Company Strategy Analysis: Walmart Inc.

Introduction

This case report seeks to analyze and evaluate the operating environment of Walmart Inc. As such, Walmart is the publicly traded company under consideration. Walmart is a publicly traded retail chain store that was founded in 1962 by Sam Walton. The company has since experienced an exponential growth, and, as a result, it has become the largest retail chain store in the United States, and is even expanding into foreign markets (Fishman, 2006). The company trades at the New York Securities Exchange as WMT. Walmart competes in an industry that has a significant number of players and therefore there is a constant stiff competition.

Analysis will start from the vision and mission statements of the company and the description of the ways the company operates to achieve its mission objectives. Next, the internal analysis of the company’s operations including financial performance will be discussed. The report will also highlight the strategies implemented by the management of the company and their efficacy. Finally, the external environment will be discussed with some recommendations for the company to adopt in order to increase its competitive advantage.

The company’s mission vs. its performance

The mission statement of Walmart Stores Inc. is “to help people save money so they can live better.” This is the current mission statement, as the initial statement was achieved by the end of its timeline (Fishman, 2006). The original mission statement, formulated by the founder, Sam Walton, was “to become a $125 billion company by the year 2000.” By the moment when the deadline for the initial statement expired, the company served customers and members more than 200 million times a week at 8000 retail outlets in more than 15 countries (Fishman, 2006). The company boasted of $ 401 billion sales, with an employment rate of 2.1 million associates all over the world. This was clearly a mission accomplished way above its targeted results.

Later, in the year 2008, Walmart realized that there were issues that were more important for the company’s operations, issues that need to be consider while achieving the new mission statement of the company. As such, the company identified three major issues: healthcare, energy efficiency and ethical sourcing. The company therefore sought to achieve three objectives based on the above issues. These objectives included: (a) making qualitative health care more affordable and accessible to its market, (b) reducing energy costs for the company’s customers, and (c) being ethically and environmentally responsible, sourcing around the world.

By and large, the company seems to be currently realizing most of its objectives set out in the mission statement. The mission statement of the company focuses on growth, survival and sustained profitability, striving to be the best in the retail industry (Lichtenstein, 2009). Indeed, Walmart opens new stores, which increases their chances to reach diverse markets. In addition, the company has maintained its lowest price strategy in the industry - a phenomenon that reflects the objective of providing affordable and accessible goods and services to the customers all over the world.

The fact that proves that the company’s strategies have been effectively implemented is its constant increase in revenues. For instance, in 2002, Walmart had revenues increase by 24%, which is from $ 165,013 billion in 2000 to to $ 217,799 in 2002; furthermore, this figure was as high as over $ 400,000 million in 2007. Significantly, Walmart proved to be able to achieve this tremendous success despite the constant low prices that it offered to its customers. Thus, it can be stated that the strength of the company lies in its low price competitive edge. This competitive advantage is in accordance with the company mission objective of providing high quality products to its customers at affordable prices.

Financial Performance in respect to strategy and strategic goals

The major strategies for Walmart for the short-term period, including the period under consideration, were to increase the company’s growth in its worldwide segments, and to increase earnings from the growth. The projected structure growth was aimed at increasing international sales revenue. The company now has the internal strengths that it can apply to achieve the growth projections. During the previous period, Walmart had invested in the Chilean market and sought to penetrate the new market. In addition, the management strategized on the company’s low price model to increase its market share in Chile.

 In 2010, Walmart recorded earnings that exceeded the company management’s expectations. According to the company’s president Mike Duke, the results that the company realized reflected the ongoing underlying strengths of the company and strategies of delivering growth, leveraging expenses and improving returns to shareholders wealth (Walmart, 2010). Through tight control of costs and diligent management of the business, the company managed to leverage operating expenses during the period under consideration.

As for the expenditure strategy, Walmart achieved growth by adding more than 34 million square feet of merchandising space. At the same time, the international business contributed half of the expansion results. The company generated strong cash flow in the period, with $14.1 billion being reported. According to the company’s financial report (2010), this figure was a 21% increase from the previous period (2009) when the company reported $ 11.6 billion. Still on the growth strategy of the company, Walmart increased its international net sales by 19% to stand at $29.6 billion. This increase in international sales included the Chilean segment that was acquired in the previous year.

However, the expenditure program had its drawbacks, as the company overemphasized on the international growth while paying minimal attention to its home services. As indicated in the financial report, Walmart had a decrease in sales in the fourth quarter of 2010 financial year by 0.5%. Otherwise, the overall performance of the company during the said financial period indicates that the company actually achieved the strategies that the management had formulated (Walmart, 2010).

Competitive Market analysis

In order to analyze the competitive market in which Walmart operates, as well as strengths and opportunities of the company, we need to know the SWOT of the company. From the original mission statement of Walmart, which was growth oriented, the retail store has grown to over 3000 stores in more than 14 countries throughout the world. Based on the success of the company, we analyze the internal strengths and opportunities that the company has.

 Strengths

The first strength of the retail store lies in its management. Policies and practices of the company are designed to facilitate an environment that is both equitable and inclusive for its stakeholders. In this regard, Walmart often solicits feedback from their entire employees on annual basis in respect to the employees’ opinions about their work experiences and the company’s implementation of its basic values and beliefs (Lichtenstein, 2009). Additionally, the management offers training opportunities to its staff members on leadership skills, equal employment opportunities and diversity. It has to be noted that Walmart has a number of training techniques for its staff, including classroom courses, distant learning, computer-based learning, mentor programs and corporate intranet sites (Fishman, 2006). All these training tools are increasing opportunities for women and minorities to advance in their career and financial independence.

Another strength of the company is that Walmart is committed to providing excellent services to their customers and the community they serve. The company hires its staff from local labor force, representing the uniqueness and diversity of everyone’s hometown. On the same scale, Walmart takes advantage of its strong financial muscle to attract and retain its staff by giving incentives such as profit sharing and stock ownership. This program is available to long-term and permanent employees, who are given an opportunity to share ownership of the company and therefore motivate them to work effectively towards achieving organizational goals. Walmart also draws its strength from strong community-based initiatives. The company has continuously granted scholarships to college seniors, raised funds for school development projects, and raised money for nearby children’s hospital in partnership with Children’s Miracle Network Tethelon (Walmart, 2010). These initiatives bond the organization with the society in which it operates, hence giving an organization a strong brand name.

In general, it can be stated that the corporate structure of the company is driven by three core values: service for the customers, respect for individuals, and striving for excellence. The management of Walmart is the main source of strength, which is derived from the mentioned priorities. The mentioned values have propelled the company to the top of the industry and hence allowed Walmart to stay the world’s largest retail store.

Another strength of Walmart is its unique marketing strategy. The nature of the company’s marketing lies in its Every Day Low Price (EDLP) campaign. This is the main success formulae of Walmart (Lichtenstein, 2009). This strategy was initially devised by the company founder, Sam Walton, who crafted a system in which price setting had to be followed. To strengthen the pricing strategy so that the company does not find itself in its price trap, Walmart uses the rollback pricing. This strategy allows the company to decrease the already lowered price to make it more appealing to the customer. When consumers shop for their preferred goods and services, they often look for the best deals, and when the company lowers its already low prices, they manage to out-price all their competitors.

The core values that are embraced by management and the entire organization have enabled the company to stay focused on their customers. In the retail industry, Walmart maintains customer satisfaction guarantee program. This program has been lauded as the most successful and effective among the company’s competitors; promoting good will for the company and consequently customer loyalty. As such, a customer could return any product to the stores and have their money refunded, irrespective of whether the product is faulty or not.

Moreover, Walmart derives its internal strength from their marketing strategy in which the company creates a one-stop shopping experience to their customers (Lichtenstein, 2009). The outlet is organized into ten divisions, which are distinct and operate independently. Walmart offers thousands of products through these divisions. These divisions include Walmart stores, Neighborhood market, Sam’s clubs, Walmart.com, International, Tire and Lube Express, Walmart Pharmacy, Optical, Vocations, and Walmart used fixture and auctions. This conglomeration of products allows a typical consumer to go into any Walmart and walk out with complete solutions for their needs.

The last source of Walmart’s strength is its access to strong distribution networks. The company uses a Cross-Docking system of distribution, in which goods are continuously delivered to a central warehouse where they are sorted and redistributed to the stores within one day. This system enables Walmart to take advantage of economies of scale on fully loaded shipping trucks. The system also enables the company to increase its speed of delivery, timely response to market demands and low levels of inventory. Consequently, Walmart is able to pass these cost savings into low prices and therefore stay ahead in competition.

Opportunities

Walmart has an opportunity for expanding into other countries, as well as forming partnership with firms to enter these countries. At the same time, Walmart has an opportunity of taking over other companies in international markets, for instance, the case of ASDA in the United Kingdom. Through inclusion of Walmart.com to the company’s portfolio, it is possible for the company to take orders online and deliver them later. This is motivated by the fact that most of the company’s stores are on town edges and hence, in the periods of increasing fuel costs, consumers are less likely to travel uptown. Lastly, creation of convenience stores is possible for Walmart. This initiative will lead to overcoming local objections and high costs of travelling.

An appropriate strategy that will maximize Walmart’s return to shareholders

Walmart has successfully and continuously implemented the growth and build strategy. In this report, the strategy that Walmart shareholders will benefit most from is market penetration strategy. This strategy is used when a company seeks to increase its market share for the goods and services it offers (Kay, 2005). This strategy is a perfect strategy that can be used by Walmart especially when other competitors are facing financial hardships, for example, K-mart facing bankruptcy charges.

Through increased marketing campaigns, Walmart can attract and retain most of their rivals’ customers, such as K-mart customers. Similarly, since K-mart has closed hundred of its stores, Walmart has a potential of significantly increasing its market share and hence controlling the market. Walmart has strength of economies of scale that it can use to influence the market to its advantage. Looking at the corporate culture of Walmart, the core values are strongly ingrained in its management and other employees. This means that the strategy of market penetration is the most effective and can be easily implemented to achieve rapid results.

Walmart’s Every Day Low Price and Rollback campaigns are easily diffusible into the market in which the company does not have as much market share as it would want. This strategy will also lead to an increase in strength of the company’s culture, as its employees will have more opportunities to get promotions and better remuneration. This strategy does not involve as much costs as other strategies like market development and product development strategies (Fishman, 2006). The only inherent cost associated with this strategy is for the company to increase its marketing campaigns in the target areas.

The results of this strategy can be achieved faster than other comparative strategies. For instance, the length of time that can be used in implementing this strategy can be measured in days. This is due to the fact that Walmart has already established its brand name and most of its potential customers are aware of the operations and advantages of shopping at the retail outlet. The only negative aspect of this strategy is that every other competitor in the target area will also be scrambling for the same increase in market share. Others that have been operation in those areas where Walmart would be seeking fresh operations will be advantaged. Despite this, the advantages of this strategy by far outweigh its limitation; there would be immediate results characterized by increased market share, increased sales volume, and increased brand recognition.

Rewards for employees’ motivation

Given the growth and expansion strategy that the company has been adopting for a long time, the reward system that could best motivate the employees toward achieving organizational goals should be associated with giving them a sense of ownership. Therefore, employees are supposed to have a feeling that they are working towards growing their own interest. This interest can be coined in form of giving employees an opportunity to own the company through shareholding. According to the financial results for the year 2010, there are enough profits that can be directed towards floating shares for the employees at relatively reduced prices. However, this is an immediate strategy that will give employees motivation at the outset. But with time, they will get used to the idea that they are already owners and therefore this program will cease being a motivating factor.

Another rewarding system that could be used is the point reward system. The point incentive system seeks to reward sales employees on every unit of a specific product sold. Employees accumulate points which can be redeemed for non-cash items within the organization or outside the organization (Kay, 2005). For instance, a voucher could be drawn against the total number of points for paying school fees or accessing social joints.

Lastly, in as much as bonuses and points are effective motivating factors, non-monetary recognition programs can serve as a great motivating factor to those employees who do not value monetary rewards as such. This can be done by giving individual employees positive attention for their better performance. For instance, recognition can be give to “employee of the month”. This would boost enthusiasm among employees to be exemplary and be looked up to by other employees. This system is advantageous as it does not involve high costs.

Growth strategy vs. ethical issues

In 2010, the Associated Press reported that Walmart was merchandising necklace that contained high levels of toxic metals such as cadmium. This led to the store ceasing operating its line of bracelets and necklaces. These toxic elements are known for harmful effects on the body such as kidney failure. This was one of ethical concern issues that the company experienced, and it elicited mixed reactions among its customers and competitors.

Business wise, the growth strategy that the company has implemented has wholly relied on its pricing strategy. As we have seen earlier in the report, Walmart sells at the lowest price ever in the industry. This strategy has raised ethical issues in the operating industry. Competitors have, on many occasions, tried to sue Walmart for predatory pricing.  Predatory pricing is the intentional sale of products at extremely low costs in order to drive competitors out of the market. For instance, in 1995, American Drugs inc. sued Walmart for selling their products at such lower prices that they risked exiting the market due to insignificant sales (Kotter & Heskett, 1992). The Supreme Court ruled in favor of Walmart asserting that this was not a case of predatory pricing. In the year 2010, there were also different ethical issues raised in the growth strategy of the company. To be specific, Walmart discounted adult clothing of both smaller and larger sizes in its remodeled smaller stores. This forced adult customers to look for their clothing in children’s section, or alternatively shop with more costly specialty big stores for items like jeans.

Conclusion

In this case analysis, we introduced the case for analysis, which is Walmart Inc. We have been able to delve into internal and external environments and operations of the company. This report has evaluated the performance of the company, both financial and operational. The report has also looked at the strengths and opportunities at the disposal of Walmart that can be used to expand its operations and gain competitive advantage. An analysis of financial operations and performance of the company has been comprehensively covered and deductions for strategy formulations made. Moreover, ethical considerations have been discussed for the company’s low pricing strategy. After the analysis, it can be concluded that Walmart has a potential for growing and expanding into new markets due to its strong corporate culture and financial backing.