Mg690 Walmrt Paper

8/6/2019 Mg690 Walmrt Paper

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Wal-Mart Stores, Inc.By: Rachel HellmanMG 690 Professor Adobor

Due: May 12, 2011


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Table of Contents:

I.) Evidence of Wal-Marts Success..Page 2

II.) Roots of Wal-Marts Competitive Advantages..Page 3

III.) Wal-Marts Rivals..Page 5

IV.) Forces of Change...Page 8

V.) Social Responsibility & Sustainability at Wal-Mart...Page 10

VI.) Recommendations for Wal-MartPage 11

VII.) Summary & ConclusionPage 14

ExhibitsPage15

ReferencesPage17


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Evidence of Wal-Marts Success:

There are several pieces of evidence that suggest Wal-Mart Store, Inc. has been

outstandingly successful. The performance of Wal-Mart over the last twenty five years has

resulted in an economic force that has shaped competition within the market several times. In the

year 2000, Wal-Mart became a part of the Fortune 500 list of the worlds largest corporations.

At this time, Wal-Mart had achieved sales of $165 billion, which would become $312.4 billion in

2005. From 2002 to 2005, Wal-Mart held the number one slot in Fortune 500 (Sheikh, 2007).

Additionally, Wal-Mart was recently ranked #1 on the Fortune 500 list for 2011, while none of

its major competitors placed in the top 10 (Fortune 500, 2011). To date, Wal-Marts revenues are

recorded at $418.95 billion, and can sustain offering large dividends to shareholders, with its last

dividend payment per share at $32.66. See exhibit 1 for Top 10 Fortune Ratings

By the end of 2010, Wal-Mart had achieved sales of $405 billion and employed 2.1

associates throughout the world. Wal-Mart currently operates 8,969 retail locations and consists

of discount stores, supercenters, and Sams club warehouses (Walmart Store, Inc., 2011). With

an organization growing to reach such heights in profitability and expansion, it is clear that Wal-

Mart has experienced phenomenal success.

Strategic decisions made by Wal-Mart have had profound effects on how the industry

operates and competes. With regard to technology, Wal-Mart played a key role in pushing the

retail industry to establish the universal bar code. This also had effects upstream through the

supply chain by forcing manufacturers to adopt common labeling. Since one of Wal-Marts key

strategic plays was to keep operating costs at a minimum, it used this universal bar code concept

to gather and analyze large amounts of information to help it operate for efficiently and

effectively. Another example of technological adoption as a result of Wal-Mart was the demand


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the company placed on manufacturers to use radio frequency identification, which enabled Wal-

Mart to store and track larger amounts of information than that of a barcode. The expectations

Wal-Mart has of its suppliers are often less than ideal, expecting the absolute lowest prices on

products, but Wal-Mart has achieved such high market share and profitability that suppliers are

most often willing to meet all of these demands to be able to distribute their product through this

giant retailer.

Roots of Wal-Marts Competitive Advantages:

The root of Wal-Marts competitive advantage has always been its commitment to low

prices. While there have been other sources and capabilities of the organization that have

contributed to its sustained success, each of these sources and capabilities are positioned and

implemented as to support Wal-Marts commitment to offering the lowest prices.

Wal-Marts ability to maintain its low-cost provider position is directly dependent on the

companys ability to contain costs and maximize efficiency (Berkeley Haas School of Business,

2001). Each of Wal-Marts strategies to adopt new technology, improve inventory management,

centralize distribution, etc. was conceived with the ultimate objective or minimizing costs.

Also, Wal-Mart doesnt just say it has the lowest prices, it typically does. Wal-Mart is

able to achieve this by leveraging its power over suppliers to offer their products at the lowest

possible costs. Additionally, the centralized distribution network employed by Wal-Mart and the

point-of-sale replenishment technology to optimize inventory management help Wal-Mart keep

its operating costs much lower than that of competitors. In turn, Wal-Mart can retain an

appropriate margin while still passing significant savings on to its customers.

By locating retail locations in underserved and lower-income areas, Wal-Mart was able to

capitalize on a very large ignored market. Although these consumers may not be as wealthy, they


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amount to a very large market and possess significant combined buying power. These consumers

valued the low price strategy of Wal-Mart. The true value in the shopping experience was found

in the low prices, even if the locations were set up to be self-service and without frills.

As Wal-Mart has expanded both domestically and internationally, the root of its

competitive advantage has always stayed the same, committing to providing low prices. Even as

the economy and market has changed over time, and there has been adoption of new

technologies and processes, each development is still designed to satisfy the ultimate competitive

advantage of unbeatable low prices.

Additionally, a major source of Wal-Marts competitive advantages can be attributed to

its reliance and motivation of its employees, known as associates. Every year annual meetings

for top performers and associates from all over is held to rally excitement and commitment.

According, to Reuters the annual meeting filled an entire 16,000 seat arena in Arkansas ion

2008. The annual meeting was equipped with a large stage, lights, music, celebrity appearances,

performances, and motivational speakers that re-instill and reinforce the values and mission of

Wal-Mart. These meetings are often considered over the top, and unlike any other annual

meeting for any other company. (Sage, 2008)See exhibit 2 for photo from Wal-Mart Annual

Meeting 2008

Financial updates and future strategic plans were also discussed. This gives Wal-Mart an

opportunity to communicate directly with its employees about how it is planning to approach

important issues, including globalization opportunities, and future effort for improvements in the

future.


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Wal-Marts Rivals:

While Wal-Mart in particular has many large rivals due to the breadth of its product

offerings, its largest rival is Target. Even though Targets annual sales revenue was only $65

billion compared to Wal-Marts $406 billion as of 2009 (Gregory, 2009).Throughout time Target

has been able to maintain relatively similar price benefits for consumers. Target, however, also

incorporates higher quality standards in their inventory management and does not operate on the

core objective of cost minimization. Also, the average Target customer has a higher income than

that of a Wal-Mart consumer at $50,000 and $35,000 respectively (Mallaby, 2005).See Exhibit 3

for comparison of

Target and Wal-Mart Net Sales

One of the key reasons why competitors have not been able to duplicate the success of

Wal-Mart stems from the companys ability to leverage its power over suppliers. With sales

amounting to nearly 50% more than that of Wal-Marts top five competitors combined, including

Target, Wal-Mart has positioned itself to exert substantial power over those manufacturers that

want their products sold at Wal-Mart. Each of Wal-Marts competitors cannot compare in size or

revenues to Wal-Mart, making it impossible for them to leverage the same amount of power over

manufacturers across the board.

Another key reason why competitors have not be able to duplicate Wal-Marts success is

because of how deeply integrated cost minimization is rooted in all of Wal-Marts processes,

keeping its operating costs comparatively lower than that of all of its competitors. Contributing

to this is advantage is the natural low-price attractiveness of Wal-Mart in times of economic

instability. When the economy experiences a recession and consumers have less disposable

income and need to find ways to save money, they often look to the cheaper alternative locations

to shop for products. They are willing to sacrifice some of the brand names through the purchase


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of private label products, which are usually priced lower than name-brand products, and appeal

to Wal-Mart to save overall. It is difficult for competitors to compete with this phenomenon

when it occurs because they are not positioned like Wal-Mart to adjust and offer such steep

pricing discounts since it not supported in their cost structure.

Another major competitor of Wal-Mart is Costco, especially since Wal-Mart owns Sams

wholesale club, which competes directly with Costco. Costco relies heavily on the yearly base

fee charged to customers for membership, which averages $50. Costcos over 23 million member

base consists of those that are willing to pay an annual fee for access to shop for quality goods

with low markups. Costco has a policy of not marking up products more than1

5%

to consumers,

which positions them directly against both Sams Club and Wal-Mart outlet stores. Employees

enjoy the same shopping privileges as members, and enjoy generous healthcare payments and

healthy pay. Costco attracts both small business owners that wish to purchase items in bulk, and

affluent individuals. By choosing to operate in this way, Costco has formed a very loyal base of

consumers.

Although it would be difficult to appreciate Costcos success when compared side by side

with Wal-Mart as a whole, Costco does have several performance indicators of their success and

accomplishments. Firstly, Costco has a higher inventory turnover than Wal-Mart, at 11.8

inventory turns and 8.91 inventory turns respectively. Costco has achieved revenues of $77.95

billion and has achieved higher earnings per share than in the previous year compared to Wal-

Mart at 14.37 higher EPS and $9.02 higher EPS respectively (Daily Finance, 2011). Finally, it

should be noted that Sams Club, which is Wal-Marts most directly competing segment for

Costco, represents 11.5% of Wal-Marts revenues(wikinvest, 2011). This means that Sams Club

has revenues of $48.18 billion, compared to Costcos $77.95, which is nearly 40% higher.


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See Exhibit 4 for comparison of daily performance (5/7/11) between Wal-Mart, Target and

Costco

With regard to threat of new entrants, it does not seem that Wal-Mart needs to be too

concerned as this is already a pretty saturated market, mass merchandising, and though the

market shares are very concentrated with few top performers such as Wal-Mart, Target, and

Costco. Additionally, Wal-Mart has the highest market share by a large enough margin from its

top two competitors, that the threat of some new entrant being able to become a substantial threat

is seemingly minimal. This seems to be especially true in the United States region. However,

Wal-Mart may face considerably different types of competition worldwide as different cultural

norms and shopping behaviors exist. One example of this was evident in Wal-Marts failure to

successfully establish itself as a key competitor in the German market. This was mainly due to

the nature of the consumers and their preference for shopping at smaller locations that

concentrated more heavily on specific items rather than a one-stop super store such as that of

Wal-Mart. Cultural norms include establishing relationships with many different businesses that

are smaller in size, rather being appealed to by a big box store.

This and many other similar cross-cultural boundaries may be faced by Wal-Mart as it

tries to continue expanding and achieving higher market shares in other regions of the world.

Whether or not Wal-Mart will be able to effectively adjust its strategy to meet the different needs

of other regions will have a major impact on how successful the firm can eventually become as a

global company.


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Forces of Change:

By evaluating Wal-Marts industry from the perspective of Porters 5 competing sources

model, the current state of competition and indications of future changes in the industry can be

deduced. Threat of rivalry is not particularly high amongst competitors. Although the market

may be concentrated, Wal-Mart has the best profits and market share and provides the lowest

costs and prices. Threat of substitutes is relatively moderate since Wal-Mart competes in so

many different markets as it extends its product lines and continues to incorporate other product

categories into its strategies. Wal-Mart is very perceptive to changing customers needs and finds

ways to innovate theory offerings to meet those demands, making it better equipped to handle the

threat of substitutes. When Wal-Mart expanded into the grocery market and started creating

supermarkets within their supercenters, the company positioned itself to compete within many

new additional markets, including super markets, discount grocery markets, smaller local

grocers, pharmacies and their grocery offerings, and others. The power of suppliers is also low,

because Wal-Mart would be considered one of the largest, if not the largest account it has. It

would obviously be putting itself at a disadvantage by losing a major contract by not meeting

Wal-Marts demands. As mentioned before, the threat of new entrants is weak, especially

considering the scale of Wal-Marts operations and how difficult it would be to try and match it.

Buyer power is also deemed pretty weak as the customer base is very broad and Wal-Mart has

achieved in meeting the most significant demand from its customer base, which is low prices.

It is also clear that economic factors play a significant role in forcing change in the

industry. When the recent economic recession swept the world, more and more consumers

consumption patterns started to change, which altered the nature of competition in the market.

More and more consumers were choosing to forgo quality or preference in order to save money


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and get the lowest prices. This positioned the industry such that those competitors that could

offer the best prices would acquire a larger percent of this expanding market. Wal-Mart excels at

providing the lowest prices to consumers, and therefore benefits from this change in the industry

demand pattern. However, a threat for Wal-Mart to consider is that as the economy continues to

recovery, consumers may start increasing their demands and be less willing to forgo their

individual preferences if they are more capable of affording that type of lifestyle. This may result

in increased demand at specialty stores or high quality retailers and create a challenge for Wal-

Mart unless it can change to meet these new demands.

As far as other major players in the environment, Wal-Mart has vertically integrated

enough of its processes that it commands most of its own channel, including logistics,

warehousing, pricing, etc. Wal-Marts suppliers have very little power because of size and power

of Wal-Mart, especially in the United States. The choice to stock a product at all or most Wal-

Mart locations in one region would make for a very large account to any company. If suppliers

want access to Wal-Mart incredibly large customer pool, it needs to satisfy the demands of Wal-

Mart, including significant price reductions for their goods as to be able to deliver its promise of

the absolute lowest prices to customers. Wal-Mart is able to make a profit as the layer between

the supplier and the end customer because its operations are structured in such a lean manner and

it accomplishes higher percentages of efficiency, allowing it to operate with very safety stock,

optimized distribution plans and stocking methods, etc. Wal-Mart coordinates the movement of

all of its own goods once they arrive from suppliers. Through cross-docking and strategic

logistics, Wal-Mart has achieved the ability to serve its own logistical needs entirely.


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Social Responsibility & Sustainability at Wal-Mart:

Wal-Mart has several sustainability programs in place, including sustainable value

networks, renewable energy, sustainable facilities, greenhouse gas reductions, and others. There

is also a programs aimed at eliminating waste in order to become less dependent on renewable

resources in the future and to reduce costs, which can be passed on to Wal-Marts customers.

One of the new techniques being used by the company is called sandwich baling, in which

more waste can be recycled by sandwiching loose plastic including shrink wrap, garment bags,

and grocery bags between layers of cardboard. These bales are then sent to certified processors

for recycling instead of being sent as trash to landfills. The company claims that the new process

adds millions of dollars to the companys bottom line. One of the companys goals it eliminate

all landfill waste generated by its United States operations by 2025. The company is also looking

to reduce packing throughout its supply chain by 5%, and to reduce global plastic shopping bag

waste by 33% per store by 2013. (Walmart Corporate, 2011)See Exhibit 5 for photo of

Sandwich Baling

As another part of Wal-Marts zero waste sustainability approach, the company has partnered

with Samsung Electronics to create the Samsung Recycling Direct program, in which customers

may recycle Samsung consumer electronics free of charge at numerous drop-off locations, and

they may recycle other branded electronics for a nominal fee.

(Walmart Corporate, 2011)

With regard to the sustainability of its products, Wal-Mart has strived to support farmers

and their communities by doubling the sale of locally sourced produce and increase the

purchases of select U.S. crops. Wal-Mart also requires some of their suppliers to certify the


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sustainability of the product and the processes used to produce it. As sustainability applies to

Wal-Marts private label brands, Wal-Mart has developed initiatives for making the products of

its Faded Glory private label clothing line more sustainable. They plan to achieve this by

incorporating more sustainable fibers such as recycled materials into the clothing and textiles.

They are also striving to improve packaging to incorporate recycled materials for tags.

(Walmart Corporate, 2011)

Recommendations for Wal-Mart:

There are several recommendations I would make to Wal-Mart in order to maintain its

dominance as it continues to expand its product lines and differentiate its offerings. I would first

suggest that Wal-Mart find ways to optimize its offerings in existing product lines and segments

before expanding into new ones. When Wal-Mart entered the grocery market and started placing

supermarket in their super stores, it positioned itself to compete against an entirely new group of

competitors as mentioned earlier. This is something Wal-Mart is faced with as it chooses to

expand its product lines. In order to be best prepared to capture higher market share in areas such

as grocery, Wal-Mart needs to contract with more suppliers so it can offer more name brands at

the low prices consumers are looking for. Specifically, the product variety of particular grocery

items that consumers demand cannot be found. Customers often have particular brands that they

are semi-loyal to, or look for and become disappointed when they cant find them at the one-stop

Wal-Mart super center. It would be more appealing to be able to rely on Wal-Mart to stock more

desired brands, making it less likely that the consumer will not be able to buy everything they

want with one trip to Wal-Mart. In order to achieve this, I believe Wal-Mart should investigate

more popular brands in the grocery market and find ways to incorporate them into their existing

product lines.


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I also think, especially as it pertains to the grocery segment, Wal-Mart needs to become

more reliable in stocking its current product offerings. Products in the grocery section are often

under-stocked and do not represent the full line offered by Wal-Mart. This further adds to

customer frustrating when they cannot find what they are looking for. In order to achieve this,

Wal-Mart needs to perhaps adjust their forecasting methods for grocery items to be more

accurate or find ways to reduce lead times and keep products in stock.

One of the other important factors Wal-Mart should continue to observe and respond to is

the economic conditions and its effects on customer consumption behaviors and buying patterns.

Although Wal-Mart may have had an advantage when the economic recession prompted

consumers to spend less on products, this behavior may continue to change as we recover. Wal-

Mart needs to ensure that its products and services are in alignment with these changing needs.

Stocking more brand-name products in the grocery segment, for example, may help reposition

the company in the mind of the consumer as offering even the most popular and sought after

brand names they look for at a competitive price. In this case, customers would be able to find

what they intend to purchase and do not have to settle for sub-quality substitutes or related

products.

As the trend towards environmentally friendly practices grows, Wal-Mart should

continue to focus on its sustainability efforts. In particular, more emphasis should be placed on

these initiatives as many consumers do not seem to be aware of all of Wal-Marts efforts to

operate in a social responsible and sustainable way. By having all of these approaches in place

now and building on them in the future, Wal-Mart may be ahead of the curve in emphasizing

these efforts and benefit based on new customer perceptions.


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Another suggestion I would make for Wal-Mart is to resist resting on its laurels and

continue innovating the ways in which it operates to continue achieving lowest costs. Since Wal-

Marts competitive advantage is significantly supported by its ability to offer the lowest prices, it

is important for Wal-Mart to focus on continuously maintaining ahead of the curve in the

industry with regard to low pricing. Low pricing doesnt necessarily have to be linked to lower

quality, which is another point Wal-Mart should stress.

Wal-Mart may seem untouchable right now considering it currently holds the first spot

in the Fortune 500 rankings, but complacency when it comes to adapting processes or adopting

new technology may create an area of opportunity for competitors or future threats to take

advantage of. Since Wal-Mart is the top competitor in its industry, everyone is focused on this

company as it has a significant impact on shaping the nature of competition in the industry, and

changing the rules.

My last suggestion is for Wal-Mart to be careful as it approaches new opportunities to

expand its product segments further. Although it is good to not rely on the performance of only

one or a couple segments for revenues, over-extension may lead to the company making

mistakes in other areas as not enough attention or consideration would eventually be able to be

met for every product offered. Hence, Wal-Mart needs to ensure that it does not alienate or

jeopardize its other segments by choosing to venture into a new one. Fortunately, Wal-Mart is

already positioned to be a one-stop shopping experience, so consumers probably would not lose

appeal to the company by over-extending its product lines, but if this over-extension leads to

poor customer service or sub-par products, there could be lasting consequences.


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Summary & Conclusion:

There is no doubt that Wal-Mart has proved itself as a leader in its industry. It has

dominated in this industry so much so, that its strategic decisions can have a lasting impact on

the nature of competition in that environment. Wal-Mart has distinguished itself through several

core competences which help define its competitive advantages. Wal-Marts commitment to

everyday low pricing and its broad customer base provide it with dominant power in its

relationships with suppliers, allowing them to demand the lowest prices. Wal-Marts operations

are also designed to be compatible with the EDLP strategy as costs are continuously being

assessed for reduction and the company operates in a very lean fashion.

As Wal-Mart has chosen to extend its product lines, for example by entering into the

grocery segment, it has also positioned itself against a greater variety of competitors. Among

Wal-Marts most stand-out competitors are Target and Costco, each of which have developed

unique talents for competing with Wal-Mart.

As Wal-Mart continues to extend its product lines and offer more types of products to its

customers, it must make sure it can do so while maintaining the goals and objectives of its

existing low cost strategy. In addition, Wal-Mart must find ways to approach global expansion as

to incorporate cultural norms and behaviors that it may confront when looking to expand into

new regions. Lastly, it is important for Wal-Mart to keep innovating and staying one large step

ahead of its competitors to ensure the company can maintain and secure its position in the future.


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Exhibits

Exhibit 1: (Fortune 500, 2011)

Exhibit 2:


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Exhibit 3:

Exhibit 4: (Daily Finance, 2011)


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Exhibit 5: (Wal-Mart, 2011)

References

Berkely Haas School of Business. (2001, September18). Wal-Mart Stores, Inc. Retrieved March

9, 2011, from Haas School of Business:

http://faculty.haas.berkeley.edu/meghan/299/Case_analysis_WalMart2.pdf

Daily Finance. (2011, May 7).AOL Money & Finance. Retrieved May 7, 2011, from Wal Mart

Stores Inc.: http://www.dailyfinance.com/company/wal-mart-stores-inc/wmt/nys/top-

competitors

Fortune 500. (2011).Fortune 500: Our Ranking of America's largest corporations. Retrieved

May 2011, from CNNMoney.com:

http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2255.html

Gregory, S. (2009, March 14). Walmart vs. Target: No Contest in the Recession. Retrieved

March 9, 2011, from Time Inc.:http://www.time.com/time/business/article/0,8599,1885133,00.html

Mallaby, S. (2005, November 28).Progressive Walmart. Retrieved March 9, 2011, from

Washington Post: http://www.washingtonpost.com/wp-

dyn/content/article/2005/11/27/AR2005112700687.html


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Sage, A. (2008, June 6). Wal-Mart employees whoop, holler at annual meeting. Retrieved May

2011, from Reuters: http://www.reuters.com/article/2008/06/06/walmart-crowd-

idUSN0646099220080606

Sheikh, M. (2007, August 7). Wal-Mart - A Brief History. Retrieved March 9, 2011, from Yahoo

News Network:http://www.associatedcontent.com/article/335999/walmart_a_brief_history_pg3.html?cat

=46

Walmart Corporate. (2011). Walmart Sustainability. Retrieved May 7, 2011, from Walmart

Corporate: http://walmartstores.com/Sustainability/

Walmart Store, Inc. (2011).About Us: Walmart Corporation. Retrieved from Walmart

Corporate: http://walmartstores.com/AboutUs/

wikinvest. (2011, May 7). Wal-Mart (WMT). Retrieved from wikinvest:

http://www.wikinvest.com/stock/Wal-Mart_(WMT)

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Mg690 Walmrt Paper