SWOT analysis of WAL-MART

Executive Summary

 

This paper primarily undertakes a SWOT analysis on Wal-Mart. A SWOT analysis looks at the strength, the weaknesses, opportunities and threats facing a company. This is done by examining internal as well as external factors that affect the operations of a company.

 

The paper begins with a company background of the Wal-Mart stores from its early days to current times where it is regarded as the largest retail store in the world.  The paper then looks at the strong points of the Wal-Mart Stores. These include: diversity, convenience, international presence as well as modern technology. The paper looks at how the company is able to use these strengths to gain competitive advantage in an increasingly competitive environment. It also looks at the weaknesses faced by the company and this is mainly in terms of span of control. Due to its large enormous scale of operations, the company is not able to effectively monitor all its activities.

 

The paper then looks at the opportunities available for Wal-Mart. There are tremendous opportunities available for Wal-Mart in the global market through joint ventures and opening new stores in countries where they have not ventured. In spite of its enormous size, Wal-Mart also faces competition in new markets that it ventures in and this poses a threat to its operations. The paper then looks at the environmental challenges that the company faces which threatens to spoil its international image. The paper ends with recommendations as to how the company can improve its efficiencies and thereby gain a competitive edge against other companies.

 

Wal-Mart Stores, Inc. was founded by Sam Walton at Rogers, Arkansas in 1962. The business has experienced tremendous growth ever since achieving an annual turnover of one billion dollars seventeen years later. In January in 2002, Wal-Mart was recognized as the largest retailer in the world with a sales record of US $218 billion. This huge growth has enabled the store to penetrate the global market. The global operation of Wal-Mart was marked by the establishment of its first international store in 1991 at Mexico City. Currently, Wal-Mart has also opened stores in other countries including, Brazil, Canada and Britain.

 

Through its global penetration, an estimated of one hundred million customers are said to visit a Wal-Mart store found somewhere in the world. The stores employs a total of 1.3 million associates worldwide are employed by the company and are located within its 3,200 stores in the United States as well at over a thousand other stores in its operations outside the U.S.

 

Due to its huge scale of operations, the business is divided into three main segments: Wal-Mart Stores, Sam’s Club and International Stores. The Wal-Mart stores are further subdivided into Discount Stores, Super centers and Neighborhood Markets. The Sam’s Club business segment is made up of membership warehouse clubs. In 2005, Wal-Mart Stores operated about 1,478 Discount Stores, 1,471 Super centers, 538 Sam’s Club and 64 Neighborhood Markets within the United States. In addition to this huge local operation, Wal-Mart and its international segment conducts retail operation within eight countries and Puerto Rico. Wal-Mart’s international segment is made into several formats, which include retail stores, restaurants, discount stores, Sam’s Club and Super centers.

 

Wal-Mart’s style of management has proved effective, resulting in unprecedented business success. This paper analyzes the company’s strengths and weaknesses factors as well as the opportunities and threats the company is faced with.

 

Strengths

 

Wal-Mart is a powerful retail brand that represents value and quality. It is offers value for money and convenience by offering a wide range of products. Through its associates the company has developed the one stop shopping policy emulated by other retail stores world wide. This strength enhances Wal- Mart’s ability- to attract new customers and maintain customer loyalty.

Wal-Mart substantial growth has resulted in global expansion. Wal-Mart purchased United Kingdom based retailer ASDA and owns a 37.8% unconsolidated minority interest in Japanese retailer, The Seiyu, Ltd. This enhances its brand name by giving it international recognition.

The company employs an elaborate system of information technology that supports its local as well as global operations. Through this system it is possible to monitor the performance of its stores country-wide, on a real time basis. IT also supports Wal-Mart’s efficient procurement. Wal-Mart also uses the most modern technologies available to handle and manage it local and international logistic operations. By integrating technology into its core operations, Wal-Mart is able to overcome strong competition as well as serve its large market effectively.

Weaknesses.

 

Wal-Mart is considered one of the largest retailers in the world as it not only manages a huge number of product lines but also serves a considerable consumer population both locally and internationally. These results in a huge span of control and despite its IT advantages and tools that can handle and address its internal needs, it is not possible to monitor all of its operations. To this end the company is forced to rely on the goodwill of its store’s managers and staff in ensuring smooth operation.

 

Wal-Mart has diversified its products across many sectors (such as clothing, food, or furniture). This does not give it the flexibility enjoyed by some of its more focused competitors. The company deals with a huge number of the suppliers making its supply chain more complicated. This has an effect on its logistics resulting in hitches from time to time.

Though the company is already operating globally, it has not exploited this opportunity fully as the number of its international branches are only limited to a few selected countries.

 

Opportunities.

 

With its vast resources, Wal-Mart has the opportunity to take over, merge with, or form strategic alliances with other global retailers. The Wal-Mart stores are currently in a relatively small number of countries. There are therefore huge opportunities for future business in expanding consumer markets in emerging economic power houses including developing countries.

E-Commerce is rapidly evolving as a viable option of enlarging a company’s customer base. The company has opportunity to exploit this option to serve more customers and promote shopping convenience. E-Commerce helps to enhance convenience for customers whose residence is too far from local Wal-Mart branches.

 

Threats

Despite its huge scale of operations and customer loyalty, Wal-Mart is also target of competition, locally and globally. This puts intense pressure on the company particularly in terms of maintaining its consumers as well as developing new and better business strategies.

 

Wal-Mart’s entrance into the global market exposes it to political problems in the countries that you operate in. Wal-Mart is a global retailer that needs to adapt to foreign regulations and standards so as to penetrate in the global market. The company is vulnerable to the issues that would affect the country it operates in, particularly political and economic issues.

Competitors in these countries may use their influence in the government to counter Wal-Mart’s penetration. They may also result to malpractices under government protection to fight of competition.

 

The cost of producing many consumer products has fallen because of lower manufacturing costs as result of outsourcing to low-cost regions of the World. This has lead to price competition, resulting in price deflation. Intense price competition is a threat as Wal-Mart may be forced to purchase cheaper substandard goods in order to beat competition. This may lower the stores’ standards leading to a loss of key customers.

 

As a global retail company, Wal-Mart is an open target by several competitors both in the local and international setting. The diversity in conducting manufacturing operations has changed drastically over time. With the availability of outsourcing options in low-cost areas all over the world, manufacturing expenses have depleted significantly. This in turn results to intense price competition among retailers.

 

Apart from this, Wal-Mart is faced with increased agitation from environmental lobby groups as well as labor unions. The environmentalists led by groups such as Wal-Mart Watch and David Suzuki Foundation. It has been argued that with its vast resources and influence, Wal-Mart is not doing enough in conserving the environment. This is eroding part of its client base as the lobby groups call on consumers to boycott its products. Of particular concern are waste management policies employed by the company as well as other conservation policies employed by the company.

 

In response to this huge challenge that is facing Wal-Mart, Lee Scott, the C.E.O, delivered a speech titled Twenty First Century Leadership in which he addressed the issue of environmental management through radical measures which included; entire use of renewable energy, zero waste and the sale of products that sustain resources and the environment. Wal-Mart plans to spend $500 million annually to meet targets such as reducing Wal-Mart’s greenhouse gas production by 20% over the next seven years, doubling the efficiency of its massive trucking fleet within 10 years and assisting in the development of a green supplier program in China, the source of Wal-Mart merchandise This is to be achieved in the next four decades.

 

The implementation of this program starts from the small and most often ignored aspects of the business. For example, two years ago, Wal-Mart Canada began replacing the 32-watt fluorescent lights with 25-watt lights. This involves changing more than 130 million bulbs and is expected to save Wal-Mart about $5 million in reduced energy costs over the next five years. The company’s stores lights are also dimmed by one third by the company’s central computers, leading to further savings. Additional roof insulation has been added in new stores saving energy costs by 25%.

 

Other measures employed include using plastic boxes that can be used 60 times before wearing out replacing short-lived cardboard boxes. These boxes are now in use throughout Wal-Mart Canada’s internal logistics network, saving 1,400 tones of cardboard and driving out $4.5 million in costs. In 2007, the company opened up a small revenue stream with the recycling of 88,000 tones of cardboard saving the equivalent of 1.5 million trees.

 

The company has also introduced the personal sustainability project where each employee is encouraged to make voluntary changes in their lives that will have a positive environmental impact such as cycling to work. The C.E.O. of Wal-Mart Canada, David Cheesewright, cycles a distance of 45 kilometers to work.

 

This program also calls upon employees to make environmental choices outside the workplace and to embrace the concept of environmentalism. This message is also passed on to consumers at the time they’re paying most attention, that is, when they’re actually shopping in the chain’s stores. The company also has environmental teams comprising of departmental heads with supporting staff to help in the implementation of this ambitious program.

 

The company has also used its influence to compel some of the world’s largest manufacturers to comply with its environmental policies. Procter & Gamble, the maker of Tide laundry detergent, phased out regular-concentrate detergent across North America in 2008 in favor of double-concentrate detergent after it was pressured to do so by Wal-Mart. Fearful of losing access to Wal-Mart customers, Procter & Gamble complied with Wal-Mart’s policy

 

With other detergent makers following suit – Wal-Mart is cutting the volume of its detergent packaging in half. This will reduce the usage of plastic resin across North America by 100 million pounds over the next three years. This will also save 425 million gallons of water and ultimately take 15,000 trucks off the road. This will significantly reduce carbon emissions.

 

Recommendations:

One of the strengths of Wal-Mart store is its ability to use IT to gain competitive advantage. However technology is changing rapidly with new developments emerging almost on a daily basis. Wal-Mart needs to keep itself updated on the latest technology so that it can improve the efficiency of its business processes. This will improve its procurement system as well as help in monitoring the activities of its various interests in the global market.

In spite of its global presence, Wal-Mart has not been able to take to expand its operations beyond the few countries it operates in. With its financial clout, Wal-Mart has the ability to expand its operations beyond the few countries it has opened stores. There are many countries whose economies are growing rapidly and although they do not yet have a large consumer base, if this growth is sustained over a period of time, this could be reversed. Wal-Mart should not shy away from these countries because of the political and economic instabilities experienced from time to time. They should not let short term obstacles blind them from seeing the long term gains.

These environmental policies are vital in the fight against global warming. A company like Wal-Mart with vast resources and global presence should be in the forefront in this campaign. With a million of customers visiting its stores, Wal-Mart has a great opportunity to help create awareness in the environmental campaign.

The measures currently in place are commendable but not sufficient. Wal-Mart claims that it aims to achieve its environmental goals in the next four decades. Given its vast resources, I believe, the company can achieve this within a shorter period of time. If more resources were to be dedicated to this course, considering the company’s annual turnover in 2008, these goals can be achieved faster.