Wal-Mart Case Analysis Essay Example

can monitor the gross margins of their goods. This access allows them to customize their products based on the specific requirements of customers at a particular Wal-Mart store. Consequently, what factors have contributed to Wal-Mart's success in the past 25+ years?

The success of Wal-Mart can be credited to its effective strategy, strong leadership, and efficient implementation. With Lee Scott at the helm, the company became the leading global retailer by providing a diverse selection of products at affordable prices. The sustained increase in net profits also played a pivotal role in their triumph.

Over time, Wal-Mart's net profit has seen significant growth, going from $112,000 in 1962 to $12.7 billion in 2005 (Peter . P. & Donnelly, J. 2013). The number of Wal-Mart stores has also steadily increased both locally and internationally. In Arkansas alone, there were already 32 stores in 1970 which grew to a total of 7,262 worldwide by 2008 (Peter . P. & Donnelly, J. 2013). With approximately 180 million people visiting their stores every week across 14 countries and around 127 million shoppers in the U.S., it is no surprise that Wal-Mart remains the world's largest retailer (Peter . P. ; Donnelly, J. 2013).

Wal-Mart's success can be attributed to a blend of effective strategy, impeccable implementation, and strong leadership. While numerous companies adopt the same approach of providing the lowest prices, Wal-Mart distinguishes itself through its exceptional execution and implementation of this strategy. The struggles faced by other companies with similar strategies in achieving growth and substantial profits emphasize the significance of Wal-Mart's approach.

Many businesses fail due to a lack of consumer attraction and

insufficient profits, leading to closure. However, Wal-Mart differentiates itself by employing a low-cost leader strategy. The company's main goal is focused on "saving people money so they can live better," prioritizing lower prices for customers (Peter . P. & Donnelly, J. 2013). Wal-Mart consistently strives to reduce costs in all areas of its organization in order to ultimately provide customers with reduced expenses.

Companies employ a low-cost strategy to appeal either to price-sensitive buyers or to enhance profit margins. Wal-Mart's main approach is to rely on lower costs in order to attract price-sensitive customers. The implementation of a comprehensive low-cost strategy at Wal-Mart can be seen through various aspects, including the use of economies of scale to achieve cost reductions. To attain economies of scale, Wal-Mart employs multiple methods.

Due to its extensive number of stores, Wal-Mart ensures the availability of sufficient warehouses to promptly restock nearby stores with varying quantities. This approach prevents high inventory levels, which can incur significant costs. The company's size enables cost-effective distribution. Moreover, its large scale grants Wal-Mart considerable bargaining power with suppliers, as no supplier wants to lose the business of such a giant company. Consequently, Wal-Mart procures products at the lowest possible cost and passes on the savings to customers (Peter . P.& Donnelly, J. 2013).

I am unimpressed by various aspects of Wal-Mart in their business operations.

1.) The wages of Wal-Mart workers are comparable to the affordable prices at Wal-Mart, leading them to rely on government benefits such as Medicaid and food stamps (Peter . P. & Donnelly, J. 2013). Furthermore, a married Wal-Mart employee with one child can receive

the Earned Income Tax Credit, which is a refund provided to specific low-paid workers, in addition to being eligible for government assistance for food and medical care.

In the past, Wal-Mart has hired people who are undocumented immigrants.

3. ) Wal-Mart mandates that recording artists, particularly those in the alternative rock and rap genres, produce modified versions of their music for sale in their stores. This requirement stems from Wal-Mart's prohibition on selling CDs with warning labels. As highlighted in the PBS documentary "Store Wars: When Wal-Mart Comes to Town," Wal-Mart has also taken down magazines from its shelves due to inappropriate covers. Certain magazines even seek Wal-Mart's approval for their cover photos prior to being sold in the stores.

Wal-Mart, the largest retailer in the country and responsible for 12 percent of CD sales in 2008, has a censorship policy that hinders artists from having their work evaluated by the open market. To address this issue, one proposed solution is to restrict children's access to potentially offensive CDs and magazines or conceal them, similar to how "adult" magazines are handled on newsstands (PBS, 2001).

4. ) Wal-Mart enters communities, undercuts prices, and ultimately eliminates small local businesses.

Wal-Mart puts pressure on its suppliers to lower prices, which affects their profitability and forces them to find ways to meet Wal-Mart's price demands. Moreover, smaller suppliers with limited budgets are unable to benefit from the extensive market opportunities that Wal-Mart offers.

Wal-Mart is renowned for its wide range of products from China, which constitutes 70% of their offerings. This has played a part in the trade deficit between the United States

and China. According to the Economic Policy Institute, Wal-Mart's contribution to this deficit amounted to 11% during the period from 2001 to 2006. Consequently, it resulted in approximately 200,000 job losses among Americans and increased reliance on unemployment benefits (Scott, 2007).

In line with Michael Porter's generic strategies - Cost Leadership, Differentiation, and Market Segmentation - Wal-Mart has opted for the implementation of the Cost Leadership Strategy. This particular approach concentrates on targeting a large customer base, as illustrated in the following chart.

This strategy involves offering the lowest prices in the market and targeting cost-conscious or price-sensitive customers. The key elements of Wal-Mart's strategy include a focus on cost-efficient operations, everyday low prices, various store formats, a wide selection of products (both name-brand and private-label), a customer-friendly store environment, effective merchandising, limited advertising, customer satisfaction, disciplined expansion into new markets, and the use of acquisitions to enter foreign markets (Peter . P. ; Donnelly, J. 2013).

The text highlights Wal-Mart's commitment to a low-cost leadership strategy and their unparalleled ability to find cost-efficient ways of operating, as stated by Peter P. & Donnelly (2013). This emphasis on cost-efficiency is evident in all aspects of their operations, including their highly efficient supply chain management system. This system enables the tracking of product data from manufacturing to warehousing and ultimately reaching store shelves. By employing this system, Wal-Mart can prevent losses and achieve significant cost savings.

Wal-Mart achieves its low price strategy by obtaining the lowest prices from suppliers. Peter and Donnelly state that all 66,000 suppliers consider Wal-Mart their largest customer, which allows the company to negotiate advantageous prices. This advantage enables Wal-Mart

to provide superior prices in comparison to competitors such as Kroger, Safeway, Albertson’s, etc. As a result, rival retailers must lower prices or face the possibility of closing their stores. Consequently, this successful strategy has also discouraged new competitors from entering the market.

Wal-Mart minimizes its operating costs through several spending strategies. These include restricting advertising expenses to 0.3 percent of sales revenue due to store proximity, expanding into neighboring geographic regions, building new stores within 200 miles of distribution centers for cost-efficient deliveries, distributing advertising expenses among all area stores, constructing affordable structures, renovating and redecorating the stores every seven years, and economically constructing and furnishing distribution centers and corporate offices.

Around 2007, Wal-Mart began improving its stores to be more energy efficient and rely completely on renewable energy sources for saving energy. These high-efficiency stores use 20 percent less energy compared to a typical Supercenter (Peter, P. & Donnelly, J. 2013). Additionally, they provide different store formats.

Wal-Mart provides four distinct retail concepts to cater to their customers' needs. These concepts comprise discount stores, offering a wide range of up to 80,000 products; Supercenters, which combine a general merchandise discount store with a fully stocked supermarket for convenient one-stop shopping; Neighborhood Markets, consisting of a full-line supermarket and limited general merchandise; and Sam's Clubs, exclusive members-only warehouses specializing in bulk quantities of brand-name items and some high-priced merchandise. Moreover, Wal-Mart takes pride in its diverse product range that encompasses renowned brand-name items as well as their own private-label merchandise.

According to Peter and Donnelly, Wal-Mart's main strategy is to provide customers with a variety of affordable products in one

place. The Supermarket format aims to make shopping convenient by offering a wide range of items, including complete grocery stores. Wal-Mart stores have a customer-friendly environment with easily navigable shelves and displays for presenting merchandise. The store layouts are constantly improved to help customers find products easily. Moreover, Wal-Mart actively tests new merchandising techniques.

According to Peter and Donnelly, Sam Walton did not just copy successful ideas and merchandising techniques; he improved upon them. In order to compete with Target in the discount retail industry, Wal-Mart worked on improving the quality of products in certain departments. Additionally, Wal-Mart consistently expanded into nearby areas before moving into new territories. They made sure that all new stores were situated within 200 miles of distribution centers to ensure efficient and cost-effective deliveries.

In 2008, Wal-Mart had a total of 4,141 stores in the United States and expanded its presence in other countries including Canada, Mexico, Brazil, Japan, Puerto Rico, China, Germany, South Korea, and Great Britain. This expansion was achieved by acquiring existing general merchandise or supermarket chains. To cater to the preferences of local customers in these foreign markets, Wal-Mart implemented an international strategy focused on being "local" and collaborating with local suppliers to sell their products. As a result of these efforts, the number of international stores grew to 3,126 by 2008. Additionally, by 2009 Wal-Mart became the largest retailer in the United States (US), Canada and Mexico. The effectiveness of this strategic approach employed by Wal-Mart deserves examination.

The successful functioning of Wal-Mart's strategy is attributed to several factors. Peter and Donnelly, Jr. state that these factors include a strong dedication to

cost-efficient operations, the provision of everyday low prices, the presence of multiple store formats, offering a wide range of products including both name-brand and private label merchandise, creating a customer-friendly store environment, implementing smart merchandising techniques, minimizing advertising efforts, prioritizing customer satisfaction, cautiously expanding into new geographic markets, and utilizing acquisitions to enter foreign country markets.

The financial information of the company demonstrates its success in sales and profits. Despite undergoing strategic changes and expanding store concepts, Wal-Mart achieved remarkable results. In 2000, sales reached $153 billion and profits were $5.3 billion. By responding to criticism with a new strategy, the company experienced significant growth. In 2008, sales soared to $375 billion (a 145% increase) and profits rose to $12.7 billion (a 139% increase). This impressive growth was achieved by increasing the number of open stores from 3,884 in 2000 to 7,262 in 2008.

In 2009, sales were projected to surpass $400 billion (Peter and Donnelly, Jr.). Wal-Mart was successful in transforming their company to meet customer needs and by 2008, they were serving nearly 180 million people in 14 countries. In the U.S. alone, Wal-Mart had an average of 127 million customers per week (Peter and Donnelly, Jr.). The data shown in case Exhibit 1 indicates consistent growth in both strategic and financial performance from 2000 to 2008.

Net Sales and Net Income have increased by 145% and 139% (as previously mentioned). Additionally, the opening and operation of 3,378 more stores in 14 countries has led to a significant increase in Cost of Sales and Operating expenses. Since 2000, Current assets have more than doubled to $47.6 billion (a growth of

106%). The Financial and Operating summary demonstrates that the company's strategy is effective, as Wal-Mart continues to grow and meet the needs of its stakeholders and customers (Peter and Donnelly, Jr.). What underlying policies, practices, support systems, and management approaches contribute to Wal-Mart's execution of its strategy?

Wal-Mart’s strategy encompasses multiple factors that contribute to its success. These factors include a strong emphasis on cost-efficient operations, everyday low prices, various store formats, a wide selection of products (including both name-brand and private label merchandise), a customer-friendly store environment, effective merchandising, limited advertising, prioritizing customer satisfaction, disciplined expansion into new geographic markets, and utilizing acquisitions to enter foreign markets.