What drives the Wal-mart profitability and its growth Strategy?

What drives the Wal-mart profitability and its growth Strategy?

Introduction

Problem statement: What drives the Wal-mart profitability and its growth Strategy?

The major challenges facing Walmart Inc stem from the stiff competition from its competitors. In North America, Walmart faces stiff competition from other departmental and discount stores like Kmart and Shopko.

Walmart is a multinational retail corporation based and registered in America as Wal-Mart Stores, Inc. It’s one of the largest public corporations in the world with over two million employees worldwide. The Walton family owns 48% of walmart and it deals mainly in large warehouses and chains of discount department stores.

The company was founded in 1962 by Sam Walton and incorporated on 31st October in the year 1969 and started trading in the New York stock Exchange in 1972. It’s the largest and most profitable grocery retailer both in the US and in most parts of the world. Its head office is in Bentonville, Arkansas, in the US.

Walmart has slightly over 8500 stores worldwide in fifteen different countries, trading in fifty five different names. It trades as Walmex in Mexico, Seiyu in Japan, Asda in UK and as Best Price in India. But most of its sales are in America, for instance in the year 2009 Walmart generated $258 billion in sales turnover but 51% of the sales were in the US alone. Between the years 1990 and 1991 it outsold its greatest rivals K- mart and Sears respectively.

Walmart has had great successes in the United Kingdom, South America and China while its sales in Germany and South Korea were not very successful. On 30thJune 2008, Walmart rebranded and replaced its logo with the Star that reflects a sunburst instead of the hyphen.

The operations of Walmart are divided into three major divisions, the Walmart Stores in the United States of America, The Sams clubs and Walmart international. Walmart has nine different retail formats i.e. Food and drugs retail shops and departments, Membership warehouse clubs,

Apparel and clothes shops Soft discount stores, Supercenters, General merchandise stores, carry and cash stores, bodegas (small markets) and restaurants.

The most notable business operations of the Walmart chain of trading stores are the supercenters. These are hypermarkets with very large trading floors ranging from 98000 to 261000 square feet. They stock literally everything including garden produce, chicken, beef, sea food, pets, drugs and even electronics. After the 2008 rebranding, the supercenters were renamed Walmart stores except in Canada where they are still known as supercenters.

As Neuhausen, analyze the supply chain of Walmart. Are the company’s supply chain capabilities still a source of competitive advantage? Yes and why?

The supply chain is well organized with a wide variety of products ranging from domestic household product to apparels and even motor vehicle fuel. The supply chain of Wal-mart is made up of up of many different retail formats in the operating divisions. The Walmart stores U.S is one of the largest divisions and in the year 2010 it accounted for 63.8% of the total sales of Walmart. The three common retail formats are the Discount Stores, the Walmart Markets and the Supercenters now Walmarts. The retail stores deal mostly in non grocery goods while the supercenters deal also in grocery goods. This division also specializes in online retail sales. In the month of September during the year 2006, Walmart introduced the sales of generic drugs at reasonable rates. These drugs are imported from India and made by some US based companies including Ranbaxy. These products contributed immensely to the high profits of Wal-mart.

Walmart discount stores also known as discount department stores have a shopping floor of between 51000 t0 224000 square feet on average they total 102000 square feet. They sell general merchandise and a limited variety of groceries.  They also maintain pharmacies, Tire and Lube, Optical center, Bank branches, Fast foods, cell phones and even gasoline stations.

The Walmart Supercenters have very large floors averaging 197000 square feet. Besides selling regular domestic goods, they also have salons, photo processing shops and cellular phone shops.

The Walmart Market is made up of a chain of grocery shops or stores. Their average shopping area is 42000. They provide products that lack in both the supercenters and the Walmart discount stores. They also stock other regular products including pharmaceutical products, health and beauty products and other general products.

The Supermercado de Walmart is meant to be an attraction for the Hispanic communities in the US. The first one was in Houston which had an average shopping floor of 39000 square feet later in 2009 another one was established in Phoenix, Arizona. They have a specialty in Hispanic groceries.

The Walmart Express is slightly smaller but with a wide range of groceries and other products including gasoline. There several of them in Richfield, Chicago, Illinois, Carolina and in other cities in the US.

Sams Clubs are a chain of warehouses which sell general merchandise mostly in large quantities. These are membership stores and the members pay annual membership, however non-members can be allowed to shop after buying a single days membership or agree to pay an extra cost as surcharge when paying at the counter. The first Sam’s clubs was established in Midwest City, in Oklahoma. Walmart international does its operations overseas with other 660,000 workers in 15 countries outside the United States of America. Walmart international sales accounted for 24.7% of the total Walmart sales globally.

To boost the international market, Walmart purchased Woolco among the 122 stores acquired in Canada. Woolco was a division of Woolworth Canada Inc in the year 1994. In 2010 Walmart Rewards master card was introduced by the walmart Canada branch.

How is Wal-mart doing? How does it compare to its competitors?

Walmart sales have improved steadily compared to their own previous sales records. For instance in instance in the year 2002 the sales were $217799 million, followed by $244524 million, $256329 million, $285222 million, $312427, $344992, $374526, $401244, 406046, 418952 for the years 2003 to 2012 respectively.  There are other divisions that Walmart may have suffered losses like in the online division where it experienced a tough challenge from Amazon online services which also has a line of its own credit card facilities.

Walmart’s supply chain is still a source of competitive advantage. The Walmart’s supply chain decision to source products globally, use bar codes to identify stock levels and reorder quantities, exchange data with suppliers and make use of efficient, computerized and sophisticated point of sale real time method of data capture. The use of technology to make operation decision gave Walton a higher a competitive advantage in  terms of quick and accurate decision making and implementation of sound management decisions which had scientific backing. The decision to cut out middle men in its operations especially in New York made it to be very profitable and gave Walmart a head start in US retail market as its product had a relatively higher margin of profits than its competitors. The use of branded private labels resulted in more sales for Walmart than the suppliers branded items.

Walmart’s sales strategy of aggressively visiting its trading departments and helping associates sell products and reviewing new merchandise, exchanging buying notes and developing a merchandised prototype retail store in one of its warehouses achieved a lot in identifying the buying patterns and sales strategies for its upcoming and current markets.

Walmart’s bargaining power was much higher than its suppliers as they had to accept Walmarts payment terms, support its strategies and also brand and package their products in Walmart terms and condition.   These advantages gave Walmart an upper hand over its rivals. Walmart dictated its terms to suppliers i.e. how to design and manufacture its products, what ingredients to include and even convinced them to be loyal to its cause in political fights.

Walmart decision to insist on nonpayment of advertising cost, distribution and discounting of merchandise from his suppliers and the use a single value in invoice price made gave a very huge advantage over all its competitors.

Walmart is doing very well, far above its competitors. It’s has consolidated its market share aggressively and developed its own marketing skills that are not comparable even to its closest rivals in the retail market.

Walmart’s sales in the year 2011 totaled $418,952 million dollars, posting a net income of 16993 million with a total asset value of $180663 million. Its closest rival was CVS with a total sales figure of $107100 million, net income of $3457 and total combined assets of $64543 million.

As Johnnie Dobbs, Walmart’s executive Vice President (EVP) of logistics, where would you spend your money or focus your energy?  What recommendations would you make to the CEO?

As the Executive Vice President, my major task would be on strengthening the internal control system to consolidate all the stock taking procedures and encourage the use of the sophisticate and complex data capture techniques to verify the stock levels and stream line and expand the purchasing department to source even more products from other parts of the world besides china.

The additional sales units of gasoline should be conveniently position in areas with ample parking space to enable many clients to drive in. The company should also adopt new approaches in management to utilize various multiple objectives and goals comprising of both the financial and non financial measures. The traditional measures of profit and cash generational may be a good start but the real success is in quantifying the customer satisfaction and the proportion of revenue from new business being created.

My recommendations to Walmart’s CEO would be that they should adopt strategic measures to analyze the wider objectives of the company and also regulate the needs of Walmart at present without necessarily jeopardizing its future needs. (Wilson, 1995). Walmart should also adopt staff motivation schemes to encourage workers to work hard. The management should put in place an elaborate staff welfare scheme to cater for its large staff. The high standards of technology and sales structure should be matched also by high levels of income and staff welfare schemes. The issues involving low wages and poor working conditions should be urgently addressed and a sound compensation scheme should be worked out. The high turnover rate, which is close to 70% in the first year of average new employees, should not be encouraged but appropriate measures should be taken to reverse the trend. (Zimmerman, 2010)

Also in the new initiatives, the significant goals and objectives of Walmart were to improve the general supply chain regarding a number of new stores and the type of stores that were needed to grow its foreign branches. There were changes to be effected on the acquisition of the Global sourcing product, and also to increase the shelf availability of products, to encourage and strengthen the online sales, combine real estate section with the operations of other stores for logistics reasons.

Where do you see the opportunities for Walmart in its global supply chain?

Walmart has the potential to expand globally to countries that are still developing. The market is still large and with the advent of modern communication systems, it would be easy to manage and oversee the operations of the foreign branches from the mother countries. With the success it has had in many countries out the USA with the exception of a few, it will be to its future advantage if it started planning and strategizing early how to expand to such markets.

The enhancement in new technology i.e. the use of electronic system to maintain, order, restock and verify the physical stock of merchandise in its stores worldwide should still be developed to effectively cover all its branches worldwide. More research should be done and where possible new branches should be located in areas with less congestion and with ample car parks and spacious entertainment spots for both parents and children. These will attract more customers as lack of these facilities normally discourage a lot of potential shoppers. The availability and range of products should also be continually increased to include almost all the needs of the clients. The workers should also be motivated to work harder for the company. They should also introduce staff bonus schemes to encourage their employees and reduce the high rate of staff turnover.

The major challenges facing Walmart Inc stem from the stiff competition from their competitors. In North America, Walmart faces stiff competition from other departmental and discount stores like Kmart and Shopko. From Canada, it faces competition from the Real Canadian superstore and the Giant tiger and Commercial Mexicana from Mexico. In July 2006, Walmart, after facing a lot of hardship penetrating the German market, formally announced its withdrawal from the country. In May 2006, Walmart also withdrew from the Korean market after trying its lack without success. Walmart also faces a lot of lawsuits from its former employees and also other allegations of gender discrimination. Dukes vs. Walmart stores Inc, 2007. My recommendations to Walmart would be to adopt a strategic policy in marketing and advertising so that before expanding to some overseas market, they should develop a prototype model to test the emerging markets before taking their operations to that country. These will save them money and time wasted in withdrawing from unprofitable ventures.

Finally to conclude, Walmart has a huge potential to develop and expand its market globally. It should continue with its implementation of information technology in all its departments and educate all the employees on its relevance and importance to walmart. The expansion to foreign markets has largely been a success and the impacts on its sales are quite encouraging.

References

 

Wal-Mart Form 10K: Portions of Annual Report to Shareholders. United States Securities and

 

Exchange Commission. Retrieved June 28, 2011.

.

Troy, M (2011). Walton family ownership reaches 48.2 percent level. Retailing Today.

 

Zimmerman, A. (2010). Rival Chains Secretly Fund Opposition to Walmart. The Wall Street Journal.

 

Frank, T (2006). A Brief History of Wal-Mart. Washington Monthly. Retrieved July 24, 2006.

 

Jana, R (2008). Wal-Mart Gets a Facelift. Business Week. Retrieved July 7, 2008

 

Banjo, S. (2012). Can Wal-Mart Think Small?  The Wall Street Journal.  Retrieved May 17, 2012.

Simmonds K., (1981) The Fundamentals of Strategic Management Accounting, London.

Wilson, S., (1995), Strategic Management Accounting, in Ashton et al (Eds), Issues in

Management Accounting, 2nd edition, PHI Englewood Cliffs (NJ).