Wal-mart: Company Background, History and Strategies

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Company background and history

In 1962, Sam Walton opened the first Wal-Mart store on Walnut Avenue. It was a discount city store. After five years, the company had managed to open twenty-four stores within the city of Arkansas and made sales worth over $12.6million. In 1968, the company started extending its services to other towns by opening more stores in Oklahoma, Claremore, and Missouri. In 1969, the stores were integrated as Wal-Mart Stores Inc.

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This led to the company opening headquarter and initial supply center in Bentonville. By then, the company had over 1,500 employees and 38 stores. The company started trading its stock in 1970 which eventually led to it being listed on New York Stock Exchange. By the 1980s, the company was rapidly growing and by 1987, it had opened 1,198 stores across the continent with a sales volume worth $15.9 billion.

The same year saw the company complete its project of networking all its stores with the home office through satellite. The project helped the home office to communicate with its numerous branches through a bidirectional voice and information transmission and a one-direction visual communication (Kavilanz 2007, para. 1-3). The company was able to monitor its sale and inventory and immediately communicate to stores.

Walton resigned as the company’s chief executive officer in 1988 and his position was taken by David Glass. However, Walton retained his post as the chairman of the board. The company opened its first supercenter in Washington the same year and started opening overseas stores. By 1995, it had opened stores in several countries of South America. These were Brazil and Argentina. Its establishment of neighborhood market in 1998, led to the company dominating the grocery and consumable business. Its rapid growth led to critics getting scared of its effects on local communities as well as small and medium stores. Some argued that its continued growth would lead to numerous towns losing their retail trades in ten years.

Recently, the company has been involved in environmental conservation measures. Its management announced that it would spend $500 million every year in enhancing fuel effectiveness in its trucks. The company also aimed at reducing its rate of greenhouse gas emission and energy consumption. The objective of the company was to lead in advocating for use of renewable sources of energy and reduction in waste production.

As the company had been criticized for being one of the major companies that highly polluted the environment, it decided to embark on selling organic milk and reducing costs associated with packaging and energy. It also sought assistance from external experts to ascertain its contribution to environmental pollution and look for ways of mitigating it. Currently, the company is continuously experiencing worldwide growth through its twenty-four hours services and quality products offered at lower prices (Kavilanz 2007, para. 4-8).

Wal-Mart’s priorities

The success of the company lies behind the ability of its management team to come up with different priorities aimed at enhancing its services and customer satisfaction. Some of the priorities within the company include store formats, technology exploitation, and human capital. At its tender age, the company attracted a lot of customers through its discount store format. By the year 2003, the company’s discount stores averaged 95,000 square feet with more than 3,400 establishments across the United States. High demand for one-stop purchases and twenty-four hours services by its customers compelled the company to establish its first supercenter in 1998.

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Currently, the company is in the process of closing its old discount stores and replacing them with supercenters. This has helped the company stock varieties of products and services under one store unlike what is stored in its discount stores. The company is capable of providing specialty shops such as photo centers, Tire and Lube Express, employment agencies as well as banks under a single supercenter. Wal-Mart has also focused on opening neighborhood markets in various urban centers (Yoffie 2005, p. 1).

For many years, Wal-Mart has given priority to the establishment and strengthening of its information technology systems. This is because it helps it improve its operations. Since the 1980s, the company started using electronic data interchange and barcoding in passing information from one store to another and when communicating with suppliers. In the 1990s, the company used this system in monitoring, organizing, and liaising with suppliers for the refilling of its inventories.

The company requested its suppliers to use Retail Link to help the management track the progress of its point of sales and inventory performance in its numerous stores. Its desire for technology deployment in its operations was further reflected in its move to implement radio frequency identification (RFID). The company aimed at reducing losses within its stores by using RFID chips to monitor operations within its stores (Yoffie 2005, p. 2).

Despite the project being expensive, the company hoped that it would significantly benefit from it once it becomes operational. The company has also concentrated on launching e-commerce on its consumer front. It has aggressively enhanced its online selling with more customers using the technology to place orders for products from the company. By 2005, 6% of the totals sales from the company in the United States were accrued through online selling.

Initially, the company encouraged employee participation in all issues affecting the company. They had the right to inspect all sales information and give their opinions on measures to be taken to enhance company performance. However, as time continued, the company started focusing on part-time employees. It has been criticized for offering low wages to its staff despite them working for many hours.

The company gave priority to this source of human capital in a bid to cut down on costs associated with health care for staff and benefits extended to permanent employees. Even though Wal-Mart is the biggest trucker and third largest pharmacy in America, it had no employee unions. This led to it having poor employee relations. Even though the company’s regulations prohibited the use of child labor and advocated for workplace safety, its assessment measures were found to be poor and the company had terminated no operations with its suppliers even after finding them not complying with its regulations (Yoffie 2005, p. 2). On the other hand, the company insisted on its dedication to improving working conditions for its staff. This has led to its image remaining the most favored in the United States.

Wal-Mart’s SWOT analysis

Strengths

Numerous undertakings have made the company stand out from others. One of them is its ‘everyday low pricing (EDLP) strategy. This is a pricing strategy that requires a high level of discipline. Most of its competitors have not been able to meet the discipline level required in implementing this pricing strategy. The strategy requires retailers not to use promotional strategies in overcoming the competition and attracting customers. Instead, retailers are required to nurture trust in their consumers and guarantee them that they will always receive goods at low prices whenever they walk into the stores.

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With the company’s ambition to offer its products at a lower price, it has been able to adapt this strategy hence making it attract more customers and overcome competition. Through the strategy, Wal-Mart gets other benefits such as being able to predict its performance and cooperate with suppliers. This helps the company reduce costs associated with inventory handling as well as enhancing inventory efficiency (Steidtmann 2003, p. 8). The company is saved from incurring advertising costs thus offering its products at low prices.

Implementation of Retail Link in the company has helped the company increase its inventory turnover rate more than its competitors. For instance, before its implementation, the company could only turn pampers’ inventory twenty-five times per year. Implementation of Retail Link led to the company improving the turnover rate to a hundred and twenty-five times per year. This has helped the company reduce costs associated with inventory handling and storage. Its advertising strategy adds to the company’s competitive cost advantages. The company spends little of its sale on advertising.

This helps it increase the use of its sales proceeds in expanding its products and services, unlike its competitors who spend most of their sales proceed in advertising getting little to use in service and products expansion. As the company does not promote its products, it escapes strains exerted by promotion to the distribution system. It is capable of distributing its products efficiently hence increasing its sales volume more than its competitors (Steidtmann 2003, p. 9).

Innovation within the company is another factor that has led to its success over its competitors. The company continuously introduces new ideas and concepts to its development objectives. Its ability to diversify its operations has led to the company increasing its revenues. The company started as a discount store and later transformed into supercentres. Over time, it has ventured into the warehouse club business. This has helped the company expand its market coverage over its competitors.

Its ability to take advantage of every opportunity that arises makes it increase its sales volume. Currently, Wal-Mart is rapidly opening neighborhood markets in different towns. The company is also investing in the gasoline and convenience store business which other competitors have not yet started investing in (Steidtmann 2003, p. 10). This move helps the company gain market share and develops customer loyalty before its competitors venture into the business. As a result, it can overcome competition.

Weaknesses

Wal-Mart has been criticized for having poor employee relations. Despite the company saving a lot from costs associated with employee benefits and medical cover, its inability to ensure good employee relations is leading to the company’s image getting sour in the public. By the company offering low wages to its staff, it has been hard for it to attract qualified staff. For those employed, their services are not up to the standard leading to the company losing customers to competitors.

The company has significantly lost its higher-margin products, customers, to other companies such as Target Corp. As the company offers products in different sectors such as clothes, stationery, and food, it may have limited flexibility in its operations thus being hard to compete with most of its more determined rivals. Despite the company extending its services worldwide, it has not been able to exploit most of the markets due to the absence of its stores in many countries. The company needs to embark on product differentiation (Furman 2005, pp. 11-13). This will help it sell more than its competitors as currently, it offers similar products with its competitors.

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Opportunities

As the company has improved its image in the world, numerous retailers are wishing to form alliances with the company. This will help the company focus on specific markets that it has not yet focused on. As Wal-Mart has only established its stores in few countries, there is an opportunity for the company to expand its services to other countries. The high demand for food and grocery products in different countries allows the company to embark on selling these products.

The improved performance of its established neighborhood markets reflects that there is demand for food and grocery products (Steidtmann 2003, p. 14). There is an opportunity for the company to open more neighborhood markets in other countries where it has not yet opened. With its current supercentres performing well in the market, there is an opportunity for the company to continue operating its current supercentres.

Threats

Being an international company, numerous competitors pose threat to its market share. These include companies such as Target Corp which has been found to perform well and to focus on all areas that Wal-Mart has its stores. Political environments of different countries where the company has established its operations also pose threat to its operations. Reduction in production cost is leading to companies offering their products at low prices (Steidtmann 2003, p. 15). Being one of the strategies used by Wal-Mart in increasing its sales volume, there is a threat in the strategy not being effective in the future as more retailers continue offering their products at lower prices.

Evolution of Wal-Mart’s strategy

By the 1990s, the company embarked on a strategy to help it expand its services to foreign markets. By 2004, it had already opened 3,200 stores in the United States, over 350 stores in Europe, and more than 440 stores in Asia. Most of its international stores were designed based on the availability of space and consumer preference. To exploit the American market, the company used partnership, acquisition, and go-alone strategies. Wal-Mart entered the Mexican market in collaboration with Cifra.

This was the largest retailer in the country by 1991. Wal-Mart acquired most of the company’s shares leading to its name being changed to Wal-Mart de Mexico. In 1994, Wal-Mart acquired 122 Woolco stores to help it venture into the Canadian market. By 2004, it had already established about 235 discount stores and 6 Sam’s clubs in the country. August 1995 saw Wal-Mart turn into the Argentine market by opening Sam’s club in Buenos. By 2004, it had opened 11 supercentres in the country as well as a distribution center.

Due to stiff competition from Carrefour in the Brazilian market, Wal-Mart decided to come up with a hybrid store that combined features of a neighborhood market with those of a Mexican grocery store. Later, the company acquired Bompreco which was the leading super and hypermarket in the country. Wal-Mart joined the German market by partnering with Aldi Group and later acquiring Wertkauf hypermarkets.

To penetrate most of the Asian markets, the company used an acquisition and partnership strategy. For instance, to effectively exploit the Japanese market, the company was forced to invest in Seiyu which was a collapsing company. Wal-Mart was obliged to come up with a new management team. Most of its acquisitions and mergers led to the company opening discount stores and supercentres in different countries.

Wal-Mart’s current strategy

Demand for food and grocery products has led to Wal-Mart embarking on opening neighborhood markets and grocery stores. The company has realized the need of filling the gaps between discount stores and supercentres. Wal-Mart concentrates on identifying some of the customer needs that are not covered by discount stores and supercenters and coming up with grocery and neighborhood markets to fulfill these needs. Through this strategy, the company is currently offering beauty, health, and photo-developing services to customers. Wal-Mart has also focused on fashion as the next strategy in expanding its operations. This is being achieved through the acquisition of old brands in the industry as well as reviving old brands such as Kathy Lee in the United States.

Strategy for global expansion

To effectively manage its extraordinary growth, Wal-Mart needs to embark on the strategy of mergers and acquisitions. This will help it reduce o operation costs and at the same time increase its revenues by reducing competition in foreign markets. There is a need for the company to establish branch offices in its various foreign markets. This is to help it closely monitor operations in these markets and communicate them to headquarter for necessary measures to be taken. The company ought to ensure that it considers all features of the market before venturing into it. This will help it offer its products in a more compelling value proposition compared to its competitors.

This is one of the factors that led to the company failing to succeed in the German market (Knorr & Arndt 2003, p. 5). Despite the company focusing on international growth, there is a limit beyond which it may be hard to manage operations. This would lead to the company incurring losses without the knowledge of its management. To avoid Wal-Mart experiencing a strain on its resources, the company ought to expend its services only in those countries that it is guaranteed of ready market. This will help it get returns on its investments thus having perennial operations.

Asia and Europe did not offer opportunities for Wal-Mart to gain international market domination. Despite the company implementing its Retail Link strategy in Britain, its stores were not able to improve and meet the standards of those found in the United States. This made it hard for the company to dominate the market. With the company’s culture of non-unionized employees, Germany proved to be not a suitable target market for the company. This is due to its unionized labor force.

The country’s difficult economy made it hard for Wal-Mart to operate in Germany. Transition to euro proved expensive for the company. This meant that Wal-Mart had to incur a lot of expenses to establish itself in Germany. Despite China having growth opportunities, Wal-Mart is required to get government approval first before entering into the market. On getting approval, the company is required to make heavy investments in the market before being able to dominate the market (Knorr & Arndt 2003, pp. 6-14).

With Wal-Mart having access to the global market; its future growth depends on how it maneuvers its operations. The company ought to research other potential markets and establish its stores there. By ensuring that its Retail Link system is aligned with distributions systems in countries where it has established its stores, Wal-Mart will be in a position to gain market share.

Reference List

Furman, J., 2005. Wal-Mart: A Progressive Success Story. Web.

Kavilanz, P. B., 2007. Wal-Mart’s plan to conquer the world. Web.

Knorr, A. & Arndt, A., 2003. Why did Wal-Mart fail in Germany? Web.

Steidtmann, C., 2003. Retail Tsunami? Wal-Mart comes to Japan. Deloitte Research, pp. 1-18.

Yoffie, D. B., 2005. Wal-Mart. Web.

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