Sam Walton incorporated his business as Wal-Mart Stores in 1969 and more than thirty years later it has become a global retailing juggernaut with an unprecedented revenue that will exceed $400 billion in fiscal 2009 (Thompson, Strickland, & Gamble, 2008, p.374). It is the largest retailer in the United States, Canada, and Mexico. It can even be considered as the largest retailer in the world considering that it is expanding outside the United States through acquisitions and partly through new store construction (Thompson, Strickland, & Gamble, 2008, p.380). One way to understand the value and stability of Wal-Mart is through the use of a framework known as The Five Generic Competitive Strategies as well as the more popular SWOT analysis.
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The strength of the company can be best understood by taking a look at its attributes as well as its various strategies:
- dedication to cost-efficient operations;
- everyday low prices;
- multiple store formats;
- wide selection of products
- a customer-friendly store environment;
- customer satisfaction;
- astute merchandising;
- limited advertising;
- disciplined expansion into new geographic markets; and
- the sue of acquisitions to enter foreign country markets (Thompson, Strickland, & Gamble, 2008, p.376).
The competition can copy some of the strategies but they will be hard-pressed to sustain this level of cost-efficient operations while providing a high level of customer satisfaction. One of the more obvious strengths of the company is its relative size. It can negotiate with suppliers so that they can bring down their prices. The suppliers on the other hand are more than willing to comply considering that Wal-Mart has annual revenues that can easily exceed $350 billion. This kind of income allows Wal-Mart to distance itself from the rest of the competition. It also provides enough money to finance expansion as well as cutting-edge technology that can help them improve their operations.
Aside from its dominance in the market Wal-Mart’s another Wal-Mart attribute that made it a leader in the retailing industry is its dedication to lower the prices. According to industry experts, “None of the world’s major retailers could match Walt-Mart’s zeal and competence in ferreting out cost savings and finding new and better ways to operate cost-efficiently” (Thompson, Strickland, & Gamble, 2008, p.376). Wal-Mart’s main strategy in this regard is to work closely with suppliers. Wal-Mart does not simply require suppliers to submit their lowest prices for their products but the giant retailer is expected to scrutinize every aspect of the supplier’s operation.
A company of its size will have difficulty in covering all the bases. In December 2005 Wal-Mart was investigated because it mishandled merchandise classified as hazardous waste. This means that Wal-Mart is efficient in many aspects of the operation but may have overlooked this part of the business operation. In the 21st century it is part of sound business practice to be mindful of the environment. Aside from that there are other problems that Wal-Mart needs to deal with.
It is one thing to sell products at rock-bottom prices it is also another thing to monitor how these products are sold to the public. There are products that should not be sold just like other commodities where one can simply get them from store shelve. This is especially true when it comes to guns. Wal-Mart was forced to stop selling guns at 118 stores across California because they violated state laws with regards to gun sale. This is another example of how a big operation such as Wal-Mart can overlook some aspects of their business operations. They needed to improve their system when it comes to monitoring hazardous wastes as well as the sale of dangerous items such as handguns.
Due to the various problems that the company was facing in the period 2003-2005, Wal-Mart’s corporate leadership decided to change its image and made improvements on their overall strategy. In 2008, Wal-Mart CEO H. Lee Scott recast the company’s mission as one of “Saving People Money So They Can Live Better” (Thompson, Strickland, & Gamble, 2008, p.374). It is no longer enough to simply sell items at rock-bottom prices. It is also important to consider the environmental impact that the company is having on the planet. One initiative was to institute ways that will make Wal-Mart stores more energy efficient and supplied by 100 percent renewable energy.
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The company also tried help consumers save more money by initiating a flat $4 price for the generic version of some 200 common prescription medication. In this way Wal-Mart can attract more customers and lessen the impact of the negative publicity it has created in the media. There is also the new initiative where Wal-Mart authorized regional managers to stock their stores with merchandise that can be made locally. These changes are already paying off. For instance the decision to sell eco-friendly products generated sales increase.
During the 2003-2005 period, Wal-Mart was criticized for its capacity to build superstores that were unsightly and destroyed the small merchant atmosphere in many locales (Thompson, Strickland, & Gamble, 2008 p.371). Aside from that the company also suffered from a negative publicity when the media coined the term “Wal-Mart effect” which means that local businesses who carried merchandise similar to Wal-Mart is expected to fail within a year or two of the company’s arrival in the area. This is the same reason why there is sometimes fierce local resistance to the entry of a new Wal-Mart store from local merchants as well as local residents.
The media and various organizations such as Wal-Mart Watch and Wake Up Wal-Mart tried to expose the company’s bad labour standards as well as its failure to observe corporate social responsibility.
For instance the Service Employees International Union (UFCW) and other unions complained about substandard wages as well as insufficient medical benefits for Wal-Mart’s U.S. employees. Aside from that there are those who complained that Wal-Mart sourced a significant amount of its merchandise from Chinese suppliers and therefore threatening the job security of many Americans as well as hasten the decline of the U.S. manufacturing sector (Thompson, Strickland, & Gamble, 2008, p.371).
Another major threat is the high turnover rate of the company. In 2002-2008 the turnover was as high as 40 percent. For a company that requires 2.1 million employees a 40 percent rate is quite high. It would be difficult to train and retain workers who will personify the Wal-Mart business culture. It would be a challenge to instill corporate values to an ever changing workforce. Wal-Mart prided itself as a customer-friendly place; it would be a challenge to maintain that kind of an atmosphere if the employees are not dedicated to their task, knowing that they are not going to stay for an extended period of time.
Five Generic Competitive Strategies
Overall Low-Cost Leadership Strategy
From the very beginning the company pursued a low-cost leadership strategy. This was achieved in two ways. First, Wal-Mart’s founder, Sam Walton, instilled the discipline of finding new ways to operate cost-efficiently. If the company spends less in its day-to-day business operations then it can afford to reduce prices. Wal-Mart executive and employees are looking for ways to save money and this starts at the suppliers all the way to logistics and distribution related activities.
Wal-Mart expects every supplier to submit their lowest price for consideration. Once chosen the supplier is guaranteed a steady profit from its partnership with Wal-Mart and thus there is incentive to sell at reduced prices to the retail giants. On top of that, Wal-Mart takes an active role in suggesting ways to reduce the suppliers’ expense when it comes to manufacturing and delivery of goods. In other words, Wal-Mart is concerned about how products can be delivered from the factory to Wal-Mart’s distribution centre in a more cost-efficient manner. For instance suppliers are not expected to wine and dine Wal-Mart executives and there is also no need to supply them with basketball tickets or other expensive gifts.
Cost-cutting are not limited to suppliers this is also strictly applied to store construction and maintenance. Their distribution centers as well as their corporate offices adhere to a low-cost theme. The offices of top executives were modest and provide a good example for other employees to follow. The lighting, heating, and air-conditioning controls at Wal-Mart stores were all connected to the Bentonville headquarters therefore there is easy monitoring as well as management of company resources.
Reduced prices were made possible by spending very little money on advertising as well as their IT infrastructure needs. They use in-house talent to develop cutting-edge software. They invested in high-tech communication equipment so they can save on telephone bills while at the same time reduce wastage and errors when it comes to coordinating the complex web of delivering merchandise from suppliers to distribution centers. All of the savings that was made increase their ability to reduce prices of commodities sold in every Wal-Mart store.
Broad Differentiation Strategy
Wal-Mart uses multiple store formats. They have discount stores that can be as small as 30,000 square feet. This means that they can build discount stores in places that are far away from urban centers. These discount stores can easily attract customers because it offers as many as 80,000 different items from family apparel to hardware and grocery items. But for those that require one-stop family shopping the Wal-Mart supercenters can satisfy their shopping needs. It is the fusion of a general merchandise store and a full-line supermarket. Aside from that supercenters contain specialty shops such as vision centers, tire and lube express, portrait studios, hair salons, banking etc.
For those who would like to buy brand-name items in bulk they can go to Sam’s Clubs – a members-only warehouse. The product line-up included fresh, frozen and canned food products; office supplies; janitorial and household cleaning supplies; and an assortment of big ticket items such as tires, appliances, computers etc. (Thompson, Strickland, & Gamble, 2008, p.377). For customers who are only interested in groceries, pharmaceuticals, and general merchandise the newest store format created for them is the Neighborhood Markets. There are more choices available for every type of customer. An individual or group can choose from four different store formats.
Best-Cost Provider Strategy
In order to provide best-cost items for its customers, Wal-Mart executives and their representatives had to travel all over the world to find merchandise that are suitable for the company’s stores. Wal-Mart has to partner with 61,000 U.S. suppliers as well as 5,000 foreign suppliers in 40 countries (Thompson, Strickland, & Gamble, 2008, p.374). This is merely the beginning because procurement personnel will spend a lot of time with suppliers to determine if they are doing everything they can to cut down cost and ensure that they selling the lowest priced items to Wal-Mart customers.
Another way to adhere to a best-cost strategy is to look for suppliers who are dominant in their category. So Wal-Mart can hit two birds with one stone. First, the company can bargain hard with suppliers to get their bottom prices while at the same time get items from reputable suppliers that in turn will create strong brand-name recognition. Furthermore, these types of suppliers can grow with the company and offer full product lines. For example their partnership with Hewlett-Packard allowed the said supplier to generate huge revenues during the holiday season that it was forced to devote 3 out of 10 factories to manufacture products solely for Wal-Mart customers. The customers are treated with a product from a reputable supplier that can be purchased at a lower price.
Focused Low-Cost Strategy
There are Wal-Mart customers who wanted to buy products in bulk. In this manner they can purchase these items at a significantly lower cost. The answer to this requirement is the Sam’s Clubs. In this type of format customers with large families as well as small businesses, churches, religious organizations, beauty salons, barber shops, motels, restaurants, offices, schools, and even individuals in search of low prices can shop here. The prices of items in Sam’s Clubs tend to be 10-15 percent lower than a typical Wal-Mart discount store.
This is not the only way that Wal-Mart can achieve a focused low-cost strategy. The company is constantly revamping its supply-chain management techniques to ensure that it is more cost-efficient than the previous year of operation. Wal-Mart was able to further reduce its price by determining that it will require fewer area residents to support a supercenter and for this reason Wal-Mart can build two supercenters that are four miles apart. Thus, it would cost less to operate and maintain these stores and it would mean reduced prices for the customers.
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Focused Differentiation Strategy
It is important to maintain the reputation that a Wal-Mart supercenter is a one-stop shopping experience. It is therefore a major part of their strategy to provide a wide assortment of products. There is therefore a broad lineup of general merchandise as well as full selection of supermarket items so that the customer will find cheap products in one convenient location. Furthermore, Wal-Mart offers merchandise that has name-brand as well as nationally advertised products.
On the other hand Wal-Mart also has merchandise produced by some 20 private-label brands as well as licensed brands such as General Electric, Disney, McDonalds, and Better Homes and Gardens (Thompson, Strickland, & Gamble, 2008, p.379). The most discriminating and yet price-sensitive customer can be satisfied while shopping in a Wal-Mart store.
One of the most ingenious ways to provide high-quality and yet cheap products is to work with thousands of small suppliers such as mom-and-pop companies, small farmers, and minority businesses. These small suppliers can furnish particular items for a specific store in a certain geographical area. There are many Wal-Mart stores that have a “Store of the Community” section that showcase local products (Thompson, Strickland, & Gamble, 2008, p.382). This means that customers visiting a Wal-Mart store can be assured that they can find all that they need under one roof.
The main strategy is to lower prices while providing customers upscale differentiation At this point it would be difficult to challenge Wal-Mart and in the near future it will remain as the world’s number one retailer. The way that it has established a close working relationship with suppliers is hard to beat. Moreover, Wal-Mart partnered with reputable firms that can easily create brand-name recognition. For instance if Wal-Mart can sell a high-quality laptop produced by a world-class company and offer it at rock-bottom prices the customer will be foolish not to take that deal. The amazing thing about Wal-Mart is that it has the capacity to sell a long range of high-quality items at low prices.
The company was able to anticipate almost every kind of need. It has developed four different kinds of store formats that can cater to individuals, families, small businesses and various social and religious groups. It has also improved its services to cater to the local market. There is no one-size-fits-all mentality at Wal-Mart. Company executives are working hard not only to lower down cost but also to cater to local needs. Interestingly Wal-Mart tried to accomplish two things at once in a particular area. They will establish partnerships with local suppliers and at the same time sell locally made products to area residents.
The commitment to lower prices and to continuously improve their supply-chain management techniques will ensure that Wal-Mart will continue to be the best retailer in the whole world. The company only needs to focus on some key issues. It was a good decision to hire a public relations firm. The company has benefited the U.S. economy by employing millions of workers while at the same time helping individuals and families to save money by selling items at rock-bottom prices. Their various initiatives to become more earth friendly deserve recognition. In this way Wal-Mart will endear itself in the hearts of many.
Still, there is room for improvement. Wal-Mart must be sensitive when it comes to issues related to labor practices. It must also address issues that accuse them of hastening the decline of the U.S. manufacturing industry. Based on the data gathered it can be said that most of the accusations are without basis. The public relations firm that they hired can help them in this regard but they must continue to find ways to improve their service to the community and to the world.