Walmart Swot

Wal-Mart Stores (Wal-Mart or “the company”) operates retail stores in various formats across the world. In the US, the retail formats operated by Wal-Mart include discount stores, supercenters, neighborhood markets, market side, and Sam’s Clubs.

Internationally, the company operates in Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico and the UK.Wal-Mart is headquartered in Bentonville, Arkansas and employs 2.1 million people. The company recorded revenues of $408,214 million during the financial year ended January 2010 (FY2010), an increase of 0.9% over 2009. The operating profit of the company was $23,950 million in FY2010, an increase of 5.1% over 2009.The net profit was $14,335 million in FY2010, an increase of 7% over 2009.

SWOT ANALYSISWal-Mart Stores (Wal-Mart or “the company”) operates retail stores in various formats across the world. In the US, the retail formats operated by Wal-Mart include discount stores, supercenters, neighborhood markets, market side, and Sam’s Clubs. The company is the largest retailer with unprecedented scale and clout which will enable it to maintain its market position and continue to gain market share from competitors. However, with over two million employees, rising labor and healthcare costs will significantly affect Wal-Mart’s profitability.

Strengths| Weaknesses|A market leader with unprecedented scale gives a competitive advantageLow cost leadership enabling Wal-Mart to offer products at low priceInternational strategy – a strong foundation for growth as the US market matures| Big box retailing format led to lowpenetration into urban areasLitigations affect labor relations adverselyTarget’s superior merchandising capabilities to appeal more to the customers as the US economy revives| Opportunities| Threats|

Outperformance of the retail sectors inemerging marketsConcentration ongrocery and food willbenefit as eating at home, health and wellness trends continue to emergeGrowth in internet retailing to serve largermarket| Two million employees increases exposure to increasing wages and high healthcare costsVolatility in commodity prices and costinflation will pressurize marginsIncreasing resistance to expansion fromlocal organizations and authorities| Strengths

A market leader with unprecedented scale gives a competitive advantage Wal-Mart is the largest retailer in the world. By the end of January 2010, Wal-Mart had more than $400 billion in revenue, $24 billion in operating income, 8,500 stores, and nearly 1 billion square feet of space. The scale of its operations is unprecedented and there is no competitor of comparable size. The company has been expanding its clout; international operations contribute between one fourth and one half of these metrics.

At about 10% and 20% of total retail and grocery sales in the US, respectively, according to figures from the U.S. Census Bureau, Wal-Mart US is an integral part of consumers’ budgets. The company dominates the US retail landscape and is growing internationally at a fast pace. Wal-Mart, being a market leader, is able to replicate its best practices constantly on an unmatched scale both in the US and across the world. Wal-Mart’s large scale relative to most vendors leads to favorable terms on everything from the products on its shelves to store leases and distribution agreements.

Also, Wal-Mart offers a large variety of products. Its dominant position and range of products allows the company to quickly shift the product mix to meet demand and benefit from increased sales. Such flexibility and clout will enable the company to maintain its market position and continue to capture market share from competitors.

Low cost leadership enabling Wal-Mart to offer products at low price points

Wal-Mart is a price leader and its low cost operations are enabling the company to maintain the position. The company offers its grocery products at prices about 12% lower than the market. Wal-Mart constantly flexes its bargaining muscle to lower prices. This strategy ensures a steady, recurring stream of customers for its goods, making Wal-Mart synonymous with inexpensive and this keeps constant pressure on competitors. Sam’s Club also enjoys a similar reputation but on a per-unit basis, as most of its goods are sold in bulk.

The company receives favorable pricing from and systematic integration with most of its suppliers which is a large part of Wal-Mart’s crucial low-cost advantage. The company generally requires suppliers to tie in to its own inventory management system and to deliver goods in the manner and timing Wal-Mart dictates, leading to impressive inventory turns (especially considering that half of revenue is from non-grocery categories)

Furthermore, a no-frills store environment also improves total asset turns and limits maintenance capital investment. In addition, as a low-cost general retailer, Wal-Mart has built a reputation with consumers as a one-stop shop for good deals on a huge spectrum of merchandize. The company has been aggressively trying to further reduce stock-keeping units and lower prices. Most cost savings are likely to be passed to consumers, making Wal-Mart’s low-price leadership even more difficult to surpass.

Internationalization strategy—a strong foundation for growth as the US market matures

Wal-Mart has been increasingly focusing on establishing its presence strongly in the international arena. The company operates 4,068 units in 14 countries. Wal-Mart opened its first international store in Mexico in 1991 and has grown both through acquisitions and its own innovation. Though it is synonymous with the big-box stores in the US, the company has nine international store formats ranging from relatively tiny Bodega Aurrera Express stores in Mexico to a cash-and-carry warehouse in India to the traditional box in Canada.

It operates under 55 different banners-Acuenta in Chile, Asda in the UK and Seiyu in Japan. Wal-Mart’s focus on international growth has enabled it to achieve a milestone by surpassing the $100 billion net sales mark for the year. Wal-Mart’s international division is its fastest growing segment and this is expected to continue at an aggressive pace through strong organic growth and acquisitions. In FY2010, Wal-Mart added more than 500 units, all from organic growth.

As the markets in the US saturate for Wal-Mart, the international strategy helps the company to improve returns. The risk profile of more mature markets like the UK helps provide the balance for significant growth opportunities in emerging markets like Brazil, China and India. International revenue growth more than offset a modest decrease in the US comparable-store sales. International segment revenue (25% of total) grew 9% on a currency-adjusted basis, and similar growth rates are expected for medium term as Wal-Mart redirects capital spending from the US to faster-growing markets such as Latin America and China.

As it expands at the international level, not only will the company be able to replicate the business model and leverage on the expertise, but also will leverage on the global scale through global brand and supplier relationships and merchandising efficiencies. Wal-Mart is effectively participating in the high growth of emerging markets as its competitors like Target lack the advantage. International strategy gained prominence for Wal-Mart as the opportunities for growth in the core US markets slowed.


Big box retailing format led to low penetration into urban areas

Wal-Mart is a big box retailer and operates supercenters which require large space for every new store. This is limiting expansion of Wal-Mart stores in urban areas where there is limited space available and limited commercial spaces which can provide such large spaces. Wal-Mart’s massive stores can combine a grocery store and a discount store under one roof. Building huge stores made sense when suburban landscapes were wide open and baby boomers were moving away from cities. Easy access to credit fueled customer demand for larger homes and all the trappings that went with them. But trends now suggest that big stores are less attractive.

Baby boomers are scaling back, moving into smaller homes closer to urban areas. The housing market crash also means new neighborhoods are not springing up to support retail centers. With the latest urban focus, retailers are expected to invent formats that differ dramatically from current ones.

Litigations affect labor relations adversely

Wal-Mart has been facing several charges and law suits with respect to labor relations. In FY2009, the company settled 63 wage-and-hour class action lawsuits. As a result of the settlement, Wal-Mart recorded a pre-tax charge of approximately $382 million during Q4’2009.Wal-Mart also is still involved in the Duke’s gender discrimination suit, which was filed by its female retail employees alleging that the company has paid them less and has promoted them less often than male employees. In this case as many as 1.5 million women who have worked at Wal-Mart’s US stores anytime since December 26, 1998 will be represented and compensated in case it is proven.

Wal-Mart has been suffering the ill-effects of such law suits which divert large amounts of money towards counterproductive activities. Additionally, the company’s reputation is tarnished and will find itself short of skilled and qualified employees. The employees might demand higher compensation and will also lead to skilled employees choosing to work with competitors, which will be a key competitive disadvantage.

Target’s superior merchandising capabilities to appeal more to the customers as the US economy revives

Target has over the years focused on differentiating itself against the competition, specifically against Wal-Mart, through the merchandise it offers. Target benefited from the image of being a purveyor of affordable yet stylish products. It made deals with well-known designers who made frugal, fashionable clothes for the company, which were viewed as little bit more upscale than that of Wal-Mart’s. In a study conducted by William Blair and Company, it was observed that Target had a superior merchandise selection compared to Wal-Mart across various parameters.

Target led in the depth of merchandise assortment across several product categories. It also has a considerable advantage in the product assortment in home and hardlines. In both of these categories, Target also led Wal-Mart in-brand variety and brand assortment available in its stores. Target offers merchandise across several price points and offers a wider range of price points between the opening price and highest-end items.

Target led across several categories including home, hardlines, apparel and electronics. Although, customers in recent times have been trading down and Target has found it increasingly difficult to compete with Wal-Mart, the strong merchandising is a key differentiator as consumer spending starts increasing. Also, its merchandising is enabling Target to charge a premium and increase its margins. Wal-Mart has geared up efforts to compete with Target on merchandising. However, Target still leads in merchandising and Wal-Mart’s product assortment although available at lower prices might be less appealing to the customers as the economy recovers and consumers start spending.


Outperformance of the retail sectors in emerging markets

Wal-Mart has presence in several emerging economies and the positive retail trends in these economies will positively impact revenue growth. Asia’s retail sales are estimated to increase with China driving the growth. China’s retail sales are estimated to grow at 16% in 2010.

China’s retail sales rose 17.9% and stood at CNY2.5052 trillion ($366.9 billion) in January and February of 2010 according to latest figures released by the National Bureau of Statistics (NBS). On a year-over-year basis, Brazilian retail sales have risen 12.3% in February 2010 and the sales are expected to grow at a fast pace for rest of 2010. Similarly, modern retail in India is estimated to make up just 5% of the market but is growing at 30% a year.

Economists have long predicted that consumers in emerging economies would not only manufacture most of the world’s goods but also buy them. Foreign sales account for roughly 30% of revenue of S&P 500 companies, up from 20% a decade ago. By 2014, the IMF forecasts, emerging economies will contribute more to the world economy than developed nations. Wal-Mart’s bigger focus during the downturn has been on wringing out costs to drive down prices. That has eaten away at revenue, and gas prices have hurt traffic.

Although other retailers have seen consumers begin to relax, Wal-Mart’s low-income, core customers are paying with food stamps and unemployment benefits than a year ago. In contrast to this uncertainty in the US, growth in emerging economies indicates strong returns. Though other countries in which Wal-Mart operates also were hit by the recession, the downturn was not as severe and the recovery has been more robust. The IMF expects the US economy to grow 3.1% in 2010. During the same time, Mexico’s is predicted to expand 4.2%, Brazil to rise 5.5%, and China to hit 10% indicating strong growth rates in all countries in which Wal-Mart has invested heavily.

Concentration on grocery and food will benefit as eating at home, health and wellness trends continue to emerge

Eating at home and eating healthy are important trends that are likely to increase the demand for grocery. For the year ending in February 2009, Americans prepared and consumed nearly two thirds of their meals at home, which is up five meals per person compared to the prior year.

The economic downturn, the perception that home-prepared foods are much healthier- a view held by 92% of grocery shoppers, according to an industry study—and an unmet desire to enjoy affordable, restaurant-style foods at home have given food marketers the opportunity to recapture mealtime. With 84% of food shoppers cooking more at home in 2009 and 40% planning to do so more often in 2010, basic ingredients like rice, breakfast meats, frozen poultry, oils/shortening, and frozen vegetables are estimated to enjoy brisk sales.

Additionally, self-care has emerged as a key money-saving strategy, which is driving the health and wellness trend in the US. Another industry report suggests that nearly three-quarters of consumers rate nutritious/wholesome meals as a major consideration when planning food and beverage shopping trips and that two-thirds are eating to manage specific health conditions. Also, sales of food carrying a natural claim reached $20.4 billion for year ending April 2009, up 6.6%; sales of products with a “no preservatives” callout reached $13 billion, up 8%.

This indicates a growing demand for healthy and natural food products. Customers in the US have are more health conscious now than before and the trend has impacted the preference of food products. It has been observed that 77% of consumers read ingredient statements on packaging and are using nutritional information to make theirpurchasing decisions.

Growth in internet retailing to serve larger market

Online retailing has been increasing at a fast pace in the US. Although in 2009 growth stalled in the country, and recorded a low growth rate of 2%, the online retail sales still contributed to 7% of the total retail sales in 2009 and are expected to further increase. The US market, by 2014 is expected to reach a value of $13.55 billion, which represents an increase of almost 75% compared with levels in 2009, according to industry reports.

Although, the share of grocery in the total online sales is estimated to be 2%, the high growth market gives Wal-Mart an opportunity to reach out to wider audience and increase customer base,’s traffic exceeded one billion visits in 2009, growing more than 15% over the previous year through Site-to-Store and home delivery. With the help of technology, Wal-Mart aims at achieving its long-term target of serving over a billion customers in a week in the coming 20 years, compared with the 200 million customers it now serves every week. The company has been focusing on establishing a strong presence in the online segment and the growing popularity of the channel will facilitate such expansion.


Two million employees increases exposure to increasing wages and high healthcare costs

The labor costs for companies have been rising as the healthcare costs and wages increase in the recent times. Tight labor markets, increased overtime, government mandated increases in minimum wages and a higher proportion of full-time employees are resulting in an increase in labor costs, which could materially impact the company’s results of operation. In the US, the government increased the minimum wage rate from $6.55 per hour in 2008 to $7.25 an hour in July 2009. The government revised the labor rates for the third year in a row.

Furthermore, many states and municipalities in the country have minimum wage rate even higher than $7.25 per hour due to higher cost of living. In addition to this, the health care costs for employers in the US are increasing. According to industry estimates, health-care costs for the US employers are estimated to increase by 9% in 2010. The medical cost increases continue to outpace inflation and wage increases, and is even higher than the health-care inflation rate for the nation as a whole, at 6.9% in 2009.

One of the key drivers expected to increase medical costs in 2010 is that the workers are concerned about losing their jobs and potentially their health insurance and therefore are using their health care more while they still have it. The new healthcare reforms are bringing more people under the range of insurance further increasing the costs for employers.

Volatility in commodity prices and cost inflation will pressurize margins

The inflation for producers has been increasing at a faster pace than consumer’s inflation leading to higher costs for the producers. The cost inflation returned and the food and grocery industry has little pricing power, the factors which have been pressurizing margins.

Commodity prices in meat, milk and eggs are showing enormous volatility, and as customers are price sensitive it is not always possible to pass on the rise in costs. Price wars between competitors will ensure that customers are offered products at the lowest price possible. As inflation increased and the shelf price increased, some demand destruction was seen. Therefore, volatility in commodity prices and rising cost inflation will affect margins adversely.

Deflation in grocery could have a negative impact on Wal-Mart and it increases the reliance on continually pressing efficiency out of operations and forces lower selling prices from suppliers, which might not be possible for the company. As the US economy is slowly recovering, Wal-Mart has once again resorted to price cuts and announced price rollbacks on 10,000 SKUs in April 2010. The manufacturers are expecting requests from Wal-Mart for price relief to support the pricing plans, and this might not materialize as PPI increases for grocery and food products manufacturers.

Increasing resistance to expansion from local organizations and authorities

For several years now, Wal-Mart has been facing severe resistance from several groups when it plans to open new stores. Several of these reports have been affecting the decisions made by local authorities which are deterring the expansion plans of Wal-Mart. A review and analysis by an industry related report suggested that on the average, a Wal-Mart store gets 84% of its business from existing stores. Another report documented that Wal-Mart has received more than $1 billion in subsidies from state and local governments through tax breaks and paying for roads and utility connections at many of its new stores.

A market analysis report estimated that for every new Wal-Mart super center that opens, two local supermarkets will close. The Wall Street Journal reported that 51% of Wal-Mart’s sales come from groceries, which do not generate any sales tax revenue for the city. Additionally, several labor issues that Wal-Mart is involved in are leading to severe opposition from the unions. In many cases, the pitched battles with the local organizations and authorities have more than doubled the amount of time it takes Wal-Mart to open a store. And the fights generate negative publicity as well. Local authorities have been forced to consider giving permits on several occasions delaying the projects.

For instance in 2010, the City Council Zoning Committee in Chicago, short on votes, once again deferred a vote on a massive development on the Far South Side that would include Chicago’s second Wal-Mart, to give Chicagoans more time to analyze this study, on Wal-Mart before the council takes a decision. The Milpitas City Council denied Wal-Mart’s bid for a nearly 18,500-square-foot expansion at its Ranch Drive location that would also have allowed liquor sales, groceries and 24-hour operation. It is becoming increasingly difficult for Wal-Mart to open new stores as the resistance increases. This is affecting the new investments and the time to open new stores for the company.


When Wal-Mart Enters: How Incumbent Retailers React and How This Affects Their Sales Outcomes.Full Text Available By: Ailawadi, Kusum L; Zhang, Jie; Krishna, Aradhna; Kruger, Michael W. Journal of Marketing Research (JMR),Aug2010, Vol. 47 Issue 4, p577-593, 17p; DOI: 10.1509/jmkr.47.4.577; (AN 52119030)

Maximizing Employee Value.Full Text Available By: Reed-Woodard, Marcia A.. Black Enterprise, Sep2010, Vol. 41 Issue 2, p56-56, 2/3p; (AN 53339039)

“Next Generation Walmart.”. By: DUKE, MIKE. Vital Speeches of the Day, Sep2010, Vol. 76 Issue 9, p425-427, 3p; (AN 53426581)

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