Posted: May 17th, 2021
Strengths •Best positioned global retailer •Established business objective & philosophy that is understood organization wide •Firm focus on the strategy of cost leadership by offering everyday low prices (EDLP) through everyday low costs (EDLC) •Efficient procurement and logistics system •Strong and stable financial performance and positive cash flows for reinvestment in improving operations Weaknesses •Significant dependence on the US market to maintain strong sales performance •Wal-Mart’s mass market approach as a retailer creates opportunities for ‘market nichers’ to capture specific market segments which may be overlooked. Wal-Mart’s extensive range of products limits its ability to give direct attention to understanding all its customers as opposed to its more focused competitors. •FIFO method of accounting for inventory, in the international markets, may not effectively support the strategy of everyday low prices. Opportunities •There are opportunities to expand in countries with emerging economies •There are also opportunities to resuscitate growth in the US market •Innovations in technology present the opportunity to further integrate the value chain for increased efficiency to drive EDLC.
Threats •The unstable economic climate in the USA will continue to negatively impact on Wal-Mart’s performance •Wal-Mart can lose customers to more focused competitors if they (competitors) are able to develop a value proposition greater than the simple offering of everyday low prices. •Wal-Mart’s global exposure exposes the organization to currency risk, political influences, and other uncertainties that can affect its operations. •Wal-Mart’s cost leadership strategy creates intensive price competition which poses a serious risk to profitability if operational costs are not ffectively managed. Wal-Mart is a large retailer that is keenly focused on the business philosophy of saving people money so they can live better. This philosophy drives the organization-wide quest of achieving EDLCs which are leveraged in delivering EDLPs. Based on corporate information, Wal-Mart has a total of 9700 retail units spread across 28 countries, as at August 2011. This represents approximately 985 million square feet of retail space from which sales are generated.
This broad network of superstores, discount stores, neighbourhood markets, suppliers, and customers are interconnected in a value delivery network fuelled by information technology. In this system, suppliers are able to track Wal-Mart’s inventory levels in real-time to ensure that products are available on time, in the right quantities, best quality, and at the lowest possible price. Simultaneously, Wal-Mart is able to track purchasing patterns, brand preferences, register customer feedback, and capture other related information for their sales and marketing programme.
When it is all put together, Wal-Mart’s use of information technology empowers it to consistently deliver on its promise of everyday low prices, a reliable supply of its vast range of products, and capture an understanding of its customers and members that it serves over 200 million times per week. This, in turn, drives customer satisfaction and loyalty which is reflected in Wal-Mart’s strong financial performance compared to other global retailers. For the 2011 financial year, Wal-Mart’s sales grew by 3. 4% to US$419b and operating income grew by 6. 4% to US$25b. EPS grew by 12% to US$4. 8 and a total of US$19. 2b was paid out to shareholders through dividends or share repurchases. Between the 2009 and 2010 financial years, Wal-Mart has maintained a ROI of 19. 3% falling slightly to 19. 2% in 2011 due mainly to economic challenges within the US market. For comparison, Wal-Mart’s closest global competitor, Carrefour Group, generated a USD equivalent of approximately $158b in sales for the 2010 financial year (latest full year results available). At the close of the second quarter of their 2011 financial year (August 31, 2011), Carrefour experienced a 2. % increase in sales at the USD equivalent of $58. 3b. However, underperformance in France, Greece, and Italy, due to struggling economies, resulted in a 22% reduction in operating income at a USD equivalent of $1. 1b. These results cements Wal-Mart’s position as the world’s largest and best positioned retailer with respect to sales revenue. On the flip side, Wal-Mart appears to be dependent on its dominance in the US market which showed a flat performance by generating US$260b in sales for the 2011 financial year, compared to US$259b in 2010.
Despite expanding during the year to create more retail space, there was reduced customer traffic due to rising unemployment and a 2. 3% reduction in the income of the middle class according to the US Census Bureau. A 1% increase in the poverty rate to 15. 3% also had a negative impact on Wal-Mart’s performance and highlights the challenges within the US economy. In the international segment, the FIFO approach at inventory management and accounting may not entirely support its established strategy of everyday low prices as it does not allow for cost savings to be quickly passed on to its customers.
It may also distort the true picture of the company’s financial performance. Putting it all together, the assessment of Wal-Mart’s strengths, weaknesses, opportunities, and threats identifies the need for a strategic approach towards achieving its objective of 4-6% growth in sales revenue for the 2012 financial year and beyond. Given its dominance in the US market, the company should strategically move to hold/defend its market position by continuing to leverage IT for EDLCs and EDLPs. Aggressive sales promotions, especially through eCommerce, should be used to improve on the flat sales performance for 2011.
Wal-Mart should, however, look to the emerging economies for further growth and expansion as they show a faster rate of economic recovery and a growing middle class. China, India, Pakistan, Indonesia, and Saudi Arabia are ranked in the top five on the market potential index for emerging markets with respect to market growth rates. China, India, Russia, Brazil, and Indonesia are ranked in the top five based on market size. Pending further PESTEL Analysis, these emerging markets could potentially hold the key for Wal-Mart’s future expansion.
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