Wal-Mart: Limitations to Company’s Growth

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  • Wal-Mart is a retailer giant which started with humble beginnings of a discount store in 1962 in Arkansas. It was incorporated as a company on Oct 31, 1969.
  • Wal-Mart promoted shopping in supercentres as consumer demand for one stop shop increased.
  • It expanded internationally by opening the first store in Mexico and further in Brazil, Canada, UK, China, Japan and Germany.
  • The business model of Wal-Mart operated on discounts and bulk shopping and it expanded globally by co-branding or acquisition of ailing retailers which helped cut its marketing and construction costs.
  • Factors which could limit growth are language barriers, social customs and traditions, financial and political stability of country and unionization of the labor force.
  • Asia and Europe have presented opportunities to Wal-Mart as it continued to expand by way of acquisition of ADSA surpassing Marks & Spencer and also changing global culture of its firms in international locations.
  • Wal-Mart can expand through acquiring small scale operations which are popular but limited in resources and convert them into retail centers or supercenters and also enjoy tax benefits for some period to propel consumer spending and build brand recognition nd awareness.

Wal-Mart’s tagline boasts Low Prices. Always, depicts the core idea and operational strategy which the company has employed since its inception in 1962. Like any multinational giant, it started with humble beginnings as the brainchild of a single man. Sam Walton founded the first discount store in Arkansas and this store format was highly popular among consumers leading to the incorporation of Wal-Mart Stores Inc. on Oct 31, 1969.

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The company also opened the first warehouse SAM’s CLUB in 1983 and soon proceeded to open supercentres due to consumer demand and preference for buying all kinds of merchandise from a one-stop shop. Wal-Mart went global by opening its first Sam’s Club near Mexico City and then proceeded to open stores all over the world in Europe, Asia, and Americas (Wal-Mart)

As Wal-Mart continued to expand its operations all over the world either by acquiring superstores or popular neighbor stores in the countries where it was expanding and increasing its associates all over the world by the thousands, it neglected a basic factor of its potential consumer market and that was the cultural and social traditions of the country which affected the buying behavior process of the citizens of that country and also played a significant role in the choices made by the consumers (Yoffie 04) Wherever Wal-Mart expanded, it tried to impose its business model of bulk shopping, supercentres and as far as employees were concerned a cheerful workplace attitude. However, due to this, it faced a problem in Germany where employees were not particularly enthusiastic about the cheerful routine of Wal-Mart because in Germany it might be considered impolite to be overly friendly with a customer.

Also, the customers were more concerned about the prices of the product than bulk shopping. Sometimes customers don’t need to purchase certain items in bulk and thus the expensive price tag of these products as compared to the low price available only on bulk shopping did not appeal to consumers in Germany. It met with success in UK and Canada because of the same buying pattern of bulk shopping, homogenous social traditions and expectations, and the more disposable income available to households and the same language of the consumers. However, when expanding to one of the most diverse continents namely Asia, even multinationals and giants like Wal-Mart have to watch their steps.

Wal-Mart can continue to expand in countries in other European countries and Asian markets by following the business model it employed in Japan by keeping the name of the already trusted and recognized brand name of Seiyu. Even though the stores operated in discount format, however, by not changing the name of the company to Wal-Mart it managed to replace consumer confusion and perception of a foreign retailer with trust and immediate brand recognition and retention amongst Japanese consumers of a brand name already present in the Japanese market.

There are always some stores in each country that are extremely popular however they do not have the resources to expand to a greater customer base. Thus despite being popular they cannot expand and Wal-Mart can have an excellent opportunity in acquiring these small-scale operations which are also closer to neighborhoods and have a daily or weekly shopping expense. This would enable it to cut on its construction of supermarkets or supercentres which are not popular in some countries, marketing, and brand recognition expenses and promotion events and it should also employ existing local employees who understand the habits and preferences of local consumers better.

Also, Wal-Mart is expanding into providing new services such as florists, DVD rentals and financial solutions, etc. (Yoffie 05) It could also provide shoppers with a place to relax after shopping where they can come and have a cup of coffee in the neighborhood before going home by co-branding with a coffee chain, albeit a small one in size.

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The limits to Wal-Mart’s expansive growth can be posed in the form of rejection of its implementation of the business model. Since Wal-Mart emphasizes low prices because it aims to sell products in large quantities rather than individual products, it can afford to give lower prices to the consumers, however, the model of bulk-purchasing may not be suitable to developing economies especially Asian markets because consumers over there do not have a sizable disposable income and they buy groceries and other items as they go and based on how much cash is available to them.

Since Wal-Mart’s main competitor Target is also a giant retailer however it boasts a more elite clientele (Yoffie 04), as opposed to that Wal-Mart’s clientele, includes everyday ordinary citizens of the country therefore expansion of Wal-Mart in Europe could be affected by this factor as Europeans believe they are more sophisticated and may prefer a private and careful shopping experience as opposed to a large discount store. Another factor that could limit the growth of Wal-Mart is the unionization of its employees.

Currently, Wal-Mart’s employees consist of 80-85% temporary or contract workers which helps Wal-Mart avoid costs of medical care and other employee benefits, however, in countries where labor laws call for strong unionization, it could strictly restrict Wal-Mart’s growth opportunities as unions call for better working conditions and hours, higher minimum wage rate and benefits even for contract workers. This could affect profitability as well as the company will now have higher expenses and obligations towards its employees.

Also, the language barrier could make expanding into new territories and getting the promotional campaigns to attract the consumer base who would understand the benefits that Wal-Mart could offer its consumers because each country and language has its own understanding of how the language is used. As it further expands in new territories, Wal-Mart could face difficulty in distant areas where people are more closely connected to each other and do not have an idea about multinational firms abroad or sometimes even at home.

Wal-Mart could face problems starting and operating supercentres there and also in raising brand awareness among consumers and promotion through below-the-line and above-the-line activities. Another important limiting factor could be the financial stability of the country where Wal-Mart wants to expand as is evident from the example of Asia where the company faced a problem due to Asian financial crises.

Asia and Europe offer Wal-Mart opportunities for the global market because the European and American consumers have somewhat similar consumer preferences and the language barrier is also not present due to which it is easier to present to the consumers what services and benefits they get when they shop at Wal-Mart.

As mentioned in the case study that Wal-Mart met with success in Japan and China in 2005 and its international operating revenues touched $2 billion and an increase of 16.6% was noted (Yoffie 04) The management style of people in both Asia and Europe are vastly different and as Wal-Mart continues to expand and acquire foreign companies, it also inculcates a global culture and improvements in management style such as in the case of Seiyu in Japan and also China where technology helped the integration of management techniques and forecasting methods.

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Inventory had a 94% match rate in Japan which is also the highest amongst the world. In Europe, ASDA became part of Wal-Mart in 1999 and soon surpassed Marks & Spencer as the leading retailer of children’s wear by taking over management of 256 ASDA stores, 7 GEORGE apparel stores, opening the first Wal-Mart-ADSA co-branded supercentre and employing 134,000 associates (Yoffie 03). In Japan, it found opportunities in ailing retailers and it can further develop that business strategy and acquire more small-scale retailers and merge them into supercentres or bigger retailers. It also saw successful openings of SAM’s CLUB in various areas such as in Shenzhen in August 1996. Because a cost-effective labor force is available in Asian markets Wal-Mart has also considered unionization of employees to some extent.

Wal-Mart has a sound global operations department which is propelling Wal-Mart to new heights in the international business arena. Due to the increase in global operations, the current assets of the company have seen an increase of $40,977 in 2004 from $34,421 in 2003 and thus the company has seen an increase in inventory, lease, and long term debt. However, the company has managed to increase the shareholder equity from $43,623 to $44,886 and the shareholder equity has risen from 19% to a consistent 21% over the years. Shareholders have increased in number from 324,000 to 335,000 and the return on assets has increased from 8% to 9% in 2004 (Exhibit 4) (Yoffie 08).

The further increase in operations will see operational liabilities rise however the increase in sales and domestic stores and shareholders from all over the world will increase net operating profit as cost of sales go down as the company further expands. Also it can take advantage of tax concessions and benefits in some countries for a certain time period in order to promote consumer spending habits and help generate revenue.

References

Yoffie, David. “Wal-Mart 2005.” Harvard Business Review (2005): 1-9. Web.

Wal-Mart. “About Us.” Wal-Mart. Web.

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BusinessEssay. 2022. "Wal-Mart: Limitations to Company’s Growth." January 7, 2022. https://business-essay.com/wal-mart-limitations-to-companys-growth/.

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BusinessEssay. "Wal-Mart: Limitations to Company’s Growth." January 7, 2022. https://business-essay.com/wal-mart-limitations-to-companys-growth/.