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Wal-mart Case Analysis

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  WALMART I. BACKGROUND OF THE COMPANY Wal-Mart is a public company, active in the retailing industry. It was founded by Sam Walton and his brother J.L. (Bud) Walton in 1965, with the opening of the first Wal-Mart store in Rogers, Arkansas. Nowadays, Wal-Mart owns 8,500 stores worldwide, employing more than 2million employees and headquartered in Bentonville, Arkansas, United States. Since 2009, Mike Duke is CEO of the company. Wal-Mart runs different chains, which have different main target groups. The divisions of Wal-Mart are separated into891 Wal-Mart discount stores, 2,612 discount centers, 602Sam´s Clubs and 153 neighborhood markets. The discount stores, neighborhood markets and superstores are mainly targeting the broad customer base, whereby mostly low- and middle-income customers make the majority of all customers. These three divisions are mainly differentiating through size of the store, size of the city where he store is resident and the number of employees. The discount stores are mostly sized between 50,000 and 100,000 square feet, employing 220 employees in average, while the superstores have 186,000 square feet in average and employ between 200 and 550workers. The neighborhood markets have usually round about 40,000 square feet and employ between 80and 100 people. In addition to these three divisions, the Sam´s Club division is a membership-only business and has more than 45 million registered members. It mainly offers groceries and general merchandises in large quantities. One can say that the Sam´s Club segment found a niche market, because it is often used by owners of small sized businesses. However, also non-members and private customers that want to try out the offers can join the club by buying one-day memberships or paying surcharges as a percentage of the price of the purchase. In 2009, Wal-Mart reported $404 billion of revenue and a net income of $13.6 billion. Since 2002 (except for 2006) Wal-Mart was ranked number one on the Fortune 500 list (an annual list published by Fortune magazine that ranks the top 500 U.S. corporations with the highest gross revenue).Outside the U.S.-market, Wal-Mart is active in 14 countries,  including 4,200 stores and 600,000 employees. Especially the Mexican and Canadian market (1,200, respectively 318 brands) are important markets for Wal-Mart. II. STATEMENT OF THE PROBLEM III. OBJECTIVES IV. INDUSTRY ANALYSIS A. ANALYSIS OF THE MACRO-ENVIRONMENT 1. Demographic Environment Several demographic factors can influence Wal-Mart´s returns. One example is the level of income of customers within the different countries Wal-Mart is operating in. They offer low cost products with the best value to the following three groups of shoppers for Wal-Mart stores:    The “brand  aspiration  –  low income shoppers    The “price sensitive  affluent , wealthier shoppers who love deals    The “value   price shoppers”, folks who like low prices  and cannot afford much more”  With the help of this classification, Wal-Mart can locate their divisions properly so that it matches customer’s expectations and fulfill their demands. Another demographic constraint for Wal-Mart in the next decades will be the aging population. From year to year there exists a bigger amount of older people who have special needs and requirements that have to be fulfilled by a retailer. Wal-Mart has to adapt on the one hand their product range but on the other hand also the shopping conditions their stores provide to older customers. By special product offers or support activities for old customers they can attract this increasing customer group and win them over. 2. Social/Cultural Environment There are several social and cultural aspects which might have an influence on Wal-Mart´s sales. First of all it is possible to say that Wal-Mart concentrates their operations on the continental US market and 14 other countries which are not part of it. Examples are Argentina,  Brazil, Honduras, etc. As we can conclude from their website, Wal-Mart is not present in any European countries at the moment. During the past Wal-Mart´s target customers came from the lower middle class or poorer segments. During the recession in2008/2009 they were clever enough to recognize new trends within their customer groups and tried to use them to enlarge their customer base. Now that also people out of the middle and upper-middle class started to review more carefully their expenditures, Wal-Mart was able to benefit from this situation. Customers asked for inexpensive food and cheaper goods and Wal-Mart´s stock rose about 50% during this time. But not only the recession but also the steady improvement of their stores attracts a higher-income audience.  All in all we can describe Wal- Mart´s customers as “easy shopper”. They want to be  able to buy all they need by   doing “one stop” at a Wal-Mart store. Wal-Mart´s huge quantities and broad product assortment enables them to fulfill exactly these demands.   3. Political/Legal Environment Wal-Mart has not only a well established brand image within their target customer groups. By being the No. 1 corporate political contributor, they are additionally highly recognized on the federal level. In year 2006 they supported with $943,455 the US election cycle. Political instability and the lack of resources caused fuel prices to rise during the last years. This affects Wal-Mart´s operations and returns in two ways. On the one hand customers have less money in their pockets and are only willing to spend less during their shopping trips. On the other hand transportation costs for Wal-Mart itself are rising. This increase in costs cannot be balanced by offering higher prices because it exists the risk that customers won´t come back. Because of Wal-Mart´s strategy of extremely low prices, they were several times in conflict with government regulations according to predatory pricing. Several experts claimed that Wal-Mart offered prices which were intended to drive competitors down. Wal-Mart has to be very careful with this behavior because the fines for violating this law are extremely expensive. 4. Technological Environment   When we take a look at Wal-Mart´s distribution activities we can conclude that technological aspects play an important role for the company. To be able to organize their highly automated distribution operations and their huge amounts of items in stock they have to make use of latest technologies. With the help of their private satellite communication systems and the point-of-sale bar code scanning they ensure that everything is linked with each other and orders are placed at the right time at the right place. To satisfy customers demands it is urgent to have all needed items available as quick as possible.  Additionally the technological tools facilitate the work of all employees within the company. The other way around technological advancement can also be seen as a negative impact on Wal-Mart. As we all know rapid changes in technology lead to shorter product life cycles. Especially retailers like Wal-Mart which handle very broad product assortments and huge amounts of items are less flexible in changing their product lines. This could be a disadvantage towards smaller competitors which are maybe more capable of offering newest products. 5. Economic Environment Economic factors like unemployment and economic growth have an influence on Wal-Mart´s sales. Although there was a global instability of the finance banking sector, which continues to affect trade between countries creating liquidity problems, Wal-Mart was still able to keep on growing and increasing their sales. This was caused by the fact that at this point of time also higher income groups were forced to take a closer look at their expenditures. Another reason can be that one of the industries that faced least effect from the crisis was the food industry due to the fact that population was still in need of consuming. This industry represents one of Wal-Mart´s most important ones.  A high unemployment rate can have on the one hand positive influences for Wal-Mart and on the other hand also negative ones. It depends which customer group is affected by the unemployment. Because of the fact that Wal-Mart offers products for very low prices their customers are mainly people from lower income classes. Unemployment can force people from srcinally upper income classes to reduce their expenditures and save money. This would be a chance for Wal-Mart to enlarge their customer base. Wal-Mart has to observe this trend to be able to react in the right way. Otherwise it would have a huge influence on their sales.
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