Case Study: Wal-Mart Capstone Project

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Wal-Mart Inc.

Wal-Mart is an American-based multinational discount store, currently operating more than 11,000 retail outlets in 27 different countries, and serving approximately 140 million customers weekly. Headquartered in Bentonville, Arkansas, Wal-Mart grew from a small family-managed retailer in 1945 to the world's largest retailer, and was named the world's largest company by revenues in the 2014 Fortune 500 list. The company operates its retail stores in two forms: i) Sam's clubs, which deal in assorted product lines including jewelry, electronics, hardware, to name but a few; and ii) Wal-Mart stores, dealing in similar product lines in addition to groceries, household appliances, apparel and clothing, beauty and heath products, and so on. In fiscal 2014, Wal-Mart reported a massive $473 billion in sales, more than $80 billion more than Costco, its closest competitor. It is widely believed that the company's corporate governance strategy, codes of conduct, values, mission statements and vision statements have contributed to its continued success year after year; and for this reason, the they will form the basis of analysis for this report.

Vision, Mission, and Primary Stakeholders

Ireland, Hoskisson and Hitt (2011) define a corporate vision statement as a blueprint that shows the future aspirations of a company, and its framework for ethical behavior. Wal-Mart currently does not have a formal vision statement; and its aspirations for the future are mainly pegged on its corporate mission, which is to save people "money so they can live better" (Wal-Mart Annual Report, 2014). The company's positioning for the future can be tied to four basic beliefs, which also represent its responsibility towards primary stakeholders -- i) serving and satisfying customers; ii) expanding opportunities for associates; iii) increasing value for shareholders; and iv) earning trust in communities (Wal-Mart Annual Report, 2014). Through its mission statement, the company commits itself to enhancing capital efficiency and consequently, bringing everyday low prices (EDLP) to more customers across the globe. It is this very integrity postulated in the mission statement that drives the company's goal to be a world-class compliance company. The company promotes a culture of integrity and empowers associates to make the right decisions and uphold integrity so that the company's reputation is maintained, shareholder wealth is maximized, and value added to the community throughout the global supply chain is increased. Through its mission statement and focus on integrity, Wal-Mart has been able formulate and develop strategies in line with its corporate beliefs. The goal of becoming a world-class compliance company has provided a sound foundation for management to make ethical and effective decisions, and this has helped the company maintain a strong reputation year after year.

Porter's Competitive Forces

The U.S. retail industry is more of an oligopoly, dominated by a handful of large, established companies, controlling more than 80% of the customer market. In the general merchandise category, Wal-Mart faces stiff competition from Target and Kmart. Costco poses as a fierce competitor in the club segment; whereas Safeway, Albertson's, and Kroger present substantial competition in the area of supermarket retailing. The company's competitive environment can thus be summarized as shown in figure 1 below.

Figure 1: The Five-Force Model of Competition for the Retail Industry

Threat of Substitute Products

Weak: the threat of substitute products is very weak; small grocery stores may be the more noticeable competitors in this regard, but they may not pose any substantial threat given that the big box retailers still enjoy huge economies of scale, and are able to price their commodities at considerably lower prices

Bargaining power of suppliers

Weak: the big box retailers account for substantial fractions of suppliers' sales volumes; and the latter, who would naturally prefer to continue the streak of high volume purchase, are forced to maintain their loyalty to the former. Further the number of suppliers is considerably large, and the costs of switching from one supplier to another are relatively low.

Competition among sellers

Fierce: price wars are commonplace; each seller enjoys scale economies, and attempts to woo more buyers through low prices. Sellers are always out to identify fresh moves to gain competitive advantage and increase its own market share

Bargaining power of buyers

Weak: the buyer base is so large that no individual buyer can make demands for price concessions. Further, most buyers make purchases in small quantities and have very little influence over price.

Threat of New entrants

Weak: the established firms enjoy huge scale economies and are capable of setting prices at levels that would essentially render any start-ups inoperable.

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Moreover, the huge capital requirements pose as a barrier for potential entrants; and this being an oligopoly, industry players would strongly contest, through collusion or other common mechanisms, any attempts by potential entrants to eat into their shares of the market.

(Source: Flannery, 2006, p. 2)

Judging from the five-force model, Wal-Mart can be regarded as a going concern and an attractive prospect for investment. Threats of new entrants, substitute products, buyer losses and supplier disloyalty are all very weak; and if the company carries on with the operational strategy of being a low-cost market leader, there is no doubt that it will continue to present promising opportunities for employees, customers, and investors over the coming years.

SWOT Analysis

Strengths

Its big size and wide scale of operations gives it considerable economies of scale advantages at all stages of the global supply chain

The strong 'save people lives so they can live better' brand image contributes to customer loyalty and builds a strong corporate reputation

It presents unmatched levels of efficiency in the distribution of commodities from manufactures to surrounding stores, owing to the use of integrated technology

Huge cost advantages over competitors; and consequently, highly cost-effective logistics management practices

Strong bargaining power over suppliers due to its enormous sales volumes

Weaknesses

Frequent reports of employee maltreatment; and consequently, high annual employee turnover rates (45% to be precise)

Weak presence in a number of metropolitan locations

Lack of proprietary protection for its distribution strategy. This makes it relatively easy for competitors to copy the same, what Flannery (2006) refers to as 'wal-martificating'

Not an attractive venture for quality-obsessed consumers. The reason Seiyu failed in the Japanese market is because the Japanese culture places a lot of emphasis on quality.

Opportunities

Backward integration to make it better-placed to control costs right from the production phase

Forming joint ventures and alliances with major players in specific markets could enhance its competitive capabilities and boost its market coverage

Acquisition of smaller retailers could essentially reduce the number of competitors and help the company cement its position

Globalizing operations, and saturating the emerging markets of India, China, and Brazil with Wal-Mart Supercenters

Threats

Pressure from labor unions intended to get the company to raise its employee benefit and compensation schemes to reflect its level of operations

Resistance from local communities who feel that Wal-Mart's penetration into their areas of operation would affect their businesses

Frequent lawsuits following claims of discrimination and employee maltreatment

Increasing competition, particularly in the online market

Recommendations

Wal-Mart's low-cost market leadership strategy has been successful thus far, and it is only logical that the company maintains focus over the same in the coming years. To make its success more sustainable, nevertheless, the company will need to capitalize on its strength and opportunities, and at the same time minimize its threats and weaknesses.

The company's adoption of integrated technology in the distribution chain ought to be extended to the rest of its operations. In order to achieve higher levels of capital and operational efficiency, the company needs to integrate cutting edge technology in the areas of demand and need-assessment so that it is able to structure its operations and allocate resources in a way that best addresses the needs of the customer. The historic Saturday morning meetings, once-a-month meetings where employees interact with their managers and leaders, could be made more regular, say weekly or once every fortnight so that the company is in a better position to respond almost immediately to arising employee needs and concerns, as well as to identify with changing labor trends.

There is concern that Wal-Mart has repeatedly failed to appeal to quality-obsessed shoppers. The company should, in my view, not take any corrective action in this regard, particularly because its strategy is that of a low-cost retailer. As the scale of operations expands both geographically and product-wise, the quality-sensitive consumer is deemed to find something that they may suit their lifestyles.

However, this expansion also presents a major challenge -- the company risks weakening strategy coherence and losing operational control as it implements its current growth strategy of expanding geographically and product-wise. Towards this end, it needs to focus on expanding its commodity range to cater for specific demand markets, particularly the emerging markets of India, China, and Brazil, which have done considerably well in previous years. Any markets that have proven unsuccessful should consequently be dropped; and moving forward, the company should conduct intensive market.....

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