walmart.docx

7/28/2019 Walmart.docx

1/22

Group 14 Wal-mart

About Wal-Mart

Wal-Mart Stores, Inc., branded as Wal-Mart, is an American multinational

retail corporation that runs chains of large discount department stores and

warehouse stores.

The company is the world's third largest public corporation, according to

the Fortune Global 500 list in 2012, the biggest private employer in the world

with over two million employees, and is the largest retailer in the world.

The company was founded by Sam Walton in 1962 but was incorporated on

October 31, 1969. Wal-Mart remains a family-owned business, as the company

is controlled by the Walton family, who own a 48 percent stake in Wal-Mart.

Present in-in retail stores, online, mobile devices. Customer Base per week- more than 200 million customers Stores- 10,700 Banners- 69 Countries- 27 E-commerce websites -10 countries Fiscal year 2013 sales- $466 billion (approximately) Associates worldwide -2.2 million


2/22

Group 14 Wal-mart

Mission

"We save people money so they can live better."

Company Purpose

If we work together, well lower the cost of living for everyone. Well give

the world an opportunity to see what its like to save and have a better

life.

INDUSTRY ANALYSIS

BUSINESS STRATEGY

Business Strategies are mainly of three types, the Focus Strategy, the

Differentiation strategy, and Overall Cost Leadership. When a Company focuses

on offering products and services to particular buyer group, a particular market

segment, or a specific geographic market, the company is following The Focus

Strategy. When a company offers a unique product or service in the marketplace,

the company is following The Differentiation Strategy. Wal-Mart, follows

Overall Cost Leadership Strategy, where they offer great quality products and

services to their customers at a price lower than that of its competitors. An

Overall Cost Leadership concentrates on reducing the cost by concentrating on

Companys supply chain. And thus

they offer the same or better quality

products and services to their

customers at lower prices and at the

time they need it.

PORTERs FIVE FORCES-


3/22

Group 14 Wal-mart

This section talks about how Wal-Mart has created entry barriers and high

switching cost and how it has reduced the buyer and supplier power.

Porters five forces is basically a business strategy tool, that helps in accessing

the companys power and access the current strength, and when you know where

the power lies you can take advantage of it and work on the Companys

weakness. Wal-Mart follows this business tool in planning its strategies. The

Porters five forces are the buyer power, the supplier power, threat of substitute

products and services, threat of new entrants, and rivalry among existing

competitors.

Force 1: The Buyer Power

Before the entry of Wal-Mart, the buyer power was high and they could switch

from one supplier to another (low switching cost), as their existed an

unorganized discount Retail Industry. But after the entry of the retail giant Wal-

Mart, switching cost was high. Buyer power is mainly affected by who your

customers are, how much revenue they generate and how big they are. Wal-Mart

being a well established Company and its store located in major places of the

world, individual buyer power does not hold much bargaining power over Wal-

Mart. Even if customers buy from somewhere else, they lose the convenience

and low price of Wal-Mart stores.

- No backward integration- Fragmented market

Force 2: Supplier Power

In terms of market share, Wal-Mart enjoys a significant part of the market; it

offers large business to the suppliers and manufacturers. Wal-Marts business is

wide and this gives it an upper hand over its suppliers. As there are large


4/22

Group 14 Wal-mart

numbers of choices in products and suppliers available that can replace others

and in the grand market Wal-Mart ensures that they have diverse suppliers, who

maintain high standards and great quality products and services. It also has an

opportunity to integrate vertically. And the supplier power has decreased as most

of the supplies come from P&G.

Force 3: Threat Of substitues

Substitute Products

Earlier, before Wal-Mart there were no substitutes and hence the market was

attractive. And now, in the current market, there are not many substitutes who

offer quality, convenience and low price at the same time. Wal-Mart follows the

pattern of providing ease to the customer by offering them everything under one

roof, which saves their time, energy and money of going from one specialty

store to another. Threat of substitutes to Wal-Mart is just 3%, as Wal-Mart

focuses on ensuring that their customers are happy and satisfied by providing

low cost and great quality and thus they ensure that they remain ahead of

competitors in doing so, it would make it difficult for competitors to match their

prices. In order to further reduce this threat, they would have to look fo5r

cheaper and better alternatives to tap the resources.

Force 4: Threats of New Entry

As Wal-Mart follows the startegy of Cost Leadership, it has become very tough

for the competitors to make a profit at such low prices that Wal-Mart offers.

New Entry becomes difficult if the industry is competitive. For instnace, if all

the competitors are offering the same product or service, there will always be a

price war between them.As once the customer realize they are not getting the

value for money, switching becomes easy.And thus to prevent this and to create


5/22

Group 14 Wal-mart

an entry barrier , they would have to work more on the customers need, what

they are actually purchasing and ensure they get their value for money.

Force 5: Rivalry/Competition

Rivalry is how competitive an industry is. For instance, if there are lots of

companies selling essentially the same products there will always end up being a

price war which will severely hurt the company' profits. Wal-Mart has such low

prices which have created a problem for years and fierce competition has made it

tough for competitors to make a profit.

SUPPLIER POWER

(Highly dependent on Industry)

NEW ENTRANTS

(Easy to Enter but tough tosurvive)

SUBSTITUTES

(Departmental/General Stores)

BUYER POWER/CUSTOMERPOWER

(Less Bargaining power and lowswitching cost)

COMPETITION

(Wal-Mart,

Carrefour, Tesco)


6/22

Group 14 Wal-mart

PESTEL ANALYSIS

Political factors:

Political restrictions by many countries are an important concern for the

organization going global.

Like the expansion plan of the organization is hampered by heavy customs &

regulations imposed by European countries.

Economic factors:

The sourcing & pricing policies of any organizations are greatly influenced by

the exchange rates policies globally. Also Inequalities in incomes & thedifference in spending of consumers of any nation has an influence over the

growth of the. For example India and China: are the two largest markets for any

organization.

Social factors:

Social & cultural factors greatly influence the consumers buying behaviour

which in turn has an impact on the growth of the organization.


7/22

Group 14 Wal-mart

For example push kind of marketing & aggressive selling are not so evident in

the developing nations.

Also the bulk buying habit existent in the US is not so prominent in the Asian

countries. Many a times language & cultural verities are barriers to the

globalization of any organization.

Technological factors:

Retail chain still lacks basic infrastructure for effective ware housing and

distribution networks.

Like in case of Wal-Mart development of technology n satellite has given it aboost in sales. Hence Wal-Mart is considered as the leader as far as technology

considered.

Environmental factors:

An important threat to any organization is of customer theft. Another

environmental threat is of the employee theft. Wal-Mart is famous for its

customer oriented attitude and has the best customer satisfaction policies that

enable the organization gain customer goodwill n loyalty.


8/22

Group 14 Wal-mart

INTERNAL ANALYSIS

Tangible resources

Financial Resources - As Wal-Mart is established and is stable financially, thecapacity if borrowing increases, hence it can easily raise funds for new

innovation or project

Organizational Resources-Wal-Mart employs big executives as top classassociates. The basic structure it follows is on regional basis. They are then

further divided into departmental stores wherein they handle their own

employees.

Physical Resources - Wal-Mart structures are generally found on its roots, i.e.the rural areas. Their products are shipped, supplied & delivered to them by their

suppliers in their own sophisticated supply chain vehicles.

Technological Resources - Wal-Mart has its own logistics for shipping ofproducts, they also own their private satellite network for point-of-sales

transmission in all their stores.

Intangible resources


9/22

Group 14 Wal-mart

Human ResourcesWal-Mart follows very stringent laws for employee &

some lawsuits are against Wal-Mart for employee discrimination on gender

basis.

Innovation ResourcesWal-Mart is very innovative in terms of their location

selection, pricing strategies or may be economical planning and merchandising.

Reputational ResourcesAs Wal-Mart maintains a "for-the-consumer

attitude its reputation with customers is very good. It establishes its own

product, which are very popular among masses. Also their products are of good

quality & reliable as they engage in business only with the best players in themarket.

BUSINESS MODEL

A business model describes the rationale of how an organization delivers,

captured and creates value. Analysing Wal-Marts Business Model with help of

Ostrwalder and Pigneurs Nine Building Blocks


10/22

Group 14 Wal-mart

Value Proposition

Wal-Marts value proposition includes offering Everyday Low Price (EDLP).

This is the core of Wal-Marts Business Model and the rest features are aligned

to feed this strategy.

This proposition implies that customers do not have to wait for sales and can

have the best deals always. Wal-Mart provides wide range of products and

services to choose from, for selling convenience. Its one-stop-shopping, from

groceries to pharmacy, lets customers save time and money.

Distribution Channel

To deliver its value proposition Wal-Mart communicates with and reaches its

customer segments with its distribution channels which are owned and direct,

and brings higher margin. Wal-Mart also is corresponding with its customers

mainly through mass media and other ways which have a low cost, such as

internet.

Customer relationships and Customer Segment

Wal-Marts customer relationship is based on self-service and automation and

towards co-creation of some products. Wal-Mart tends to reach mass market by

following mass customization practice. Wal-Mart divides its customers into

three groups: brand aspirations, price-sensitive effluentsand value-price

shoppers. Brand aspirants are people who have low incomes but are obsessed

with brands. Price-sensitive effluents are wealthy shoppers who love various

deals offered and value-price shoppers are the ones who like low prices and

cannot afford much more than that.


11/22

Group 14 Wal-mart

Key Activities

The key activities which are needed to run Wal-Marts business model are:

Purchasing goods Delivery of goods Total cost controlOther activities include creation of products that will cover needs of a specific

customer segment and to control the brand, which has been developing lately.

Wal-Mart has a technological edge in its inventory control, logistics and

distribution. Wal-Mart has an accurate time information system of the products

in the stores shelves that allow restocking automatically. This ability to move

products from place to place quickly and efficiently keeps the cost down. In

addition the logistics involves the suppliers and workforce of 85000 employees,

147 far reaching distribution centres, transportation offices, more than 100,000

tractors and trailers and 8000 drivers.

Key Resources

The key resources of Wal-Mart are classified in 3 categories. First are the

physical resources that are owned by the stores and its logistics. Second is their

human resources that include experienced managers and its employees. And

finally is Wal-Marts culture which is based on restless effort of constant self-

improvement, discipline and loyalty.

Key partnership

It is a strong buyer-supplier relationship wherein Wal-Mart is the buyer and the

suppliers are is its very close partners. They add up to each others value chain

and this provides suppliers a chance to access a large market. However it made


12/22

Group 14 Wal-mart

suppliers, who wish to take advantages of its broad market, to keep their prices

and costs low and therefore, suppliers give the control of their own business and

negotiation advantage to Wal-Mart. Wal-Mart also creates economies of scale

that optimizes its cost structure.

Revenue Stream

These are generated from its customer segments. They basically come from

retail sale, such as music downloading with fixed menu pricing. Wal-Mart also

drives revenue by selling its own brand, produced by others to cover a segment

not covered by other suppliers. Moreover, it takes advantage by selling goods

even before paying to its suppliers.

Cost Structure

Wal-Mart follows a cost-driven model since it focuses on minimizing costs

wherever it is possible and it is characterized by economies of scale. The use of

technology lets it grow and lower its cost further. Hence, this lowered cost at

both store level and chain level, strengthens Wal-Marts advantage, rather than

being its root cause. Wal-Marts financial discipline is well known as well as

their tendency to pass operating costs to suppliers.

VALIDITY OF WAL-MARTS BUSINESS MODEL

Wal-Marts Business model follows wholesaling idea and is based on cost

leadership strategy. Using Chesbroughs model framework classification, Wal-

Marts model is an adapt platform. The company is very much committed to

experimentation, and its key suppliers have become banes partners, sharing the

technical and business risks, integrating themselves into the planning process of

the company. This type of business model has proven to be very profitable for


13/22

Group 14 Wal-mart

Wal-Mart. This business model is like a role model for many others but it is hard

to imitate since it is adjusted constantly and improves its processes over time.

Although its size and economies of scale is a competitive advantage, there is a

downturn on the way it does business. Consumers have expressed concerns

about the so called Wal-Mart effect, the high cost of low prices.

Firstly, Wal-Mart eliminates local competition by creating a monopoly effect,

especially in the communities where stores are settled. It leads to reduction of

local competitors and thus reducing local jobs. Wal-Marts sole job creation is

not always sufficient to cover the jobs lost. In relation with its suppliers, it

comes to a point that no more efficiency can be done. Eventually, the only way

to reduce costs is to manufacture products outside USA, to countries with lower

labour costs and with fewer environmental regulations, which means Wal-Marts

suppliers can be less socially responsible than Wal-Mart. There have been

current concerns for Wal-Mart while developing its CSR strategies during last

few years.

On the contrary, Wal-Marts cost control means that nothing can be expanded on

other services that adds value to the customer experience. While Tesco centres

itself in improving the customer experience, Wal-Mart almost only does so by

improving effectiveness. Wal-Mart has identified its customer segments

correctly to deliver its value proposition, but it is not apt for every market. It can

only approach the segment that it is already serving. The other competitors take

advantage of this inability to adapt to different segments. Another negative

aspect of Wal-Mart cost control is the relationship with its employee associates.

With cost control as its core value, hard work implies that associates and

sometimes even managers work for too many hours, sometimes applying illegal

practices (e.g. closing associates inside the stores, women discrimination etc.).


14/22

Group 14 Wal-mart

Wal-Mart is against labour union formations, since union workers are paid

higher salaries than non-union employees.

THE FUTURE OF WAL-MART BUSINESS MODEL

Objective: Customer Focus

Wal-Marts success is due to its business model that focuses on satisfying its

customer needs with low price products. Wal-Mart has to continuously modify

its competitive strategy to develop a model that maintains its competitive

advantage in the global market. In order to achieve the objectives of satisfying

customers, enhancing shareholder value and creating the profits, Wal-Mart has

three important priorities: growth, leverage and returns.

Wal-Mart is continuing to grow around the world through a number of

opportunities by opening new stores, entering in new markets, making

acquisitions, integrating online channels, and developing new innovative formats

to provide customers to experience the Wal-Mart brands.Based on the three

important priorities, Wal-Mart keeps on improving the supply chain

predictability and visibility to ensure the amount of inventory safety stock that a

retailer must maintain in its network. Wal-Mart not only focuses on the tactical

efforts to lower costs and improve gross margin, but has looked into the impact

of reducing inventory and storage or handling costs associated with excess safety

stock. Wal-Mart currently maintains less than 40 days inventory on handthroughout its massive network. With one day reduction in inventory, Wal-Mart

can create approximately $1.7 billion of additional cash flow from operations.

Strategies and innovations

1. Low Cost Strategy


15/22

Group 14 Wal-mart

The core strategy of Wal-Mart is Everyday Low prices as its slogan states, in

which the undercutting of prices is the basic principle of its business. Innovation

in Wal-Mart can generate an assessment of its current business model and find

an appropriate way to develop or change.

2. Information technology innovationWal-Mart utilizes information and communications technology in order to aid in

the decision-making process and advance the effectiveness of consumer

responses and control the process of logistics. Wal-Marts business model has

both process and service technology innovations, both of which can reduce the

operation cost and time. Also the price of products can be reduced through the

process of delivery and storage using new technology. And customer service

within new technology will add more value in the same price and create a

positive image for customers.

To identify and track its logistics, Wal-Mart relies on radio frequency

identification (RFID) technology. This technology uses a system to

communicate through electromagnetic waves in order to exchange data between

a terminal and the electronic tag which is attached to the delivery box.

3. Human Resource management innovation

Wal-Mart develops its HR policies to adapt the changing environment. All

employees from top managers to clerks are called associates, in which

everyone receives a great autonomy and can continuously communicate about

their performance within the company and about the operations of the stores.

This relationship and incentives provide a strong safeguard fro achieving its

strategy. The recruitment of people with the proper skills, competence and

working experience can influence the morale of all employees.


16/22

Group 14 Wal-mart

The problem with motivation as well as the remuneration of associates has been

a reason of concern in recent years. Thus financial incentives and other forms of

motivations must be constantly evaluated and adapted to ensure the satisfaction

of associates.

4. Organization and management styles

The management of Wal-Mart has been based upon the values and principles of

the founder, Sam Walton. The managers always keep in touch with its customers

as well as the operations o the retail stores, which leads to an effective

communication between each store and companys headquarters. Wal-Mart puts

a lot of effort on innovation and development of its organization and

management.

5. Suppliers relationship development

Wal-Mart used to adopt the centralized purchase method, in which all the

transaction took place at the headquarters of Wal-Mart. Furthermore, Wal-Mart

also refused to negotiate with manufacturers from the year 1992 and only

allowed them to supply no more than @.5% to avoid the dependence on a

manufacturer. In order to compete in the global market, Wal-Mart had to

establish closer cooperative transactions with local suppliers, which aligns with

the needs of its consumers and lower the inventory cost. Moreover, since 2008,

Wal-Mart also requires its suppliers to attach RFID technology to its deliveries.

6. Distribution and storage


17/22

Group 14 Wal-mart

The cost of distribution and storage is a part of the products selling price. Thus

Wal-Mart handles 80% of the purchases that are directly shipped in the

warehouses to reduce logistics cost. Wal-Mart is still continuously upgrading

and innovating its process and system of distribution where the products that

arrive via the inbound trucks are loaded and unloaded on outbound trucks

without sitting first in the inventory of the warehouse.

7. Social Responsibility and sustainability

Wal-Marts objective to establish as a key player in the society must also

incorporate cost innovation capabilities and social responsibility into their future

business model which looks promising as indicating ways to sustainability. It

has tried t rebrand itself as a pioneer in environmental sustainability. It aims at

reducing the phosphates in detergents by 70% and amount of packaging material

by 5% until 2015. They have classified their involvement into five categories:

sustainability, feedback to communities, care for the children, support for

education and disaster relief. For last 13 years these employees have spent morethan $180,000 in voluntary work for public interests in their communities.

COMPETITORS OF WAL-MART

Wal-Mart has its presence in 14 countries namely Argentina, Brazil, Canada,

Mexico, China, Puerto Rica, Costa Rica, El Salvador, Guatemala, Japan,

Nicaragua, UK and India (51:49). It has 10,000+ stores.

Sales in 2010: $405.04 bn

CAGR 2005-10: 7.3%

Wal-Marts majorcompetitors worldwide according to sales:

1. Carrefour


18/22

Group 14 Wal-mart

It is the strongest competitor of Wal-Mart.

Sales in 2010: $119.88 bn

CAGR 2005-10: 3.4%

2. Metro (Germany)Metro AG is a wholesale and cash and carry group in Germany.

Sales in 2010: $90.85 bn

CAGR 2005-10: 3%

3.Tesco (United Kingdom)Tesco plc is global grocery and general merchandise retailer in United

Kingdom.

Sales in 2010: $90.43 bn

CAGR 2005-10: 10.9%

4. Lidl Stiftung & Co (Germany)Lidl stores are present in 20 countries in Europe.

Sales in 2010: $77.22 bn

CAGR 2005-10: 9.8%

Area wise some major competitors are:

North America - Kmart, Target, ShopKo and Meijer

CanadaZellers, the Real Canadian Superstore and Giant Tiger

MexicoCommercial and Sorian.

Wal-Mart moved into grocery business in the late 1990s and competed with the

supermarket chains in the United States and Canada as well.


19/22

Group 14 Wal-mart

VALUE CHAIN

The value chain includes Primary activities and support activities.

Primary Activities

Inbound Logisticso It includes VMI and Electronic Data Interchanges.o CPFRCollaborative Planning Forecasting and Replenishment.o Hub and Spoke model distribution systemo Cross docking

Operations


20/22

Group 14 Wal-mart

Outbound Logistics Marketing and sales

o Every Day Low Prices act as the marketing strategy for Wal-Mart After sales

o It assures customer with quick response i.e. Sundown Ruleo Satisfaction and guarantee policy

SUPPORT ACTIVITIES

Firm Infrastructureo

It has huge stores.o It has a large fleet of trailers and truckso It has large number of stores all over the world (10000+ stores

nationally and internationally)

Human Resource Managemento Non-unionized labouro Full autonomyo Profit sharing program


21/22

Group 14 Wal-mart

Technology Developmento It owns satellite systemo EDIo VMIo CPFR

Procuremento Maintains long term relationship with suppliers.o No nonsense policyo VMI enabled inventoryo Cross docking

Wal-Marts strong value chain helps it to gain advantage over other competitors.

CONCLUSION

If it can no longer reduce the price, then Walmart will be left with nothingto differentiate from competitors.

Walmart target area is rural areas and tier2 cities.Now when Walmart willcover all of it, it will have to switch to the urban areas and then it will not

be able to compete on low price front as in urban areas teh various other

cost factors would increase.

To enter in this industry is challenging. As the current players have madetheir roots strong through the value chain and strong supply chain. And


22/22

also if the grocery (mom n pop) stores become organized in terms of IT

and variety, then they will enjoy the high frequency of purchase.

The initial cost required is very high to keep a large amount of inventories.In the war of price, it reduces the profit margin, so there is no economies

of scale.

walmart.docx

Documents