Table of Contents
Walmart is an American retail company with a presence in 28 international markets and approximately 2.2 million employees. As of 2015, the company operated 11,000 stores and two e-commerce websites, Walmart.com and Samsclub.com. The retailer offers a wide assortment of products such as electronics, groceries, apparel, organic foods, and personal care products. Since its launch, Walmart’s mission has been to improve the living standards of its customers. The company executes its mission through the strategy of offering a wide array of products at low prices. Walmart’s competitive low-cost provider strategy has made the firm’s value chain a success in achieving lower overall cost than rivals, by outperforming competitors in vital activities.
Walmart has remained competitive in the retail landscape through continuous remodeling and innovation, such as the launch of supercenters, increased focus on organic foods, high investment in digital initiatives, and modification of its supply chain. The emergence of disruptors in the retail industry, such as Amazon, prompts traditional retailers to rethink their strategic plan and competitive advantages. Therefore, many traditional retailers embedded e-commerce in their businesses including Walmart. Presently, customers can use their electronical gadgets to search, purchase, and pick up or collect products; this omnichannel strategy is employed by many retailers. The current report will present an analysis of Walmart and recommendations to ensure sustained completive advantage and growth.
External analysis is imperative in exploring the industry environment where an organization operates. The analysis will help to determine how the wider market environment is affecting Walmart. In the current report, the external analysis is done using Porter’s Five Forces. Importantly, this model presents five forces, including competitive rivalry, bargaining power of customers, bargaining power of buyers, threats of substitutes, and threats of entrants. Through these forces, the analysis will identify Walmart’s competitive environment.
Competitive rivalry in the retail industry is strong since there are many and highly aggressive firms. The availability of large retailers, such as Amazon, Costco, Target, and The Kroger Co is strengthening the level of competition. The industry rival is fierce because the consumer’s cost to switch to another retailer is high since many of Walmart’s rivals are located nearby. A wide variety of retailers introduces novel competitive advantages that Walmart cannot replicate easily. As an example, Amazon offers the widest range of commodities and services online, same-day delivery, and brick and mortar convenience stores. Unequivocally, Walmart is the leading retailer in the U.S because of its high market share and its cost advantage that is procured through its economics of scale. However, if Walmart did not keep up with consumers’ expectations and the e-commerce retailer industry, the market share of the firm may decline due to the similarity in products and services amongst competitors.
Bargaining power of customers
Walmart’s customers have a weak bargaining power due to a large population of customers, small individual purchases, and high customer diversity. Customers have low bargaining power because buyers purchase from Walmart in small quantities. For instance, the company’s e-commerce website had about 80 million visitors in 2016. Millions of customers were also served through its 4,574 Walmart’s and 655 Sam’s Clubs. Therefore, the actions of individual customers do not have an impact on the retailer’s sales.
Bargaining power of suppliers
Suppliers have weak bargaining power because of the high availability of suppliers and stiff competition among the available suppliers. Walmart got approximately two-thirds of its items from the US in 2016 and more than 500 factories abroad. Due to the high number of suppliers, Walmart has the power to select those who adhere to its Sustainability Index. Also, Walmart sells commodities and staple products, which are easily obtainable from many suppliers available in the market. However, Walmart strives to build a solid relationship with its suppliers, to obtain a sustainable value chain.
Threats of substitutes
The threat of substitutes for Walmart is moderate due to the high availability of substitutes and the high cost of substitutes. Some of the products in Walmart stores, such as grocery items, electronics, and books, can also be found in Amazon. Nevertheless, substitutes’ threat is moderate because Walmart is offering low-cost commodities across its neighborhood stores in comparison to competitors. Also, Walmart attempts to take advantage of discounts from suppliers to pass it to customers. As mentioned earlier, customers can easily go purchase products from rivals; due to weakly differentiated products.
Threats of new entrants
New entrants’ threat in the retail industry is moderate. The cost of operating a retail business is low, especially with the influx of e-commerce platforms. Walmart exhibited that doing business through e-commerce is low when it closed 269 stores and invested hugely on e-commerce. However, the costs of brand development and initial capital might be prohibitive for small new entrants. Nonetheless, technology is developing at a nimble pace, leading many new e-retailers to pop up and start a new e-commerce business.
Concurrently, building a brand such as Walmart is difficult, owing to the fact that they possess a state-of-the-art distribution system, the latest technology, strong relationships with suppliers, etc. Moreover, current Walmart rivals are facing a challenge with the low prices provided by the firm, and its stable financial position will mitigate the threat of new entrants. Also, many loyal customers of Walmart are not willing to change and move to another retailer store; due to its low-price goods and services.
Conclusively, Walmart’s external environment is becoming increasingly competitive, mainly due to the high number of competitors and competitive advantage of large players such as Amazon and Target. Walmart can leverage the low bargaining power of customers and suppliers to foster its competitive advantage. The low cost of operating e-commerce platforms is raising the threats of new entrants in the retail sector. Nevertheless, Walmart competes effectively in the retail industry because the threat of substitution is moderate, and its value chain strategy is a success.
Analysis of the company situation generates invaluable insights that can be used for strategic planning and addressing weaknesses, to determine the company’s financial position and competitiveness in the market. For Walmart, the company situation will be assessed through financial and analysis. Financial analysis is an effective measure of a company’s financial strength and profitability and assists in making viable investment decisions. On the other hand, SWOT is an elemental instrument in determining the company’s strengths, weaknesses, opportunities, and threats. Refer to appendix A, to view a summarized version of the SWOT analysis.
Walmart has a stable financial position as evidenced in its revenue, gross profit, and net income. Even though its financial performance has not increased dramatically over the past five years, the company maintains constant high profits. The company’s revenue increased from $421,849 million in 2011 to $482,130 million in 2016, and its gross profit increased from $104.006 to 117,630 over the same period.
With a constant profit margin of above 3%, Walmart has sufficient financial strength to invest in sales growth opportunities, such as digital initiatives and e-commerce. The high profits can be reinvested in developing digital initiatives that will lead to continuous growth in the future. Relatively, in 2015 Walmart generated the highest revenue amongst its competitors and it has the lowest percentage (0.5%) of advertising expenses.
Walmart’s global strategy enables the company to generate revenue for growth and expansion and supplements the stability of their financial position. For instance, it acquired 14 technology firms to spur global growth through e-commerce. A sustainable global supply chain, with over 500 suppliers in China, builds resilience from disruptions in Walmart’s local supply chains. An efficient supply chain allows Walmart to meet customer needs, even during natural disasters, and saves operational costs. Furthermore, the modern technology machinery and the state-of-the-art information system add to the success of Walmart to sustain a global supply chain.
Walmart is currently viewed as a sustainable company, due to the fact that it is heavily investing in energy efficiency and reducing greenhouse as emissions and food waste. Also, their philanthropy program is a triumph that aids in resolving social and environmental issues. For instance, the Walmart Foundation more than $1.4 billion dollars in cash in the year 2016. Further, the company capitalizes immensely on the development of human resource management. Walmart has numerous strengths, such as calling their employees “associates”, its low employee turnover rate, Pathway program, their solid information system infrastructure, and its numerous investments towards the U.S workforce; these resilient assets are the reason why Walmart is the leader in its industry.
Narrow profit margin is an essential weakness for Walmart. The company is experiencing the challenges of how to sustain its low prices in an environment where operational costs, such as wages, are rising. Walmart’s business model can be copied easily by competitors. New retailers can easily negotiate for low prices from suppliers and launch low-cost stores. Furthermore, Walmart has been immensely proscribed for the working conditions of its employees and the reason for banning its employees to join labor unions.
Online shopping is expanding steadily, with almost 270 million people expected to buy products online in 2020. Walmart can leverage this opportunity by investing more in e-commerce, which is driven by tablets and smartphones. The company can also expand to emerging countries through e-commerce to tap into the growing appetite for online shopping experiences. Increased demand for health and organic products gives Walmart an opportunity to expand its organic and healthy food products.
Aggressive competition is an issue that Walmart is experiencing in the retail space. The existence of discount retailers, such as Costco, Target, and mart, threatens Walmart’s market share. Another threat is the loss of customers to competitors like Target due to negative press. For example, between 2 and 8 percent of customers stopped shopping at Walmart from 2003-2015 because of negative press. Walmart tackled the challenge of sustaining its lowest prices, this still may cause a threat for Walmart due to the globalized era we live in nowadays. NGOs and labor unions can trigger an issue for Walmart, due to its law of prohibiting the unionization of their workforce.
Evidently, Walmart can sustain growth because of its strong financial position, global size, and efficient supply chain. Nevertheless, its competitive advantage is impacted by narrow profits, aggressive competition, and loss of customers. The company can sustain and bolster its position in the retail industry by investing more in e-commerce and expanding into emerging markets.
Walmart can focus on expanding and growing its e-commerce business. An innovative approach is to expand online through its current brick and mortar stores. The company can convert some of its stores into classic and elegant spaces where customers come to test products before ordering online.
Customers can be allowed to touch and feel a product and then scan a QR on the product using their phones to order online. The operations, distribution, and marketing are the functional areas that can support this recommendation.
Walmart can remodel its business by combining low-cost products with high-cost products in order to address the issue of narrow profit margins; following the best cost provider strategy. The introduction of certain expensive products in Walmart stores can be tested in affluent locations where customers are more concerned with the quality. When the model gains traction, it can be rolled out in all Walmart stores, specifically in the US. Sales, marketing, distribution, and finance are critical functional areas that can help in the implementation of this proposal.
Lastly, Walmart can expand aggressively to emerging markets through acquisition. Already established e-commerce businesses in developing countries can be acquired to boost the footprint of Walmart in those regions. Successful accomplishment of this recommendation requires the cooperation of research and development, finance, production, and distribution functional areas. Also, a centralized management system is crucial for the success of this proposition.
In conclusion, Walmart has been successful in providing low-cost products through e-commerce websites and convenience stores. The company needs to redevelop and refocus its strategic plan in order to replicate this success in the future.