walmart analysis

1. Case Study #2: Wal-Mart
I. Industry
Wal-Mart’s competitive environment is quite unique. Although Wal-Mart’s primary competition
comes from general merchandise retailers, warehouse clubs and supermarket retailers also present
competitive pressure. The discount retail industry is substantial in size and is constantly experiencing
growth and change. The top competitors compete both nationally and internationally. There is extensive
competition on pricing, location, store size, layout and environment, merchandise mix, technology and
innovation, and overall image. The market is definitely characterized by economies of scale. Top retailers
vertically integrate many functions, such as purchasing, manufacturing, advertising, and shipping. Large
scale functions such as these give the top competitors a significant cost advantage over small-scale
competition.
In general merchandise retailing, Wal-Mart’s primary competitors are Target and Kmart. Retail
superstores such as Circuit City and Bed, Bath, and Beyond, also provide retail competition. A survey
found that the majority of respondents favored Wal-Mart over stores like Target and Kmart. Respondents
claimed Wal-Mart offered lower prices, better variety and selection, and good quality. The needs of
consumers is an important economic feature in all competitive environments. What attributes (price,
variety, quality, etc.) prompt buyers to choose one retailer over another is very important in the competitive
landscape.
In the warehouse segment, Wal-Mart’s Sam’s Club competes harshly with Costco. Costco has
fewer warehouses but greater sales and revenues. Costco customers also shop at Costco more frequently
than Sam’s Club customers and, on average, spend more each visit as well. Costco’s dominance may be
the result of better innovation. Costco offers luxury items and was the first to sell fresh meat and produce,
and gasoline. This is important because innovation is a key factor in assessing competitors in an industry.
Last, Wal-Mart is also in direct competition with large supermarket retailers. Production capacity
in the grocery industry is quite populated and Wal-Mart poses a serious threat to many supermarket
retailers, both large and small. Kroger, Albertson’s, and Safeway are all finding it very difficult to compete
with Wal-Mart’s low prices. Because the industry is so crowded, even the large supermarket retailers are
seeking to differentiate themselves in order to stay afloat.

2. In reference to the Five Forces Model, being the largest retailer in the world, Wal-Mart’s position
is strong overall. Rivalry among competitors is fairly weak. The market is crowded but Wal-Mart has the
lowest costs, prices, profits, and market share. The threat of substitute products is also weak. Wal-Mart
exerts a great deal of effort in making sure they are innovative and meeting customer demands. The
bargaining power of suppliers is weak as well. For most producers, Wal-Mart would be their largest
account. Obviously, they would do what Wal-Mart wanted them to do if they hoped to do business.
Likewise, the bargaining power of buyers is also weak. There is a very broad base of customers and a
significant demand for low prices. Last, the threat of new entrants is weak. Wal-mart has a scale of
operation that is so great, it would take years, maybe even decades, for a new company to be on the same
level. Even prominent companies today would have an extremely difficult time matching the costs and
prices Wal-Mart provides.
II. Wal-Mart’s Strategy
Offering products at everyday low prices is only one of Wal-Mart’s many strategies. The
company value chain helps identify activities associated with how Wal-Mart achieves their many strategies.
First, Wal-Mart’s supply chain management is extremely cost effective. For example, Wal-Mart has been

3. known to imitate competition’s successful merchandising concepts. Suggestions from all employees are
expected and sometimes rewarded. Another cost-effective method in Wal-Mart’s supply chain
management is their ability to track the movement of products through the entire value chain. Whether the
product is in shipment, in distribution center inventory, in-store inventory or on the shelf, or at the cash
register, Wal-Mart can track it in real time. Their capability in streamlining supplies among stores and
suppliers has helped them maintain appropriate inventory and track what sells and what doesn’t.
Operations and distribution strategies have also helped Wal-Mart achieve low prices. Wal-Mart’s
strategy has been to plot stores outside of large cities and within 200 miles of existing stores. Clustering
stores together in small areas, Wal-Mart relies on word-of-mouth advertising to win over consumers in
larger cities. Because stores are close together, distribution costs are below average. Furthermore, Wal-
Mart seeks to meet different customers’ needs with four distinct retail options; these include discount
stores, supercenters, Sam’s Clubs, and neighborhood markets. Each store concept has a specific range of
store size, total employment, and estimated sales.
Wal-Mart spends much less on advertising than does their competition. One way they accomplish
this is through the clustering of stores in a relatively small area. Because their stores tend to be grouped
together, they are able to spread advertising expenses across a single market, minimizing advertising costs.
One of Wal-Mart’s foremost strategies is to provide superior service to customers. Every store has
a “greeter” near the entrance to welcome customers, offer them a shopping cart, and direct them toward
where their items are located. Rule number eight in Sam Walton’s 10 Rules for Building a Business is to
“Exceed our customers’ expectations. If you do, they’ll come back over and over.”
Supportive activities related to Wal-Mart’s strategy are related to the above primary activities.
Such activities and/or costs include the technology used in tracking product (operations and distribution),
relationships with suppliers, employee training, and incentives and compensation policies. All of these
activities have proven to be successful overall as Wal-Mart earned $256 billion in revenues and $9 billion
in profits in 2004.

4. Strengths Weaknesses
Powerful strategy Overly complex strategy
Strong financial condition High turnover rate
Strong brand name Weak reputation
Economy of Scale Behind rivals in e-commerce
Cost advantages over rivals Doesn't survey customers
Pricing advantages over rivals Questionable management
Inexpensive advertising Anti-union
Good supply chain management
Good customer service
Wide geographic coverage
Strong dealer network
Opportunities Threats
Open market share Increased competition
Rising consumer demand Slow market growth
Serving new market segments Entry of new competitors
Expanding into new geographic areas Loss of sales to substitutes
Increase online sales Growing bargaining power of suppliers
Falling trade barriers in foreign markets Growing bargaining power of customers
Acquiring rival firms Adverse demographic changes
Entering into alliances Restrictive trade policies
Exploiting new technologies New regulatory requirements
In the SWOT analysis above, I’ve listed the strengths, weaknesses, opportunities, and threats Wal-
Mart faces. To elaborate on a few, Wal-Mart has a very powerful strategy but it is also one that is hardly
measurable or easy to communicate. Wal-Mart has very strong brand recognition but somewhat of a
negative reputation as of now. In many ways, Wal-Mart has great customer service. Still, as in the case of
stocking questionable CDs and DVDs, there is room for improvement. As for opportunities, management
argues there is plenty of room to expand Wal-Mart to two or three times its current size. This may be an
opportunity but if there is that much of the market still available, Wal-Mart will face threats of new
competitors. Exploiting new technologies is an opportunity Wal-Mart will likely take advantage of but
new regulatory requirements is a definite threat to Wal-Mart’s expansion goals.

5. Unweighted Competitive Strength Assessment
Key Success Factors Wal-Mart Target Kmart Costco Safeway
Quality/Product Performance 9 9 8 10 9
Reputation/Image 7 9 8 10 9
Manufacturing Capability 10 9 9 10 9
Technological Skills 10 9 9 10 8
Dealer Network/Distribution 10 9 9 9 9
New Product Innovation 8 9 10 9 9
Financial Resources 10 8 8 10 7
Relative Cost Position 10 8 9 9 8
Customer Service 10 9 8 10 8
Unweighted Overall Strength
Assessment 84 79 78 87 76
The Unweighted Competitive Strength Assessment gives an approximate idea of each company’s
competitive advantage. In this assessment, Costco has the best advantage. Wal-Mart is a close second,
beating Target, Kmart, and Safeway. All of these data are estimates to use in comparing and contrasting
each company. Wal-Mart could use this assessment to see where their strong points are and, more
importantly, where their weak points are. We can see from this data that Wal-Mart has a weaker reputation
than all of the other companies. This may be an area Wal-Mart may want to work on in order to improve
their overall standing.
III. Issues and Recommendations
I feel that Wal-Mart’s most challenging issue involves the public’s resentment. Wal-Mart has
wiped out numerous retail establishments (too many to count) and will continue to do so unless stopped.
So far, some “big box” opponents have stopped Wal-Mart from specific expansions but Wal-Mart is
definitely fighting back. From Wal-Mart’s point of view, I think more focus should be spent on global
expansion. If specific areas are so against having a Wal-Mart that they pass laws to stop Wal-Mart from
building in their area, I think Wal-Mart should stay away. For example, Wal-Mart would have a terrible
time expanding into Oakland. I would assume that with the laws that were passed, a great deal of negative
press also took place. The time and effort to get a Wal-Mart built in Oakland may not be worth the trouble.
This is one of the reasons I feel Wal-Mart should focus on international expansion. There were 1,355

6. international Wal-Marts in 2004. I definitely feel that expanding this number sounds like it could be very
lucrative.
Another issue facing Wal-Mart is the federal lawsuit regarding sex discrimination. From the
numbers quoted in the case study, it sounds as though Wal-Mart is clearly discriminating against females.
This is somewhat surprising but will hopefully be fixed. Wal-Mart is very thorough in their strategy,
maybe they need to be more thorough and/or detailed in their compensation and incentive policies. Wal-
Mart definitely needs to end the discrimination. In order to avoid future discrimination, monitoring of
wages and salaries should be established. This is especially true for upper management employees, where
females are paid significantly less than males in similar positions.
Last, I feel that the compensation and benefits offered to Wal-Mart employees are somewhat of an
issue. If only about 60 percent of employees have health coverage (compared to 72 percent in the retail
industry as a whole), I think their benefit package needs to be reevaluated. The case study claims that the
reason many employees did not sign up for health coverage is because they obtained it through a member
of their household. I’m sure that is the case for some, but not all. Furthermore, Wal-Mart does not pay any
health care costs for retirees. I feel that both examples are methods Wal-Mart uses to cut costs and both
need to be reconsidered.
Although there are a number of dilemmas in which Wal-Mart must take action, I feel that they are
doing extremely well overall. They are the largest corporation in many countries as well as the world
overall. They may need to improve their image and work out their legal battles but I don’t think they
should feel generally threatened. As Sam Walton said, “Recognize that the road to success includes failing,
which is part of the learning process rather than a personal or corporate defect or failing. Always challenge
the obvious.”