Sales:

The brand has gained very high level of popularity because of its consistently low prices but apart from its brand image, it also actively invests in marketing. In 2018, it spent 3.1 billion dollars on advertising which was 0.2 Billion dollars higher than the previous year. It is using advanced technology in new ways for marketing its brand more efficiently and to grow its sales as well as serve its customers better.

Support Activities:

Human resource Management:

Walmart has made some major improvements to its HR strategy during the recent years. Apart from having raised the basic salary for its associates, it is also spending on their training and development.

Procurement:

Walmart has managed trustful long term relationships with its suppliers who provide standard quality products and do business according to the requirements mentioned in the Code of conduct for the suppliers.

Firm Infrastructure:

The infrastructure of any organization plays a key role in the success of that firm. Walmart has built a very large infrastructure that includes its management, supply chain, human resources, its distribution and fulfilment centers and more. Apart from excellent management of its technological and financial resources now it is focusing on managing its employees better to be more successful. It has kept increasing its investment in technology and people during the recent years considering their importance for the faster growth and success of the brand.

Walmart Key Business Strategies –

The most important business strategy which is at the core of Walmart’s business philosophy and which it has used since ever for business expansion and for growing its market share is highly competitive pricing. This strategy is known as EDLP or Every Day Lowest Prices. This is also the thing that Walmart is most known for. It is known for helping Americans save money, buy more with their money and live better lives. On the one hand it buys in bulk from most suppliers grabbing the lowest prices from them and then passes this advantage on to its customers. This is an effective strategy because in the retail industry which is intensely competitive, this can be the best method of differentiation. This is also who Walmart has differentiated its brand from the other retailers in US.

Another key strategy used by Walmart is that of quality. It sells only good products because if you sell low quality products at lower prices than you will be unable to generate a competitive advantage. So, Walmart sells the right quality products at affordable prices. Lower pricing strategy helps create a competitive advantage which is sustained through good quality products.

To further strengthen its competitive advantage Walmart focuses on customer service and better customer experience. This helps retain its customers and also create a positive word of mouth which works to attract new customers. Good customer service is like an essential in the 21st century where all the power rests in the hands of the customers.

Walmart is also eyeing faster business expansion and it has strategically acquired a few brands that can help its brand expand faster. In 2018, it acquired Modcloth and Bonobos. Apart from them India is a potentially big but a bit complex retail market where a direct entry would not have been possible for Walmart. However, it acquired a large stake of around  70% in the Indian e-commerce brand Flipkart thereby making its entry into the Indian market. Such strategic acquisitions can enable Walmart to grow faster in the Asia Pacific region. Its total number of stores worldwide has reached 11718 and out of these 6360 are of Walmart International.

WALMART VRIO Analysis:

Resources and capabilities of Walmart Corporation

Global Brand Recognition and Equity:

Apart from being the biggest and most famous retail brand of US, Walmart is also famous worldwide as a retail brand that helps you save money.  Its everyday low prices have made it the most famous retail brand and helped it attain the status of a brand that  is obsessed with low prices and customer service.

Large size and global presence:

Walmart is there in total 28 nations globally operating under 65 banners.  Its total number of stores in 2018 has reached 11718 of which 6360 are  outside US. To further improve its position in Asia Pacific, it acquired around 70% stake in Indian e-commerce brand Flipkart. the brand has its more than 100,000 suppliers located all around the world and it has formed great relationships with its suppliers that provide standard quality products.

Low prices & large assortment of products:

Leveraging technology:

Walmart is leveraging the power of technology for faster growth. Its e-commerce segment has seen fast growth in sales. E-commerce sales at Walmart increased by 44% in 2018 compared to the previous year. Its revenue from US Commerce reached 11.5 Billion dollars in 2018. Apart from it, the brand is investing in other technological tools to provide its customers with a  fantastic inshore experience. Its store assistant app and Walmart Pay App make it easier and more convenient to shop inside a store.

Human Resources & Organisational culture:

The number of associates employed by Walmart is 2.3 million of which 1.5 million are employed in America. Its organization culture has taken a shift during the recent years. It is known to be obsessed with customer experience and customer service. However, in the recent years, it has started focusing on HR management and apart from increasing wages, it also introduced several training and development programs as well as important benefits for its employees.

Customer loyalty:

Walmart has a very large base of loyal customers. It has built its customer loyalty through its competitive pricing strategy and excellent customer service.

Resources

Valuable

Rare

Difficult to imitate

Exploited

Implication

Global brand

recognition & Equity

Yes

Yes

Yes

Yes

Competitive advantage

Large size and

global presence

Yes

Yes

yes

Yes

Temporary Competitive advantage

leveraging technology

Yes

yes

No

Yes

Temporary Competitive advantage

Low prices & large

assortment of products:

Yes

Yes

Yes

yes

Competitive advantage

Human resources &

organisational culture

Yes

yes

No

Yes

Competitive advantage

Customer loyalty and

leadership status

  Yes

     Yes

Yes

Yes

Competitive advantage

Analysis of Walmart’s Financial Performance –

Walmart’s financial performance has continued to grow fast during the past few years. In 2018, its revenue climbed past 500 Billion dollars for the first time reaching 500.3 Billion dollars. In 2017, its total revenue was at 485.9 Billion. Net sales in 2018 reached 495.8 Billion dollars rising from 481.3 Billion dollars in 2017. Both revenue and net sales rose by 3% in 2018 compared to the previous year. For the past 5 year, the gross profit margins of Walmart have remained at close to 24%. In 2018, its gross profit margin was at 24.7%. However, the operating income of Walmart has continued to decline over the past four years largely because of the growing expenses related to E-commerce and in various other areas. Operating income of Walmart in 218 declined to 20.43 Billion dollars compared to 22.8 Billion  dollars in 2017. So, while the performance of Walmart has grown stronger, success has come at a price for the brand.

Walmart Five Year Financial review
Walmart Five Years Financial Performance; Source: Annual report 2018

Suggestions:

– Walmart International holds immense potential and the markets of Asia Pacific are fast growing markets that are seeing a lot of economic growth. Walmart must focus on these markets to find faster growth. While it has entered the Indian market trough e-retail there is still a lot of potential in the asian markets like India and China that has not been exploited. Walmart can further grow its presence there.

– It will need to focus on its infrastructure in the Chinese markets so as to gain advantage from its core competencies in these markets.

– Most of the retail battle is going to be fought in the area of e-commerce and so Walmart must focus on e-retail to grow its brand faster. It must invest more in technology and even in the foreign markets, it must try to increase its presence by extending its distribution network.

– The consumer lifestyles are changing and more and more millennials shop online and therefore the brand must focus on catering to the needs of this generation by investing in technologies that  make shopping more convenient.

– It is investing a large sum in advertising but it must use a more focused marketing strategy like Coca Cola.

– Leveraging mobile technology will also  help Walmart to grow its brand and business faster.

 

Sources:

https://www.cheshnotes.com/2017/05/walmart-value-chain-analysis/

https://www.cheshnotes.com/walmart-international-sales-and-international-stores/

http://s2.q4cdn.com/056532643/files/doc_financials/2018/annual/WMT-2018_Annual-Report.pdf

https://nrf.com/sites/default/files/Documents/The%20Economic%20Impact%20of%20the%20US%20Retail%20Industry%20REV.pdf

https://www.cheshnotes.com/walmart-domestic-and-international-retail-units/

https://blog.walmart.com/innovation/20180208/your-shopping-trip-just-got-easier-with-this-new-store-assistant

https://www.usatoday.com/story/money/markets/2017/12/27/will-2018-be-wal-marts-best-year-yet/108934990/

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