Strategic Analysis of Walmart

Introduction to Walmart Inc.

Walmart is an American Multinational Retail Corporation which operates a chain of Hypermarkets, Department stores, Grocery stores etc. Walmart Inc. was formerly known as Wal-Mart Stores, Inc. The company was founded by Sam Walton in 1962. As of April 30, 2020, Walmart has 11,484 stores and clubs in 27 countries. In the fiscal year 2020, Walmart recorded a revenue of $524 billion, world’s biggest retailer. It is the largest private employer in the world with 2.2 million employees.

The company is controlled by the Walton family. Walmart was listed on the New York Stock Exchange in 1972. In the decade of 1990, it has established itself as the regional power. Walmart continues to be a leader in sustainability, corporate philanthropy and employment opportunity. It’s all part of unwavering commitment to creating opportunities and bringing value to customers and communities around the world.

History Timeline of Walmart:

The journey of Walmart so far has been as following:

On July 2, 1962– Sam Walton opens the first Walmart store in Rogers, Arkansas.

1967– The Walton family owns 24 stores, ringing up $12.7 million in sales.

1967– The Walton family owned 24 stores, ringing up $12.7M in sales.

1969– The company officially incorporated as Wal Mart Stores Inc.

1970– Walmart became publicly traded Company. The first stock was sold for $16.50 Per Share.

1971– The first distribution center and Home Office open in Bentonville, Arkansas.

1979– The Walmart Foundation is established.

1980– Walmart reached annual $1 billion sales with 276 stores.

1983– The first Sam’s Club opens in Midwest City, Oklahoma. Walmart replaces cash registers with computerized point-of-sale systems, enabling fast and accurate checkout.

1988– First Walmart Super center was opened in Washington.

1991– Via JV with Cifra, A Mexican Retail company, Walmart went Global.

1992– Sam Walton articulated company’s mission of saving people money so they can live better. Walmart employed 371,000 associates in 1,928 stores and clubs.

1993– Walmart celebrated its first $1 billion sales week.

1994– Walmart expanded into Canada with the purchase of 122 Woolco stores.

1996– Walmart opened its first stores in China.

1997– The company celebrates its first $100 billion sales year.

2007– Walmart.com launches its Site to Store service, enabling customers to make a purchase online and pick up merchandise in stores.

2010– Bharti Walmart, a joint venture, opens its first store in India.

2011– Walmart expands its business into South Africa by acquiring 51% of Massmart Holdings Limited. With the acquisition of Massmart in South Africa, Walmart surpasses 10,000 retail units around the world.

2012– It celebrated successful 50 years.

2016– Walmart opens its Culinary & Innovation Center in Bentonville to develop and test new and innovative products.

2018– Changed its legal name from Wal-Mart Stores, Inc. to Walmart Inc.

Strategic Elements of Walmart:

  1. Mission statement:

Mission is the reason for the existence of an organization. It projects the image of the organization. An effectively communicated mission is a tool for enlisting the commitment of company’s personnel to actions that move the company forward in the intended direction. It defines the product, market and competitive scope of the organization for the long-term. It describes values and priorities.

Walmart operates with the following Mission:

“To save people’s money so they can live better”

This statement reflects the ideals of the company’s founder, Sam Walton. Strategic decisions in the business are a direct expression of this mission statement, which is synonymous to the company’s slogan, “Save money. Live better.” Based on this statement, it is clear that Walmart’s business strategies involve using price as a selling point to attract target consumers. Walmart fulfills the “save people money” component of the mission statement through its “low selling prices”.

  • Vision statement:

Vision is dreamt of more than it is expressed. It states where the organization wants to be in a long-term perspective. It is also known as strategic intent. It is the aspiration of the organization. A strategic vision describes management’s aspirations for the future and explains the company’s strategic course and long-term direction. Good visions are inspiring and exhilarating.

Walmart operates with the following Vision:

“Be THE destination for customers to save money, no matter how they want to shop.”

This vision was officially articulated in the company’s 2017 investment community meeting. The company’s previous vision statement was “To be the best retailer in the hearts and minds of consumers and employees.” The change in the corporate vision reflects strategic changes that Walmart implements in response to changes in the competitive landscape and the overall condition of the retail industry.

  • Corporate Objectives:

Objectives are the ends that state specifically how the goals shall be achieved. The managerial purpose of setting objectives is to convert the vision and mission into specific performance targets. They are desired outcomes. They are end results to be achieved in the long-term.

Walmart has the following objectives:

  • Provide Safe and affordable foods and other products to people around,
  • Enhance economic opportunities,
  • Enhance environmental and social sustainability
  • Strategies

They are broad action plans for achieving objectives. They identify sustainable competitive advantages. They provide direction and scope to the organization.

  1. Corporate Strategies:

Corporate strategies are overall strategies those provide long term direction and scope to the organization. It determines what business should the organization be in. It defines products, markets and functions. It is also known as grand generic strategy. It is concerned with managing a portfolio of businesses and allocating resources to them.

Walmart has the following corporate strategies in operation:

  • Expansion and Growth Strategy:

As a part of Expansion and Growth strategy, Walmart has started Strategic Alliances with various foreign companies and retail stores. Formation of Walmart-Bharati in India was a part of this strategy. Further Walmart has acquired Flipkart for $16 billion in the year 2018. It has acquired Jet.com the fastest-growing U.S. e-commerce Company. Parcel a technology-based package delivery company. In June 2011, Walmart completed the purchase of 51% of Massmart, which used to operate stores primarily in South Africa but also used to operate in various African nations.

Further Walmart has also obtained Strategy of providing goods at Low Prices that could raise the Living Standards of People around the World. This strategy involves globalization efforts of Walmart to enter into the overseas markets. The Company started its first store outside of USA in the year 1991. As the result of this strategy, Walmart has 11,484 stores in 27 countries by the end of April 2020.

  • Diversification Strategy:

Diversification has also been one of the Corporate Strategy of Walmart.

Walmart is one of the most diversified companies in the world. There are different subsidiaries of Walmart that sell different supplies. Examples are the Neighborhood Walmart that focuses on Groceries, Walmart.com as the E-commerce addition of the company, Walmart Supercenters that sell mostly General Merchandize, Sam’s Club being a Wholesale Leader. There is also the Walmart Logistics, Walmart Realty and the Walmart Portrait Studio.

  • Retrenchment Strategy:

Walmart seems to have obtained retrenchment strategy as and when required.

Walmart has closed 269 stores, including all its Walmart Express stores in the US and many in international markets. Even after being the vital part of the retail mix, they didn’t seem to be quite relevant for Walmart as they used to be in past days. Their Investment weren’t justified by the return that it was providing and Walmart took the decision to curtail the part from its business.

  • Business Strategies:

Business level strategies relate to choosing which users an organization should serve and which services it should offer them. They make decide to develop specialized outputs so as to focus on the needs of a small group or niche of customer. Business level strategy aims to achieve advantage over competitors in a given market. It follows from corporate-level strategy.

Walmart has the following business strategies in operation:

  • Low cost leadership Strategy:

Walmart’s strategy is Low cost leadership. The low-cost strategy emphasizes having the lowest costs, not necessarily the lowest price, in a market. This strategy has helped gaining market share and sales from the rivals.

It is said that the products at Walmart are available at nearly the price 20% lower than that of its competitors. And this was achieved merely because of low cost strategy.

  • Broad Differentiation Strategy:

Walmart has also focused on differentiation. It has built its own different brands in the perception of the customers. This has caused the customers to choose Walmart over other competitors. This kind of customers are focused on brand rather than the price of the products and services. Walmart has based its differentiation on Product Parameters, Service Backup, Personnel, Promotion, Brand Image, Technology etc.

  • Focus Strategy:

Walmart’s focused strategies has focused on niche of the market. Walmart has focused this strategy by acquiring small online retailers like ModCloth and Moosejaw and has targeted new, wealthier customers. The kind of small deals give Wal-Mart access to new groups of shoppers and brands that have shied away from the retail giant. Walmart also tends to focus on inexpensive bikes, targeting low wage earners. Walmart also offers customized and personalized gift products.

  • Functional Strategies:

Each of organization’s individual functions will have its own functional strategies. Functional strategies have an important influence on the organization’s value chain. Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short- and medium-term plans and is limited to the domain of each department’s functional responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader corporate strategies

Walmart’s functional areas support its overall strategies in a number of ways:

  • Human Resource Department:  Focuses on keeping labor costs as low as possible. Pays relatively low wages and has few layers of management, which minimizes labor costs.
  • Information & Technology Department and Operation Areas: Focus attention on cost reduction. Invested in IT to lower the costs of communicating with thousands of suppliers and to provide suppliers with real-time data on what products are selling, at what price, in what store.
  • Procurement Department: Negotiates aggressively with suppliers. Uses its buying power to get the lowest prices on products from its suppliers. It also offers a product mix that appeals to price-sensitive customers.
  • Marketing Department: Does price checks at competitors to ensure that Walmart’s prices are always as low, if not lower, than competitors.

Environmental Factors Affecting the Industry

The environment is the aggregate of all conditions, events, and influences that surround and affect it. Dynamism of Environment creates surprises that result from complexity, uncertainty, and diversity.

Environment can be:

  • External Environment, and
  • Internal Environment
  1. External Environment

External environment consists of conditions and forces outside the organization. It provides opportunities and threats to the organization. It cannot be controlled by the organization. It influences the organization and is also influenced by the organization.

Elements of external environment are:

  • Political-Legal Forces
  • Economic Forces
  • Socio-Cultural Forces, &
  • Technological Forces
  1. Political Legal Forces

High Stability of Politics is Supportive, whereas protests, roadblocks or bans resulting from unstable Political condition would, then disrupt the supply chain of products. Political Support for Globalization assists the Expansion and Growth Strategy of the Retailer. Food Safety Regulations also impacts the supply of Groceries, Canned Foods etc. Employment Regulations of any country or Political Pressure affects the Cost incurred for Human Resources and it affects the low-cost strategy of the Retailer. Reform in Tax laws also affect the industry.

  • Economic Forces

Wise economies appreciate economic activities; they create a favorable environment for retail businesses to grow. They encourage customers to spend their money, instead of holding on to it and buying what they need. Such an economic mindset increases retail business. On the contrary, when economic activities are declining, that means unemployment is higher and people have fewer resources. It’s a completely different environment of the economy, and it creates a different mindset of the people. When people don’t have a job and their resources are limited, then they would go on the saving mode. Few spending means less business activity for the industry.

  • Socio-cultural Forces

Society and social trends develop the shopping habits norms of people, their attitude and behavior may change and transform because of many factors. Like if they are educated, then their choices and preferences would be different. In such a case, they would prefer products and services of certain multinational brands with their logo on it. Rural customers would buy any food items based on their tastes or whatever is available. Educated buyers would study the calories and vitamins of food items, and then one would decide based on one’s diet needs. Demographic social factors like age, gender, race, income level, and education level of customers affect the business of retailers. Choices and preferences also vary with gender, age, and other factors. Like, ladies, educated aged people would comfortable products, and young ones would want adventurous and exciting products.

  • Technological Forces

Whether it’s an online retail store or a physical shopping mall, technology has influenced them both equally. It could be in the form of generating sales reports, cash management, or management of the store’s sales record. Businesses have to adopt hardware and software technology to keep moving with time. Ecommerce stores are the ones that benefited from the technology the most. Especially with the help of the internet, online retailers can advertise their products and services globally without any restriction of borders.

  • Internal Environment

It consists of conditions and forces that provide strengths and weaknesses to strategic management. It defines the scope of strategic management. It is controllable by organization. Internal environment analysis is based on scanning of internal environmental forces.

Elements of Internal Environment are:

  • Goals
  • Structure
  • Culture
  • Resources
  1. Goals

Organizational goal provides basic functions; they provide guidance and direction, they facilitate planning, they Motivate and Inspire employees, and they help organization evaluate and control performance. The ability to set and follow through on goals can make a profound difference in personal performance of employees and long-term business success. 

For organizations, managers, and employees to be successful more emphasis needs to be placed on making sure every employee and every manager knows what he or she needs to accomplish in the present and future. When employees understand needs to be done to succeed, it’s much easier for them to contribute. It’s also tremendously easier for managers to do their jobs, to improve productivity, and to manage proactively, rather than waste their time stamping out small fires after the fact.

  • Structure

The structure of an organization sets the hierarchy for responsibility and creates the various levels of communication within an organization. The manner in which an organizational structure is set up and administered can have a direct effect on company productivity. If organizational structure is not set up properly, information is not able to travel where it is needed.

Walmart has a Hierarchical Functional Organizational Structure. The hierarchy feature pertains to the vertical lines of command and authority throughout the organizational structure. For example, every employee has a direct superior. Directives and mandates coming from the top levels are implemented through middle managers down to the employees in Walmart stores. On the other hand, the function-based definition feature of the company’s corporate structure involves groups of employees fulfilling certain functions. For example, Walmart has separate departments for the function of human resource management, Information and Technology Management, Financial Management, Procurement etc.

The more supportive the structure of the organization the easier would be to work.

  • Culture

Organizational culture defines the way employee complete tasks and interact with each other in an organization. Organizational cultures can have varying impacts on employee performance and motivation levels. Oftentimes, employees work harder to achieve organizational goals if they consider themselves to be part of the corporate environment.

Walmart’s organizational culture has four main components. These components guide employees’ behaviors, which determine organizational capacities to add value in the provision of retail service and related services to consumers. The cultural components are also identified as Walmart’s beliefs:

  • Service to customers
  • Respect for the individual
  • Strive for excellence
  • Action with integrity

In terms of service to customers, the company prioritizes customers in its operations. Walmart also recognizes the contributions of each employee to the success of the business. In addition, the firm strives for excellence in the performance of individual workers, teams, and the entire organization. In terms of maintaining integrity, Walmart promotes the virtues of honesty, fairness, and impartiality in decision-making processes.

  • Resources

An organization is a bundle of resources. Organizational activities are based on deployment of resources. The cost and availability of resources determine organizational capability. Success of any business depends on how well the organization uses its internal resources. Various resources like skilled manpower, Operation resources, Financial and accounting resources, Customer data management proficiency, Information and technology infrastructure has provided competitive advantages to Walmart in past years.  

Retails Industry analysis (Porter’s Five Forces Model)

Porter’s Five Forces is a model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry’s weaknesses and strengths. Five Forces analysis is frequently used to identify an industry’s structure to determine corporate strategy. Porter’s model can be applied to any segment of the economy to understand the level of competition within the industry and enhance a company’s long-term profitability.

Five Forces are:

  • Bargaining Power of Suppliers
  • Bargaining Power of Buyers
  • Threat from Substitute Products
  • Threat of New entrants
  • Competitive rivalry
  1. Bargaining Power of Suppliers

The Bargaining power of Walmart’s suppliers is low for several reasons.

  • It is a big retailer.
  • As being the largest retailer holds a significantly large market share.
  • Since it makes large purchases, it gives Walmart significant buying power.
  • The switching costs for Walmart are low.
  • It is easier for Walmart to try backward integration than for its suppliers to integrate forward.
  • A few of its suppliers are large companies which gives them some bargaining power. So, overall, the bargaining power of the Walmart suppliers is low to moderate.
  • They always bring large opportunities for their suppliers. They are in a position to asking for lower prices and even ethical guidelines to which these suppliers willingly agree. If the suppliers do not follow the guidelines issued by Walmart, it removes them from its supplier list. In this way Walmart holds immense clout over its suppliers.
  • Bargaining Power of Buyers
  • The bargaining power of buyers is not very high.
  • It is mainly for the individual buyers do not make very big purchases. 
  • Price and convenience of shopping are two very important factors that to a large extent limit the bargaining power of buyers.
  • Switching costs are not very high for the customers except that they may not find the same lower prices and convenience of shopping with the other brands that they can get with Walmart.
  • The lowest pricing strategy of Walmart reduces the bargaining power of the buyers.
  • So, individual buyers exert little or no influence on the brand.  
  • Consumer advocate groups on the other hand have been able to exert some influence on the brand.
  • The bargaining power of the buyers is a weak force for Walmart.
  • Threat from Substitute Products
  • There are several other retail brands too. However, the number of retailers offering prices as low as Walmart are not many.
  • There are other retail brands too where the customers can shop like Target and Best Buy but when it comes to pricing, none of the other brands provides the same price advantage as Walmart. 
  • The online retailers pose some challenge but still they are not able to offer prices comparable to Walmart on all the products.
  • Online shopping does offer the convenience where customers do not have to pick the product from the stores. 
  • The products they shop for are home delivered.
  • So, while customers would like to shop online for convenience, the low prices of Walmart are still matchless.
  • These factors keep the threat from substitute products to the minimum.
  • Threat of New Entrants
  • The threat of new entrants exerts medium pressure on Walmart.
  • It is because Walmart is the largest among the retail brands and it would require lots of investment to build a brand like it. 
  • Having a distribution system and supply chain like Walmart is even difficult and can take years to build.
  • The existing retailers already have a difficult time dealing with the price challenge from Walmart.
  • Walmart’s price advantage has helped it gain a large market share and this is also an important factor that deters the new players.
  • So, overall, the threat from new entrants is not a strong force.
  • Competitive Rivalry
  • Rivalry among the existing players is high in the retail industry.
  • However, if Walmart has the upper hand then it is because of its pricing strategy.  
  • Competitors are not very strong to pose a competitive challenge before the largest retailer.
  • When it comes to competition in the retail industry, Walmart is the King.
  • The strength of competitive rivalry to Walmart in the industry is medium.

BCG Matrix Analysis of Walmart

It was developed by Boston Consulting Group. It focuses on balance of the portfolio. It uses relationship between market share and market growth to balance the portfolio. Market share is the share in relation to the largest competitor.

The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit.

Strategic Options for building portfolio under this matrix are as following:

  • Build: Allocate more resources to Stars and Question Marks to gain and sustain market share.
  • Hold: Allocate present level of resources to Cash Cows to defend market share and generate cash flows.
  • Harvest: Allocate less resources to weak cash cows. Eventually withdraw them from business.
  • Divest: Do not allocate resources to Dogs. Liquidate them
  1. Stars
  2. These are considered as the best category in the BCG matrix, as the products in this category has the highest market share and market growth.
  3. The products or services are at the maturity stage in this quadrant. However, if the strategies are not retained properly, it could turn into cash cow.
  4. For the Walmart, its supercenters are the star. The supercenters provide almost everything to the consumers such as; pharmaceuticals, groceries, general merchandise, etc. It provides more than 28,000 products to consumers.
  • Question marks
  • These are the problem child for the company, which need much attention to increase the market share for increasing the inflow of cash as compare to outflow.
  • But it has the high market growth, which means effective product development of differentiation strategy could help it in turning to cash cow or else it will turn into dog.
  • Neighborhood market are the question mark for the Walmart, which needs proper strategies for increasing the market share. It needs to grow, as the profit level reduces from the previous years.
  • Cash Cows
  • Cash cow items bring more cash in the company through sales, but has less market growth.
  • However, potential exist in them for expansion and growth, which will help them in turning into star products.
  • For Walmart, Sam’s club and international segment are the cash cows. As the Sam’s club has membership only, with cash and carry operations, which motivates consumers to visit the club as it also provides the financial service and credit card facilities. The annual fees are very affordable along with the bulk displays and the merchandise of brand name. Its international segment is growing rapidly, as it provides the best value in low cost, and several varieties with best customer services.
  • Dogs
  • These are the breakeven products, whose shutting down of operations will not affect the company.
  • Discount stores are the dogs for the Walmart, as it is not bringing much benefit to the company.
  • Moreover, its number of stores were also reduced in 2014, and many outlets were close till the date. This investment can be used for the stars.

Strategic Alliance

A strategic alliance is an arrangement between two companies to undertake a mutually beneficial project while each retains its independence. A company may enter into a strategic alliance to expand into a new market, improve its product line, or develop an edge over a competitor. The arrangement allows two businesses to work toward a common goal that will benefit both. The relationship may be short- or long-term and the agreement may be formal or informal.

Walmart forges alliances with Google, Microsoft, China’s JD.com and other tech players to create a challenging e-commerce business.