Analysis: Walmart Stores Inc.

Walmart Stores Inc. is the largest retailer and the biggest company in the world. Launched in 1962 by brothers Bud and Sam Walton, it has expanded from a single store to a multinational company today. Within two years of its existence, Walmart has opened 24 stores and made 12 million of sales. In 1969, Walmart began its journey to internationalization by opening a store in Oklahoma and Missouri. Walmart has over 2.3 million employees in its stores in different parts of the world — only in the United States, it has 1.5 million employees. The company is famous for its wide variety of goods and discounted prices. It operates under the idea of selling more stock for less. Every week, an estimated 260 million of clients visit Walmart stores. The company boasts of having over 11, 500 stores in 28 countries. It also operates an E-Commerce site, which is accessible to 11 countries (Wal-Mart Stores Inc., 2016).

SWOT Analysis

Strengths

The Vision and Mission Statement. Walmart’s vision statement is to emerge as the best retailer in the hearts and minds of consumers and employees. The company has managed to live up to a significant degree of this declaration. Its aim was to be the leader in the retail industry, a goal that it has already achieved. The company has also attempted to influence the minds and hearts of customers in regard to its large market share and discounted prices at its stores.

Walmart’s mission is to help people make savings so that they could live better. There are many initiatives that Walmart has put in place in order to support the mission. The first lies in price leadership. Walmart has managed to provide customers with excellent value for their money in all product lines. By keeping its prices lower than other retailers offer, the company has prevented the attempts by the competitors to take up its market share. Another strategy is that Walmart is working toward expanding its private label product categories and implementing an integrated branding system with co-vendors through the advertising campaigns. This technique reduced the company’s marketing costs, making it possible for them to offer low prices to the consumers.

The Strategic Plans. The strategic plan of Walmart is in line with the company’s mission and vision, and it aims to ensure that the company remains as the world’s retail leader. One of its major plans in 2016 is to invest $3.3 billion in its E-Commerce segment (Abrams & Picker, 2016) and to reduce the number of new store openings. The company intends to accomplish the massive growth by acquiring Jet.com, an online bulk retail company. This acquisition will enable Walmart to stay ahead of its main online competitors, Amazon and Target. The online trade is a major determinant of the retail trade, and it is likely to influence the success of firms in the future.

Another strategic initiative by Walmart is “Win. Play. Show.” The plan is to enable Walmart to optimize the products it offers at its stores, where the three words represent different product categories. The Win division is the first priority of Walmart. It uses the goods to increase its market share, to keep the first position in the market by offering new products, and to be the leader in price and value, as well as in offerings of a variety of goods. The Play category comprises the products the quantity of which Walmart wants to increase, while balancing the growth and income. The Show category is the one where the retailer can reduce their stock without removing it altogether.

Another initiative statement of Walmart is Fast, Friendly, and Clean. Through this strategy, Walmart improves the in-store experience of consumers while increasing its efficiency. To ensure the fast flow of goods, Walmart has adopted a stock replenishment cycle of 48 hours. It has also implemented cross docking, a practice that has cut down on operational costs, reduced inventory levels, and increased the throughput. It also avoids the unnecessary storage of products. Walmart has a goal of zero-waste in all its operations, including the production points, through the distributions systems and from one store to another.

The Organizational Structure. The organizational structure of Walmart is ideal for a large company that handles the global scope of operations. It runs on a hierarchical, function-based system. The hierarchy element refers to the vertical arrangement of positions which are determined by the power and authority channels. Other than the CEO, every employee has a supervisor. Top management implements mandates through the managers, who pass them down to the other employees. Functionally, the organization comprises the departments that serve different purposes, such as the human resources department, operations department, and marketing department. The main strength of the company is that its organization combines hierarchical and functional structure. Thus, its corporate managers can lead the entire organization easily, without conflicts or any opposition to their authority. New policies from the headquarters are passed down the structure through regional managers, then to the store managers. Such system prevents the confusion and promotes accountability in the company.

Large Size. Walmart remains unmatched in regard to the scale of operations and market force. It also has the highest number of employees, reaching the point of more than 2.3 million. It makes the highest revenues in the United States and other nations. Being the largest company comes with several advantages to the enterprise, such as the large economies of scale. The company spreads its fixed costs across many products, which enables it to offer lower prices than that of its competitors. Walmart can also use its resources, such as information systems, knowledge, and skills efficiently in a variety of locations. The company can accept high risks without fearing to lose much in case their strategy does not succeed. Finally, the large size gives Walmart power in the market. It can use its power on suppliers by asking for lower prices. It can also drive competition out of the market by substantially cutting the prices on specific products.

Global Presence. Walmart has grown tremendously over the years. It has established numerous stores in different countries, which contributes to its prosperity. The company has received the worldwide recognition. It has over 6,000 retail stores in 27 countries outside the United States. The company is known by different brands in various countries — in the U.K, its brand is ASDA, in Mexico, it is Walmexa, and in Japan, it is Seiyu (Hammerich & Lewis, 2013). In the fiscal year 2016, sales revenues from international stores were $123.4 billion, equivalent to 25.6 percent of the total company sales (Soni, 2016). Walmart uses the global platform as a chance to expand its operations. The international stores help the country to strengthen its leadership position.

Weaknesses

Walmart’s Culture. Despite the numerous advantages, Walmart’s organizational culture is questionable. Over the recent years, this giant retailer has been on the spotlight for the wrong reasons at an unprecedented rate, which has undermined its public image. It has also faced many litigations. Most of the time, the cases were investigated due to the retailer’s unethical employee practices. The company has a history of abusing its employees and suppressing demonstrations for their rights. The employees complained of harsh working conditions, abusive managers, and threats. Walmart evaded the accountability of the accusations due to the lack of a transparent supply chain system. The women workers at Walmart have been complaining about the unfair treatment by the company. They get less salary compared to men and limited opportunities for promotion in ranks. While women comprise the majority of Walmart employees, most of them hold low-rank positions. Only a few of them hold management roles. Additionally, several pregnant workers women at Walmart have complained of mistreatment or unfair termination. In one instance, Walmart fired the expectant mother for missing her shifts, even after she presented the medical reports citing a complicated pregnancy. Walmart Company has also been involved in the violation of antibribery laws in order to advance its interests in foreign markets, including China, Mexico, and India (Clifford & Barstow, 2012). The malpractices have damaged the company’s reputation and limited its opportunities for development.

Opportunities

One economic opportunity for Walmart is the presence of free trade zones. When any country gets into a trade agreement, large businesses like Walmart are able to commit to new sales contracts and to increase their market share. Walmart has a wide variety of products under its private label. The company also has the capability to increase its consumers share through merging or acquiring other companies. It can also collaborate with international retailers in order to increase the influence of its presence in other countries.

E-Commerce presents a great opportunity for Walmart, because the consumers are shifting to online platforms for shopping due to convenience. This opportunity applies both to international and local markets. Integrating its physical and digitals stores will give Walmart a high return on the invested capital. With the current plans to acquire Jet.com, Walmart is likely to derive maximum benefits from this chance soon.

Walmart has unlimited opportunities in the developing countries. People are becoming more independent than before, and their propensity to buy things is increasing. Walmart has under-invested in some countries, such as India. The increasing per capita income in India is a favorable factor for retail businesses in the region. Other factors include a growing population, double incomes in households, availability of credit, and new consumers’ lifestyles. There is also an increased tendency of the nationals to seek home-improvement services. The Indian market is untapped, and Walmart should take advantage of the changes, investing in several stores in India.

Walmart has a chance to revive its reputation in the industry by improving its employee practices. Currently, many people have a negative perception of Walmart due to employee exploitations and anti-labor stunts that the media has reported. The unsatisfied employees have also posted complaints regarding poor salary, intense, unreasonable work schedule, and under-compensation of women on the Internet, especially of those in the social media groups. Improving the working conditions of employees requires investment in fair compensation schemes and improvement of the overall treatment of workers. Employing more employees would also reduce the tiresome workload in some stores. Satisfied employees will speak well of the company in the media, which will improve its current reputation, and a good reputation will help Walmart to gain more customers.

Threats

In the recent past, there has been an increase in competition in the retail industry. While Walmart remains ahead in the market share, it needs to watch out for the other main retailers and those that are emerging. Over the past two years, the competitive environment around the company has changed notably. The primary competition comes from general merchandisers. Costco and Trader Joe have also started to reduce prices on various items to match prices of Walmart, and Costco is gaining prominence in the industry. It is popular for fresh products, gasoline, and luxury products. Other competitors in the general merchandise include Target and Kmart. The long-standing competitive advantage of Walmart, derived from its large assortment and low prices, is fading now due to the emergence of the retailers that focus on offering extreme value to their customers with up to 50 percent off on products. This class of competitors covers the warehouse clubs and hard discounters. They manage to get cost advantages through vertical integration of marketing, manufacturing, and shipping. Amazon is also another primary competitor for Walmart. The company works together with third-party retailers who offer their consumers a variety of alternatives. They are also capable of undercutting Walmart’ prices because they require lesser costs. They do not have to run physical stores, hence making savings on the renting of offices, among other things.

Another threat for Walmart is the current stagnation of wage and increasing wage inequalities in the United States. A Pew study of the income trend of Americans revealed that while the high-income group has been getting richer, the middle-class income has been decreasing (Desilver, 2016). Pew established a drop in the median wealth of the average middle class by 28 percent between 2001and 2003. The average revenue of the same group declined by 4 percent between 2000 and 2014 (Pew Research Center, 2015). The findings imply that middle-class families have little disposable income to spend at Walmart.

There is also the fact that the Americans are driving less these days. The models at Walmart Stores are based on the assumption that people will drive to their wholesale stores and then drive back home with large volumes of items. Between 2004 and 2014, the average number of miles driven by Americans fell by 10 percent (Beck, 2016). Many young people do not have driver’s licenses as they did before. In 2014, only 69 percent of 19-year olds had licenses compared to 90 percent in 1983 (Beck, 2016). These statistics are a disadvantage for Walmart and an advantage for the online stores such as Amazon.

A decline in brands is another bad sign for Walmart. Most of the company’s success comes from its ability to sell name brands at lower prices than those of the competitors. However, there has been a shift in Americans’ preferences in that they are deciding against buying brands, going for cheaper products instead. Other fast-growing retailers, including Costco and Aldi, have also started to produce labeled items, offering them at lower prices than those of Walmart, taking away its incentive.

Article Analysis

Nassauer, S. (2016, August 8). Wal-Mart to acquire Jet.com for $3.3 billion in cash, stock. The Wall Street Journal.

Summary

Walmart Company agreed to buy Jet.com Inc., a web retailer, with an intention to jump-start its E-commerce sector. Being the largest deal ever witnessed in the purchase of an e-commerce site, it is evident that Walmart takes online trade seriously, seeing Amazon.com as a serious competition after 50 years of its growth. Part of the acquisition deal is that Marc Lore, the CEO of Jet.com, will be able to manage two online platforms, Walmart.com and Jet.com, thus replacing Neil Ashe, the former e-commerce executive.

While the cost of acquisition is very high, Jet.com, which is only one year old, has not made any profits so far, even though it has been making efforts to market itself. The price consisted of $3 billion dollars, which will be paid over time in sections, and Walmart $300 million shares will be paid as part of the transaction.

It is not the first time that Walmart is investing heavily in ecommerce. It invested billions of dollars when setting up Walmart.com, in order to establish online retail points of sales. The company built large-scale distribution points to ensure that deliveries to consumers were always timely. However, the most recent changes clearly mean that e-commerce is a serious affair for Walmart. Previously, the company only used e-commerce as a secondary operation, with the main operational force being the physical store. Employees at Walmart say that the new investment is a strategy by Walmart applied in order to make quick profits. It is competing with Amazon, whose sales in 2015 were $107 billion. During the same year, Walmart’s e-commerce sales were only $14 billion.

A collaboration between Jet.com and Walmart will lead to stiff competition between the two largest retailers. While Jet.com will bring in new technology and talent to the company, it is unlikely to solve all of Walmart’s problems, especially those regarding the merging of the stores and distribution through the website.

The strategy of Jet is to collaborate with sellers in order to offer customers goods at lower prices instead of having its own stock. It plans to give discounts depending on the consumers’ basket size, the way the products that they buy affect profits, and the proximity to the merchandise.

Walmart is hoping to access a larger consumer segment, comprising the young, vibrant urban class. It depends on Jet to develop products that suit this group. Walmart intends to run Jet.com and Walmart.com as two different websites. The primary challenge for the retailer is to bring the two websites and its physical stores to work together under one vision. Walmart has been finding it hard to keep up with Amazon’s development over the past years. During the recent quarter, Amazon’s sales rose by 31 percent, while those of Walmart grew by 7 percent. Walmart has already begun the online battle by increasing the number of items that it offers online in order to lure clients from Amazon. One problem that Walmart experienced in the past with its online store was using software that capped the number of items available for display to only 8 million. However, Walmart’s products have now increased to the number of almost 11 million.

Attractive Element

The aspect that made the article attractive was the huge price of $3.3 billion dollars that Walmart offered to Jet.com. The first noticeable thing is that it is quite a high price to pay for an e-commerce site. It was even more confusing to learn that Jet.com has only been in the market for one year, without making any profits. It is difficult not to wonder why Walmart chose to settle for this company, and whether it evaluated the risks involved. It is also hard not to question the procedure that Walmart used in order to choose the firm, leaving out all others.

Lesson Learned from the Article

Beating competition is not easy. It takes big decisions that involve large sums of money, especially when the threat has proven to be strong. For Walmart, it is essential to counter Amazon because the company was established just recently, yet it is making large profits from e-commerce, an area in regard to which Walmart has been lagging behind.

Another lesson is that it is important for companies to invest in new trends as soon as they appear rather than waiting for a long time. While Amazon and other companies were taking advantage of the Internet, Walmart underinvested in the sector, and now it is paying a high price for it.

Impact of the Subject on the Firm from a Competitive Perspective (Culture, Strategic Direction, Management Structure

The latest acquisition will help Walmart optimize the already existing foundation for online marketing that functions through Walmart.com. This deal gives the company access to Jet’s innovative pricing possibilities and insights into e-commerce trade. Jet.com will provide the retailer with data solutions that will help the company compete successfully against Amazon. The company will reach a wider target market, including even those it may not have been able to attract in the past, such as the millennial shoppers. The group will increase its market share. Jet.com will make this happen by implementing its plan to reach out to third parties who will offer the customers a broad assortment of products. Providing a variety of products is Amazon’s winning strategy right now. The company will also be able to achieve price cuts on items as the consumers shop more. By spreading the fixed costs to a large number of products, they can comfortably offer the consumers discounts and other beneficial deals. The competitive strategy against Amazon will include the shift from the mere changes in pricing to the wider assortment of products and continuous supply of goods. The combination of Walmart’s excellent logistics and purchasing power, and Jet.com’s bulk-sales retail model will make Walmart an unbeatable company. In addition to that, the reduced costs in e-commerce can only help the company expand further and strengthen its position as the leading retailer. The move will also lead to increased customers’ satisfaction. Customers prefer shopping at avenues that make the whole process convenient and easy, and online shopping offers exactly that.

The acquisition will also have an impact on Walmart’s management. Part of the deal is that Marc Lore, the founder of Jet.com, will take over the e-commerce department at Walmart as the head of online retail. The former head, Neil Ashe, has already left the company. Marc Lore has several years of experience in e-commerce, and he has made achievements in the sector. In 2010, Marc Lore had a similar start-up named Quidsi. Amazon purchased the company for $545 million after a tough battle with other companies that also wanted to acquire it. Marc Lore will bring a fresh perspective to e-commerce management. The department is likely to experience a restructuring, because the new organizational structure is different from what Walmart has always looked like. There will also be more functions involved. Part of the new task lies in aligning the Walmart Physical stores, Walmart.com, and Jet.com to work together in order to maximize the sales. Mac Lore will be in charge of the two online platforms. Walmart might need to hire new employees who can handle the Jet.com system and train the existing employees in regard to its peculiarities.

The move will lead to cultural transformation at Walmart. Investing such a large sum of money in e-commerce can only mean that the department is going to be a significant element of the company in the next few years. The digital focus of Walmart will give a better experience to both consumers and Walmart employees. The company will have to integrate online platforms more than ever before in order to interact with its customers. Most online shoppers also use other sources of digital media, such as blogs, YouTube, Facebook, and Twitter. Walmart will have to increase the intensity of its online advertising in order to reach out to potential clients. Thus, it will important to consider the changing nature of advertisements by mixing graphics, videos, and text to come up with effective adverts, tailored to communicate with the digital generation. Walmart will also have to revolutionize its online customer care management, to increase the influence of its presence, and to respond to questions and complaints.

As a part of the new organizational culture, Walmart will have to make use of massive data sources that are available on the Internet. Data from Walmart.com, Jet.com, and social media sites will help the company in making decisions. For example, by keeping track of the most searched items, Walmart can decide which new products to add to its online stock. Walmart will have to deal with greater competition that is prevalent in the field of e-commerce. Consumers can switch the retailers simply by a single click or a finger swipe. Hence, Walmart should ensure that its online interfaces are simple and attractive to consumers.

Walmart might have to incorporate the information systems managers to tap the useful data that is available online and process it, thus coming up with a meaningful output that would help in the management of the company. One such system is called Salesforce, an application that can help the retailers build meaningful relationships with consumers, strike deals online, come up with marketing campaigns, and monitor their competition. For example, through the Salesforce tool, marketing specialists can track the history of buyers within the site and record information such as the average amount they spend and the nature of products they purchase. The marketers can predict what the customers are likely to buy and then email them advertisements and offer that are likely to interest them.