Sample Business Study Case Study on Walmart Corporation

Executive Summary

The research evaluated the Walmart Inc case study by evaluating the situational analysis and problem-solving approaches. It emerged that Walmart is the biggest retail business in the world with over $514 billion in revenue in 2018. The company has relied on a strategy to expand since its creation in 1962. The research has involved the evaluation of the SWOT and PESTLE analysis to identify the relationships that exist in the internal and external environments. The evaluation of the company has led to the identification of operational problems that include poor employee focus of the company. The workers do not have healthcare benefits and the average hourly pay is $14. The company has also a negative reputation in the market. Possible solutions include a social focus through CSR and improvement of employees’ welfare. The solutions should involve providing a suitable working environment for the workers and improving the community involvement of Walmart.

 

 

Case Study: Walmart Corporation

  1. Situation Analysis
  2. Introduction

Walmart is the biggest retail store in the world followed by other companies such as Amazon, The Kroger, Costco, Walgreens Boots Alliance, and The Home Depot, among others. Walmart leads these companies based on the volume of sales and the scale of operations. The company has four major aspects that have helped it to remain relevant in the competitive environment and this includes dominance in the retail market, the creation of various branches in the new markets, international presence, and most essentially the creation of a positive brand image that has led to a worldwide recognition of the business (Casadesus-Masanell et al., 2018). To understand the business concept of the company, it is essential to recapture the history of the business and evaluate the evolution that has taken place. According to Walmart (2020), Sam Walton started the company in 1962 at the age of 44 and the location was Rogers, Arkansas. The headquarters of the company are in Bentonville, AR. The company concentrated on the retail space and the changing face of the way the company provided products to the customers played an essential role in the early operations of the company. The idea that Sam Walton used in the operations of the company, which focused on lower prices and outstanding services contributed to the success of the business to date. While the company has positive financial performance, problems relating to poor treatment of workers and harsh working environments have been part of the company. This research aims to provide an evaluation of the company and highlight areas of poor performance. If Walmart concentrates on the proper treatment of its workers, it will gain a positive reputation that will improve its performance.

  1. Overview of the Company

Walmart Inc. is the largest retail company in the world operating a chain of hypermarkets, grocery, and discount department stores at the international level. The company has topped the list of Fortune 500 companies in the world several times, making it worth researching. According to a report done by Fortune Magazine in 2019, Walmart Inc. has been in position 1 in the Fortune 500 list for 6 years in a row. In 2019, the company topped the list with sales revenue of approximately $514 billion. The above performance makes it very interesting to learn about the company and the strategies it employs to keep its consistency as well as a market bully for its rivals and other players in the market.

One of the key business strategies that Walmart uses is cost leadership strategy, which focuses on achieving low prices. The strategy is in such a way that the small profit margins realized are countered by high sales achieved as customers are attracted by low prices. It is for this reason that the company operates under a philosophy of “Everyday Low Price”, which has worked fine ever since the company started.

  1. The state of the retail market

The state of the retail market in the US provides essential insights to determine the situational analysis of the business and the potential for expansion that exists in this market. The first aspect is the number of sales that the company has achieved recently, which is an indicator of the retail market of the US. According to NRF (2019), Walmart had the largest retail sales in 2018, which were $387.66 billion compared to Amazon that was in the second position with sales of $120.93 billion. The data shows the extreme retail advantage that Walmart has over the competitors. The worldwide sales of the company were $529.54 and the US was 73% of worldwide sales, which means the dominant market for Walmart is the US (NRF, 2019). The growth rate of the company was 1% in 2018.

The most recent data indicates that the retail industry of the US has dropped by 8.7% by March 2020, which has affected major retail companies because of shrinking profit margins (The Balance, 2020). The previous years have experienced a steady market environment that has been suitable for the continuous growth of big retail companies. Walmart, in 2019 generated revenue of $524 billion with a market capitalization of $350.4 billion as of 2020 (Walmart (b), 2020). The figure below is a summary of the financial aspects of the company.

Another essential aspect of the retail environment is that Americans spend about 5.6% of their disposable income in supermarkets. According to Ellickson (2016), The Food Marketing Institute (FMI) indicated that in 2013, Americans spent $620 billion in supermarkets to purchase various products. With a steady growth rate of the figures, it is expected that the current retail market for supermarkets will use up to $1.7 trillion (USDA, 2020). The spending on food and other factors, however, is dynamic and an estimate provides a rough outlook of the business environment. The market had over 37,459 supermarkets as of 2013 and each facility had an average of 44,000 products for the customers to access (Ellickson, 2016). Customers purchase products from both the physical and online platforms.

  1. Operational analysis of Walmart

The headquarters of the company are in Bentonville, AR and the company has about 11, 500 stores across 27 countries in which the company operates. The company employs 2.2 million associates within its value chain across all the branches in the world. It is important to note that Walmart employs 1.5 million people in the value chain in the US alone (Walmart b, 2020). The supply chain connects various suppliers and manufacturers to provide the goods that the customers want in various sectors. The market has grown because of the ability to coordinate the various locations through online platforms accessible to all countries but 10 countries have their customized websites to use in accessing the company’s products. The key occasions for the company include the United States, Canada, India, Argentina, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, and Nicaragua. Walmart considers these locations to be the main source of the business but other locations such as Massmart in South Africa provide an opportunity for the company to expand its coverage (Walmart (b), 2020). The operations of the market have provided an opportunity for an upward trajectory of the firm.

The supply chain of Walmart depends on the various sections that the company uses to access specific market segments. The first three major segments include Walmart Walmart International, Sam’s Club, and US. The focus on these segments uses different strategies because of the varying purchasing power among the customers. The sizes of these broad segments are indicated in the chart below.

Statistics indicate that the operations of the company in other regions account for about 25% of the company’s revenues. The rest of the 75% comes from the US, which is a major boost for the company (NRF, 2019). The most effective way to measure the success of the company is to determine the income, size of operations, the impact generated within the value chain, and the resilience of the company to continue with operations despite the challenging operational environment.

Walmart’s international deals with other markets outside the US and Sam’s Club allow the buyers to purchase products with huge discounts but in bulk. The business people have benefited from this arrangement because of the ability to save on their expenditure. The club began in 1983 and has resulted in 600 clubs in the US and 200 clubs in the international markets (Walmart (b), 2020). The club alone employs 100,000 people in the US, which is an indication of the large operations that Walmart focuses on to ensure that customers access the products they want.

  1. Marketing mix analysis

The marketing mix in Walmart uses 7ps to reach the market. The 7ps include product, promotion, price, place, people, processes, and physical evidence. All these factors are essential in the operation of Walmart because of the need to identify the needs of the market and provide specialized services to meet the needs of the customers. According to Blut et al. (2018), retailers use the 7ps to establish relationships with customers and use various strategies to ensure that the customers have a better experience when business the company’s products compared to those of the competitors. The direct and indirect use of strategies has a particular influence on the success of the company.

Walmart targets customers’ focus begins with providing products that are of high quality but the price focus is low to ensure that both lower-income and medium-income customers can access the products. According to Schu and Morschett (2017), the selection of a market in retail business depends on the influence factor that the company has towards the customers. In Walmart, the target customers fall in various categories depending on the items they require. It is essential to note that Walmart sells electronics, groceries, fashion, home furniture, music, and beauty products, among other categories of products that attract different types of market segments. The general term that can describe the customers who purchase the products is those who seek value at a lower price. The company focuses on the affordability of the products and provides discounts to their customers to save money and live a better life as indicated in their slogans. Therefore, the middle class of customers may find it convenient to shop in these markets.

The model of pricing is that of Michael Porter revolving around setting price leadership that is essential in attracting the customers. The generic strategic model by Michael Porter has been applied in the company over the years and it has proved to be successful. The representation below is a summary of this strategy.

The generic strategies provide easy but tactical operation in the company that leads to the successful implementation of the marketing mix by focusing on product, price, place, and people. According to Rothaermel (2016), the strategy enables the business to identify approaches to apply in the market mix and develop defensive boundaries against the competition. In the strategy, Walmart uses cost leadership to set the minimum price of the products that attract many buyers. Cost leadership is being the market leader in terms of pricing the product (Lin, 2019). On the other hand, differentiation involves a focus on the people in the marketing mix, where the business divides the market into locations and provides products required in such locations.

Cost focus refers to the provision of a unique pricing strategy for different market segments such as Sam’s Club that enjoys lowered prices for products customers subscribe to a particular membership arrangement to enjoy the benefits of this category. Rothaermel (2016) observed that the cost focus of the company has given it a competitive advantage over the competition. Finally, differentiation focus refers to the creation of market segments that increase the scope of the business. Promotion, processes, and physical evidence are also part of the consideration in the marketing mix because differentiation is unique to a particular market and product promotion happens focusing on the needs of the market segments identified. The physical evidence is proof of transaction, which happens through physical and online purchases.

Product strategies in Walmart revolve around the creation of Walmart’s brands, especially household products that have attracted customers. The customized brands account for 40% of the total sales of the company in the US because of the value they present to customers. The sale of groceries has also received immense impact because of online presentations that the company makes when customers have a chance to select the products they require. This model has been essential for generic brands as well as Sam’s choice where customers have an opportunity to select a wide variety of products they require. Narwal and Nayak (2020) explain that creating a perception for markers acts as a way of attracting the customers through the various cues that the presentation of products provide. Arguably, the ability of Walmart to present its in-store arrangement and online display of products in an attractive manner, certain cues develop among customers to increase sales.

The human resource department of Walmart has received criticism in the way it treats the workers. Concerns have emerged from the model of employment that the company uses because many employees work part-time with a local standard pay of $14 per hour. The workers have few to no health benefits, which has led to a wide outcry of the company’s concern about the workers. It is essential to note that the company has about 1.5 million associates in the US and 2.2 million globally (Walmart (a), 2020). The HRM department has employed 47% of women in the US and 20% of the board members are women. The base salary for employees at Walmart ranges from $50,000 and $170,000 annually.

  1. SWOT Analysis

The SWOT analysis is an essential tool that provides an opportunity for one to understand the internal factors that the business benefits from and the areas that need improvement. The following table is a summary of the SWOT analysis of Walmart.

Strengths

·       Large scale operations and economies of scale

·       A wide range of products

·       Competitive in information systems\

·       Effecting chain of supply that cuts costs

·       Cost leadership in the market

·       Lower prices of products

·       Both physical and digital operations

·       Consumer confidence that leads to customer loyalty

·       Quality products

·       A well-established global supply chain

·       The efficiency of the supply chain

Weaknesses

·       Similarity of differentiation strategy to that of competitors

·       High employee turnover

·       Negative publicity regarding treatment of employees and business practices

·       Declining margins and prices of commodities

·       The thin profit margins being experienced in the company

·       Their business model has been copied by their competitors

·       Walmart’s competitive disadvantage over other companies who engage in the sale of specific products

Opportunities

·       Availability of international markets

·       Change negative publicity to improve brand loyalty

·       Customized Walmart products have grown by 40% popularity and sales

·       Online platforms have become an avenue of sales

·       The chance to enter the banking industry because of large amounts of cash flow

·       Use social welfare as a means of improving customer approvals

·       Revamping the human resource department to ensure the company continues to serve consumers in a better way and develop competition in the industry.

·       Improving the standards in the company structure, products, and services

Threats

·       Conflict of interest in the focus of green economy

·       International limitations that affect the expansion strategy

·       Near-saturation market for the company’s products

·       Cyber-attacks in the ecommerce platforms

·       The concern over a healthy lifestyle

·       Aggressive competition from other companies in the same industry

·       The presence of online retailers in the industry

 

  1. PESTLE Analysis
Item Explanation
Political factors High stability of politics

Political support for globalization

Political pressure for higher wages

Economic factors The stability of economies in many countries

The growth and development being experienced in developing countries

Decreasing employing in the United States

Social factors Cultural diversity across the world

Urban migration experienced across the world

Technological factors Advanced technology leading to business automation

Use of big data opportunity/ business analytics

Customers are mostly using mobile devices.

Environmental factors Business sustainability practices in the industry

Environmental friendly products across the industry

Legal factors Employment regulations in the company

Regulations focused on the issue of food safety

The effect of tax law reform

 

  1. Walmart Inc. financial analysis

The company has reported revenues of $514 billion in 2019 and is ranked in the first position on the Fortune 500. According to Craft (2020), Walmart has experienced an upward trajectory in the income generated to place the company in a stable financial position that is double the company that follows it in the competitive environment, Amazon. The following is a representation of the income statement of the company.

The balance sheet of Walmart is as follows

The data represents a healthy business environment despite the challenges in operation that the business has faced. With positive financial performance, Walmart has a role to play to ensure that the workers have a suitable working environment.

  1. Problem Analysis & Description

The research has indicated that Walmart has problems in its operations because of poor employee focus and shrinking market because of the saturation that has occurred. The poor handling of workers has led to the negative publicity of the company because the company enjoys large amounts of profits but it cannot provide health benefits to the work. The company has experienced massive backlash from the public for the failure of implementing models that will lead to the motivation of the employees and that is why the rate of turnover has increased. According to Lin (2019), most workers at Walmart serve for less than a year because of the lack of strategies that improve their welfare. The company relies on part-time workers to save on expenditures and fail to use more funds on the improvement of the working environment.

The first aspect of the treatment of workers is that the company pays an average rate of $14 per hour, which is a salary comparable to other fields such as accounting, teaching, or transport, among others (Acquire & Wood, 2018). Commentators have observed that the payment Walmart gives to its employees is subject to starving them because they depend on other governmental reliefs instead of benefiting from the work they do for the company (Cashiola & Reilly, 2019). The problem has led to the negative publicity of the company because people view it as greedy and have no care for the needs of the employees to provide the necessary welfare.

Another problem related to negative reputation includes the shrinking profitability and business environment that the company has for a long time had the biggest market share. While the company still maintains the first position, it is essential to note that some other companies are gaining momentum against the giant retail business to point that there is a need for a new strategy. According to Jindal et al. (2020), the firm needs to provide strategic approaches that will clear its name by improving the operating environment for its employees by increasing the salary to decent pay for motivational purposes. The current turnover rate is over 10% and has led to negative criticism because the company is focused on cost and financial stability (McMann, 2019). Most employees receive less than $25,000 a year because the company manipulates the pay schedule with part-time considerations that have led to a bad reputation. Therefore, the firm needs a new strategy to improve its reputation and solve the problems.

  1. Solutions, Evaluation, & Recommendation

It is essential to apply the weighted-criteria decision matrix to provide a cost-benefit analysis to the company that will facilitate problem-solving mechanisms. The solution and recommendation play a critical role in helping the company arrive at a viable decision. In this analysis, the main source of focus should be to provide Walmart with a solution that will improve employee satisfaction, eliminate the negative reputation, and improve the performance of the firm despite the competitive market. The first aspect is to increase the average hourly pay of the employees from $14 to about $28 because this will lead to improved motivation and increase the reputation of the company. The current image presents greedy management that does not care for the employees, which is unfavorable for business operations. The company generates too much revenue and failure to implement this recommendation; it will affect future operations of the firm

The company should use welfare-based approaches to reclaim the reputation of the company. An example of intervention to use is the application of Corporate Social Responsibility (CSR). Lee (2016) explains that CSR helps the business to regain reputation because the public benefits from the activities of the company. Additional recommendations and solutions to the problem include the following:

  • Walmart Inc. should focus on implementing a considerate way of serving their customers
  • The company should continue investing in innovative methods to ensure they improve their operations across the world
  • The company should offer their products to customers at bearable prices to maintain their Walmart should use radio frequency identification with its suppliers to lower the cost of supply.
  • The company should focus on using improved technologies to reduce the cost of unloading and checking the products.
  • Venturing into the international markets
  • Investing in online commerce to facilitate higher online sales.
  • Considering investing in the banking sector

The company can continue dominating the retail industry through attainable strategies. Implementation of strategic approaches and focus on employees will be the right approach.

  1. Implementation & Success Metrics

It is possible to implement salary increments for the workers through the measurement of the amount the company generates as profits compared to the operational costs. The research has indicated that the employees of Walmart do not have health benefits because of the focus on the financial position of the firm instead of helping the worker attain value from the work. The approach has been dangerous because of the low levels of approval of the company among the workers. The company should begin by implementing a $6 increment in the hourly rate for all the employees to ensure that they benefit from their work. The final increment should ensure that they receive $28 hourly to represent the size of the company, which is currently the biggest retail company in the world.

The increment should take place yearly to ensure that the customers and employees get value and have a positive reputation for the company.  The workers should benefit from health coverage opportunities that will lead to sustainability in operations. The current approach gives the company a negative image because people perceive Walmart to be profit-oriented and no value for human life. The approaches provided will enable the company to attain a suitable position regarding operations.

 

 

References

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Casadesus-Masanell, R., Van den Steen, E., & Elterman, K. (2018). The Rise and Rise (?) of Walmart (A): Battling Kmart.

Cashiola, M., & Reilly, M. (2019). Walmart CEO Doug McMillon says federal minimum wage should be higher. Minneapolis / St. Paul Business Journal. https://www.bizjournals.com/twincities/news/2019/06/06/walmart-calls-for-increased-minimum-wage.html

Craft. (2020). Just a moment... Just a moment… https://craft.co/walmart/metrics#income-statement

Ellickson, P. B. (2016). The evolution of the supermarket industry: from A & P to Walmart. In Handbook on the Economics of Retailing and Distribution. Edward Elgar Publishing.

Jindal, P., Zhu, T., Chintagunta, P., & Dhar, S. (2020). Marketing-Mix Response Across Retail Formats: The Role of Shopping Trip Types. Journal of Marketing84(2), 114-132.

Lee, S. Y. (2016). How can companies succeed in forming CSR reputation?. Corporate communications: An international journal.

Lin, R. (2019). The Importance of Successful Inventory Management to Enterprises-A Case Study of Wal-Mart.

McMann, S. (2019). Turnover Rate: Walmart. https://digitalcommons.sacredheart.edu/acadfest/2019/all/15/

Narwal, P., & Nayak, J. K. (2020). How consumers form product quality perceptions in absence of fixed posted prices: Interaction of product cues with seller reputation and third-party reviews. Journal of Retailing and Consumer Services52, 101924.

NRF. (2019). Top 100 retailers 2019. https://nrf.com/resources/top-retailers/top-100-retailers/top-100-retailers-2019

Pasquier, V., & Wood, A. (2018). The power of social media as a labour campaigning tool: lessons from OUR Walmart and the Fight for 15.

Rothaermel, F. T. (2016). Strategic management: concepts (Vol. 2). McGraw-Hill Education.

Schu, M., & Morschett, D. (2017). Foreign market selection of online retailers—A path-dependent perspective on influence factors. International Business Review26(4), 710-723.

The Balance. (2020). Coronavirus shutdown wallops retail sales in March. https://www.thebalance.com/u-s-retail-sales-statistics-and-trends-3305717

USDA. (2020). Food prices and spending. USDA ERS – Home. https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/food-prices-and-spending/

Walmart (a). (2020). Our history. Corporate – US. https://corporate.walmart.com/our-story/our-history

Walmart (b). (2020). Our business. Corporate – US. https://corporate.walmart.com/our-story/our-business