A PESTEL/PESTLE analysis of Walmart
Past 3 years have been great for the retail sector. Color has returned to the global economy and with it consumer confidence has also returned. By 2020, this sector is expected to have grown to the size of $28 trillion. Walmart is the king of physical retail. However, competitive pressure on it has kept increasing with time. Apart from the other US and non-US retail brands, e-retail also poses a significant challenge before the largest retailer. Coupled with the thousands of stores in US, Walmart has also expanded its presence internationally.
Currently, it operates more than 11,500 retail units across 28 countries under 63 banners. Its e-commerce websites are operational in 11 countries. Out of the 2.3 million associates that it employs globally, around 1.5 million are employed in US alone. Apart from economic, there are technological and other forces too that impact the businesses and growth of Walmart. All these forces are important and need to be kept in mind from the point of view of strategy formulation to be successful. Here is a PESTEL analysis which discusses the various forces affecting Walmart and how they affect its business.
Political forces are very important for the brands like Walmart that are trying to operate in the international sphere. The international business landscape is characterized by different political structures and differing governance models. The governments of all the nations are not equally open to international trade and business. The Asian economy is seeing fast growth but still Walmart has been able to open only 20 retail units in India and only 439 total in China. These figures are quite disappointing compared to the figures from US. The reason is that the political environment of these countries is not very friendly for brands like Walmart. In India the complex regulatory set up and Red Tape are big obstacles to foreign investment and foreign businesses.
Such an environment is not highly welcome for international retailers. The political environment of every nation and market affects several things. Political stability also reflects economic stability and a stable business environment where businesses can flourish. In the, other case when political disruptions are frequent, the businesses are also threatened by regular disruptions to sales and supply. Political turmoil can disrupt the supply chain. Moreover, political discord can also translate into potential trouble for businesses. For example EU has started targeting the big US brands for past some years. In this way, political forces are an important factor that have a deep influence on the sales and profitability of businesses. The problem is that the political environment is not equally open and friendly for all brands globally.
For businesses operating globally, nothing is better than a flourishing global economy. During the recession, people were forced to cut down costs which had affected the revenue and profits of businesses. Now, that the world economy is back on track people have again started spending on retail and other items. This is a positive sign for the retail sector which is expected to grow at a fast rate in the coming years. The situation in the labor market has also improved a lot and people’s per hour earnings have increased. Now they have more dispensable income to spend on various items. This all shows that the profitability of the retail sector is going to increase in the coming years. Economic slowdown had stalled the growth of the retail sector. Current economic trends will bring more good news for Walmart and other retail brands. However, competition will also increase. More and more brands are fighting for market share. Apart from small and big US brands, many non US brands have also decided to step into the US market. This will mean more competitive pressure for Walmart.
Social forces are a very important factor that have an influence on the profitability of international businesses. Social trends influence the buying behavior of customers which in turn influences the profitability of the brands. Consumer demographics have undergone a major change in the last decade. The millenial generation likes to shop online. Increased use of digital technology and increased smartphone usage have also encouraged online shopping. This is a threat for physical retailers like Walmart which have not still spread their online presence globally. Its e-commerce websites are available only in 11 countries. Apart from the growing use of technology, customer service and customer convenience, customer engagement and social media have also become important trends that are affecting the retail sector. Across the globe the social and cultural structure varies from nation to nation and market to market. This has an important bearing on how people shop. Overall, socio-cultural factors too have a special importance in the context of retail business worldwide.
Technological factors have grown all the more important for businesses in the 21st century. Whether it is the online businesses or the traditional brick and mortar stores from marketing to finance and HR everywhere technology has acquired a central role. It is equally important for Walmart. From marketing to customer service and HR management as well as supply chain management everywhere the use of technology has become important for effectiveness. Whether it is down its supply chain or inside the stores, everywhere Walmart is investing in technology to serve the customers better and to improve the customers’ shopping experience. Information technology and Artificial intelligence have also become key to success in retail. A lot depends upon real time data and analytics. Brands like Walmart are using data and IT in new ways to drive up sales and profits.
Sustainability has become an important concern for all businesses globally. Even in the retail sector business need to focus upon waste management, energy consumption, packaging as well as several other related areas. Apart from these areas, Walmart is also focusing on responsible sourcing down the supply chain. Apart from that Walmart is also targeting zero waste and better packaging. “In the U.S., more than 81% of the materials that flow through our stores, clubs, and distribution centers is being diverted from landfills. Our operations in Japan and the U.K. lead the way with a diversion rate of more than 90%, while Walmart Canada and Walmart Mexico divert more than 70%”. Environmental concerns are an important focus because they are not just helping the brands manage better reputation but also with their energy consumption and helping them save on sourcing and other areas.
There are several laws that the retail brands are required to remain compliant with. Non compliance can result in poor reputation as well as financial losses. In its history the largest number of lawsuits that Walmart has faced have been related to labor force. From discrimination to low wages, several types of legal issues have continued to make the situation difficult for Walmart. In the recent years, Walmart has focused on making work conditions better for its staff. Still, the labor related issues are far from being over for Walmart. Law is an important factor because legal pressures do not just result in loss of business but legal challenges can also result in substantial fines and financial losses.