Wal-Mart Industry Analysis

Wal-Mart Industry Analysis

        B BUS 470C

Anchao Wang

Wal-Mart Industry Analysis

Introduction

Wal-Mart is one of innovative, leading and successful company in the world. Wal-Mart was established by Sam Walton in 1962, it was incorporated in 1969, and officially listed on the New York Stock Exchange in 1972. In the year 1962, Wal-Mart was just a small store and was doing small business in Roger, Arkansas (Wal-Mart, 2017). But now, it became the biggest retailer in the world. Today, this retailing pioneer has annual revenues of over $480 billion, about 11,500 stores and employs an astounding 2.1 million people worldwide. The selling philosophy of Wal-Mart is “provide everyday low prices and superior customer service” and it implements this philosophy from the products it stocks to the front-end equipment which helps speed checkout. Because of the low price strategy, Wal-Mart can reduce the cost of sales promotion and make its sales more predictable. Wal-Mart also spent a lot of money to invest its special cross docking inventory system. This cross docking inventory system can helps Wal-Mart to achieve economies of scale which reduce its costs of sales. Goods can be constantly delivered to stores within two days and often without stock with this system. It speeds up Wal-Mart to replenish the shelves four times than other retailers. Wal-Mart takes advantage of its buying power to purchasing products in bulks and distributing products by itself. Wal-Mart guarantees everyday low prices while provide “one stop shop” service.

Wal-Mart also operates international business and open stores worldwide. The store of Wal-Mart in Mexico as Walmex, in the UK as ASDA, and in Japan as Seiyu. Of course, there are successes and failures, Wal-Mart's investments outside North America have had mixed results: its operations in South America and China are successful, while it had to withdraw from Germany and South Korea market because ventures there were unsuccessful.

SWOT analysis

Strengths

        As the largest retailer in the world, most of Wal-Mart’s strength are relates to its business size. This such huge business size makes Wal-Mart can deal with many threats despite its weakness. Wal-Mart’s business size include its Global organizational size, Global supply chain and High efficiency of supply chain. The global organizational size provides capital for Wal-Mart to fund development and expansion. The global supply chain can help Wal-Mart keep market elasticity and cope with marketing risks. Also, Wal-Mart can maintain high efficiency in its supply chain because of Wal-Mart used advanced technologies to monitor and control the process of the goods from suppliers to stores.

Weaknesses

        Just like other companies, Wal-Mart also has weaknesses. Wal-Mart’s weaknesses are related to its own business strategy. Wal-Mart is using the cost leadership strategy, which makes it has thin profit margins and its business model is easily copy by other companies. The typical effect of using the cost leadership strategy is thin profit margins. Wal-Mart wants to keep low prices for customers, so they need to lower its profit margins and they make profits heavily rely on its sales volume. Also, Wal-Mart’s business model is easy to be copied by other companies because of this business strategy. Wal-Mart’s business model is similar with most other retailers and has nothing special. But the business size of Wal-Mart is incomparable.

Opportunities

        Opportunities for Wal-Mart are expansion and improving business practices. These are closely related to the current global economic situation. To fix human resources situation issue is also an opportunity for Wal-Mart. So expansion in developing countries, improve human resources practices and improve product quality are opportunities for Wal-Mart. Gielens and Dekimpe (2001) conclude that retailers are more likely to be successful at expanding internationally if they are first to enter the foreign market. The repaid economic growth in developing countries is good chance for Wal-Mart to expand its business. Improve human resource practice can directly improve the public opinion on the company’s employment practices. Wal-Mart’s opportunity to improve product quality because some products have effects on the health with low cost and low quality.

Threats

        Wal-Mart’s threats are related to the market environment and customer willingness of the products they want to buy. Aggressive competition, the trend of healthy lifestyle, and individual online selling are threats for Wal-Mart. Aggressive competition could be a threat because of other retailers could use the same marketing strategy to steal some consumers of Wal-Mart. The trend of healthy lifestyle is a threat because many goods in Wal-Mart are not healthful. It is also could be an opportunity for Wal-Mart to improve product quality standards. But it’s more of a threat because Wal-Mart does not prioritize purchase healthful goods in its stores and many Wal-Mart’s competitors have more healthy goods. According to Sweden National Board of Trade (2012), “E-commerce, that is to say, trade in goods and services that is conducted via electronic means, has grown exponentially, and businesses can today connect with consumers in foreign markets”. In the internet advanced nowadays, online seller can sell products with low price through the internet, online market could be a big threat against retail market.

Porter’s five forces

There are several business analysis tools that may be applied to Wal-Mart in order to understand its performance. Porter’s five forces is used in industrial analysis to review the effect of important factors. According to Grant and Jordan (2012), after analyzing the completion, the managers are in a position to establish whether the company can make profits both in the short and long run. Upon reviewing the effect of the forces, the managers use various strategies to overcome challenges facing a business. The five forces constitute the model that was designed by Michael Porter in 1980, and are currently utilized in the industrial analysis by managers.

Competition from Substitute Products

Competition from substitute products can result in a decline in the sales leading to decrease in the revenue generated. Lowering in revenue directly minimizes the profit generated which is a threat to the existence of a company since it is in the business to maximize profits. Michael Porter (1980) explains that all industries are facing intense competition from substitute products. According to Grant and Jordan (2012), the price a consumer pays depends on the availability of alternative products. Although Wal-Mart is the world largest retailer, it does not sell all electronics, clothing, and grocery products in the world. A decline in the price of substitute products can result in the immediate reduction in the sales of the business. For instance, if a consumer knows that the price of the clothing of a different design in another store is lower, the person will not buy this clothing style from Wal-Mart.