buyingTop Retailer at Channel Crossroads
Overview
Walmart (WMT), a largest U.S. mass merchandiser of consumer products, is engaged in running the retail stores in the U.S. and its subsidiaries and joint ventures throughout the world (Form 10-K, 2012). Currently, their primary business segments are Walmart U.S., Walmart International, and the Sam’s Club segment.
The largest segment of WMT business is Walmart U.S. It accounts for approximately 60% of their net sales and runs retail stores in the U.S. (Form 10-K, 2012). Walmart International segment operates in 26 countries and generates approximately 28% of net sales (Form 10-K, 2012). The Sam’s Club runs membership warehouse clubs in the U.S.
The mass merchant concept utilized by Wal-Mart allows running successfully retail business by “providing a broad assortment of quality merchandise and services at everyday low prices” (Form 10-K, 2012).
Assessing Walmart’s strengths, weaknesses, threats and opportunities through a SWOT analysis diagnoses their needs for changes that will keep sustaining their competitive advantages. The SWOT analysis reveals the factors that may affect the company performance and takes an objective look at the Wal-Mart business.
SWOT Analysis
Strengths
Large market share position. Walmart is the biggest U.S. discount retailer with a market capitalization of $1235,6 billion while its competitors Costco and Target have a market capitalization of $43,6 billion and $40,9 billion correspondingly (Reuters, 2012). These figures justify its position as a giant leader in the U.S. market. Its leadership is supported by sustainable gaining market shares in “food, consumables, health and wellness/OTC” (Walmart, 2013). The Walmart U.S., the largest WMT business segment, runs retail stores in all states and provides net sales of $264.2 billion that accounts to about 60% of total net sales for fiscal 2012 (Form 10-K, 2012).
Cost leadership. WMT’s leading position in the markets is reinforced by offering low prices on quality merchandise within the frame of the mass merchant concept. Walmart focuses on price promotion through implementation of every day low price (EDLP), business model that allows attracting more customers (Form 10-K, 2013).
Developed distribution channels. WMT utilizes 158 distribution facilities located effectively all over the world; through these facilities, approximately 75% of the Walmart International segment’s purchases flows that improves their responsiveness to customers’ demands and minimizes inventory and transportation cost (Form 10-K, 2013).
Financial vitality. For the fiscal year ended January 2013, Walmart increased net sales by 5% to $466.1 billion (Walmart, 2013). It increases their ability to make large investments in technologies and innovations and provides internal resources for the stable development of business.
Weaknesses
Seasonality of business. The seasonal factor of Walmart business refers to the influence of different calendar events, holidays, and climatic conditions on sales. Their highest sales occur in the last fiscal quarter of the fiscal year while the lowest sales volume is in the first fiscal quarter that causes the unevenness in business processes and financial performance (Form 10-K, 2013).
Low market share outside the US market. The share of Walmart International is about 28% in net sales compared with 60% of Walmart U.S. that indicates the insufficient use of a great potential of fast growing markets through the lack of WMT presence in the emerging markets (Form 10-K, 2013).
Inability to meet specific local needs in the local markets. It relates to cultural differences in some foreign markets into which Walmart introduces the new retail concepts. Their unawareness of these differences results in hindering the business development. Besides, it refers to their limited ability to retain qualified personnel and acquire new store sites on acceptable terms (Form 10-K, 2012).
Employees’ disappointment. The employees’ disappointment with low take-home pay, unpredictable work schedules and unaffordable health benefits induces the protest movement and social tensions than can tarnish the brand image and increase spending on training due to high employee turnover (The economist, 2012). Attracting and retaining employees with critical skills can be a concern for the company, and it might affect the overall profitability of business and their ability to create a competitive advantage for themselves.
Opportunities
Expanding its business in the international markets. It refers to entering the Asian markets such as South Korea, Thailand, Indonesia, Vietnam and increasing its presence in India and China, the largest prospective markets in the region. Generating sales from emerging markets is possible through gaining a great number of new customers that represent the largest share of the world’s population; strategic acquisitions and partnership with local companies help increasing WMT’s market share (PricewaterhouseCooper, n.d.).
Customers’ trends to alternative healthier products. Changes in consumers’ behavior trends relate to shifting in making decisions based on their awareness about health and environmental concerns. It provokes changes in their lifestyle by buying well-balanced meal and moving to organic food. Delivering organic food in WMT retail stores can attract such consumers. According to OTA 2012 Organic Industry Survey, consumers’ choice drove the growth of the U.S. organic industry by 9.5 percent overall in 2011 to $31.5 billion in sales (OTA, 2012).
Developing cross–channel. This opportunity provides Walmart, the best performer in multi-channel, with the advantages of integrating of all sales channels through using IT technology, innovations, social networking platforms and investing in e-commerce that broadens the ways customers “can access and interact with them” (Fischer, 2012). In turn, it will allow increasing sales through attracting new customers.
Threats
Changes of consumers’ behavior. This threat can weaken Walmart’s responsiveness to customers’ demands as the crucial competitive factor. Misunderstanding of changes in consumers’ lifestyle such, as moving to organic food, can affect the company performance because the grocery segment is the critical part of the Walmart U.S. that accounts to 55% of WMT’s net sales (Form 10-K, 2012).
Strong competition in emerging markets. Their competitors in the U.S. market are Kmart, Kroger, Target, ShopKo, and Meijer. In the international markets, Walmart International has to compete with Carrefour, Tesco, and Metro, which continue to expand their operations in emerging markets, and with a variety of local and national chains such as Yurun Food in China, Reliance Retail in India, and Hero Supermarket in Indonesia (PricewaterhouseCooper, n.d.). The competition in the industry demonstrates a high degree of rivalry resulting from the number of major players and many indirect online competitors. This competition is based on price, product choice and store location.
Lowering consumers spending. This threat, which is determined by decreasing in consumer income and growing unemployment rate, resulted from the global crisis, can have a negative effect on Walmart financial performance, both domestically and internationally (Form 10-K, 2012).
Threat of substitute. The low entry barrier in the online retail and an availability of many indirect competitors in the foreign markets are viable substitutes to Walmart that can create a negative effect on Walmart International segment performance in the future.
Conclusion
In the modern fast changing world, the managers of Walmart are responsible for positioning their company to adjust to these changes. The general challenges Walmart faces are globalization, intense competition, the need for rapid response and increasing diversity. The diagnosis of WMT internal strengths and weaknesses and external opportunities and threats gives a platform to draft a sustainable plan for corporation’s improvements and adapting the company to new consumer’s needs.
The SWOT analysis indicates that Walmart has sufficient internal resources and capabilities to compete successfully in the retail industry, domestically and internationally. In order to sustain their competitive advantages, the company should focus on strengthening its position in the largest prospective markets in India and China through generating more sales and increasing WMT’s market share. Besides, it is important for WMT to enter aggressively other Asian pacific markets wherein WMT is not yet involved that include South Korea, Thailand, Indonesia, Vietnam, and Malaysia. The evident growth of the Walmart International segment over time can be a sign of successful transformation efforts.
Further, Walmart has to adapt their marketing strategies to changes in consumers’ behavior trends. Success in its transformation cannot be achieved by a single competitive strategy. The marketing decision is based on the identification of consumers needs, and the mix of all marketing elements should be utilized to build marketing strategies to meet those needs.
In addition, different economical, political and social factors triggered by the world crisis force Walmart to re-examine their compensation practice to make sure that high performance of core employees is effectively paid, not encouraging excessive risk-taking and avoiding unsafe social tensions. Understanding the unique desires of employees in specific regions and professions helps preventing their disappointment and an unwillingness to be dedicated to the job.
To achieve these improvements, the company needs a great leader in the top management level as a key factor that allows keeping the continuous process of changes aimed at reducing operation costs, improving total quality, and implementing innovations in processes and marketing.