The purpose of this assignment is to analyze Wal-Mart and find out their power, weaknesses, threats and opportunities and developing marketing strategies for that. We will identify the company's issues by looking at internal and external factors that influences the corporation.
In the analyzing part we have made an SWOT analysis to identify Wal-Mart's strength, weaknesses, opportunities and threats to get better overview of the company. In general we can say that Wal-Mart's strength is their ability to recognize what their customer needs are by offering low prices on all their products. We have also made Porte's five forces which help us to analyze the outside features and the location of the corporation. In addition, we have given the impression of being on the moral aspects that Wal-Mart is in front of.
STRATEGY FOR How could Wal-Mart avoid shutting down minute town, family owned businesses when they be in motion into an area?
STRATEGY FOR How can Wal-Mart evade losing American suppliers to foreign kingdom suppliers?
History
Wal-Mart Stores (Wal-Mart) was established in 1962 when Sam Walton, who had operated stores in Arkansas and Missouri, decided to open a discount store. The company went public and was traded over the counter in 1970, before being listed on the New York Stock Exchange in 1972.
Wal-Mart diversified into grocery (Wal-Mart Supercenters), worldwide operations, and association warehouse clubs throughout the 1980s. In 1983, the company opened Sam's Wholesale Club, a concept based on the successful cash-and-carry, membership-only warehouse format pioneered by the Price Company of California (now Costco Wholesale Corporation)
In 1992 Wal-Mart started expending to the international market; they entered Mexico in 1992 through a joint venture with Mexico's largest retailer, Cifra, to open Sam's Clubs. The next step was to enter Canada which they did in 1994. Wal-Mart continued to expand internationally, entering China in 1996.
Today Wal-Mart stores are the largest retail chain in the world. Wal-Mart Stores, Inc. is not only the largest retailer in the world, it is now also ranks as the largest corporation in the world. Wal-Mart operates over 6,000 stores in the US and 13 international markets including the UK, Canada, Japan, Mexico, Brazil and China. It also retails products through its online site. The company is headquartered in Bentonville, Arkansas and employs 1,800,000 people [1] .
Wal-Mart is the leading employer of people of color in the United States. More than 125,000 African Americans and more than 74,000 Latinos work at Wal-Mart and Sam's Club store's nationwide. Two Latinos sit on the board of directors along with two women out of 15 board members. Only one woman serves as an executive officer of the company. Full-time employees are eligible for benefits, but the health insurance package is so expensive that less than half opt to buy it. Another benefit for employees is the option to buy company stock at a discount. Wal-Mart matches 15 percent of the first $1800 in stocks purchased. Yet most workers can not afford to buy the stock. In fact, not one in 50 workers have amassed as much as $50,000 through the stock-ownership pension plan. Voting power for these stocks remains with Wal-Mart management.
The company recorded revenues of $315,654 million during the fiscal year ended January 2006, an increase of 9.6% over 2005. The operating profit of the company was $18,530 million during fiscal year 2006, an increase of 8.4% over 2005. The net profit was $11,231 million in fiscal year 2006, an increase of 9.4% over 2005 [2]
Wal-Mart was ranked among the best 100 corporations to work for. Yet the employees on average take home pay of under $250 a week. The salary for full-time employees is $6 to $7.50 an hour for 28-40 hours a week.
Is Wal-Mart ethical
Wal-Mart also came under criticism for its impact on small retail businesses. Independent store owners often went out of business when Wal-Mart came to town, unable to compete with the superstore's economies of scale. Businesses that were suffering most were drug, hardware, five-and-dime, sporting goods, clothing, and fabric stores, while major appliance and furniture businesses picked up, as did restaurants and gasoline stations, because of increased traffic. Carolina Mills, a 75-year-old North Carolina company that supplies thread, yarn, and textile finishing to apparel makers--half of which supply Wal-Mart. Carolina Mills grew steadily until 2000. But in the past three years, as its customers have gone either overseas or out of business, it has shrunk from 17 factories to 7 and from 2,600 employees to 1,200.
Made in the U.S.A?
In January 1993 Wal-Mart's reputation was shaken when a report on NBC-TV's Dateline news program reported on child laborers in Bangladesh producing merchandise for Wal-Mart stores. The program showed children working for five cents an hour in a country that lacked child labor laws. The program further alleged that items made outside the United States were being sold under "Made in USA" signs as part of the company's Buy American campaign instituted in 1985. Buy American" banners are prominently placed throughout its stores; however, the majority of its goods are made outside the U.S. and often in sweatshops. 85 percent of the stores' items are made overseas, often in Third World sweatshops. In fact, only after Wal-Mart's "Buy American" ad campaign was in full swing did the company become the country's largest importer of Chinese goods in any industry. By taking its orders abroad, Wal-Mart has forced many U.S. manufacturers out of business. The chain was broadly criticized for being the primary distributor of many goods attracting controversy, including Kathie Lee Gifford's clothing line, Disney's Haitian-made pajamas, child-produced clothing from Bangladesh and sweatshop-produced toys and sports gear from Asia. Difficult working conditions also exist in the United States: In 1991, labor inspectors found labels for Wal-Mart brands being made in Manhattan's Chinatown. There, 16 and 17 year-old Chinese immigrants without permits had been working for one month without being paid. Critics believe that Wal-Mart opens stores to saturate the marketplace and clear out the competition, then closes the stores and leaves them sitting empty.
Wal-Mart's statement on sweatshop allegations
"Wal-Mart strives to do business only with factories run legally and ethically. We continue to commit extensive resources to making the Wal-Mart system one of the very best. We require suppliers to ensure that every factory conforms to local workplace laws and that there is no illegal child labor or forced labor. Wal-Mart also works with independent monitoring firms to randomly inspect these factories to help ensure compliance. In fact, we conduct more than 200 factory inspections each week to ensure these facilities are being run legally and ethically" [3] .
The other thing they do is put companies out of business. When they can't get the products they want for the price they want as soon as they want, they will switch suppliers. Mostly they move to foreign countries whose wages are far less than in the United States.
Newell Rubbermaid is the largest producer of consumer rubber products in the United States, and Wal-Mart sells by far the largest volume of Rubbermaid products of any retail store. In January 2001, Joseph Galli was appointed the new chief executive officer of Rubbermaid, and he and his staff had an intensive series of meetings with Wal-Mart management on what products Rubbermaid should bring on line, including Wal-Mart's not-so-subtle suggestions about the price of the products. Since January 2001, Rubbermaid has shut down 69 out of its 400 facilities, and fired 11,000 workers. The equity research director at Associated Trust & Co., C. Mark Heaseldon, bluntly stated the reason, "To be able to meet the demands from key customers, like Wal-Mart ... [Rubbermaid has] to become competitive in price." He added that Galli would have to "shift about 50% of production to low-cost countries." This could force the closure of an additional 131 Rubbermaid facilities, and the firing of an additional 20,000 workers. [4]
General Electric is one of the five biggest companies in America and the biggest producer of appliances, such as dishwashers, refrigerators, stoves, and TVs. The biggest outlet for GE goods is Wal-Mart. During the last few years, GE has conducted a large amount of outsourcing. The IUE union, which represents GE workers, has estimated that during the last five to seven years, GE has fired more than 100,000 workers, one of the nation's biggest outsourcing massacres. Most of this work was outsourced to Mexico, China, and Asia in general. [5]
At Masterlock, 250 union workers lost their jobs in 2000 when Wal-Mart suddenly dropped the company's products and switched to an offshore, low-wage competitor. [6]
Levi Strauss is one of the biggest manufacturers of jeans and denim products, including the line of Docker slacks. Wal-Mart is the biggest retailer of Levi Strauss products. During the past 18 months, after meetings with Wal-Mart, Levi Strauss announced it will shut down its four remaining production plants in North America and shift the work to Ibero-America and Asia. Several hundred jobs will be lost. [7]
Dial Soap sells 28.3% of its production to Wal-Mart. Under Wal-Mart pressure, Dial is shutting down its Compton, California plant and shifting work to Argentina. [8]
One of Wal-Mart's major advancements, which helps them stay ahead and improve, is their insistence that any supplier of theirs use the Wal-Mart RFID (radio frequency identification), so that they can replenish its stock straight from wholesalers as fast as possible
Wal-Mart has benefited in using Radio Frequency Identification (RFID); it estimated that it would save the retailers about $69 billion worldwide. This new technology also helps to make sure that the products are in stores for when the advertising begins and the promotional displays are delivered and put up.
Now stores are 63 percent more effective in restocking tagged items and a 10 percent decrease in manual orders, which ultimately reduced excess inventory. They also reduced out of stocks up to 16 percent.
Only half of Wal-Mart's suppliers have adapted this technology; which is about 300 suppliers; the second half begin test shipping cases in October. This will bring a total of 600 supplier companies using RFID. But the process isn't that simple, there are a couple of major complications that Wal-Mart has to face; one of which is getting their suppliers to comply to this new technology, the other problem is that the largest 100 suppliers are failing to find any ROI on their investment, and some are convinced that there is no return on investment. [9]
Kara Romanow, AMR research director and author of the report states that "the top 100 suppliers are going along because Wal-Mart is their biggest customer. It's not optional for them."
So Wal-Mart attempts to force its suppliers are somewhat working because they are going ahead with the rather expensive technology even though they are not seeing any ROI, they are hoping that its cost would drop enough in the future to make its implementation worthwhile.
Just to give you an example of the expenses of the RFID; so far the top suppliers have spent between $1 and $3 million on tags, readers, and minimal software. And it is estimated that they would have to spend from $13 to $23 million on the technology before it's fully effective.
SWOT analysis
Strengths
Strong market position
World-class supply chain
Strong portfolio of private label products
Wal-Mart has a strong market position in the US. The company is the leading chain in the US, and second largest retailer in terms of revenue. The company's revenue derives mostly from the US. Revenues from the US are largely instrumental in making Wal-Mart on of the leading corporations in the world. This strong position in the US market provides economic of scale for Wal-Mart. According to the case Wal-Mart has the highest revenue compared with its competitor, including Costco, Sears, Kmart, Target and J.C Penny. Wal-Mart operates in 1,203 discount stores in 50 US states, 2,003 Wal-Mart supercenters in 47 states, 101 neighborhood markets in about 15 US states and 567 Sam's Club in 48 states. [10] Globally, Wal-Mart operates an Argentina, Brazil, Canada, China, Japan, Mexico, Puerto Rico and the UK. [11]
The company has a core competence involving its use of information technology to support their supply chain. Wal-mart has built a world-class supply to support their stores worldwide. Wal-Mart manages its supply chain through extensive use of the information system approximately 75,000 employees, who help managing the supply chain. The company's data center, for instance, store keeping units (SKUs) and their large consumer database collected over the years, help the logistic team plan merchandise requirements well in the advance. Wal-Mart also uses RFID tagging to further increase the efficiency of its supply chain. The company's world-class supply chain besides keeping stores well stocked provides a cost advantage over rivals, which helps Wal-Mart sustain its every day low price strategy. Using this strategy Wal-Mart provides more perceived customer benefits and creates competitive advantage.
Other strengths that Wal-Mart has are their strong portfolio of private label products. The company's private label products include apparel, food, home furnishing, electronics, personal care products and medical equipment. [12] Wal-Mart's broad range of private label products provides better margins than national brands and relieves pressure on margins. It also improves customer loyalty as private label products are available only in company's stores.
A focused strategy is in place for human resources management and development. People are key to Wal-Mart's business and it invests time and money in training people, and retaining a developing them.
Weaknesses
Low comparable store sales growth
Weak international operations
The company has weak international operations. Despite having a strong brand image, Wal-Mart does not figure in the top 100 global brands ranking of Business Week Interbrand because a company need to derive one-third of its revenues outside of its country of origin to be considered for the ranking. [13] Wal-Mart is heavily depending on the US market. This weak international operation deprives the company of an opportunity of benefiting from fast-growing countries and put it a competitive disadvantage against rivals with a better geographic reach. Still, international expansion can be tricky. In 2006, Wal-Mart shut down its operations in South Korea and Germany after trying hard to lure customers in both countries for almost eight years. It sold its money-losing operations in those countries for a pretax loss of more than $1 billion. [14]
Store sales growth of Wal-Mart at 1.6 percent in 2006 is low relative to competitors as Target which recorded store sales growth 4.1 percent, and at Costco Wholesale Corp., which competes with Wal-Mart's Sam's Clubs division, same-store results were up 9 percent. [15] Low growth in store sales growth suggests that the growth of the company in recent years has been driven more by new stores rather than higher sales at existing store. Low store sales growth indicates scope for improving performance of existing stores.
Opportunities
Increasing demand for organic products
Rising US healthcare spending
Wal-Mar announced plans for focusing on the organic segments. The retail chain tend to intends to becoming the low-price leader in organics, not just in food but also an clothing and other household products. The company has launched a line of organic cotton baby clothes under a private label brand. [16] Wal-Mart is well positioned to benefit from growing demand for organic products since the organic food products segment is one of the fastest growing categories in food retailing.
Over the coming decade, spending on health care will continue to outpace the overall economy. According to the Business Week this segment is expending and by 2016 it is expected to reach $4 trillion. [17] The company could leverage the rising health care spending in the US and boost revenues of its pharmacies and health care.
Other opportunities are that the company can take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe and Asia. New location and store types offer Wal-Mart opportunities to exploit market development. They diversified from large super centers, to local and mall-based sites.
Threats
Opposition from local communities
Lawsuits and social issues
Competition
Wal-Marts plans to open new retail stores in US may run into opposition from local communities. Small retailers fear that the low price offered by Wal-Mart may force them out or of business. Due to the government some of Wal-Mart's application for opening new stores has been rejected, and this can hold Wal-Mart back from explanation plans in the US.
The company has also been target for critics who attacked its record an social issues. Wal-Mart has been blamed for pushing production from US to low wage overseas producers and sued by their employees. These low suits are likely to affect the brand image of Wal-Mart. Furthermore, negative publicity makes it difficult for the company to attract and retain talent.
Wal-mart is facing stiff completion from large number of companies in the retail market worldwide, including Target, K-mart, Sears, Costco, Safeway, and J.C Penny.
Porter's five forces
Suppliers
Wal-Mart has more then 600 suppliers but the main once are USA Bouquet, D&P Creative Strategies, Wallpocketts, Procter & Gamble, MGA Entertainment. [18] Wal-Mart controls their suppliers because its their biggest costumer, an example of that is how they forced them to adapt the new technology, RFID.
New Entrants
It would be extremely difficult to enter into this market because of the oligopoly that they created. This would be true because it would be costly to enter and exit the market.
Buyers
Wal-Mart has a wide range of customers, but they most target the lower middle class citizens because those are the customers that are seeking the best quality for the lowest price.
Substitutes
Wall-Mart has a wide variety of products. For examples if you need substitutes for groceries you would probably go to Safeway, Albertsons etc. Substitutes for electronics department would be Best Buy, Circuit City, and Frys. As for clothing it would be Target, Costco, JC Penny.
Strategies
Problem 1 - How could Wal-Mart avoid shutting down small town, family owned businesses when they move into an area?
Strategy A
Instead of opening Wal-Mart Superstores in small rural towns and shutting down small businesses, they could open their stores outside of the towns.
Strategy B
Another way to look at this problem is to open the store in larger cities that can carry the weight of the business without disturbing the economy.
Problem 2 - How can Wal-Mart avoid losing American suppliers to foreign country suppliers?
Strategy A
By paying their suppliers more Wal-Mart could avoid supporting cheap labor in third world countries.
Strategy B
Wal-Mart could start producing their own products and therefore avoid any complications with their suppliers.
Conclusion
In conclusion, for the first problem we feel that Strategy A should be implemented because they would avoid all the criticism, as well as avoiding hurting all the small businesses because they would be away from them, and wouldn't affect employment within the town.
As for the second problem, strategy A would be the ideal solution because it keeps the suppliers happy and in America therefore everybody can benefit and it would decrease the child labor and sweatshops in third world countries.
