Performance, Competitive Advantage, And Challenges Of Walmart

Performance of Walmart

Walmart Inc. is an American trade corporation and runs chain of grocery stores, hyper markets, drug stores, electronic stores, supercentres and discount department stores worldwide. Walmart drives through three divisions Walmart U.S., Walmart International and Sam’s club. The head quarter of company is in Bentonville, Arkansas. The company was the world’s biggest company in terms of revenue. The company has increased revenue in every single year. Walmart’s record of growth and profitability has been even more challenging but it’s return on equity never fall below 19%.

Wal-Mart belongs to the service sector in the ‘Discount, Retail’ industry. The performance of the organisation is outstanding as described by the fact that it was marked as the biggest company of the world in terms of revenue in the year 2015. It has a remarkable record of growth and profitability since the year when Wal-Mart went public (Johnson, 2016). Every single year, the revenue of the company has subsequently increased and the company made sure that its return on equity never falls below 19%. This was maintained even after war, turmoil of economic recessions, the rise of e- commerce and political crises.

 

Figure 1: Performance of Walmart

The performance of Walmart attributable to industry attractiveness can be assessed by the 5 force analysis:  

Rivalry among existing firms: Competition is penetrating among existing firms. Walmart has cut throat competition from other grocery stores and supermarkets like Dollar Tree, Costco Wholesale Corporation, Macy’s Inc, Dollar General Corporation and more. The changes in grocery industry are in the favour of major supermarkets like Walmart, Safeway, Kroger and Costco from last two decades. The market share of these companies is constantly increasing in comparison to the small size grocery stores. It is because of the cost advantage grew through the cost cutting scheme.

Threat of substitute products and services: The company sells products of various categories like groceries, health and wellness, hardware, home furnishing, apparel, household appliances and entertainment. Walmart sells abundant range of products so there is no threat of substitute products for the company. It sells extensive range of products as well as substitute of products. So, the threat of substitute products is irrelevant for the company.   

Bargaining power of Walmart suppliers: The bargaining power of Walmart’s suppliers is extensive. The company obtains the lowest price from suppliers to sustain it’s cost leadership strategy. The company paid USD 13.5 billion to it’s suppliers in 2015. The Walmart suppliers are requisite to meet with the specific requirements related to employees health, safety, insurance, food safety and others. The company also maintains supplier diversity program which is a part of corporate social responsibility.

Industry Attractiveness and Competitive Advantage of Walmart

Strong barriers from new entrant barriers:  A new can achieve considerable market share by reaching at minimum efficient scale. The reasons such as composite and wide distribution network, number of stores to justify delivery network and the data management system corresponding to supply and demand are responsible for volume selling. So, it is prerequisite to made high capital expenditure. It is advantage for Walmart as it has already significant market share and has large economies of scale (Mellahi, et. al. 2016).

The bargaining power of buyers: The bargaining power of company’s buyers is low. But due to increasing competition in the market the bargaining power of buyers is increasing and forcing company to keep it’s prices low. The switching cost is low for customers as they can switch to other companies easily which are providing substitute products at low prices. Walmart should focus on customer satisfaction to improve it’s market position.

 

Figure 2: 5 Force analysis of Walmart

Other than the five force analysis there are some other advantages which contribute to the industry attractiveness:

New sectors of retailing: Walmart has opened branches in new sectors of retailing. It has moved into dispensary, locomotive repair shop and grocery sales. After expanding physically and geographically it has expanded in terms of sale and competing with rivalries. The company has also infringed into pharmaceuticals, jewellery sales, home electronics, photo finishing, automotive supplies, home horticulture and travel arrangement (Cao, Huo & Zhao, 2015). The company has recently also started business of grocery store with “Neighbourhood Markets”.

High differentiation: The Company has high differentiation in industry through product offerings. Walmart innovates products which attracts customers and meet their needs and requirements. The company focuses on keeping prices low which is clear from one of it’s slogan that is “Everyday Low Prices”. The company’s famous pricing strategy “roll-back” is developed to monitor competitor prices and offering low prices. The company stands out by purchasing, distribution, warehousing and selling (Camisón & Villar-López, 2014).

Acquisition of retailers: Walmart has recently done acquisition of Moosejaw. The company is buying relatively small and unprofitable retailers such as Moosejaw, Shoebuy.com Inc. and Jet.com. It can help in product variety or expertise. The company is focussed on developing e-commerce gradually. The sale of company on 11 e-commerce site has grown by 20.6%. The goods sold on the e-commerce sites have increased by 16.8%. 

Distribution capabilities: Walmart has efficient distribution system. For instance cross docking, prevalence of company’s own distribution centres and inside out location strategy. It helps in lowering price of company which results in more customer satisfaction.

Walmart’s Principal Functions and Activities

Partnership relationship with distributors: Walmart incorporates distributors via information technology. It treats well in way of pricing. It has improved supply chain and has lowered distribution costs (Colbert, Barrick & Bradley, 2014).

Workforce culture: Walmart’s customer oriented workforce has motivated through monetary participation and belief in work culture. The workforce is not limited to lowering cost and compromising self-service. It equally focuses on improving loyalty of customers.

For the purpose of analysing the sources of competitive advantage in Wal-Mart, especially when the superior efficiency is concerned, the resources and capabilities re required to be identified from its principle functions and activities. The company’s function and activities can be identified from the value chain analysis. The value chain analysis is a systematic outline that supports in classifying business activities which can form value and competitive advantage for the company (Chadwick & Raver, 2015). The value chain analysis can be divided in following activities:

The primary activities of Walmart in value chain analysis include:

Inbound logistics: The company’s products in US come from the foreign dealers. 75% sales of walmart.com derived from the non-store inventory. The inbound logistic activities are based on the following principles:

Minimum amount of contacts in supply chain: From the 1980s Walmart initiated to exclude dealers in the supply chain of company and started to work with manufacturers directly. After a few years, this decision put positive impact on the bottom line. The efficiency of company has improved in a constant manner after such practice.

Establishing strategic relationships with sellers:  The company executes restriction on the various phases of business at the time of negotiation with potential suppliers. Walmart tries to obtain the lowest prices by practising their bargaining power in order to retain it’s cost leadership strategy.Thee company offers strategic partnership to the potential suppliers for long term view and involves in bulk purchases for lower prices.

Using cross docking as an inventory approach: Cross docking refers to the direct allocation of products from incoming or outbound trucks without extra loading, by receiving items from an inbound truck and stocking materials directly into outbound trucks with no loading in between (Shepherd & Rudd, 2014).

The company operates worldwide with more than 11000 stores in 27 countries. It assists around 260 million customers every week. The series of Walmart includes supermarkets, warehouse clubs, supercentres, hypermarkets, Sam’s clubs, home improvement, cash and carry, restaurants, drug stores, electronics and convenience stores (Kramar, 2014). The operations of company are divided in following segments:

Challenges for Walmart

Walmart US: This is the largest operating section. Walmart US includes three main store setups and digital retail in all states of US, Puerto Rico and Washington D.C. This segment generated about 60% of total net sales in 2015.

Walmart International: This part involves company’s retail, wholesale and other trade operations in 26 countries outside US. Walmart International contributed around 28% of total net sales in 2015. This segment raises mainly through acquisition of businesses (Deery & Jago, 2015).

Sam’s club: This segment consists of association only warehouse clubs, Sam’s club functions in 48 states in Puerto Rico and US. In this segment, association income is the largest source of revenue and it contributes 12% of company’s revenue in the fiscal year of 2015.

The company runs complex outbound logistic operations due to the size of company. The Walmart e-commerce websites have been already launched in 11 countries. The regular size of four US e-commerce fulfilment centres were also opened in the financial year 2016. Walmart tries to increase it’s outbound routing and cargo structure procedures in a efficient manner to rise overall efficiency of operations and attain cost reduction (Selznick, 2014). For instance, optimization of outbound storage by the execution of ORTEC’s routing and load building procedures in US actually resulted in saving 4 million gallons of diesel fuel. 

Marketing and sales

The marketing strategy of the company tries to associate brand image with ample variety of products, low prices and easy approach to stores through several channels. Walmart utilises it’s both online and offline channels in a combined manner for promotions and sales. It shifts gradually towards online channels to convey marketing message to the target customers. It facilitates that sales is more cost effective. It adds to the sustainability of company’s cost leadership strategy (Wu, Straub & Liang, 2015).

Initially, the company had a poor status in terms of customer service due to payment of low wages to staff to sustain cost leadership strategy. The CEO declared pledge to improve customer service feature of the company.  It was initiated in 2015 by the investment of USD 1 billion in US to provide higher wages and training.

 

Figure 3: Value chain analysis of Walmart

The resources and capabilities of Wal-Mart provide the competitive advantage and address the key issues concerned with sustainability.

The resources and capabilities of Wal-Mart are not easy to replicate. The resource of Wal-Mart which cannot be replicated is its corporate size. Such large corporate size leads to large purchasing capabilities of Wal-Mart which makes it capable of pressurizing the suppliers for providing preferential discounts. Other retailers do not stand close to Wal-Mart when comparison is made in terms of volume. Wal-Mart is also strong in terms of the financial resources as it has the lowest cost of capital.

The various capabilities such as the general management capabilities, HRM capabilities and in-store management capabilities are all dependent upon a key resource which is the culture of Wal-Mart.  This culture is unique to Wal-Mart (Mills, 2017). Every aspect of the management systems and methods and the tangible resources of Wal-Mart might be replicated by the rivals but the reason behind the success of Wal-Mart is its culture which includes the beliefs, values and behavioural norms that perform the function of holding all the factors together. The company has extremely sustainable competitive advantage the way it is able to recognise source of advantage. It can be assessed by the VRIO analysis. It stands for value, rarity, imitability and organisation which made Walmart to develop set of rules for evaluating different resources and capabilities.

Value: Value is what Walmart is doing with it’s resources and capabilities to defuse any threats. The company stays real to Sam Walton and shows it value it’s customers, employees and drives low cost. The low cost is the reason which brings customers back to the store. Especially when the consumer knows that leadership cares about customers they surely like to continue business with the company. The company shows it’s value by doing business in medium and small markets. It brings jobs to the company and helps households to save money by it’s cost leadership competitive advantage which other retailers are not successful in doing so. Walmart brings low cost in the market and other retailers have to drop price in the market otherwise they can be put out of industry. 

Rarity: The analysis considers the strategy of company in rarity. It differentiates Walmart from other retailers in the industry. The influence of company’s information technology makes it rare in the industry. It uses point of sale data to make arrangements of store. It forecast the sales which help company to stock up. This system is seen rare in industry and differentiates company from others. Walmart has better buying power because of it’s shear volume. The company is in relationship with suppliers. The vendors are attracted towards company because of it’s reliability and reputation in the industry.  They are interested in doing business with company as it completes their demand at low cost.

Imitability: The company has wide distribution system compared to other companies which causes other companies to pay more to get products to them. The competitors have cross docking ability because of low inventory cost. It makes them to keep inventory on shelves not in the warehouse and it does not make any money. It takes great time and money to other retailers to get efficiency of inventory and shipping.

Organization: VRIO analysis verifies policies and procedures of company to see whether it supports company in value, rare and cost to imitate. The organisation is built to authorize section mangers to manage store in such a way that they follow regulation of company. The company restructures management time on time to make it lean and effective. The company has management staff that is expert in all subject matters of store and customer issues. It makes Walmart to run effectively.

 

Figure 4: VRIO Model

Walmart Stores Inc. has surpassed Exxon Mobil Corp. and become the largest company in the world this year. The company has earned $220 billion revenue last year, which make it hold #1 retailer in the world. Even after doing well in business, the company faces several issues. These are:

Walmart’s expansion in foreign market: The company has made move in the international market to expand it’s operations. It has almost 400 European stores and most of them are in UK and Germany. Recently Walmart made an agreement with the Japanese partner Seiyu Ltd and entered in the Japan market. Even the company bought 6.1% stake of Seiyu to make place in the market. Because the market is unkind to overseas companies which causes shut down of operations (Holland, 2016). Seiyu is a retailer from last 36 years and is going to guide Walmart on the customs of Japan. It is going to prepare Walmart for the possible acceptance by the customers. It is not the first company to set business in Japan (Doh & Quigley, 2014). However it is the first company to work with well-known Japanese company to shift in the Japanese market. The situation in Japan market is weak but Walmart has known to market conditions from Seiyu. On the very first day after entry of Walmart, the stock of Seiyu increased by 21%. The company is also looking for development in south America and Europe.

To expand other than retail and make move in other sectors: Walmart has moved to other sectors beyond retail sector. The company has nearly 3000 stores in US. Out of them 475 are Sam’s club warehouses which are specialized in sales of food to electronic items. The main competitor of Walmart is Costco in this area. But Walmart has benefit of more and regular stores. Walmart attaches to Sam’s club near a store of Walmart to provide two options to consumers. Sam’s club provides fresh food so it is opponent for supermarkets. In order to drive business, Walmart expands it’s service into the areas where Costco’s and supermarkets exist already. Walmart competes with other warehouse and supermarkets by selling food and other items on low prices. Walmart has also shown desire in expanding it’s operations in gas stations (Serra & Kunc, 2015). The company is also showing desire in large discount electronic merchants like Best Buy and Circuit City. It sells a variety of music and movies like, special edition of Star Wars: Episode II is available at only Walmart. It is one of the examples of partnership made by Walmart. The company has also made promotion with Shrek to lower prices and advertising DVDs.

Dominance in Labor relations: There are several disagreements between Union and Walmart for not allowing it’s staffs to unionize. Many fights have been clashed in court and Congress questions labor practice of the organization. It’s policy is one of delay and dread in the words of union representative. It has suspected Walmart of old fashioned union- breaking strategies. Currently the company is non-union and desires to continue this way only. The company has decided to go against labor laws and employees are happy this way (Ganter & Hecker, 2014). But the employees are less pleased by refusal to unionize. The company continues to fight to keep employees non-unionize through it’s connection with numerous government agencies.

The measures taken to sustain performance and defend against competitive threats:

Continue transforming discount organizations to supercenters: The success of supercenter format has led to transforming discount formats. It is difficult for the company to find similar discount organizations amongst it’s alternatives (Barrick, et. al. 2015). The company continues to convert discount organizations to supercenters to defend competitors.

New product categories and services: The company can increase quality of products by not focusing on the prices of goods, as the consumers have perception of high quality products at worth prices. The company can expand it’s own high quality brands such as apparel line of George. The company can also expand it’s operations by providing more store in store domain stores. It can help company to sustain performance (Bryson, 2018).

New store formats: The new store formats concern at safeguarding of company’s cost structure and profit format markets. All the competitive advantages are transferred in other formats in context to neighborhood stores (Fraj, Matute & Melero, 2015). The company does this to assure making profits from these formats.

Internationalization: The highest growth of Walmart is generated from international markets. The overall strategy of company makes sense in other countries too and the competitive advantage of company can also be transferred to other countries too (Booth, 2015). The company’s stores are double in number in abroad than the stores in US. The number of stores in Us are 1200.

Conclusion

From the above report it can be determined that Walmart uses influencing organizational strategy and attributes to the industry attractiveness in terms of heavy investment in people and technology, strong barriers from new entrants barriers and high differentiation. The company efficiently conducts activities in purchasing, warehousing and distribution and in- store operations. The in store operations are characterized by decentralization in decision making, consumer service and merchandising. The company sustain it’s competitive advantage by cost leadership, marketing and differentiation strategy. The VRIO analysis is very effective tool for company and enables to do lot of things that other retailers cannot complete. The company has succeed in facing challenges and takes measures by continuing transforming discount organizations to supercenters, increasing quality of products and services, formatting new stores and internationalization. 

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