Wal-Mart SWOT Analysis

Strengths
1. Being the largest retailer in the world, with unmatched scale of operations and strong
market power over suppliers and competitors. Wal-Mart is the worlds largest company by
revenue and the largest retailer in the world. It is also the worlds largest private employer, with
more than 2.2 million staff. The company is a retail market leader in the U.S. and is a major
competitor in all geographic markets in which it operates.

Source: The respective companies financial reports

(Carrefour and Tesco revenues are rounded up

due to revenue translation. Data for Carrefour is from 2013)
[1][3][4][5]

Wal-Marts revenue reached US$485 billion in 2015, more than the Carrefour, Costco, Tesco and
Amazon.com (US$89 billion) revenues combined. The company employed twice as many people and
owned about 5 times more retail space than its top 3 rivals.
Forbes listed Wal-Mart as the 20th most valuable brand in the world in 2015[6], worth US$24.7 billion. No
other direct competitor, except Amazon, has made it to the Forbes list of the most valuable brands.
What does being the largest retailer in the world mean to Wal-Mart?

Economies of scale. The company can share its fixed costs over many products, which makes Wal-Mart
one of the cheapest places to shop.

Efficient and effective use of resources. Wal-Mart can use its resources, such as distribution facilities,
information systems, knowledge and other capabilities and skills, more efficiently and effectively over a
large number of locations.

Huge gains from implementing best practices. The company can identify better ways of performing
tasks, managing stores and hiring new employees and can achieve huge gains by implementing these best
practices in its vast network of stores.

Experimenting with less risk. The company can engage in many experiments within its stores or in new
store formats without the risk of losing a substantial amount of profits or revenue.

Market power over suppliers and competitors. Due to its size, Wal-Mart can exercise its market power
over suppliers by requiring lower prices from them. The company can also affect the competition by selling
selected items at a loss, thus driving competition out of the market.

Wal-Mart, the largest private employer in the U.S., has recently declared that it would
increase the wages for a half-million of its employees.

Companies like Gap, Ikea and McDonalds, in order to reduce turnover and attract more
workers, have also moved to set hourly wages at or above $9. In comparison, Wal-Marts
biggest competitors like Costco and Target, even after Wal-Marts salary increase, offer far
better wages to their employees. Aside from competitive pressure to hire and retain low-wage
workers, political pressure for higher wages increases steadily.

For the retail giant, which for years has been the target of widespread criticism over its low
pay structure and increasing reliance on part-time workers, the threat of employee turnover
has already materialized, and Wal-Mart is now facing one of the highest staff turnover levels
of any U.S. firms.

Will Wal-Marts decision to raise salaries, which will cost them $1 billion per year
threaten the companys leading position in retail? Or, are the strengths of the company
solid enough to survive this bold decision to raise employees salary?

The major opportunities

The employment problem is not the biggest threat that the company is going to face in the
near future.

This close connection between the different features is a result of the current stage of the
companys development process and the consequences of it.

Wal-Mart has a universally recognized brand, and moreover, is the worlds second largest
company by revenue and the largest retailer in the world. These attributes obviously will
determine the further direction of the companys expansion, which today has a total of
3,859 international locations. The company operates in all states and territories of the
United States, and additionally in 15 foreign countries.

Unfortunately, the market where Wal-Mart mainly operates is quite saturated and, in
some areas, is still experiencing the effects of a painful recession. Due to these facts,
the company, in order to maintain a level of stable growth needs to use its biggest
opportunity and expand in not yet exploited consumer markets such as Latin America and
Asia (especially India and China).

This opportunity can be effectively supported by two factors. The first and the primary
one is companys investment capabilities. During fiscal year 2014, the company
generated total revenues of $ 476 billion, which was primarily comprised of net sales
of $473 billion.

The second one is Wal-Marts strategy which is based on a model that consists of selling
a range of low- and higher-end goods at a very low markup. The low markup means that
in order to be successful, the company needs a high sales volume and needs to keep costs
at a very low level.

For years, the large scale of the company allowed it to receive huge discounts from its
suppliers. At the same time, the company has built strong a cost reducing strategy based
on a technologically advanced information system that supports its logistics. This system
collects real-time information about customers orders, tracks inventory and shares
detailed information about the companys condition for better decision-making and
more efficient supply chain management.

These two major factors allow the company to keep sales prices lower than competitors,
which combined with the widest selection of products among retailers, create a strong
relationship with the customers who benefit from having a better chance to find
everything they need for a reasonable price in a single place. Undeniably, such an
approach could win over clients from Asia and Latin America.

Growing problems

When we look at the list of obstacles that might threaten the companys further expansion
we can see that the first and one of the major weaknesses is poorly prepared
investment decisions. The company has already retreated from markets in South Korea
and Germany. After eight years of trying, Wal-Mart couldn't save its 85 German stores,
which consistently lost money.

There were a couple of reasons for such a result. The first was the lack of analysis of the
local markets and the specifics of local customers expectations. Moreover, poor
management practices (participation of employees in morning motivational exercises and
a controversial ethical code) just didnt fit in the local cultural context. These kinds of
bitter lessons show that in the future the company should carefully prepare to meet the
local customer and employee expectations.

Additionally, Wal-Mart is involved in multiple lawsuits involving questionable business

practices, unpaid wages and arguments with community activists trying to keep its stores
out of their neighborhoods. These issues can eventually lead to bad press which,

combined with the growing strength of competitors, may result in a decreasing number of
the retailers loyal customers.

Unsurprisingly, the competition does not sleep. Retailers in the U.S. such as Costco or
Target have already taken actions to attract more customers and potential employees with
a better offer and a positive company image (e.g. significantly higher employees salary).

Increasing employee turnover is another issue for the company to address. The cost
of the process is high it involves both the cost of training new employees and the cost
of their lower efficiency during their first months of employment. Additionally, it might
prevent the further expansion of the American retailer or even become a threat to its
current position.

Using the power of strengths

But Wal-Mart still has an enormous number of strengths. Beside the possibility of
expanding abroad, the company has another field that looks promising online retail
market. Nowadays, in America, only less than 1% of food and beverage sales
currently occur online. But gradually consumers have begun to realize that shopping for
food online is not only more time-efficient and cost-effective, but is also more organized
compared to the in-store experience and can be done with less physical effort.

This trend can only be strengthened by rapidly advancing mobile technology

accessibility. It is also a chance for Wal-Mart. The company, in order to take advantage of
emerging new means of distribution, needs to carefully utilize its retail intelligence to
lock in their target audience with better marketing efforts and user-friendly services.

But doing online business comes with challenges. One of them is being able to deliver
orders fast while maintaining the quality and freshness of food. Many smaller businesses
struggle with this issue and Wal-Mart, using their extensive experience in technology and
optimization of logistics can outpace them easily.

On the other hand, in order to truly conquer the online retail market, Wal-Mart
needs to face growing competition from internet-based retail stores or marketplace
companies such as Amazon or eBay. Lucky for them, from the very beginning, this
American firm has a big advantage: a vast physical presence across the entire country.
For example, their stores can be utilized as in-store pickup places. This feature is
particularly useful when customers purchase the item online and prefer to travel to the
store to get it, avoiding a long time spend in the aisles.

Summary - a big one can do more

Despite the previously mentioned threats, a well recognized brand and investment
capabilities can open many doors for Wal-Mart. The company has the ability to easily
make partnerships with large companies providing various services e.g. healthcare
insurance, travel agencies, coffeehouses. Its investment potential gives them the ability
to arrange takeovers of smaller competitors and mergers with various retailers
which can strengthen its domination on the market.

In Wal-Marts case, their biggest challenge is to wisely make strategic decisions and draw
conclusions from their previous mistakes. Last year, Doug McMillon, President and CEO
of Wal-Mart, at the companys Annual Shareholders Meeting named three core principles
and goals for the company:

First, we will be a customer-driven company. We've always said the customer is our boss
and we'll make decisions based on how we can serve them better, he said.

Second, we will invest in our people. As we change and grow, it will be our associates
who will make the difference. Finally, we need to be at the forefront of innovation and
technology. We will lead with urgency to get ahead of change.

These concepts, if implemented, might not only bring a bright future for the
company, but also cause a positive change for their loyal customers and thousands
of employees. We are looking forward to observing the transformation of these words
into reality.

Diversification StrategyWal-Mart
Wal-Mart is one of the most diversified companies in the world. There are different subsidiaries
of Wal-Mart that sell different merchandize. Examples are the Neighborhood Wal-Mart that
focuses on groceries, Wal-Mart.com as the e-commerce appendage of the company, Wal-Mart
supercenters that sell mostly general merchandize, Sams club being a wholesale leader. There is
also the Wal-Mart Internation that spans from Argentina to Zambia. There are over 6000
international units. There is also the Wal-Mart Logistics, Wal-Mart Realty and the Wal-Mart
Portrait Studio.
Services that Wal-Mart offers in a particular location are also very diverse. This may include tire
and lube, optical service, groceries, general merchandize, furniture, jewelry, and pharmacy
services. Some locations sell gasoline as well. This diversification is one of the reasons the
company is staying on top of the fortune 500 list. It makes Wal-Mart the one-stop shop where

people will find what they are looking for at prices they can afford. For most shoppers, shopping
at Wal-Mart is very convenient. Corporate diversification is the reason.
Wal-Marts diversification strategy of the 1980s is a classic case of
tapping and recognizing new market segments.

Another important challenge in 1980s was that they test drove through developing different
market segments. Sams club was the most successful case of all at the decade by adopting
wholesaling concept. The first Sams Club launched in April 1983 at Oklahoma City. It was
significantly bigger larger than Wal-Mart, yet inventory was confined to an average of 3,500
items verse the 70,000 items carried in a typical Wal-Mart. Sams was originally established to
obtain a market in urban area. It was exceptionally successful, especially it was located with
Wal-Mart at the same place. At the end of the decade the store reached 123 in 23 states, while
attaining superior position over rivals, and allowed to Wal-Mart to operate in the major
metropolitan area. Although Wal-Mart continued growing, they were not always successful.
Hyper mart USA in which had borrowed the French concept of one stop shopping was launched
in 1987. The merchandise mix of 35% food and 65% of nonfood items was placed in a huge
220,000 square foot building with 35 different departments. Although it achieved a great
success in sales, because of high operation cost and difficulty of finding adequate land for
parking, which caused overall customer dissatisfaction, this project ceased in 1990. The
company, on the other side, opened its first Wal-Mart Supercenter in 1988 at Washington,
Missouri. It was essentially a complete Wal-Mart discount store with a supermarket added to it.
While the grocery area carried a narrower assortment of goods than a conventional supermarket,
yet better than the hypermart.
Wal-Marts diversification into new retail formats during the 1980s did more than enhance the
firms growth in the fundamental areas of retail square footage and net sales volume.
Diversification also gave the company the opportunity to take risks and experiment in additional
ways; by entering the retail good business, by expanding into large urban markets, and by
enlarging its geographic territory (Sandra S. Vance, Roy V, Scott, p113-p135)

CONCLUSION:

Wal-Mart has several competitive strengths that must be turned into sustainable competitive
advantages and weaknesses and threats that must be addressed to maintain its strong foothold in
the retail industry. A major threat is the discrimination lawsuit the company is facing. Wal-Mart
should conduct its own internal investigation of the claim and immediately rectify any
wrongdoings it will find. Pressures from labor unions should also be addressed by properly
compensating its employees. Although Wal-Mart has been persistent in its pursuit of driving cost
down, it should not sacrifice its human resources. Offering competitive salary down to its lowest
skilled workers would create more employee loyalty and increase employee productivity and
morale, thereby reducing turnover rates. Since Wal-Mart has been successful in executing its
low-cost strategy, careful guarding must be implemented as other retailers attempt to imitate
Wal-Marts supply chain streamlining. In conjunction with this, Wal-Marts first mover
technology advantages should be applied in other areas of its value chain. One avenue is using
technology in the continuous training, performance evaluation, and tying rewards and incentives
to above average performance of associates. Doing so would make this Herculean task more
doable as information systems can be automated and are more objective in labor monitoring.
Wal-Mart should project a more community friendly, environmentally concerned, and
outstanding employer image. A portion of profits should be returned to the community by
sponsoring charity events, scholarships, community clean-up, and the like to remedy the fierce
resistance of local residents and replace it with a welcoming attitude. This should allow WalMart to gain easy entry in other smaller towns and even in major metropolitan areas. On a global
scale, Wal-Mart should use strategic alliances, joint ventures, and/or acquisitions of foreign
companies as the primary vehicle for entering foreign markets. Under Wal-Marts multi-country
strategy, it should transfer its competencies and capabilities country to country and then
gradually build profit sanctuaries in several countries as it continues its global expansion.
Sam Walton is an exceptional entrepreneur and his business principles have proven their potency
and effectiveness in Wal-Marts decades of operations. Thus, management should consistently
and conscientiously stick with his guiding principles in strategy execution.