How could Wal-Mart continue its extraordinary growth?
Wal-Mart is the largest retail enterprise in the world. Wal-Mart functions across the world and is known for its cheap products. Every Wal-Mart store has products and services across a wide range and almost every item available is priced at the lowest price levels of the industry for that product (Wal-Mart). Wal-Mart’s key operating area is that of the US but the company chooses to actively engage in international expansion. This is on account of the fact that the company has been engaged in international expansion for decades now and has perfected its strategies to a point where it is now not only a brand name in the industry but also a brand name for its management philosophies.
Wal-Mart’s stores can be considered through three distinct classifications. The first type of store is the discount store. Wal-Mart is in the process of closing down its discount stores in order to replace them with the second type of store: the supercenter (Wal-Mart). The Supercenter stores hold a larger variety of products and services than the discount stores. The third Wal-Mart store classification is the neighborhood store. Through its vast chain of stores, Wal-Mart not only sells branded products but also sends its own products. Wal-Mart’s own products can be found notably in the area of groceries and related food products.
Services offered by Wal-Mart include those such as bill payment facilities, money order sales, and check-encashment and wire transfer services. This paper will attempt to explore four key attributes with regard to Wal-Mart. The paper will explore how Wal-Mart can continue to grow over the course of time as well as potential obstructions to Wal-Mart’s growth in the future. The paper will then take into account Wal-Mart’s record in Asia and Europe to evaluate whether these two regions hold the key for Wal-Mart’s dominance in the international market. Finally, the paper will come to a concluding note after evaluating how the company can take advantage of its global reach to propel itself and to ensure its growth over time.
When studying Wal-Mart, it is necessary to understand that the retail giant is known for an in demand for two key attributes. The first key attribute is that of low pricing, while the second key attribute pertains to the availability of products. Consumers expect to acquire a combination of both these factors in their trips to Wal-Mart (Gogoi). As a result, Wal-Mart seeks to give them these two attributes by placing them in a condition where a large variety of products is available and every product appears to be appealing on account of its low price. Therefore, Wal-Mart allows the consumers to save money when buying a product from Wal-Mart, simply so that they can spend it in buying another product from the same store.
Wal-Mart can continue its growth by following the very same strategy that it has been following for decades now. Wal-Mart has been giving special attention to consumers’ needs and has been providing them with opportunities to save. It is for the same reason that consumers choose to turn to Wal-Mart on account of the loyalty that they feel towards it. Wal-Mart is able to exercise sheer volume of sales in order to maximize total returns. Hence, while Wal-Mart’s returns on individual sales may appear to be small, the total returns add up to present a significant profit volume.
Wal-Mart has developed a considerable degree of experience in the management of problems that come with operation in the industry. Judging by Wal-Mart’s current position, it would not be unfair to consider Wal-Mart to be a pioneer of sorts in this regard. The strategies employed by Wal-Mart are not only based on those that address the consumer’s perspective or the supply chain perspective but also address the organization’s internal functioning. In fact, it has been Wal-Mart’s internal functioning strategies that have allowed it to make rapid progress over time. By stressing on ensuring the costs are kept at a bare minimum (Gogoi). From the very beginning, Wal-Mart has stressed on the exercising of measures directed towards the saving of expenses and development of efficiency. It is because of the same reason that over time, the organization has become an example of how a company can make profits by bringing down profit margins to boost sales figures.
Wal-Mart has been making use of a growth strategy that centers on providing consumers with products at low and extremely affordable prices. The essence of this strategy is to reach the consumers in a form such that they are able to find all their needs under one roof. This allows Wal-Mart to acquire small margins of profit over each product; small margins that eventually translate into a significant profit volume as the consumer continues to purchase products of varying type and nature (Gogoi). The availability of all the necessities under one roof allows the consumer to engage in one-stop shopping while simultaneously allowing Wal-Mart to be the one place where the customer spends all his/her cash (Wilbert). The wider the range of products and services Wal-Mart makes available, the more consumers it is able attract.
Wal-Mart has garnered considerable consumer approval over time on account of its unique pricing strategies. By offering products below industry price levels, Wal-Mart is able to capture consumers’ attention and draw in crowds. This strategy has been highly effective for Wal-Mart in developing loyalty amongst consumers.
Wal-Mart holds the position of an industry giant and a global leader in the creation of low-cost affordability. The company is not only capable of influencing industry figures but is also capable of having a key and highly influential role on regional statistics pertaining to accessibility to food and the like. However, no discussion on the potential of Wal-Mart’s growth can be expected to be sufficient without shedding light on the potential and present limitations to Wal-Mart’s growth.
SWOT Analysis
What would be the limits to that growth?
Wal-Mart may face limits to growth in the form of increased competition. The company faces extensive competition from competitors such as Best Buy, Kroger, Sears, Tesco, Home Depot, Carrefour, Kohl’s and Target. The fact that Wal-Mart provides consumers with a wide range of products exposes the company to a wide range of competitors ranging from pharmacies to grocery stores. In addition, Wal-Mart also becomes exposed to whole sale stores on account of its low cost strategies.
In addition, Wal-Mart faces extensive competition from industry giants that it threatens (Data Monitor). Wal-Mart’s competitors tend to give Wal-Mart competition by developing programs that are designed to rival those being launched by Wal-Mart. Another factor that can have a potentially adverse impact on Wal-Mart’s growth is that of currency fluctuation in international markets. The more Wal-Mart engages in international expansion, the more vulnerable it becomes to the factor of currency fluctuation.
Wal-Mart’s growth can also suffer as a result of product recalls. In essence, it is the frequency of product recalls that comes across as the most significant threat for Wal-Mart (Data Monitor). This is because of the fact that product recalls cause Wal-Mart to generate a negative image amongst consumers. Unfortunately for Wal-Mart, product recalls have increased in frequency over the last few years causing Wal-Mart to experience negative publicity. The reason because of which product recalls pose as a threat to Wal-Mart’s progress and growth is because the negative publicity generated is followed by negative company image.
A very important threat Wal-Mart faces is the fact that Wal-Mart is now beginning to experience self-cannibalization. This is most true in the fact that Wal-Mart’s prime source of revenue is its operations in the US (Data Monitor). Even though the company has the capacity to open new stores, it is faced with the highly adverse fact that opening a new store in certain regions can bring down the sales figures of a Wal-Mart store that is already present in the area. The reason because of which this comes across as an obstruction to Wal-Mart’s growth is because this trend can have a negative impact on Wal-Mart’s growth in the long run. Unless Wal-Mart employs a strategy in which each store entertains a specific set of consumers, there is a chance that each new store will have a negative impact on Wal-Mart’s overall growth instead of having a positive impact.
As a result, Wal-Mart will get stuck in a situation where opening a new store is more dangerous for its own previous stores than it is for its competitors. It can therefore be surmised that Wal-Mart needs to develop strategies that target these specific areas where Wal-Mart may face difficulties in the future.
PEST Analysis
Political, legal, and government
A prospect in front of the industry is that the market of Asia is almost unexploited by the world of retailing. By having an untouched market it gives an enormous chance for companies to develop. It assures limitless prospective for development and income.
Economic
The industry in which Wal-Mart performs is a free trade zone. When the administration enters into new businesses with overseas countries, commerce in the United States has the aptitude to present products from these nations into their stores. This just increases the markets obtainable to retailers.
Social, cultural, demographic, and environmental
Customers want to shop the easy way. To provide this flexibility, the industry players are insuring that the clients will obtain what they want at any given time that they want it. This is sustained by suitable appearance and the right amount of service each time the customer comes shopping.
Technological
Online shopping is gaining popularity. In order to avail the advantages of being online sellers, the business is customer centric. The customer obtains friendly positions, proficient order accomplishment, fast deliverance and proficient client feedback. They process income, repayments, and refunds in a quick manner.
Did Asia and Europe offer Wal-Mart real opportunities for international market dominance?
Wal-Mart has been expanding around the world. Argentina Wal-Mart has around 28 Units. In Brazil Wal-Mart functions through approximately 345 Units. In Canada Wal-Mart has around 318 Units while in Mexico Wal-Mart has almost 1,197 Units. This is only the tip of the iceberg for Wal-Mart’s global coverage (Wal-Mart). However, Asia and Europe represent two key markets for the industry in which Wal-Mart functions.
Around the mid 1990s, Asia became a highly feasible option for Wal-Mart’s expansion strategy. Wal-Mart was well poised to enter the Asian region at that time and the company made sure that it penetrated the market when it was at its productive peak. However, unstable economic conditions in the late 1990s caused Wal-Mart to roll back its plans to expand into Asia (Yoffie). However, Wal-Mart was able to acquire relatively better outcomes from its penetration into South Korea. Wal-Mart made use of its tried-and-tested entry strategy whereby it acquired already functioning retail chains.
Wal-Mart was far more successful in the case of China and in Japan. In China, Wal-Mart penetrated the market through the establishment of a partnership. The partnership however did not manage to provide Wal-Mart with the momentum it needed to put its plan into motion and later Wal-Mart had to engage in an independent initiation of operations into the region. Eventually Wal-Mart expanded into China and was able to form a strong base (Yoffie).
In Japan, Wal-Mart entered around 2000 and took over an already present chain of stores through slow and steady acquisition by buying stake in a local retailer: Seiyu. Hence, it can be observed that with regard to Asia, Wal-Mart still has a considerable distance to go before it can establish complete domination; the kind of which it is known for in the US. Wal-Mart needs to overcome numerous obstacles in order to expand in Asia. One example of these obstacles and their impact on Wal-Mart can be found in Wal-Mart’s expansion into China and the unorthodox agreement of Wal-Mart to allow the establishment of worker unions.
Wal-Mart’s penetration of Europe began with its simultaneous arrival in the UK and Germany. To penetrate Britain, Wal-Mart bought out the ASDA chain of stores and expanded it across the region. The focus in the case of Britain was somewhat different from that which Wal-Mart is known for exercising in the US. In the UK, Wal-Mart made sure that it makes its mark in apparel based stores and proof of this can be found in the fact that Wal-Mart crossed left behind Marks & Spencer in the area of children’s wear in 2001 (Yoffie).
It is evident that Wal-Mart’s standing in Europe is far better than that which is present in the case of Asia. Wal-Mart needs to carry out further development in Asia before it can engage in an expansion in that region. On the other hand, Wal-Mart has been able to establish a strong presence in Europe and is currently in a position where it can exercise long-term strategies to acquire market dominance in Europe. However, Europe represents a market with intense competition. As noted earlier, Wal-Mart’s policy of enhanced availability of products makes it vulnerable to a wide range of competitors. As a result, Wal-Mart will have to exercise an equally diverse strategy in order to adequately overcome its competition.
“Wal-Mart Stores (Wal-Mart or “the company”) operates retail stores in various formats across the world. In the US, the retail formats operated by Wal-Mart include discount stores, supercenters, neighborhood markets, market-side, and Sam’s Clubs. Internationally, the company operates in Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico, and the UK. Wal-Mart is headquartered in Bentonville, Arkansas and employs 2.1 million people” (Data Monitor).
Porters Five Forces
- Entry barriers are moderately lofty, as Wal-Mart has a marvelous allocation systems, locations, product name, and monetary assets to scare away competitors. Wal-Mart often has an unconditional cost benefit over other competitors.
- Currently, there are 3 main present competitors that exist namely Sears, K Mart, and Target. Target is the strongest of toughest and the prominent of the three in the retail market. Target has practiced wonderful increase in their familial markets and has districted their position quite successfully.
- The individual buyer almost close to none pressure on Wal-Mart. Consumer supporter groups have protested about Wal-Mart’s costing methods. Consumer could buy at a competitor store who offers equivalent products at equivalent prices, but the expediency is missing.
- Since Wal-Mart has most of the market share, they present a lot of business to producers and wholesalers. This gives Wal-Mart a lot of authority since Wal-Mart can threaten to move on to another supplier which would be a major loss that the supplier is not ready to bear.
- When it comes to retail market, there are hardly any other stores that can substitute for the ease and low prices that Wal-Mart offers.
How could the company take advantage of its global reach or propel itself through the years to come?
The company can take advantage of its global reach and can propel itself through the years to come by working on its strengths and using them to spearhead its growth. Wal-Mart has developed undeniable control and excellence in the areas of human capital management and technology management. The company represents the perfect amalgamation of the effective management of both aspects in an attempt to reach higher levels of efficiency in operations. Wal-Mart is able to sustain growth with minimal profit margins (Barbaro). As a result, the company comes across as a highly attractive package. Wal-Mart can make use of its low pricing strategy to penetrate into markets that are developing. Low cost strategies that are regularly employed by Wal-Mart will allow the company to ensure that its profit margin is sustained while low priced products will allow the company to capture market share. The technological advantage that Wal-Mart has developed over the years will allow it to penetrate markets with increased effectiveness, giving it an edge over the local competition.
Wal-Mart can take advantage of its years of experience and its diverse experience by making use of the lessons it has learnt from its expansion. The retail giant has developed an expansion strategy that evaluates the scenario and then generally proceeds through either acquisition and/or joint venture structures in order to support the expansion.
Another avenue in which Wal-Mart can exercise growth is that of online sales. Even though Wal-Mart’s internet presence does not hold a very high degree of popularity, there is little doubt that the contribution of the website to Wal-Mart’s total sales is increasing over time. The trend for online shopping is expected to increase with the passage of time and Wal-Mart is currently in a position where its web presence is developing rapidly (Data Monitor). More products are becoming available through the Wal-Mart website and the company is looking towards developing the same dominance on online retail that it does in the brick and mortar area. By pushing harder to excel through its website, Wal-Mart will be able to make use of the growing momentum for consumers to switch to internet based shopping.
The paper served to highlight how Wal-Mart can make use of its strengths to overcome its weaknesses and continue its streak of global growth. The above paper served to show that Wal-Mart has been able to acquire extensive dominance in the global retail industry. However, it is apparent that the retail industry giant has to exercise further development before it can expect to become an unparalleled market leader. Wal-Mart’s dominance in the US has come about as a result of decades of presence and continuous development. However, Wal-Mart has now reached a standing where it will not need to channel a similarly large volume of time to gain the same kind of dominance in other regions.
Generic Strategy
As a large-scale retailer, Wal-Mart is in competition with a number of dedicated retailers, such as Safeway, Best Buy (BBY) and other super marts such as Macy. Wal-Mart’s generic strategy is depicted as follows that suggest that the company can continue its strategy of offering low cost goods that are of better quality as compared to its competitors. The company’s stores locations and its strong position in the supply chain allow it to achieve low costs. Furthermore, the company can further improve its strong inventory management system that enables it to identify and remove low profit generating items and restructure flow of goods from suppliers (Clever Presentations)
Works Cited
- Barbaro, Michael. Wal-Mart’s new strategy goes back to basics: Saving money. 2007. Web.
- Clever Presentations. “Wal-Mart Case.” 2009. SlideShare.
- Data Monitor. “Wal-Mart Stores, Inc. – Company Overview.” (2009): 1-32.
- Gogoi, Pallavi. Wal-Mart’s Crossover Strategy Still Works. 2008.
- Wal-Mart. “Wal-Mart 2009 Annual Report.” (2009).
- Wilbert, Caroline. How Wal-Mart Works. 2006. Web.
- Yoffie, David B. “Wal-Mart, 2005.” Harvard Business School (2005): 1-9.