Wal-Mart Company Analysis
Wal-Mart is the largest chain of retail stores in the US and a key player in the same industry in many other locations across the world. With a great portfolio of products, the company has a wide employee base. Currently, Wal-Mart boasts of approximately 11,528 stores across 28 countries in the world. Over the years, it has managed to grow constantly, taking advantage of new opportunities to advance in operations and to maintain competitive advantage. The key competitors of the company include Costco and Tesco. To ensure that the company grows constantly, its management need to effectively understand its key strengths and weaknesses as well as the opportunities and threats that affect their operations. This paper is an in-depth analysis of the key internal factors impacting Wal-Mart as well as essential external factors which have made the company to continue realizing sustainable growth in the wake of growing competition and in a dynamic industry.
SWOT analysis is an essential tool for analyzing business operations to determine how they maintain and can maintain competitive advantage. Strengths associated with the company are the key features of the business that give it an edge over the competitors. The weaknesses, on the other hand, are those internal qualities of an organization that may reduce its performance against competitors. Every company should take advantage of its opportunities to utilize its core resources for further development while reducing the impacts of their threats. To a large extent, Wal-Mart has practiced this effectively leading to constant growth in operations. On the other hand, the company still faces some challenges, especially with ethical aspects in business operations. The sustainability of the company business model is thus dependent on how the organization will be able to handle future concerns for the enhancement of competitive advantage.
Wal-Mart is the largest retailer in the world (Jurevicious, 2016). This is a key strength as it comes with several benefits. For instance, being the largest retailer in the world means that Wal-Mart has a strong command of the market power in comparison to the competitors. In addition to this, the company has unmatched operations in sales. This has made the company to be listed by Forbes as the 20th most valuable brand in the world today (Jurevicious, 2016). The size of the company enables it to enjoy economies of scale as it can get supplies at cheaper and more competitive prices compared to the rivals. The efficiency and effectiveness in the use of resources by the company also results from the significant market command.
Apart from being the largest retailer, Wal-Mart also has strong investment capabilities as a result of the big revenues that the company enjoys from its investments. The market diversity as targeted by Wal-Mart expands its profit portfolio hence giving it investment opportunities. It is because of this that the company has managed to expand to several locations making it the largest retail chain in the world. Moreover, the company also has greater customer loyalty as it was the first entrant into the market.
According to a report by Cayenne Apps (2016), Wal-Mart also has lower prices. It can be said that this explains the customer loyalty that is characteristic of Wal-Mart business operations. The company operates based on a business model that is built around discounts. As such, all products sold by the company are offered at prices lower than those of other competitors. To satisfy the customers even further, the company offers a wide range of products which makes it possible for the customers to get anything they need from the stores. Wal-Mart is also a well recognized brand across the world. Potential customers always tend to be attracted to well recognized companies. As such, the strong brand name associated with Wal-Mart enables it to attract new customers as well as to retain the already existing customers.
Although the company has many strengths associated with it, it also has several weaknesses which might hamper the performance of the business. First, the company faces hostility in some of the international communities within which it operates. The hostility results from local communities which resist the development of Wal-Mart stores in their local areas because of the fear that it will drive local businesses out of operations. Apart from this, the company also operates on a reduced profit margin. Due to the discount business model, the company gains relatively less profit from the sale of a unit product in comparison to its competitors. This hampers the revenue growth that can be associated with the company (Isdore, 2015).
Due to the diversity of operational localities, large number of employees and wide product range, the company also experiences a weakness in terms of inconsistency in operations. The difference in supplies and operations across different countries makes it difficult to maintain the same quality of products across all regions. The challenge of inconsistency also comes with limited product differentiation as the company does not engage in any innovative practices. The sole differentiation practiced by the company is through the provision of discounted product prices.
Isdore (2015) reports that Wal-Mart has in the past been faced with various negative media representations. This is connected to some ethical issues surrounding the company operations. For instance, the company is reported to be involved in poor remuneration of employees. As such, the business experiences high employee turnover. Apart from this, the company is also linked to the provision of poor quality products. This explains the constantly low prices at which the company sells its products. For the company to maintain its discounted business model, it has to find the ways of acquiring the products at cheaper costs from the suppliers, a practice that leads the company into acquiring low quality products. As such, Wal-Mart has a wide customer base driven by the need for discounts, but which also tolerates low quality products.
Wal-Mart has several opportunities which it can take advantage of to expand their business operations and to gain greater competitive advantage over others. First, the company could expand into unexplored markets.. This implies that there is still a great opportunity for company expansion. By learning and focusing on the distinctive cultural practices and beliefs, the company can be able to expand sustainably, instead of potential failure as experienced in the German and Asian markets. Apart from this, the growing trend of online marketing and E-business can also be explored by the organization. Through organizing an online platform for the sale of products, the company can achieve sustainable growth while also keeping abreast with competitor advancements.
From the findings of Jurevicious (2016), other opportunities that the company can utilize include increase in the sale of food items and groceries and opening of more neighborhood markets. The company may also try to explore supply chain efficiency and partnership with other organizations. Increasing sale can be explored by widening the range of food substances available for their customers and also improving the sales practices through provision of an online purchasing platform. It is currently reported that customers prefer to shop for groceries online than physically due to the ease of such platforms (Cayenne Apps, 2016). Wal-Mart can take advantage of this to grow even more. Increasing supply chain efficiency can help the company to gain products at lower overall costs through reduction of wastages and losses during transportation as well as through effective communication throughout the entire supply chain. This can help the company to maintain the discounted business model while also improving the product qualities.
While taking advantage of the opportunities that the company faces, it also has to focus on minimizing the impacts of the threats faced by the company. Threats can result in the loss of productivity of employees, loss of profitability and reduced competitive advantage. The key threat faced by the company is the shift in customer motivation. Initially, the company drew its customers using the discounted business model. However, this will slowly lose value as the customer habits are changing. Customers are beginning to shift towards consideration of product quality and value from being affected by the product prices.
In addition to this, Jurevicious (2016) reports that customer attitudes are also changing from shopping in large retail stores to preference of smaller local stores. This has the potential of reducing the customer base enjoyed by the company. Customers are also increasingly being aware of ethical issues in businesses and subsequently opting to be associated with businesses that have no negative ethical concerns. The low wages and negative publicity that Wal-Mart currently associates with could be a reason for reduced customer population if not checked early enough. The company also faces the threat of rising wage and health insurance costs. This is a result of the high employee population in the company. The company has approximately 2.3 million employees across the world (Jurevicious, 2016).
The internal environment, notwithstanding an analysis of the company’s external environment, is also essential in determining its achievements. The company’s external environment influences operations in many ways and has the potential of resulting in growth or destruction. While some factors in the external environment can be taken as opportunities and built upon to increase competitive advantage, others are threats that have to be handled with care to prevent detrimental effects on the business. PESTLE analysis involves consideration of the political, economic, socio-cultural, technological, legal and ecological aspects of the business industry. For Wal-Mart, the following analysis relates to the external environment that affects the organizational operations.
Since Wal-Mart operates in many countries, the political environments surrounding the organization are also diverse. First, the company enjoys political support for globalization. This is an opportunity that the company can take advantage of to expand its operations. Globalization has been internationally accepted, and thus, the company faces no resistance to expansion. Because of this, the company can advance in terms of physical locations. Apart from this, another political factor that offers an opportunity for organizational growth is the high stability experienced in most of the countries in which Wal-Mart operates. While it is clear that a politically unstable environment limits organizational growth, it is also clear that stability enhances growth. The company can thus focus on expanding into politically stable countries while playing down on expanding into low stability areas (Rowland, 2015).
On the negative side, the company faces some challenges in the political aspects of growth. Political pressure for wages has a potential for threatening organizational growth (Isdore, 2015). Since Wal-Mart has a high number of employees and operates on a low profit margin basis, employee remuneration can be a challenge to the company. This is especially true in countries where there are minimum wage settings that are significantly high. With the increasing pressure to provide minimum wage limits worldwide, the company experiences the pressure to provide high wages for its employees. This pressure is bound to increase even further. The most probable outcome of increasing employee wages is the reduction of the profit margin per unit product. On the other hand, failure to comply with the wage requirements can result in high employee turnover which is already being experienced by some of the Wal-Mart stores. It may also result in lower employee motivation.
Furthermore, low growth in the developing countries is also a significant political challenge to Wal-Mart. From Wal-Mart reports, the company has only 25 stores across the developing nations (2016). This is a key challenge in that the company still struggles to grow but the political and economic conditions associated with the countries do not favor this growth. Consideration of the national political conditions is essential in order for Wal-Mart to recognize the opportunities available for growth as well as to recognize the threats that would limit organizational growth.
Apart from the political factors, the organization is also influenced by various economic factors in operations. The stability of most of the major economies in which Wal-Mart operates is one of the key factors that contributes to sustainability in business operations. Wal-Mart mainly operates in the developed countries where it is a major retailer. In the US, Wal-Mart is the largest retailer. In other countries, it is the lead player in the retail sector. The stability of these economies makes the discounted business model sustainable hence the continued growth of Wal-Mart. Similarly, the continued growth of the developing countries also constitutes a positive economic aspect in Wal-Mart operations. Although the growth occurs at a slower rate, it presents an opportunity for Wal-Mart to expand into these economies (Brea-Solis et al., 2012). This can make the company the first entrant into the developing countries’ business environment in comparison to other major retailers. This is because in the present times, decreasing unemployment implies that potential and existing employees have many options for employers. As such, the employee turnover rate is likely to be high in the organization.
Economic downturn in many countries can also be cited as an opportunity for growth by Wal-Mart. The business model for the company came at a time when most of the potential purchasers were experiencing difficult economic times. As a result, the company managed to acquire new customers who were in need of lower prices compared to those in the market. As a result, Wal-Mart currently enjoys a wide customer base while also having an opportunity for better development in all economies.
The purchasing trends in any industry are determined by several socio-cultural factors. Wal-Mart operates in multiple cultural and social environments, hence cultural diversity is an important opportunity for the company to explore. Through the understanding of the diverse cultures connected to the organization, the company can engage in more profitable, culturally aligned business practices in many locations. The company could also use the cultural differences to differentiate its products. The organization should maintain a high ability to identify and to respond to social factors such as changes in spending habits. Recognition of these factors can help the company to change business operations such as the outline of their stores to be more in line with customer preferences and needs (Rowland, 2015).
The retail environment is presently characterized by high levels of business automation, the use of business analytics and big data, increasing use of mobile trading platforms and increase in the online shopping trends (Rowland, 2015). All these factors offer opportunities for business growth in the company. For instance, Wal-Mart can take advantage of the automation of operations to reduce the employee numbers and thus increase the wages of other workers. While this may increase unemployment levels in the countries of operation, it will help the company to improve the quality of its products and services. Changing towards mobile and online trading will help companies to gain access to more customers as studies indicate that customer purchase preferences are shifting to online platforms. With this shift, Wal-Mart will be able to expand its market shares even more.
The key legal factors that influence the operation and sustainability of Wal-Mart include food and safety regulations, employment regulations and tax law reforms. Wal-Mart has previously been subjected to various legal issues due to unequal employment opportunities and recruitment procedures (Brea-Solis et al., 2012). While tax reforms and food safety regulations could be used by the organization to sustain its growth through compliance, the employment regulations pose significant challenge to Wal-Mart. This is especially as a result of the remuneration pressure across the world.
In terms of ecological factors, Wal-Mart has tried to be in line with the societal expectations. The business practices of the company create opportunities for building organizational reputation and thus expanding the market share of the company. Through recognition of sustainability related initiatives and running a business sustainability trend, the company clearly shows its concern for the environment (Wal-Mart, 2016). For instance, Wal-Mart participates in several wildlife conservation activities and also focuses on recycling and reduction of greenhouse gas emissions. These factors have given Wal-Mart an edge over the competitors and thus build the business reputation.
Wal-Mart has managed to create a sustainable business model that involves discounted product provisions. The company’s strengths have enabled it to grow sustainably while also striving towards reducing the key weaknesses and threats associated with the company. Both internally and externally, the company has several opportunities which it can continue to explore in order to continue expanding sustainably.
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