For years, Wal-Mart has been a high growth powerhouse conquering the retail market across the United States. Recently however, growth of same-store operations has been stagnant. Same store sales in 2006 grew by 1.9% Wal-Mart’s response to counter-act the flat growth is to build new stores at a ridiculous rate of nearly 1 per day. Investors and Wall Street analysts have not responded well to this strategy and the stock is down nearly 30% from its high in 2004. The new store strategy costs a lot of money, and after a growth period, these stores sales will too fall flat.
Wal-Mart is trying to deal with a slew of problems that includes market share dwindling tocompetitors like Target and Kroger, as well as numerous PR problems and lawsuits that have seem to not have any end in sight. Additional problems that are growing for Wal-Mart as include an increase in overhead costs by nearly 15% in 2006. A cost that directly effects net income in a negative way.
1. International Operations
a. In 3 years, Wal-Mart was able to increase their Mexico revenues by 50% and same store sales grew 10%
2. Current US Market Share (according to ACNielsen)
a. 20% of dry grocery
b. 29% nonfood grocery
c. 30% of health and beauty
d. 45% of general merchandise
3. Reach to US consumer
a. US Wal-Mart stores reach 90% of the United States Population
4. Range of products
a. Wal-Mart offers low and moderately priced goods in virtually every aspect of retail sales including fresh grocery, dry grocery, health & beauty, clothing, furniture, sporting goods, household items and more.
1. Labor Lawsuits
a. Wal-Mart has been dealing with and is currently dealing with dozens of labor lawsuits as well as sex discrimination law suits
2. Poor Public Relations
a. Many municipalities have put in place some sort of barrier to ensure Wal-Mart cannot build in their market and hurt their local business
b. Under scrutiny of essentially spying on critics, consultants, and stockholders
3. Current Market Share
a. Their current market share gives opportunities to keep revenues high and introduce new product to existing customers, but leaves little room for growth of new customers
4. Amount of Poorly Managed Stores
a. Wal-Mart admitted that 25% of its stores do not meet their minimum standards of cleanliness, availability, check out times and more
b. Sales of the best 800 manage stores are rising 1,000% faster than the worst 800 managed stores
1. Expanding international markets
a. Wal-Mart has had success in emerging international markets
2. Popularity in Online Shopping
a. Increasing market share in online shipping provides an opportunity for Wal-Mart to enhance their brick and mortar store sales
3. Fresh and Healthy Food Trend
a. With the growing health food market, Wal-Mart has an opportunity to gain consumers in many markets that are not occupied by companies like Whole Foods and Trader Joes.
1. Competitors Cutting Into Market Share
a. Competitors like Target and Kroger have successfully cut into Wal-Mart’s market share in almost every retail aspect. Which does not hold well for Wal-Mart’s business model of volume over margin.
2. Rising prices of goods
a. It is no secret that commodities prices have been on the rise so Walmart is going to have to find a way to keep revenue without driving away their main low income shopper.
3. Continuous Bad Publicity and Backlash From Local Communities
a. Backlash from local communities and bad publicity seem to have no end in sight and could be an even major threat to Wal-Mart in the years coming.
A strategy of many businesses when sales start to stager and no clear answer is present is to get back to basics, or what the company knows well. In Wal-Mart’s case this would be a great strategy. Wal-Mart has been unsuccessful in gain market share of middle income shoppers. Retailers such as Target, H&M, Kroger, and Costco are doing a much better job and seem to have a hold on those shoppers.
Wal-Mart is struggling with inventory on products marketed towards these middle income buyers by failing to keep products in stores and do not know how to fix it. Wal-Mart should eliminate many of these goods, resulting in reduced inventory costs and overhead, giving them greater margins coming from their core low income customer.
Secondly, Wal-Mart needs to start to slow down their new store openings. They growth in new stores has gotten to a point where stores are competing against each other rather than gaining a new market. Opening these new stores is costly as they could be focusing on increase sales and effectiveness of their weaker stores as well as rolling out another stretch of existing store renovations.