109084457 WALMART CASE Group1 Finished Revised 3 (1)

8/18/2019 109084457 WALMART CASE Group1 Finished Revised 3 (1)

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Meike Albers 129030

Francesca Garbaty 123613

David Ehling 125277

Anja Reckermann 123745

Ivander Laurentius Atmojo 2430243

30.05.2011

Group 1


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Table of content

Management Summary .................................................................................................................................... 4

Introduction ..................................................................................................................................................... 5

General Overview ............................................................................................................................................. 6

Wal-Mart...................................................................................................................................................... 6

Wal-Mart’ Vision and Mission Statement ................................................................................................ 7

Proposed Vision ....................................................................................................................................... 8

Proposed mission statement ................................................................................................................... 8

Value statement ...................................................................................................................................... 9

Competitive advantage .......................................................................................................................... 10

Objectives and Strategies ...................................................................................................................... 11

Opportunities and Threats ......................................................................................................................... 12

The External Analysis...................................................................................................................................... 12

DEPEST ....................................................................................................................................................... 12

Demographic factors ............................................................................................................................. 12

Economic factors: .................................................................................................................................. 13

Political factors: ..................................................................................................................................... 13

Ecological Factors .................................................................................................................................. 14

Social/Cultural Factors ........................................................................................................................... 14

Technological Factors ............................................................................................................................ 15

Porter’s Five Forces .................................................................................................................................... 15

Rivalry among competing businesses .................................................................................................... 16

Potential Entry of New Competitors ...................................................................................................... 16

Potential Development of Substitute Products ..................................................................................... 17

Bargaining Power of Suppliers ............................................................................................................... 17

Bargaining Power of Customers............................................................................................................. 17

External Factor Evaluation (EFE) Matrix ..................................................................................................... 18

Competitive Profile (CPM) Matrix .............................................................................................................. 21

Strengths and Weaknesses ........................................................................................................................ 22

The Internal Analysis ...................................................................................................................................... 23

Financial Performance Analysis.................................................................................................................. 23

Key Financial Ratios ............................................................................................................................... 23

Price Ratios ............................................................................................................................................ 23

Profit Margins ........................................................................................................................................ 24


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Investment Returns ............................................................................................................................... 24

Management Efficiency ......................................................................................................................... 24

Growth & Profitability ........................................................................................................................... 24

Wal-Mart Revenue/Income compared with direct competitors ............................................................ 25

Value Chain Analysis .................................................................................................................................. 26

Internal Factor Evaluation (IFE) Matrix ...................................................................................................... 29

Problem statement .................................................................................................................................... 31

Models ........................................................................................................................................................... 32

SWOT Matrix .............................................................................................................................................. 32

Space Matrix .............................................................................................................................................. 35

Boston Consulting Group (BCG) Matrix ...................................................................................................... 37

Internal-External (IE) Matrix....................................................................................................................... 37

Grand Strategy Matrix................................................................................................................................ 38

The Value Disciplines Model Treacy and Wiersema ................................................................................... 39

New Strategies ............................................................................................................................................... 40

Pre-selection .............................................................................................................................................. 40

Selection of Strategies for the QSPM Matrix based on the costs of the alternative strategies .................. 41

Johnson and Scholes Suitability, Feasibility and Acceptability Model.................................................... 41

Evaluate strategies ..................................................................................................................................... 46

The Quantitative Strategic Planning (QSPM) Matrix .................................................................................. 47

Selected Strategies ......................................................................................................................................... 48

Specific strategy and Long term objectives ................................................................................................ 48

Comparison: Actual vs. New strategy ........................................................................................................ 48

Implementation and Expected Results ...................................................................................................... 49


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Management Summary

This report analyses the company Wal-Mart and the retail industry and discusses possible new strategies

Wal-Mart could embark on. The final goal of this report was to develop one strategy for Wal-Mart that

enables the firm to increase its sales revenue and ensure continuous growth.

To analyze Wal-Mart’s internal position and the environment it operates in, the report started with a

thorough micro analysis as well as a macro analysis. The main findings were that Wal-Mart is by far market

leader in the industry, has a stable economic position with the ability to finance its endeavors with

company owned capital, and is able to offer the lowest prices in the industry, which is mainly due to their

superb value chain activities.

However, their costs saving measures are reaching a bottom line and realizing further savings is getting

more difficult. Other retailers, especially online retailers are still able to cut significant costs. This is

particularly dangerous for Wal-Mart which built its entire strategy and marketing around being cost leader

in the industry. Taking the external and internal data as input, alternative strategies were developed. From

these, the four most suitable strategies were analyzed in Johnson and Scholes Suitability, Feasibility,

Acceptability Model. The evaluation showed that- based on the economic environment, the resources

needed for each strategy, and the financial costs and expectations of each strategy- two strategies promise

to provide Wal-Mart with the highest success rate.

These two strategies were “Enter European market through a joint venture”, and “Backwards integration

through taking over the supplying function”. After evaluating these two strategies in a QSPM matrix, the

final strategy was determined based on the highest score: “Enter the European market through a joint

venture”.

The implementation stage shows up what the long-term objectives are and how they will be achieved. Wal-

Mart will enter the European market through a joint venture with Auchan, the French retail chain. In the

first 10 years, the business will open 50 new stores in Europe. A new company name for this joint venture

will be developed, both businesses will share risks and costs, and both businesses will invest capital andresources. An additional positive side effect of this joint venture is that Wal-Mart can benefit from Auchan’s

knowledge of the French culture and business operations and products can be adapted to local needs

easier.

Later on, Wal-Mart can also use Auchan’s international network to enter other retail markets in Europe.

The idea of this collaboration is that Auchan paves the way for Wal-Mart into the European market and the

goal is to create brand awareness. The joint-venture will include opening 50 new stores; an investment of

$10 Billion is required and will be paid in 4 consecutive years. In return, this joint venture is expected to

increase Wal-Mart’s net income margin by 1.20% or $8 Billion by 2017.


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Introduction

This workout is the exam-case of the IBMS6 Strategic Management module. It needs to be accomplished in

teamwork, whereat each member has to demonstrate his ability to work in a team. Furthermore, each

team member has to proof his ability to apply the theoretical knowledge learned during the lessons to this

case.

The assignment deals with the analysis of the Wal-Mart case (p. 293, “Strategic Management cases” by

Fred R. David) and includes a general overview about the company (including vision and mission

identification) as well as an internal- and external-analysis.

The internal analysis consists of an IFE-matrix and a financial analysis, which will provide detailed

information about Wal-Mart´s financial situation. Within the external analysis, several matrices will be used

for further analysis as appropriate. In addition, our group will recommend specific strategies and long-term

objectives. In this respect, a QSPM matrix will show possible feasible alternative strategies.

At the end of this workout, recommended strategies will be compared to the actual strategies planned by

Wal-Mart.

All data and facts used in this report refer to Wal-Mart´s state in 2009 as being published in their 2009

annual report.


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General Overview

Wal-Mart

Wal-Mart is a public company, active in the retailing industry. It was founded by Sam Walton and his

brother J.L. (Bud) Walton in 1965, with the opening of the first Wal-Mart store in Rogers, Arkansas.

Nowadays, Wal-Mart owns 8,500 stores worldwide, employing more than 2million employees and

headquartered in Bentonville, Arkansas, United States. Since 2009, Mike Duke is CEO of the company.

Wal-Mart runs different chains, which have different main

target groups. The divisions of Wal-Mart are separated into

891 Wal-Mart discount stores, 2,612 discount centers, 602

Sam´s Clubs and 153 neighborhood markets. The discount

stores, neighborhood markets and superstores are mainly

targeting the broad customer base, whereby mostly low- and

middle-income customers make the majority of all

customers. These three divisions are mainly differentiating through size of the store, size of the city where

the store is resident and the number of employees.

The discount stores are mostly sized between 50,000 and 100,000 square feet, employing 220 employees in

average, while the superstores have 186,000 square feet in average and employ between 200 and 550

workers. The neighborhood markets have usually round about 40,000 square feet and employ between 80

and 100 people.

In addition to these three divisions, the Sam´s Club division is a membership-only business and has more

than 45 million registered members. It mainly offers groceries and general merchandises in large quantities.

One can say that the Sam´s Club segment found a niche market, because it is often used by owners of small

sized businesses. However, also non-members and private customers that want to try out the offers can

join the club by buying one-day memberships or paying surcharges as a percentage of the price of the

purchase.1

In 2009, Wal-Mart reported $404 billion of revenue and a net income of $13.6 billion. Since 2002 (except

for 2006) Wal-Mart was ranked number one on the Fortune 500 list (an annual list published by Fortune

magazine that ranks the top 500 U.S. corporations with the highest gross revenue).

Outside the U.S.-market, Wal-Mart is active in 14 countries, including 4,200 stores and 600,000 employees.

Especially the Mexican and Canadian market (1,200, respectively 318 brands) are important markets for

Wal-Mart.

1 http://en.wikipedia.org/wiki/Walmart


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Technology – Is the firm technologically current?

Concern for survival growth and profitability – Is the firm committed to growth and financial soundness?

Philosophy – What are the basic beliefs, values, aspirations, and ethical priorities of the firm?

Self-concept – What is the firm´s distinctive competence or major advantage?

Concern for public image – Is the firm responsive to social, community, and environmental concerns?

Concern for employees – Are employees a valuable asset of the firm?3

The actual mission statement, obviously, does not state one of these nine aspects, wherefore Wal-Mart

should think about creating an official mission (and vision) statement, which meets the requirements of an

appropriate mission- or vision statement.

Proposed Vision

A proposed vision statement for Wal-Mart, which answers the question “What do we want to become?”

and reminds every employee of the company about the overall goal of the company could be:

“Our commitment is to become the leader in the retailing branch all around the world, which makes the life

of every customer more enjoyable by offering products with the highest quality standards for the lowest

price possible in combination with the best and most supportive service available.”

Proposed mission statement

The proposed mission statement for Wal-Mart should define the organization's purpose, primary objectives

and also answer the question “What is our business? ” In addition it should stick to the previously

mentioned nine elements of an appropriate mission statement, established by Fred R. David. Bearing this in

mind, the proposed mission statement could be as following:

1. Our customers - We feel to have the obligation to satisfy our customers all around the world.

2. Our products - All products, in every store, no matter where it is located, maintain the same quality

standards to ensure that our customers get highest quality available.

3. Our markets - The world is our market and we will put all of our effort into staying the world market

leader in the retail business.

4. Our Technology - The nature of our business makes it indispensable to operate with the most current

technology available to increase the speed of our daily operations and to ensure that our customers receive

the best service available.

5. Our concern for financial soundness – A constantly ongoing strive for increasing growth- and profit rates

is the catalyzer of all our employee. In addition it gives an assurance to the shareholders that it is of highest

importance to us to put all efforts into our business.

3 Fred R. David, Strategic Management 13

th Edition, p. 75


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6. Our philosophy - It is our basic belief that every individual deserves respect and a fair treatment.

7. Our concept - Offering high-quality products for the lowest price possible enables us to obtain a

predominant position in the retail business.

8. Our community involvement - The highest concern of our foundations and charitable partners is to be a

role model in supporting all kinds of social, community and environmental projects through personal

engagement and donations.

9. Our employees - Every employee is a member of the Wal-Mart family and the most valuable asset of the

firm, no matter what kind of origin, race, gender, age or religious affiliation.

Value statement

The value statement represents the core principles, priorities and behaviors of an organization´s culture.4

Wal-Mart has developed seven statements to describe how the Wal-Mart culture should be like. These

statements can be seen as the value statement of the company.

Open Door Policy - Managers' doors are open to employees at all levels

Sundown Rule - Answering employee, customer, and supplier questions on the same day the

questions are received

Grass Roots Process - Capturing suggestions and ideas from the sales floor and front lines

3 Basic Beliefs & Values - Respect for the Individual, Service to our Customers, Striving for

Excellence

10-Feet Rule - Making eye contact, greeting, and offering help to customers who come within 10

feet

Servant Leadership - Leaders are in service to their team

Wal-Mart Cheer - An actual structured chant that was created by founder Sam Walton to lift

morale every morning

The elements of Wal-Mart´s value statement aim at establishing an employee-friendly workingenvironment, which makes working for the company enjoyable and motivating. Especially the open door

policy and the sundown rule encourage lower level employees to speak one´s mind and also to take

responsibilities. Also the “3 Basic Beliefs & Values” and the “10-Foot rule” are advantageous when it comes

to customer handling and service efforts. Management should focus on maintaining this attitude towards a

sound working atmosphere, because a lack in employee motivation or satisfaction could soon be displayed

through a bad service quality and in the end even to disappointed customers.


th Edition, p. 83


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Competitive advantage

Wal-Mart’s competitive advantage is linked to their success which is

attributed to their culture. Wal-Mart states that wherever you go in Wal-

Mart you will experience the same “You’’ll feel home” because it is

everywhere the same design as well as the same philosophy.

Wal-Mart gains a competitive advantage through offering low prices (cost

advantage), especially in food distribution compared to Super Kmart and

super Target, their main competitor. Furthermore, they have the advantages of offering the best value (for

low cost products), the great selection of quality merchandise and the genuine, high standard customer

service.5

Additionally, Wal-Mart operates in 50 counties within the United States and in 14 international countries

and Puerto Rico6. In the US their discount stores amounted a number of 891 and supercenters a number of

2612. Internationally they are represented by 762 discount stores and 1064 supermarkets. These numbers

show that Wal-Mart has a competitive advantage through their discounted offers due to their widely

spread presence of divisions (discount stores, supercenters, Neighborhood, Sam’s Clubs). This gives them

an overall advantage of strategic global positioning where people will associate the name with the major

advantages mentioned above.

Wal-Mart invests a lot in information technology

7

which brings them to the advantage of being leader; inlogistics, distribution, and inventory control (having installed a computer network in 1970 which connected

all Wal-Mart stores and distribution centers). Furthermore they installed bar-code reader in all distribution

centers by the late 1980s which reduce the labor costs.8In the year 1990 Wal-Mart then introduced Retail

Link software which connects again its stores and distribution centers but this time with its suppliers to get

deliveries even more quickly9.

Additionally, Wal-Mart operates the world-largest private satellite communication system. Around the year

2005 Wal-Mart integrate Radio Frequency Identification10

which is a technology in which each individual

item receives a tag that can be read by a radio signal, thus facilitating tracking shipments, inventory and

sales. To conclude, the size and the high efficiency level result on the one hand from the lower cost Wal-

Mart offers compared to their competitors but alternatively, its expansion could have enabled Wal-Mart to

take advantage of economies of scale, reducing its costs in contrast to the competitors.11 The better

technology allowed Wal-Mart to grow and this grow has lowered it costs through economies of scale.

5

Fred R. David, Strategic Management 13th

Edition, p.294, 302 6 Fred R. David, Strategic Management 13

th Edition, p.298

7 Foster, Haltiwanger, and Krizan, 2006; Dorns, Jarmin, and Klimek, 2004

8 Vance and Scott, 1994


th Edition, p.302

10 http://de.wikipedia.org/wiki/RFID; http://www.ecin.de/blog/node/313

11 Basker and Van (2007)


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Objectives and Strategies

One of the objectives set out for 2010 was a growing operating income at a

faster rate than net sales. In addition, the opening of 715-785 new units

worldwide, including 140 supercentres, 25 neighbourhood markets and

500-600 Sam´s Clubs was a quite ambitious goal. However, the opening ofnew stores will help Wal-Mart to increase its market share, especially in mid-

sized towns.

General Long term objectives of Wal-Mart are permanent growth by expansion in the United States and

internationally as well as continual adaptation to the market conditions and the strategies of competitors.

Furthermore, the opening of new stores in external markets should bring forward Wal-Mart´s effort of

expanding their international store quantity and increasing their international brand awareness.

Widespread name recognition and customer satisfaction shall be linked to the Wal-Mart brand.12

The main strategy of Wal-Mart is to use discount retailing and offering all products for the lowest prices

possible in combination with the best quality available for this price. On the one side, this cost leadership

strategy mostly creates satisfied customers, because they only have to pay low prices for their products,

and, on the other side, local competitors often cannot keep up with the low prices of Wal-Mart. Every Wal-

Mart store is expected from management to compete against its local competitors (which are often smaller

local stores) until the Wal-Mart store has gained significant control over the respective market. In practice

this often means, that either the Wal-Mart store or the other competing store(s) win over customer´s

standing, while the other one often has to be shut down. However, in most cases, Wal-Mart is very

successful with this strategy.

To push on their international expansion, Wal-Mart often makes use of corporate takeovers of a national

retailer to get into the specific markets. After the respective companies have been bought, Wal-Mart

reconstructs them into Wal-Mart stores. Even though this aggressive strategy is often successful (for

example in the Canadian market) the company experienced setbacks in some other markets. When trying

to enter the German market from 1997 on, Wal-Mart bought 50 “Wertkauf” stores (German supermarket

chain) and planned to convert them into Wal-Mart stores. But this effort was aborted in 2006, because of

destructive sales figure and Wal-Mart cancelled their mission of gaining ground in the German market.

This failure was mainly due to their mistake of not taking into consideration the specific characteristics of

the respective markets.13

12 http://managementhelp.org/plan_dec/str_plan/stmnts.htm

13 www.articlesbase.com/management-articles/marketing-management-in-walmart-1919747.html


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Opportunities and Threats

Figure 1: Opportunities and Threats

The External Analysis

DEPEST

Development in the macro environment (DEPEST)

Macroeconomic factors according to the DEPEST method have great influence on the company returns.

Demographic factors

Several demographic factors can influence Wal-Mart´s returns. One example is the level of income of

customers within the different countries Wal-Mart is operating in. They offer low cost products with the

best value to the following three groups of shoppers for Wal-Mart stores14:

The “brand aspirational – low income shoppers

The “price sensitive affluent”, wealthier shoppers who love deals

The “value-price shoppers”, folks who like low prices and cannot afford much more”

15

With the help of this classification, Wal-Mart can

locate their divisions properly so that it matches

customer’s expectations and fulfill their demands.

Another demographic constraint for Wal-Mart in

the next decades will be the aging population.

From year to year there exists a bigger amount of

older people who have special needs and

requirements that have to be fulfilled by a retailer. Wal-Mart has to adapt on the one hand their product

range but on the other hand also the shopping conditions their stores provide to older customers. By

special product offers or support activities for old customers they can attract this increasing customer

group and win them over. It would give them a competitive advantage. Additionally the size of families

within the US is growing. Right now the US market represents Wal-Mart´s most important one. Therefore it

is useful to know that the family sizes within this market are growing right now.16

14 http://www.oppapers.com/essays/Walmart-Target-Groups/187060

15 Barbaro, 2007

16 http://findarticles.com/p/articles/mi_qn4188/is_20090121/ai_n31212055/

Opportunities Threats

1. Trend towards Online Shopping 1. Fast changing technology (e.g. online shops)

2. Potential of European market 2. Fierce price competition in retail industry

3. Customers of higher income group 3. High bargaining power of customers

4. Trend towards "one stop shopping" experience 4. Instabilities due to external factors(e.g. unemployment)

5. Trend in sustainability awareness 5. Laws requiring more investment into employee benefits


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Wal-Mart can benefit from this development simply because they created exactly what those bigger

families need. “Supercenters” in which those family can experience the “one stop shopping” of products

which are offered at extremely low prices.

Economic factors:

Economic factors like unemployment and economic growth have an influence on Wal-Mart´s sales.

The best example is probably the financial crisis which has been significantly affected Wal-Mart

especially during October and November 2008. Although there was a global instability of the

finance banking sector, which continues to affect trade between countries creating liquidity

problems, Wal-Mart was still able to keep on growing and increasing their sales. This was caused

by the fact that at this point of time also higher income groups were forced to take a closer look at

their expenditures. Another reason can be that one of the industries that faced least effect from

the crisis was the food industry due to the fact that population was still in need of consuming.

This industry represents one of Wal-Mart´s most important ones.

A high unemployment rate can have on the one hand positive influences for Wal-Mart and on the

other hand also negative ones. It depends which customer group is affected by the

unemployment. Because of the fact that Wal-Mart offers products for very low prices their

customers are mainly people from lower income classes. Unemployment can force people from

originally upper income classes to reduce their expenditures and save money. This would be a

chance for Wal-Mart to enlarge their customer base. Still Wal-Mart is a retailer who wants to sell

products to their customers. Therefore some amount of money is still needed. Currently Wal-

Mart´s core customers are under a lot of pressure and running out of money.17

Wal-Mart has to

observe this trend to be able to react in the right way. Otherwise it would have a huge influence

on their sales.

Political factors:

Wal-Mart has not only a well established brand image within their target customer groups. By being the

No. 1 corporate political contributor, they are additionally highly recognized on the federal level. In year

2006 they supported with $943,455 the US election cycle.18 Political instability and the lack of resources

caused fuel prices to rise during the last years. This affects Wal-Mart´s operations and returns in two

ways.19 On the one hand customers have less money in their pockets and are only willing to spend less

during their shopping trips. On the other hand transportation costs for Wal-Mart itself are rising. This

increase in costs cannot be balanced by offering higher prices because it exists the risk that customers

17 http://money.cnn.com/2011/04/27/news/companies/walmart_ceo_consumers_under_pressure/index.htm

18 http://www.businessweek.com/bwdaily/dnflash/content/sep2006/db20060928_251244.htm

19 http://money.cnn.com/2006/04/28/news/companies/gas_retailers/index.htm


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won´t come back. Because of Wal-Mart´s strategy of extremely low prices, they were several times in

conflict with government regulations according to predatory pricing. Several experts claimed that Wal-Mart

offered prices which were intended to drive competitors down. Wal-Mart has to be very careful with this

behavior because the fines for violating this law are extremely expensive.

Ecological Factors

Ecological aspects should play an important role for Wal-Mart. It is urgent that every company

includes some amount of environmental awareness within their processes. Wal-Mart realized this

by founding their “Sustainability 360°” initiative. This initiative is directed to all of Wal-Mart´s

associates, suppliers, communities and customers. Their main goal is to sustain resources and the

environment by making use of renewable energy instead of producing waste. Additionally they put

effort in reducing water and electricity usage within their own stores. By working in this direction

Wal-Mart does not only improve the environment they operate in but in the same way also

improves their image. This is of high importance for Wal-Mart because at this point of time there

are still several critics who say that Wal-Mart´s actions within the environmental area are still too

little.20

Wal-Mart should strive for changing this opinion by increasing their efforts. As being the

largest retailer in the world they should not forget which huge impact their behavior has. Their

commitment towards environmental friendly processes has to be in relation to their enormous

and continuously growing business size. Otherwise it would neither be efficient nor effective. An

improved image according to this topic would lead to a higher amount of customers and therefore

higher sales revenue.

Social/Cultural Factors

There are several social and cultural aspects which might have an influence on Wal-Mart´s sales. First of all

it is possible to say that Wal-Mart concentrates their operations on the continental US market and 14 other

countries which are not part of it. Examples are Argentina, Brazil, Honduras, etc. As we can conclude from

their website, Wal-Mart is not present in any European countries at the moment. During the past Wal-

Mart´s target customers came from the lower middle class or poorer segments.21 During the recession in

2008/2009 they were clever enough to recognize new trends within their customer groups and tried to use

them to enlarge their customer base. Now that also people out of the middle and upper-middle class

started to review more carefully their expenditures, Wal-Mart was able to benefit from this situation.

Customers asked for inexpensive food and cheaper goods and Wal-Mart´s stock rose about 50% during this

time.22 But not only the recession but also the steady improvement of their stores attracts a higher-income

audience.

20 http://business-ethics.com/2010/05/15/1411-assessing-walmarts-environmental-impact/

21 http://snippets.com/who-and-what-is-Walmarts-target-market.htm

22 http://articles.moneycentral.msn.com/learn-how-to-invest/Walmart-vs-target-who-will-win-the-recovery.aspx?ucpg=6


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All in all we can describe Wal-Mart´s customers as “easy shopper”. They want to be able to buy all they

need by doing “one stop” at a Wal-Mart store. Wal-Mart´s huge quantities and broad product assortment

enables them to fulfill exactly these demands.

Technological Factors

When we take a look at Wal-Mart´s distribution activities we can conclude that technological aspects play

an important role for the company. To be able to organize their highly automated distribution operations

and their huge amounts of items in stock they have to make use of latest technologies. With the help of

their private satellite communication systems and the point-of-sale bar code scanning they ensure that

everything is linked with each other and orders are placed at the right time at the right place. To satisfy

customers demands it is urgent to have all needed items available as quick as possible. Additionally the

technological tools facilitate the work of all employees within the company. The other way around

technological advancement can also be seen as a negative impact on Wal-Mart. As we all know rapid

changes in technology lead to shorter product life cycles.23 Especially retailers like Wal-Mart which handle

very broad product assortments and huge amounts of items are less flexible in changing their product lines.

This could be a disadvantage towards smaller competitors which are maybe more capable of offering

newest products.

Porter’s Five Forces

This model, developed by Porter, is used to develop strategies while taking competition into account. Mostof Wal-Mart’s product range is in the lower-return segment and in this segment competition is particularly

fierce. According to Porter, there are 5 forces which determine the competitiveness of an industry. These

are:

Source: http://www.soopertutorials.com/business/strategic-management/3028-porter-fiveforces-model.html

23 http://herkules.oulu.fi/isbn9514264509/html/c953.html

24 Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David pages 118-121

1. Rivalry among competing businesses 4. Bargaining power of suppliers

2. Potential entry of new competitors 5. Bargaining power of consumers24

3. Potential development of substitute products


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Rivalry among competing businesses

This is usually the most powerful of the five competitive forces. Wal-Mart can only be successful when its

strategies have a competitive advantage over strategies followed by its rival firms.25

There are three main competitors in this industry, namely K Mart, Sears and Target. All of them follow a

low cost strategy, but none can beat Wal-Mart’s. Wal-Mart follows a policy of monitoring retail prices

charged by competitors and set prices below theirs regardless of the item’s costs. They were sued and later

found guilty for predatory pricing.26 Wal-Mart goes to great lengths to maintain low-price leadership. Since

they can afford to set prices below competition all the time their value chain activities must be flawless and

their cost saving measures are innovative.

In 2009 Wal-Mart was trying to bring a legislation under way which required all employers to provide

health insurance to employees. Wal-Mart itself already provides insurance to all its employees.27 If this

legislation became active, many of Wal-Mart’s competitors would have to struggle with the costs this

brings along and give Wal-Mart a strategic advantage since they will not have more costs than they already

have. While its competitors will have to save money somewhere or increase prices, Wal-Mart can continue

with its low cost approach. At this point in time the risk of rivalry among competing businesses is low for

Wal-Mart.

Potential Entry of New Competitors

The more firms can enter the market the higher the

competitiveness. Entry barriers, enforced or of

natural origin, can influence the level of market

entrants.28 There are only few rules regarding market

entry and basically any business can enter. However,

Wal-Mart is a strong presence and makes it difficult

for firms to establish themselves in this industry. The

biggest problem is that Wal-Mart has economies of

scale due to their size. A new business will have large

scales and this is hard to afford. Besides that, Wal-

Mart draws customers through wide Marketing.29 A new

business would also have to rely on large and expensive Marketing campaigns to increase understanding

and knowledge of its business. Consequently, huge sums of capital are required to successfully enter this

industry. For Wal-Mart, the risk of potential new entries in the industry is low.

25 Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David p. 120

26 Walmart Stores, Inc.-2009, Amit J.Shah and Michael L. Monahanat, Frostburg State University p. 304

27 Walmart Stores, Inc.-2009, Amit J.Shah and Michael L. Monahanat, Frostburg State University p.293


29 http://www.helium.com/items/888341-how-Walmart-really-works


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Potential Development of Substitute Products

Deals with the level of competition between a firm in a certain industry and its competition which produces

substitute products in another industry. Competitive pressure increases when prices of substitute products

drop.30

Wal-Marts biggest competitor in this segment is Target, which produces more upscale and chic products

than Wal-Mart at inexpensive prices.31 Wal-Mart is still cheaper than Target, but those customers who

want superior quality and are willing to pay slightly more for it might swap. Another substitute alternative

is online shopping. Here, customers can find cheap alternatives since online businesses do not need real

stores and on site staff, can save this money and therefore reduce product cost. The risk of developments

of substitute products is medium.

Bargaining Power of Suppliers

This force affects the level of competition in any industry, but as a general rule it can be said that

competition gets fiercer when:

- there are many suppliers

- there are only a few good substitute raw materials

- the costs of switching raw materials is especially costly

Usually, it helps both the business and the supplier when they enter into a closer relationship with

more visibility, an agreement on fair prices and better cooperation. 32 The volume of Wal-Marts

orders is so large that supplier’s bargaining power is fairly low.33

Suppliers do not want to lose this

big customer and are willing to reduce product’s prices accordingly.

Wal-Mart sells mainly undifferentiated and standard products. For these, the costs of switching

raw materials are low, lowering the bargaining power of suppliers further. The bargaining power

of suppliers is low.

Bargaining Power of Customers

When there are many customers or when customers buy large volumes their bargaining power is high,

affecting the level of competition. Competition is particularly high in industries with little product

differentiation, which is the case with Wal-Mart.34 Therefore, Wal-Mart is forced to offer the lowest prices,

or the customer will go buy the product somewhere else. Besides that, the number of customers in this

industry is huge, increasing customer bargaining power further. Wal-Mart’s customer bargaining power is


31 Walmart Stores, Inc.-2009, Amit J.Shah and Michael L. Monahanat, Frostburg State University p. 306


33 http://ezinearticles.com/?Porters-Five-Forces-Analysis&id=15116



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high. To sum it up it can be concluded that Wal-Mart has Porter’s Five Forces under good control and

integrated it into its strategy.

There is not much rivalry to be expected since Wal-Marts biggest competitors are still much smaller than

itself and cannot beat its prices. Wal-Marts size also comes in handy when controlling new industry entries,

making it almost impossible for new entrants, unless they bring a lot of capital.

There exists a risk of substitute products, especially from the online store development which are, due to

their nature, often able to beat Wal-Marts prices. The bargaining power of suppliers is low, again this is due

to Wal-Marts size and power, as well as the type of products they are selling which are easily available from

other suppliers. The bargaining power of customers is high due to the size of the market and the availability

of the same products from other Markets.

External Factor Evaluation (EFE) Matrix

Within this matrix we will give, based on the importance of each aspect, weights to all opportunities and

threats. The rating will describe the ability of Wal-Mart to react to the opportunities and threats. The

weight multiplied by the rating then gives us a weighted score whose total sum demonstrates if Wal-Mart

lies below or above the average of 2.5.

.

Figure 2: EFE Matrix

The overall score of Wal-Mart is 3.07. From this it can be concluded that the company’s response to

external opportunities and threats is above average.

Opportunities

1. Trend towards Online Shopping 0,15 4 0,6

2. Potential of European market 0,13 3 0,39

3. Customers of higher income group 0,1 4 0,4

4. Trend towards "one stop shopping" experience 0,07 4 0,28

5. Trend in sustainability awareness 0,05 3 0,15

Threats

1. Fast changing technology (e.g. online shops) 0,2 2 0,4

2. Fierce price competition in retail industry 0,13 3 0,393. High bargaining power of customers 0,07 3 0,21

4. Instabilities due to external factors(e.g. unemployment) 0,05 3 0,15

5. Laws requiring more investment into employee benefits 0,05 2 0,1

Total 1 3,07

Weight Rating Weighted

ScoresKey External Factors


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Opportunities

1. Trend towards Online Shopping

Online Shopping is a new technological trend and provides huge potential to interested businesses. The

amount of time consumers spend shopping online is increasing rapidly.35

For those businesses that are already active in the market, opening online stores can lead to additional

sales. Besides these points, products from online stores can usually be marketed at lower prices than their

equivalents in retail shops. This is due to cost savings. Online stores do not need retail stores nor do they

need sales staff and other costs associated with these stores.36

2. Potential of European Market

Half a billion people live in Europe37 and the GDP per capita was $32,900 in 2010.38 It can be said that

Europe has a very large buyer market and that the money generating potential is very promising.

3. Customers of higher income group

The higher income group is an opportunity for Wal-Mart. Experts says that the people from higher income

groups spend about 40% more on retail articles than people from the lower income groups do.

Consequently, they are seen as potential candidate to boost sales considerably.39

4. Trend towards “one-stop shopping experience”

“One stop shopping” is a trend as it allows customers to buy everything they need at only one store, saving

them the trouble of spending extra time and traffic to go to another store to buy other products they

need.40 The advantage for businesses providing a “one stop shopping experience” is that it keeps

customers longer in the store and that they are more likely to buy all their needed products there instead

of going to a competitor.

5. Trend in sustainability awareness

The consumer’s awareness in sustainability issues rises and they begin to favor products from businesses’

that focus on sustainable production.41 Businesses that do not put more pressure on the environment than

necessary are preferred42 as well as products that are as biological as possible.43

35 http://www.prnewswire.com/news-releases/couponalbumcom-to-provide-great-savings-as-consumers-trend-toward-online-shopping-this-

holiday-season-103996793.html36

http://www.archive.dcita.gov.au/2001/10/ecommerce_cs/summary_report/revenue_and_cost_savings37

http://europa.eu/about-eu/facts-figures/living/index_en.htm38 https://www.cia.gov/library/publications/the-world-factbook/geos/ee.html

39 http://articles.moneycentral.msn.com/Investing/Extra/Walmart-moves-more-upscale.aspx

40 http://www.4managers.de/management/themen/one-stop-shopping/

41 http://www.wornthrough.com/2011/05/16/cfp-sustainability-marketing-claims-and-consumer-behavior/

42 http://www.sustainablebusinessoregon.com/columns/2011/05/where-sustainability-and-consumer.html

43 http://greenretailingnews.blogspot.com/2009/07/retailtrends-biological-products-in.html


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Threats

1. Fast changing technology (e.g. online shops)

This issue provides a threat as it gets increasingly difficult to always stay on top of technological trends and

to use them in creating a competitive advantage.44 An example for Wal-Mart is the online shop

development. Some businesses like Amazon and EBay developed a well working technology incredibly fast

which helped them in their rise to industry leadership.45

2. Fierce price competition in retail industry

In the retail industry, especially in food and clothing exists fierce price competition. Prices decrease and as

a consequence so do profit margins. Businesses have to develop new ways of saving costs to stay

competitive in the industry.46

3. High bargaining power of customers

Customer bargaining power is high in the industry due to the large number of customers. Besides that,

product differentiation is low in Wal-Mart’s case which also has a strengthening effect on bargaining power

of customers.47 Consequently, customers are very price sensitive and perceptible to lowest price offer,

which drives down Wal-Mart’s profit margin.

4. Instabilities due to external factors (e.g. unemployment)

Instabilities that arise from external factors, like unemployment, can affect the retail industry because

people’s feelings of security change. This aspect is influenced by psychological factors. People who are

insecure about what is going to happen are more likely to save their money than to spend it. 48 This has a

negative effect on businesses.

5. Laws requiring more investments into employee benefits

Wal-Mart employs 2,100,000 employees.49 If the U.S. government decided to bring a new legislation under

way requiring businesses to invest more money into employee benefits, this would mean huge costs for the

big employer.

44 http://www.information-management.com/news/insurance_technology-10016312-1.html

45 http://www.industryleadersmagazine.com/ebay-scores-over-amazon-acquires-gsi-for-2-4-billion/

46 http://www.marketing.uni-frankfurt.de/fileadmin/Publikationen/natter_7.pdf

47 http://ezinearticles.com/?Porters-Five-Forces-Analysis&id=15116

48 http://www.npd.com/press/releases/press_100126b.html

49 http://money.cnn.com/magazines/fortune/global500/2010/snapshots/2255.html


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Competitive Profile (CPM) Matrix

Figure 3: CPM Matrix

According to Fred. R. David the CPM “identifies a firm’s major competitors and its particular strength and

weaknesses in relation to a sample firm’s strategic position” (David, 2008 , p.127).

The main competitors of Wal-Mart are Target (American retailing company; headquartered in Minneapolis,

Minnesota, United States) and Kmart (American chain of discount department stores, headquartered in

Detroit, Michigan, United States) as well as several national supermarket chains in the respective

international markets. However, Target can be considered to be the main competitor of Wal-Mart, having

sales of $65 billion and 1,700 stores. Kmart is the second competitor of Wal-Mart. Till 2001, they have been

the main competitor, but after having declared bankruptcy in 2001, they are only the third biggest retailer

with having sales of $17 billion and running 1,300 stores. Due to the bankruptcy they operate now as a

subsidiary of Sears Holding.50 Another competitor is the Costco Wholesale Corporation, a membership

warehouse club, which is mainly competing the Sam´s Club segment of Wal-Mart. Other smaller

competitors are Shopko (chain of retail stores based in Ashwaubenon, Wisconsin) and Meijer (regional

American hypermarket chain, based in Grand Rapids, Michigan). 51 The critical success factors in a CPM

include internal and external issues which therefore refer to strength and weaknesses where 1 is a major

weakness and 4 a major strength.

The above CPM Matrix shows that Wal-Mart is the market leader. Wal-Mart dominates compared to its

competitors with the highest score of 3, 35. Target is on the second position and dominates Kmart (Sears

Holding). Costco is only a competitor to the Sam’s Club and although its rating is in the overall industry low,

it is one of the biggest competitors for the Sam’s Club.52

50 R. David, Strategic Management 13

th Edition,.p. 306

51 http://wiki.answers.com/Q/Who_are_wal_mart's_main_competitors#ixzz1McNLNuBO; http://finance.yahoo.com/q/co?s=WMT+Competitors;

http://www.kmart.com.au/Community.aspx; http://sites.target.com/site/en/corporate/page.jsp?contentId=PRD03-001817 52

http://shop.costco.com/en/About/Charitable-Giving.aspx

(CPM) WalmartCritical Success Factors Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score Rating Weighted Score

Advertising 0,25 3 0,75 2 0,5 3 0,75 2 0,5

Global expansion 0,2 4 0,8 3 0,6 3 0,6 1 0,2

Price competitiveness 0,15 3 0,45 3 0,45 3 0,45 4 0,6

Product quality 0,1 3 0,3 4 0,4 2 0,2 3 0,3

Community Involvement 0,1 4 0,4 4 0,4 3 0,3 2 0,2

Consumer loyalty 0,1 3 0,3 2 0,2 2 0,2 3 0,3

Market share 0,05 3 0,15 3 0,15 2 0,1 1 0,05

Financial position 0,05 4 0,2 3 0,15 2 0,1 3 0,15

Total 1 3,35 2,85 2,7 2,3

The Competitive Profile Matrix


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On the Fortune 500 list published 2010 Wal-Mart leads the

second year in a row -- and the eighth time this decade.

This supports the results calculated by the CPM matrix

above. Nonetheless sales at its U.S. stores have dropped

for seven straight quarters, despite gains in worldwide

revenues and profits.

To fight against this the CEO Michael Duke is restocking shelves with lower-priced products dropped by his

predecessor, Lee Scott. Wal-Mart’s recent adaptations to changes in consumer behavior to increase sales

include the reconfiguration of thousands of packaged food items to cut their salt and sugar. In stable

economic times Target's low-cost inventory was always demanded. But to capitalize on increased traffic

during the downturn, Target started to stock produce and food products, competing with some grocery

stores. Also entering new markets such as Seattle, San Francisco and Boston with smaller stores should

boost Target’s slowing U.S. growth rate. Also expanding northward, by taking over 220 stores previously

owned by Canadian chain Zellars is part of their financial strike back.53

Strengths and Weaknesses

Figure 5: Strengths and Weaknesses

53 http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2303.html;

http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2292.html

Strenghts Weaknesses

1. Well established brand awareness 1. Lack of presence in many developed countries

2. Cost leadership in comparison with competitors 2. Failure of entering foreign markets

3. Continuous growth 3. No formal mission statement

4. Control over suppliers 4. Continuous product recalls

5. Profitable organization of distribution channels 5. "Everyday low prices" could be connected to poor quality

Rank Company Fortune 500 Revenues

rank ($ millions)

1

Wal-Mart

Stores 1 421,849.0

2 Costco 28 77,946.03 Target 33 67,390.0

4 Sears 57 43,326.0

Fi ure 4: Industr General Merchandiser42


23/50


24/50 24

Profit Margins

Wal-Mart Profit margins is very impressive. Wal-Mart is very

competitive in their pricing, yet still able to retain its Gross & Net

profit margin really high compared to the industry, and does not

vary very much from the S&P 500, except for the Net profit

margin, but this is due to different industries.

Investment Returns Wal-Mart is more profitable compared to the Industry, in

spite of the lower pricing, and their shortage of current asset

(the current ratio). Wal-Mart’s return on equity still can

better with a more thorough investment plans.

Management Efficiency

We can assume that the low cost strategy also have

impact on employee salaries, since yearly employee

salaries and almost all cost in management are much

lower compared to the industry, and even more than

12x lower compared to the S&P 500, but this is due to

different industries.

Growth & Profitability

308,945.00344,759.00 373,821.00

401,087.00

11,408.00 12,189.00 12,863.00 13,235.00

0.00

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

2006 2007 2008 2009

WMT Growth Analysis (2006 - 2009)

Total Revenue Net Income

Figure 6: Wal-Mart Growth Analysis (in $ million)


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As the growth analysis graph shows, Wal-Mart gained more than $ 20 million revenue increase from 2008,

but it is lower compared to the previous year (2007-2008) which Wal-Mart gained almost $ 30 million, also

again lower than 2006 -2007. This is indicating a lower growth percentage each year. Although revenue

growth has been decreasing each year, Wal-Mart’s net income is steadily increasing each year. Despite the

recession in the U.S Wal-Mart was still able to make quite a sum of profit even though it is $ 200 million less

than the previous year.

Wal-Mart Revenue/Income compared with direct competitors

Figure 7: Revenue/Income comparison 2009

As of 2009, Wal-Mart clearly is the market leader with the most revenue compared to Target, Costco, and

almost 10 times than Kmart. Even though Target, Kmart, Costco are direct competitors to Wal-Mart, none

of them pose a major threat according to their respective Revenue and Net Income, especially Kmart with

only $ 53 million net income was barely able to cover their expenses in 2009.

Although Wal-Mart had significantly higher revenue and net profit, Target’s Net Profit Margin (3.4%) seems

to be slightly better than Wal-Mart’s (3.3%) even though Target’s Revenue and net profit are almost 7

times lower than Wal-Mart’s. All in all, Kmart seems to be in a lot of trouble with their net profit margin

(0.1%) being lowest compared to all other competitors.

Figure 8: 2009 Net Profit Margins


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Value Chain Analysis

The Value Chain, as developed by Porter, deals with all activities undertaken by a business to create value.

More precisely, it calculates total revenue minus total costs of all activities undertaken by a business to

produce and market a product or service, and results in the yielded value of this process. Profitability is

therefore granted as long as total revenues exceed the total costs of creating and delivering the product or

service. The purpose of the value chain analysis (VCA) is to identify where in the value chain process low

cost advantages or disadvantages lie. It also helps businesses to define its strengths and weaknesses.

Once core competences are defined the firm should

try to convert these into distinctive competences.54

The value chain is divided in primary activities and

support activities. The primary activities encompass

every process that directly relates to production or

sale of the product or service. The support activities

are functions which support the business in

optimally conducting the primary activities.

The graphic Figure above depicts a typical value chain. The elements printed vertically are primary

activities; the elements printed horizontally are support activities. All these activities combined are

responsible for the profit margin. In the next step, each of these activities will be analysed for Wal-Mart.

The reason we use this analytical tool is because Wal-Mart’s pricing is the most competitive in the market.

We assume that this is related to a very well-working value chain and decided to give this issue some

thought.

Primary Activities

Inbound Logistics

Wal-Mart’s many stores and its huge product assortment make a well working inbound logistics system an

essential part for success.

Wal-Mart was among the first businesses to implement a hub and spoke distribution network. This network

is a centralized and integrated logistics system which is designed to keep costs down. These distribution

canters receive products from various origins, consolidate them and then send them directly to their

destinations. This way of managing distribution reduces transportation cost, inventory levels and overall

costs and provides businesses with a competitive logistics advantage.55 Wal-Mart’s knowledge and

expertise in logistics greatly contributes to its cost leadership.

Since 2006 Wal-Mart uses a vendor transportation consolidation program called Remix. This distribution

system requires vendors to work together with transportation and logistics providers to turn lightly filled

54Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David pages 164-166

55 http://scm.ncsu.edu/scm-articles/article/success-with-hub-and-spoke-distribution

Source: http://www.provenmodels.com/26/value-chain-

analysis/michael-e.-porter/


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truckload deliveries into full truckload freight before reaching the store.56 This saves tremendous costs

through using carriers efficiently. Wal-Mart uses carriers to take care of inbound logistics. At this point,

over 60% of Wal-Mart’s inbound freight is taken care of by its suppliers.

Operations

Wal-Mart knows of the importance of its inventory system and in just 5 years invested over $600million

into information systems.

The business uses telecommunications to create a link between each store, the central co mputer system

and from there to suppliers. This allows for greater invisibility and speed and saves money invested in

inventory. In fact, many products leave the warehouse without ever really being stored there and only 10%

of warehouse space is used for inventory whereas the industry average is 25%.

At the same time, the increased coordination helps the suppliers in making more consistent planning which

brings costs down. These cost savings will also be passed on to Wal-Mart.

Wal-Mart uses barcode scanners for their point of sale system. This enables the company to record each

item sold and make this information available for recording and for sales analyses.57 Besides these technical

aspects Wal-Mart introduced some principles which make the shopping experience at Wal-Mart more

enjoyable and lead to more sales.

An example of this is the 10 foot rule, which means that whenever an employee gets within 10 feet of a

customer they are to greet him and ask if they can help.58

Outbound Logistics

Here again, the excellent inventory tracking and point of sale system are of essential value to Wal-Mart and

bring costs down.59

Marketing and Sales

Wal-Mart has always tried to attract customers by their “everyday low prices” strategy. Besides that, they

have a large and diverse product assortment under one roof which suits especially those customers living inrural areas.

Wal-Mart is already at the top, but instead of relaxing they are constantly looking for new ways to attract

customers and investigate potential methods of reducing costs along their value chain.

According to Wal-Mart’s Marketing director the businesses’ major objective is that sales are always

increasing. Other business objectives are to increase Wal-Marts availability all over the country and

especially in rural areas, and working on the image of Wal-Mart being a friendly retailer.60Wal-Mart does

not invest much money into marketing and this is somewhat unusual considering their size. Instead they

56 http://www.accessmylibrary.com/article-1G1-146221038/remixing-inbound-channel-wal.html

57 http://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.html

58 http://walmartstores.com/AboutUs/285.aspx

59 http://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.html

60 http://www.articlesbase.com/management-articles/marketing-management-in-walmart-1919747.html

http://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.htmlhttp://www.articlesbase.com/management-articles/marketing-management-in-walmart-1919747.htmlhttp://www.articlesbase.com/management-articles/marketing-management-in-walmart-1919747.htmlhttp://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.html


28/50 28

use public relations as their most notable marketing strategy. They take part in charitable events and

market themselves as a community based institution to enhance their image of being the average

American’s friend. However, they also struggle with negative media attention by wrong treatment of their

employees and predatory pricing accusations.60

Service

Wal Mart has set aside extra page on its website for ‘help` features.61 They have a return policy in place

that allows customers a 90 day return on receipt and a lot of information on shipping costs, shipping time

and ordering status.62 They provide the customer with the necessary information but do not go to great

lengths to provide exceptional service. This goes in line with their low cost strategy.

Support Activities

Firm InfrastructureWal-Mart is a three product divisional structure consisting of Wal-Mart stores, Sam’s Club, and

International Stores. This divisional approach used by Wal-Mart helps them in setting different goals for

each division.63

Human Resource Management

Wal-Mart’s HRM goal is to make every employee feel fulfilled, motivated and empowered in their job.64

However, in the media they do not manage to keep this image up. The most significant negative media is

coming from lawsuits filed by Wal-Mart employees against the company regarding discrimination.65

Technological Development

Despite Wal-Marts incredible investment in IT and its top of the arts supply chain, its founder Sam Walton

never cared much for technology. Consequently, the business was stagnating and encountering difficulties

in 2007. For instance, despite Wal-Mart’s size and its control over the market, they were unable to match

the growth of internet platforms like Amazon and missed its chance to also outperform competition in the

online segment.66

Procurement

This is probably the most valuable and cost saving part of Wal-Mart’s supply chain. Wal-Mart is such a big

business that it exerts immense control over its suppliers. Most of Wal-Mart’s suppliers depend on their

sales to this retailing giant and have no choice but to accept the prices Wal-Mart is willing to pay for

incoming products. Consequently, Wal-Mart is able to buy in at very low costs and transfer these cost

savings to its customers.67

61

http://www.walmart.com/cp/Help/543662 http://www.walmart.com/cp/Returns-Policy/538459

63 http://www.associatedcontent.com/article/782963/the_organizational_structure_of_starbucks.html?cat=3

64 http://walmartstores.com/Careers/7684.aspx

65 http://findarticles.com/p/articles/mi_m3495/is_1_49/ai_112799800/

66 http://www.cio.com/article/143451/How_Wal_Mart_Lost_Its_Technology_Edge

67 http://procureinsights.wordpress.com/2007/07/09/public-sector-procurement-and-the-Walmart-effect/

http://www.walmart.com/cp/Help/5436http://www.walmart.com/cp/Returns-Policy/538459http://www.walmart.com/cp/Returns-Policy/538459http://www.associatedcontent.com/article/782963/the_organizational_structure_of_starbucks.html?cat=3http://walmartstores.com/Careers/7684.aspxhttp://findarticles.com/p/articles/mi_m3495/is_1_49/ai_112799800/http://www.cio.com/article/143451/How_Wal_Mart_Lost_Its_Technology_Edgehttp://procureinsights.wordpress.com/2007/07/09/public-sector-procurement-and-the-wal-mart-effect/http://procureinsights.wordpress.com/2007/07/09/public-sector-procurement-and-the-wal-mart-effect/http://www.cio.com/article/143451/How_Wal_Mart_Lost_Its_Technology_Edgehttp://findarticles.com/p/articles/mi_m3495/is_1_49/ai_112799800/http://walmartstores.com/Careers/7684.aspxhttp://www.associatedcontent.com/article/782963/the_organizational_structure_of_starbucks.html?cat=3http://www.walmart.com/cp/Returns-Policy/538459http://www.walmart.com/cp/Help/5436


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Internal Factor Evaluation (IFE) Matrix

Within this matrix we will give, based on the importance of each aspect, weights to all strengths and

weaknesses. The rating will describe the ability of Wal-Mart to react to the strengths and weaknesses. The

weight multiplied by the rating then gives us a weighted score whose total sum demonstrates if Wal-Mart

lies below or above the average of 2.5.

Figure 9: IFE Matrix

The overall score is 3.02 which means that Wal-Marts response to internal strengths and weaknesses is

above average.

Strengths

1. Well established brand awareness

With their more than 8,500 stores, Wal-Mart represents the number one retailer in the world. By

providing 15% to 25% lower prices for grocery products than the average retailer store68 Wal-Mart

can support their strong brand attribute of offering “everyday low prices”. As shown with in a study

Wal-Mart is the only retailer in the U.S. that carries two brands which are directly identified and

connected to Wal-Mart by more than 52% of all American women.69

To establish their brand awareness also through modern networks, Wal-Mart makes use of social

media networks like Facebook.70 All in all it is possible to say that if you believe the experts, Wal-

Mart is a store that every single citizen, at least in the United States, knows. 71

2. Cost leadership in comparison with competitors

Wal-Mart makes use of the cost leadership strategy which gives them a competitive advantage. In

the beginning, when Wal-Mart was not that well known, they had to develop economies of scale

68 http://www.emorymi.com/allen.shtml

69 http://www.marketingforecast.com/archives/4880

70 http://www.psfk.com/2011/02/walmart-uses-facebooks-viral-platform-to-offer-groupon-like-discounts-and- increase-brand-awareness.html

71 http://www.associatedcontent.com/article/104858/walmart_the_great_american_dream_so.html

Strenghts

1. Well established brand awareness 0,18 4 0,72

2. Cost leadership in comparison with competitors 0,13 4 0,52

3. Continuous growth 0,1 4 0,4

4. Control over suppliers 0,09 3 0,275. Profitable organization of distribution channels 0,05 4 0,2

Weaknesses

1. Lack of presence in many developed countries 0,13 3 0,39

2.Failure of entering foreign markets 0,1 2 0,2

3.No formal mission statement 0,08 1 0,08

4. Continuous product recalls 0,08 2 0,16

5. "Everyday low prices" could be connected to poor quality 0,06 3 0,18

Total 1 3,12

Key Internal Factors Weight RatingWeighted

Scores


30/50 30

and find as many ways as possible to reduce costs. One way was to cut down overhead costs, keep

the inventory level as low as possible and gain high control over suppliers.72 Today they are able to

keep their concept of “everyday low prices” on offer.

3. Continuous growth

Wal-Mart is a continuously growing company. From their foundation in 1946 until today they

developed a network consisting out of 891 discount stores, 2612 Supercenters, 602 Sam´s Clubs

and 153 Neighborhood Markets.73 When taking a look at the net sales from year 2007 up to 2009

one can see an increase from $344.7 billion to $401.2 billion. Important to mention in this case is

that although there was a financial crisis within these years Wal-Mart was still able to keep on

growing.

4. Control over suppliers

All in all it is possible to say that many of Wal-Mart´s suppliers totally depend on this collaboration.

The majority receives more than 30% of their revenues from the huge retailer.74 Because of

increasing debts and financial problems Wal-Mart founded the “Supplier Alliance Program” that

they offered some selected supplier to give them a new financing option. With the help of this

program Wal-Mart wants to ensure the steady flow of inventory. From the view point of suppliers it

makes them even more dependent on Wal-Mart. 75

5. Profitable organization of distribution channels

By making use of latest technology Wal-Mart creates highly automated distribution operations. To

be as cost effective as possible Wal-Mart frequently orders their stock and maintains a close

connection with their vendors.76

Weaknesses

1. Lack of presence in many developed countries

At this point in time Wal-Mart is mainly present in continental US and additionally 14 other

countries. It is important to mention that they are not present in Europe yet, except for the United

Kingdome. Other developed countries such as Australia are not entered yet either.

2. Failure of entering foreign markets

The unsuccessful entrance in the German market symbolizes a significant example for this

weakness. In the year 2007 Wal-Mart finally decided to sell 85 German stores to its competitor

“Metro”.77 Because of poor inter-cultural management and a poor approach to international

marketing Wal-Mart lost a lot of money. They had to realise that simply trying to convert the

American way of retailing to Germany did not work out.

72http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/Business%20Strategy%20Walmart%20Cost%20Leadership.htm#Achieving%20Cost%20Leadership

73 Walmart Stores,Inc-2009, Amit J. Shah and Michael L. Monahanat

74 http://adage.com/article/news/Walmart-weans-suppliers/96969/

75 http://www.storebrandsdecisions.com/news-print/2009/11/19/Walmart-offers-suppliers-financing-option 76

Walmart Stores,Inc-2009, Amit J. Shah and Michael L. Monahanat77

http://www.donnellyspire.com/research/how-not-to-do-it---learning-from-walmarts-failure/index.php


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3. No formal mission statement

The mission statement should give an answer to the question “What is our business”. Within the

mission people can identify the company´s main purpose and objectives. This is especially

important for employees to ensure that everybody knows in which aspects the company is engaged

in and that everybody is working in the same direction. Therefore a lack of a formal mission

statement can lead to an internal weakness.

4. Continuous product recalls

The company image is always suffering if it comes to product recalls. In the year 2007 for example

Wal-Mart had to recall several toy products which were produced in China. 78 What huge impact

this has for the image shows a customer study made afterwards. This study documents that 39% of

respondents were more fearful to buy products from Wal-Mart in comparison to 22% for their

competitor Target.

5. “Everyday low prices” could be connected to poor quality

There are several people who believe that Wal-Mart offers low quality just because their prices are

so extremely low. Everybody knows that if a company always offers way lower prices than

competitors, it is in need of cheap production and operations.

Problem statement

All in all Wal-Mart´s main goal is to continuously grow and increase their sales. This goal isendangered caused by several aspects. At this point of time Wal-Mart can be seen as the definite

cost leader within their industry. The majority of their business operations is placed within the

continental US and they are additionally present in 14 other countries. One of their major

weaknesses is the lack of presence in several well developed countries. Except for the UK, they are

not operating in any European countries at all. To gain a bigger international market share should

be one of their main goals for the future.

Another problem which might occur within the near future will be the disability to offer lower

prices than the competition does. Especially the development of online shops gives competitors

the opportunity to lower their prices significantly. Up to now Wal-Mart was able to offer the

lowest prices partly due to their bargaining power over suppliers. However, in this area the

bottom line is reached and Wal-Mart is in need to find other ways of saving costs and increasing

sales.

78 http://www.environmentalleader.com/2007/09/10/product-recalls-hurt-Walmarts-brand-perception/


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Strenghts Weaknesses

1. Well established brand awareness1. Lack of presence in many

developed countries

2. Cost leadership in comparison with

competitors

2. Failure of entering foreign

markets

3. Continuous growth 3. No formal mission statement4. Control over suppliers 4. Continuous product recalls

Key External Factors

5. Profitable organization of distribution

channels

5. "Everyday low prices" could

be connected to poor quality

Opportunities SO Strategies WO Strategies

1.Trend towards Online Shopping1. Introduction of a premium product line (S1,

S3, O3)

1. Enter European countries

through joint-ventures (W1, O2)

2. Potential of European market 2. Extensive sponsorships in Europe (S1, O2)

2. Improvement of general

image through environmental

friendly operations (W5, O5)

3. Customers of higher income group

4. Trend towards "one stop shopping"

experience5. Trend in sustainability awareness

Threats ST Strategies WT Strategies

1.Fast changing technology (e.g. online

shops)

1. Backward Integration and take over the

function of suppliers (S2, S4,T2, T3)

1. Improved customer

satisfaction through better

quality management (W4, T3)

2. Fierce price competition in retail

industry

2.Target people with financial uncertainty by

more agressive "best deal" marketing (S1, S2,

T4)

3. High bargaining power of customers3. Improve existing e-commerce by investment

into IT and online presence (S1, S2, S3, T1)

4. Instabilities due to external

factors(e.g. unemployment)5. Laws requiring more investment into

employee benefits

Key Internal Factors

SWOT Matrix

Models

SWOT Matrix

This matrix is an important matching tool. It matches key external and internal factors and helps us to

develop four types of strategies: SO (strengths- opportunities) strategies, WO (weaknesses-opportunities)

Strategies, ST (strength-threat) strategies and WT (weaknesses-threats) strategies.79

Figure 10: SWOT Matrix

79 Fred R. David, Strategic Management 13 th Edition, p. 224


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SO Strategies

1. Introduction of a premium product line (S1, S3, O3)

The introduction of a new premium product line would make Wal-Mart more appealing to high-income

customers. Obviously, the products within this product line should have a satisfying quality and therefore

cost more than a standard product of a similar product group. If Wal-Mart succeeds in convincing the

customers with a higher income (which usually do not buy at Wal-Mart) that they are able to offer

premium quality products for a fair price, than they have the chance to gain some steady customers out of

this group. However, it will be necessary that Wal-Mart can ensure and maintain the highest quality

standards for this product line. High income customers would probably not come back to Wal-Mart if they

are not satisfied with the quality of their products at first try.

2. Extensive sponsorships in Europe (S1, O2)

Extensive sponsorships in Europe could increase Wal-Mart´s chances of succeeding in Europe. Even though,

Wal-Mart´s brand awareness in Europe is not as high as in the United States, most of the Europeans will l ink

the retailing business to Wal-Mart. However, before entering a European market the brand awareness

could be further increased through sponsorships. Sponsoring of sports events, fairs, concerts or festivals

are possible ways of improving the chances of Wal-Mart to gain ground in the respective market and even

offer Wal-Mart the possibility to gain more experiences about the local culture.

WO Strategies

1. Enter European countries through joint-ventures (W1, O2)

Wal-Mart has a recognizable lack of presence in many developed

countries. This lack could be filled by making use of the potential

that exists in the European market (W2,O2) . At the moment Wal-

Mart operates mostly in the US, despite the UK as the only

European country. Due to the fact that they already have a strong

presence in the US, increasing sales even more would be difficult

to realize but therefore in Europe. Wal-Mart needs to be aware of

the fact, that in Europe the brand awareness will not be as high as

in the US. Factors like customer buying behavior, cultural aspects

and competitors, will influence their operations in Europe. The

entry can be performed by doing joint-venture. This is a partnership between two (or more) partners to

form a joint venture in the new market. Reasons for that might be complementary technology or

management skills and it increases the speed of the market entry and saves additional costs.


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2. Improvement of general image through environmental friendly operations (W5, O5)

Furthermore Wal-Mart could make use out of the growing trend towards sustainability. According to the

CEO Mike Duke sustainability is an important part of Wal-Mart’s culture (O5). They strive for being supplied

by 100 percent renewable energy, create zero waste and sell products that sustain their resources and the

environment. 80

Right now there does not exist a time frame for this goal. An implementation within the

near future could lead to an improvement of Wal-Mart´s image. Customers would recognize that Wal-Mart

is not just searching for the cheapest way of production an

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