Walmart’s History in a nutshell Sam Walton, in the city of Rogers, opened Walmart’s first store in 1962 Arkansas. Seven years later (1969) the company was incorporated as Walmart Stores Inc. and was already listed at the NY stock market in 1972. What started with a single store in Arkansas became one of the most powerful multinational companies in the world, serving more than 200 million clients weekly in 28 countries. Value Walmart provides his stakeholders Sam Walton believed from the very beginning in the idea of saving people’s money.
That mission still guides our company’s culture, “Save Money, Live Better”. Always focusing on our relation to stakeholders so we created some practices that not only affect our costumers and employees but the whole environment that surrounds Walmart. We support healthy programs to all associates and make healthy products more accessible to our customer based on a “low price every day” policy. Besides that, our engagement on creating a diversified friendly environment and our concerns about sustainability, not only in our operations but also in the whole supply chain, have led to many awards won worldwide.
In addition our Walmart foundation supports the fight against hunger and number of military veterans that are working in our company drive us to the same objective of being profitable and stakeholders friendly. Trends and Tendencies for 2012 To maintain our company’s successes we need to focus and adapt to the current and future trends and market Tendencies that influence our company. Specialists say that we are facing a food inflation of 5% to 8% in 2012. That tends to affect not only the groceries stores but big retailers as well.
Walmart is prepared to take advantage of this situation as soon as our competitive advantages give us better spreads than other competitors. That drives us to a scenario where Walmart, besides the inflation, can maintain it’s prices for a longer time than other players which acquires us for a larger market share. The recent crises and the need of budget control tend to affect costumers habits as well. According to US Groceries shopper trend’s report, people are eating out less and cook more at home. Not only because of they want to save money but also because of the perception that self made food tend to be healthier.
The increase of groceries sales in addition to the price strategy that is analyzed on the last paragraph can create even more competitive advantage to Walmart as soon the demand of groceries are increasing it’s share on people expenses. Online shopping and the constant growing of smartphone’s offers combined will rise as one of the biggest opportunities in 2012. Consumers are getting more familiar with the idea of buying online and the easy price comparison that this technology provides coincide with the necessity of saving.
Walmart is prepared to this tendency, having on its portfolio a very well structured online store and a smartphone app that helps costumers to consult prices and products availability. Another growing trend on the customer’s behavior is the worry about the consumption of healthy food. A study conduced by Nielsen (Marketing research company) shows that more than 53% of the consumers around the world say that they have the perception of being overweight and 53% of this consumers intend to eat more natural and fresh food in order to loose weight.
The offer of natural and fresh food products can be decisive on the costumer choice. Competitors The market Walmart operates in it’s substantial in size and is permanently growing and changing. The competition focuses especially on pricing, location, store size, merchandise mix, innovation and overall image. In North America Walmart faces competitors such as Target Corporation, Kmart and Costco, which are direct competitors to Walmart’s Sam’s Club division.
Also several smaller retailers – primarily dollar stores – have found their niche in the market and compete against Walmart for home consumer sales. Last also large supermarket retailers are direct competition to Walmart. These main competitors compete both nationally and internationally. Target Corporation Target Corporation is the second-largest discount retailer in the United States, behind Walmart. They are defined as discounter that provides high-quality, on-trend merchandise at attractive prices in clean, spacious and guest-friendly stores.
Target also operates an online business as Target. com. Target provides a corporate social responsibility, which has been part of the Target group since their founding. They focus in particular on education, arts, environment, social services, community partnerships and disaster relief, through own projects, sponsoring, own foundation and volunteering. Target one hand follows a similar low price strategy as we do, but on the other hand has a different product mix, different capabilities and very different value proposition.
They especially focus on store layout and emphasize design. Also they have many private brands and exclusive offers. Strengths * Brand * Market Presence * Design * Innovative Marketing Techniques| Weaknesses * Geographic Locations * Lack of Mission and Vision Statements * Litigations| Opportunities * Global Expansion * Entering untapped US Markets * Continued growth in private label products| Threats * Competition * U. S. Economy| Kmart Kmart is a wholly owned subsidiary of Sears Holdings Corporation.
It is a chain of discount stores that include merchandise such as home entertainment supplies, photographic equipment, sporting goods, toys, kitchenware, small appliances, storage ; home organization, stationery, books, furniture, garden supplies, automotive equipment, lighting, hardware, luggage, cosmetics, clothing and footwear. Kmart’s workforce reflects the stakeholders it serves. Therefor they focus on minority-owned suppliers, multicultural merchandising, and community outreach. Kmart established a strategy of promotional advertising, investing a much higher percentage of sales in advertising as Target and we did.
Through this strategy they were able to get customers to their stores. Later Kmart tried to follow our strategy and failed, because they have lost their competitive advantage in promotional selling and when these promotions stopped many Kmart customers went somewhere else. Strengths * Buying Power * Brand Awareness * Sears Acquisition * Restate Locations| Weaknesses * Supply Chain Management * Poor Leadership * Bankruptcy * Strategy execution * Lack of customer service| Opportunities * Growth with Sears * International Growth * Big Kmart * Technology| Threats * Poor store house * Not appealing to the youth|
Costco Wholesale Corporation In the warehouse segment, Walmart’s Sam’s Club competes harshly with Costco. Costco Wholesale Corporation operates as an international chain of membership warehouses. They sell groceries, appliances, television and media devices, automotive supplies, tires, toys, hardware, sporting goods, jewelry, watches, cameras, books, housewares, apparel, health and beauty aids, tobacco, furniture, office supplies and office equipment.
Costco offers lower prices and better values because it eliminated all the frills that are associated with conventional wholesalers and retailers, fancy buildings, delivery, and billing and accounts receivable. Through keeping operations tight by having extremely low overhead they are enabled to pass on those savings to our members. Costco is currently following a functional area strategy. That means they are not focusing on marketing at all, promote employees from within the company instead of hiring external and own 80% of real estate and buildings.
Strengths * Low price * Strong brand * Efficiency * 54 million members * Employees | Weaknesses * Maintain high wages * Maintain low margins| Opportunities * Expanding foreign markets * Recession| Threats * Cannibalization * Fierce competition * Other retailers| Talking about the market Walmart is in, we are definitely talking about a market that is characterized by economies of scale. Retailers that have the capabilities, integrate many functions such as manufacturing, purchasing, and shipping.
Therefor they are able to gain high cost advantage against others, especially over small-scale competition. To illustrate the market Walmart is currently operating in, you find a figure below that shows where our main competitors are situated around us. As mentioned before the EDLP is only one of Walmart’s strategies. But as important as our strategies it is how we achieve them. Therefor the value chain helps us to identify the related activities. Compared to our competitors, we always watched out that we do not become to dependent on a single supplier.
We never represented more than 4% of a single vendor’s sales volume and they needed to have electronic connections to our stores. Our Electronic scanning of uniform product code (UPC) at the POS ensures accurate pricing, helps us to improve efficiency and communications, and reduces shrinkage. While our competitors only merchandise less than 50% on average through their own distribution centers, 85% of all the merchandise sold by Walmart is shipped through our own distribution centers to the shops.
Further are our distribution centers operating 24 hours a day and located in a way that they are able to serve between 150 and 200 stores within one day. Below we illustrate the flow between our distribution centers and our cross docking area. Another competitive advantage is our cross docking technique as well as our satellite network system with that we are able to track the movement of a product through the entire value chain in real time.
Like this Data is collected and analyzed and Walmart manages to always maintain the right inventories and knows what sells and what doesn’t, because we are observing merchandise flow, overstock and discount. Because we spend much less in advertising than our competitors do, we also are able to maintain our low prices and rather trust on word-of-mouth advertising in order to win customers. Below we illustrate briefly Walmart’s process in the value chain. Support Activities| Firm Infrastructure| Fixed standardization, trucks, average store size 84,000 sq. t| Margin| | HR Management| Decentralized, profit sharing program, job rotation, stock purchase plan, full autonomy to associates | | | Technology Development| UPC at POS, information system, cross docking, satellite network system, | | | Procurement| Maintain long-term relationships, no single supplier/vendor| | Primary Activities| * UPC at POS* Retail link| * Distribution centers 24hrs| * Two step hub and spoke distribution system| * EDLP* Word-of-mouth advertising* Save Money, live better| *Satisfaction guarantee policy* Quick response| | | Inbound Logistics| Operations| Outbound Logistics| Marketing & Sales| After Sales Service| | Based on all our facts we are able to create our SWOT Analysis.
Strengths * Powerful strategy * Cost advantage * Pricing advantage * Supply Chain Management * Strong brand name * Economy of scale * Strong supplier network | Weaknesses * High turnover rate * No customer surveys * Not very good reputation * Behind online trends * Management fit| Opportunities * Open market share * Serving new market segments * Expanding into new geographic areas * Increase online sales * Acquiring competitors * Rising consumer demand| Threats * Loss of sales * Loss of employees * Growing bargaining power of customers * Demographic changes * Increased competition | As we can observe from that SWOT Analysis we have room for improvement especially in the areas of expanding into other countries and the e-business.
Strategies: In order to continue our business successful we have to be aware of where we are currently standing. We have many strengths but also many points that we can and must improve. Also we have to recapitulate what went wrong in the past and which constraints we faced, especially when we want to go international. Looking at the U. S. we where not very satisfied with the net sales results last year. According to recent surveys, Walmart experienced a traffic decline because customers – especially those who live in more urban areas – tend more and more to go to convenient stores. But still we have enormous opportunities to grow in that market.
As mentioned before we already introduced a new Walmart store concept last year – Walmart Express our answer to dollar stores, which is and will be located in urban and rural areas. Walmart Express enjoys great popularity, in the already introduced areas. By driving this strategy aggressively we are able to divert the customers drifting from Walmart to Walmart Express. Growth through these new stores will be one of our priorities in the next year, also because of the given importance of CSR in the retailing industry. We recognized the importance of building a good image with this concept, as it has been identified in consumer behavior as the factor that is influencing on purchase intention, grocery shopping behavior and buying behavior.
For the purpose of serving customers’ multi-channel needs, we created our Global eCommerce Division. It enables customer now, to not online shop in our stores but also to order from home or wherever they are on Walmart. com (ASDA. com in UK). As being the world’s largest retailer by sales, we now also need to catch up among online retailers, where we are currently positioned behind Amazon. com, as second. In terms of revenue – $408 billion annually compared to Amazons $34 billion – and in terms of sheer size and reach we are still much bigger than Amazon. com. But our aim is to surpass Amazon. com in areas such as customer service ranking, online presence and price.
Therefor we are reorganizing our e-commerce operations. In developed market online managers will interact directly with store executives. This should help to better integrate retailing in stores and online. Further we will acquire experienced e-commerce specialists from our web rivals and increase our online merchandise assortment in coordination with specialist suppliers. Before focusing on further strategies, it is important for Walmart to face these domestic challenges, which we are convinced that we can overcome them with above-mentioned strategic steps. Still it is important that we are already prepared how to make Walmart even bigger, when the first successes have become apparent.
When it comes to international growth we are focusing on a transnational strategy. That means we develop an action plan to produce and sell somewhat unique, yet somewhat standardized, products in different markets. Like this we can combine global scale efficiencies with being locally represented and available in a country. Walmart already expanded into many countries in the past. Many new market entries have been successful, but a few haven’t. To avoid another failure when going international, we have to be aware of what went wrong in the past. What have been our weaknesses? What international constraints did we face? While being successful by acquiring ASDA in the UK, we were rather surprised to fail in Germany.
After entering the market 1997, we failed there for many reasons. Walmart didn’t adapt to the local market, there we faced amongst others, especially several cultural barriers. We took the U. S. Walmart strategy one-to-one to the German market, without considering different market structures, consumer behaviors, already established retailer’s presence and infrastructure. We placed American managers in leadership position and had to experience that that was not working well. Due to cultural differences the U. S. Walmart strategy didn’t go well in Germany. People didn’t want to pay for an employee just standing at the door and greeting nor someone who packs their groceries.
Also due to a less amount of cars in Germany, people were not able to travel to Walmart that easily as in the States. With other troubles such as labor issues or wrong product mix, we were struggling in China. Labor issue was a constraint, because of the Chinese government. Product mix again was something we simply underestimated. Chinese or Asians in general prefer fresh food and want to choose themselves. They don’t like shopping in bulk and therefor go grocery shopping more often than Americans. These frequent visits caused also in Japan and South Korea bad results, as well as price. A low price is perceived as being low quality. In Japan we also had problems to afford the expensive real estates while following our low price strategy.
Governmental problems, similar to China we faced in India. There the government protected especially local retailers, which makes it hard to enter the market as a big international retailer. All these problems happened due to a lack of market research. Now we know we should rather have focused on a differentiation strategy in Asia instead of on the cost leadership strategy as we do in the United States. Analyzing our past failures carefully, and gaining knowledge out of them we are confident to be able to enter a new market and build our brand there. Walmart considered different possibilities to grow internationally. But why enter a new country, if we can enter a new continent? Australia – Why?
First of all Australia is a significant exporter of food, energy and natural resources and has a large service sector. The Australian government wants to ensure the sustainability of growth and therefor focuses on raising Australia’s economic productivity as well as they continue to manage the symbiotic economic relationship with China. Further Australia is part of the Trans-Pacific Partnership and has ongoing free trade negotiations with Japan, China and Korea. This is a big advantage for Walmart, as the greatest part of our suppliers is from China and Australia being geographically close to China. Before the global financial crisis Australia grew for 17 years in a row.
They have a GDP of $882,4 billion purchasing power, which is number 18 compared to the whole world. Due to the improved economy, they expect the budget deficit to peak below 4. 2% of GDP and that the government could return to budget surpluses already by 2015. Another important factor is the similarity of the Australian market to the U. S. market, which means that we don’t have so many cultural barriers to overcome. Let’s take a close look at how they may differ. The read graph here, represents the United States, the green graph Australia, and the black graph the world average. In this illustration we see that Australia and the United States are almost identical according to the overall score.
After knowing everything about the economic structure of the market we want to enter, we have to decide how to approach this market. We know that our 2 main competitors are identical as those we have in the United States, which are Kmart and Target. Kmart Australia Limited owns 172 stores and Target Australia Pty Ltd make 291 combined stores (172 Target stores and 119 Target Country stores). Also we can find Mitre10 with more than 700 locations throughout Australia and BIG W with 168 discount department stores. The decision we have to take, after looking at the market closely, is if we want to create a new venture or acquire one of our competitors.
New venture creation involves very high costs, whereas when finding a company to acquire causes a cost advantage because most assets are already given and no additional investment must be made. BIG W, which is one of Woolworths Limited divisions and the second largest retailer in Australia, represents the ideal company to acquire. Founded 1924 in Sydney, Woolworths is the largest retail company in Australia and New Zealand and the largest food retailer in Australia which makes them the 19th largest retailer in the world. With current operations in Australia and New Zealand, it employs more than 191,000 people. BIG W has now 168 stores, with 25,000 employees and revenues around $4 billion in the fiscal year of 2011. They used many techniques in promotions, sales and brand presentation that were nearly identical to Walmart.
BIG W followed Walmart’s key strategy “everyday low prices”. Even though they adapted their slogan from being exactly the same as Walmart’s “Save money. Live better”, to “Live BIG for Less”, they still have the “smiley face” policy and the “price rollback”. As BIG W Managing Director, Roger Corbett, has a mentor relationship with a former Walmart President, they never denied being a copycat of Walmart. In order to fully understand the similarity of Walmart and BIG W, we show an equation in the table below. Besides these identical points in the companies’ structure, there are also several other reasons why it is the best strategy to buy BIG W in Australia and introduce Walmart.
BIG W is one of the largest chains of discount department stores in Australia and has existing partnerships with local suppliers, which facilitates business, because we don’t have to establish new relationships first. Further we don’t loose time through building new stores or big reconstructions, because the store concept is identical to the store concept of Walmart. In general no drastically changes have to be made, neither in current strategy – which could lead to a loss of customers – nor on the workforce itself. Like this we are able to highly satisfy our stakeholders. Talking about BIG W’s financial situation, we are talking about a company worth 9. 42Billion.
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