You are on page 1of 22

About Wal-Mart Wal-Mart Stores, Inc.

, branded as Wal-Mart, is an American multinational retail corporation that runs chains of large discount department stores and warehouse stores. The company is the world's third largest public corporation, according to the Fortune Global 500 list in 2012, the biggest private employer in the world with over two million employees, and is the largest retailer in the world. The company was founded by Sam Walton in 1962 but was incorporated on October 31, 1969. Wal-Mart remains a family-owned business, as the company is controlled by the Walton family, who own a 48 percent stake in Wal-Mart. Present in-in retail stores, online, mobile devices. Customer Base per week- more than 200 million customers Stores- 10,700 Banners- 69 Countries- 27 E-commerce websites -10 countries Fiscal year 2013 sales- $466 billion (approximately) Associates worldwide -2.2 million

Group 14

Wal-mart

Mission "We save people money so they can live better." Company Purpose If we work together, well lower the cost of living for everyone. Well give the world an opportunity to see what its like to save and have a better life.

INDUSTRY ANALYSIS BUSINESS STRATEGY Business Strategies are mainly of three types, the Focus Strategy, the Differentiation strategy, and Overall Cost Leadership. When a Company focuses on offering products and services to particular buyer group, a particular market segment, or a specific geographic market, the company is following The Focus Strategy. When a company offers a unique product or service in the marketplace, the company is following The Differentiation Strategy. Wal-Mart, follows Overall Cost Leadership Strategy, where they offer great quality products and services to their customers at a price lower than that of its competitors. An Overall Cost Leadership concentrates on reducing the cost by concentrating on Companys supply chain. And thus they offer the same or better quality products and services to their customers at lower prices and at the time they need it. PORTERs FIVE FORCES-

Group 14

Wal-mart

This section talks about how Wal-Mart has created entry barriers and high switching cost and how it has reduced the buyer and supplier power. Porters five forces is basically a business strategy tool, that helps in accessing the companys power and access the current strength, and when you know where the power lies you can take advantage of it and work on the Companys weakness. Wal-Mart follows this business tool in planning its strategies. The Porters five forces are the buyer power, the supplier power, threat of substitute products and services, threat of new entrants, and rivalry among existing competitors.

Force 1: The Buyer Power Before the entry of Wal-Mart, the buyer power was high and they could switch from one supplier to another (low switching cost), as their existed an unorganized discount Retail Industry. But after the entry of the retail giant WalMart, switching cost was high. Buyer power is mainly affected by who your customers are, how much revenue they generate and how big they are. Wal-Mart being a well established Company and its store located in major places of the world, individual buyer power does not hold much bargaining power over WalMart. Even if customers buy from somewhere else, they lose the convenience and low price of Wal-Mart stores. - No backward integration - Fragmented market Force 2: Supplier Power In terms of market share, Wal-Mart enjoys a significant part of the market; it offers large business to the suppliers and manufacturers. Wal-Marts business is wide and this gives it an upper hand over its suppliers. As there are large

Group 14

Wal-mart

numbers of choices in products and suppliers available that can replace others and in the grand market Wal-Mart ensures that they have diverse suppliers, who maintain high standards and great quality products and services. It also has an opportunity to integrate vertically. And the supplier power has decreased as most of the supplies come from P&G. Force 3: Threat Of substitues Substitute Products Earlier, before Wal-Mart there were no substitutes and hence the market was attractive. And now, in the current market, there are not many substitutes who offer quality, convenience and low price at the same time. Wal-Mart follows the pattern of providing ease to the customer by offering them everything under one roof, which saves their time, energy and money of going from one specialty store to another. Threat of substitutes to Wal-Mart is just 3%, as Wal-Mart focuses on ensuring that their customers are happy and satisfied by providing low cost and great quality and thus they ensure that they remain ahead of competitors in doing so, it would make it difficult for competitors to match their prices. In order to further reduce this threat, they would have to look fo5r cheaper and better alternatives to tap the resources. Force 4: Threats of New Entry As Wal-Mart follows the startegy of Cost Leadership, it has become very tough for the competitors to make a profit at such low prices that Wal-Mart offers. New Entry becomes difficult if the industry is competitive. For instnace, if all the competitors are offering the same product or service, there will always be a price war between them.As once the customer realize they are not getting the value for money, switching becomes easy.And thus to prevent this and to create

Group 14

Wal-mart

an entry barrier , they would have to work more on the customers need, what they are actually purchasing and ensure they get their value for money. Force 5: Rivalry/Competition Rivalry is how competitive an industry is. For instance, if there are lots of companies selling essentially the same products there will always end up being a price war which will severely hurt the company' profits. Wal-Mart has such low prices which have created a problem for years and fierce competition has made it tough for competitors to make a profit.

SUPPLIER POWER
(Highly dependent on Industry)

NEW ENTRANTS
(Easy to Enter but tough to survive)

COMPETITION
(Wal-Mart, Carrefour, Tesco)

SUBSTITUTES
(Departmental/General Stores)

BUYER POWER/CUSTOMER POWER


(Less Bargaining power and low switching cost)

Group 14

Wal-mart

PESTEL ANALYSIS Political factors: Political restrictions by many countries are an important concern for the organization going global. Like the expansion plan of the organization is hampered by heavy customs & regulations imposed by European countries. Economic factors: The sourcing & pricing policies of any organizations are greatly influenced by the exchange rates policies globally. Also Inequalities in incomes & the difference in spending of consumers of any nation has an influence over the growth of the. For example India and China: are the two largest markets for any organization. Social factors: Social & cultural factors greatly influence the consumers buying behaviour which in turn has an impact on the growth of the organization.
Group 14 Wal-mart

For example push kind of marketing & aggressive selling are not so evident in the developing nations. Also the bulk buying habit existent in the US is not so prominent in the Asian countries. Many a times language & cultural verities are barriers to the globalization of any organization.

Technological factors: Retail chain still lacks basic infrastructure for effective ware housing and distribution networks. Like in case of Wal-Mart development of technology n satellite has given it a boost in sales. Hence Wal-Mart is considered as the leader as far as technology considered.

Environmental factors: An important threat to any organization is of customer theft. Another environmental threat is of the employee theft. Wal-Mart is famous for its customer oriented attitude and has the best customer satisfaction policies that enable the organization gain customer goodwill n loyalty.

Group 14

Wal-mart

INTERNAL ANALYSIS Tangible resources Financial Resources - As Wal-Mart is established and is stable financially, the capacity if borrowing increases, hence it can easily raise funds for new innovation or project Organizational Resources-Wal-Mart employs big executives as top class associates. The basic structure it follows is on regional basis. They are then further divided into departmental stores wherein they handle their own employees. Physical Resources - Wal-Mart structures are generally found on its roots, i.e. the rural areas. Their products are shipped, supplied & delivered to them by their suppliers in their own sophisticated supply chain vehicles. Technological Resources - Wal-Mart has its own logistics for shipping of products, they also own their private satellite network for point-of-sales transmission in all their stores. Intangible resources

Group 14

Wal-mart

Human Resources Wal-Mart follows very stringent laws for employee & some lawsuits are against Wal-Mart for employee discrimination on gender basis. Innovation Resources Wal-Mart is very innovative in terms of their location selection, pricing strategies or may be economical planning and merchandising. Reputational Resources As Wal-Mart maintains a "for-the-consumer attitude its reputation with customers is very good. It establishes its own product, which are very popular among masses. Also their products are of good quality & reliable as they engage in business only with the best players in the market. BUSINESS MODEL A business model describes the rationale of how an organization delivers, captured and creates value. Analysing Wal-Marts Business Model with help of Ostrwalder and Pigneurs Nine Building Blocks

Group 14

Wal-mart

Value Proposition Wal-Marts value proposition includes offering Everyday Low Price (EDLP). This is the core of Wal-Marts Business Model and the rest features are aligned to feed this strategy. This proposition implies that customers do not have to wait for sales and can have the best deals always. Wal-Mart provides wide range of products and services to choose from, for selling convenience. Its one-stop-shopping, from groceries to pharmacy, lets customers save time and money.

Distribution Channel To deliver its value proposition Wal-Mart communicates with and reaches its customer segments with its distribution channels which are owned and direct, and brings higher margin. Wal-Mart also is corresponding with its customers mainly through mass media and other ways which have a low cost, such as internet. Customer relationships and Customer Segment Wal-Marts customer relationship is based on self-service and automation and towards co-creation of some products. Wal-Mart tends to reach mass market by following mass customization practice. Wal-Mart divides its customers into three groups: brand aspirations, price-sensitive effluents and value-price shoppers. Brand aspirants are people who have low incomes but are obsessed with brands. Price-sensitive effluents are wealthy shoppers who love various deals offered and value-price shoppers are the ones who like low prices and cannot afford much more than that.

Group 14

Wal-mart

Key Activities The key activities which are needed to run Wal-Marts business model are: Purchasing goods Delivery of goods Total cost control

Other activities include creation of products that will cover needs of a specific customer segment and to control the brand, which has been developing lately. Wal-Mart has a technological edge in its inventory control, logistics and distribution. Wal-Mart has an accurate time information system of the products in the stores shelves that allow restocking automatically. This ability to move products from place to place quickly and efficiently keeps the cost down. In addition the logistics involves the suppliers and workforce of 85000 employees, 147 far reaching distribution centres, transportation offices, more than 100,000 tractors and trailers and 8000 drivers. Key Resources The key resources of Wal-Mart are classified in 3 categories. First are the physical resources that are owned by the stores and its logistics. Second is their human resources that include experienced managers and its employees. And finally is Wal-Marts culture which is based on restless effort of constant selfimprovement, discipline and loyalty. Key partnership It is a strong buyer-supplier relationship wherein Wal-Mart is the buyer and the suppliers are is its very close partners. They add up to each others value chain and this provides suppliers a chance to access a large market. However it made

Group 14

Wal-mart

suppliers, who wish to take advantages of its broad market, to keep their prices and costs low and therefore, suppliers give the control of their own business and negotiation advantage to Wal-Mart. Wal-Mart also creates economies of scale that optimizes its cost structure. Revenue Stream These are generated from its customer segments. They basically come from retail sale, such as music downloading with fixed menu pricing. Wal-Mart also drives revenue by selling its own brand, produced by others to cover a segment not covered by other suppliers. Moreover, it takes advantage by selling goods even before paying to its suppliers. Cost Structure Wal-Mart follows a cost-driven model since it focuses on minimizing costs wherever it is possible and it is characterized by economies of scale. The use of technology lets it grow and lower its cost further. Hence, this lowered cost at both store level and chain level, strengthens Wal-Marts advantage, rather than being its root cause. Wal-Marts financial discipline is well known as well as their tendency to pass operating costs to suppliers. VALIDITY OF WAL-MARTS BUSINESS MODEL Wal-Marts Business model follows wholesaling idea and is based on cost leadership strategy. Using Chesbroughs model framework classification, WalMarts model is an adapt platform. The company is very much committed to experimentation, and its key suppliers have become banes partners, sharing the technical and business risks, integrating themselves into the planning process of the company. This type of business model has proven to be very profitable for

Group 14

Wal-mart

Wal-Mart. This business model is like a role model for many others but it is hard to imitate since it is adjusted constantly and improves its processes over time. Although its size and economies of scale is a competitive advantage, there is a downturn on the way it does business. Consumers have expressed concerns about the so called Wal-Mart effect, the high cost of low prices. Firstly, Wal-Mart eliminates local competition by creating a monopoly effect, especially in the communities where stores are settled. It leads to reduction of local competitors and thus reducing local jobs. Wal-Marts sole job creation is not always sufficient to cover the jobs lost. In relation with its suppliers, it comes to a point that no more efficiency can be done. Eventually, the only way to reduce costs is to manufacture products outside USA, to countries with lower labour costs and with fewer environmental regulations, which means Wal-Marts suppliers can be less socially responsible than Wal-Mart. There have been current concerns for Wal-Mart while developing its CSR strategies during last few years. On the contrary, Wal-Marts cost control means that nothing can be expanded on other services that adds value to the customer experience. While Tesco centres itself in improving the customer experience, Wal-Mart almost only does so by improving effectiveness. Wal-Mart has identified its customer segments correctly to deliver its value proposition, but it is not apt for every market. It can only approach the segment that it is already serving. The other competitors take advantage of this inability to adapt to different segments. Another negative aspect of Wal-Mart cost control is the relationship with its employee associates. With cost control as its core value, hard work implies that associates and sometimes even managers work for too many hours, sometimes applying illegal practices (e.g. closing associates inside the stores, women discrimination etc.).

Group 14

Wal-mart

Wal-Mart is against labour union formations, since union workers are paid higher salaries than non-union employees. THE FUTURE OF WAL-MART BUSINESS MODEL Objective: Customer Focus Wal-Marts success is due to its business model that focuses on satisfying its customer needs with low price products. Wal-Mart has to continuously modify its competitive strategy to develop a model that maintains its competitive advantage in the global market. In order to achieve the objectives of satisfying customers, enhancing shareholder value and creating the profits, Wal-Mart has three important priorities: growth, leverage and returns. Wal-Mart is continuing to grow around the world through a number of opportunities by opening new stores, entering in new markets, making acquisitions, integrating online channels, and developing new innovative formats to provide customers to experience the Wal-Mart brands.Based on the three important priorities, Wal-Mart keeps on improving the supply chain predictability and visibility to ensure the amount of inventory safety stock that a retailer must maintain in its network. Wal-Mart not only focuses on the tactical efforts to lower costs and improve gross margin, but has looked into the impact of reducing inventory and storage or handling costs associated with excess safety stock. Wal-Mart currently maintains less than 40 days inventory on hand throughout its massive network. With one day reduction in inventory, Wal-Mart can create approximately $1.7 billion of additional cash flow from operations. Strategies and innovations 1. Low Cost Strategy

Group 14

Wal-mart

The core strategy of Wal-Mart is Everyday Low prices as its slogan states, in which the undercutting of prices is the basic principle of its business. Innovation in Wal-Mart can generate an assessment of its current business model and find an appropriate way to develop or change. 2. Information technology innovation Wal-Mart utilizes information and communications technology in order to aid in the decision-making process and advance the effectiveness of consumer responses and control the process of logistics. Wal-Marts business model has both process and service technology innovations, both of which can reduce the operation cost and time. Also the price of products can be reduced through the process of delivery and storage using new technology. And customer service within new technology will add more value in the same price and create a positive image for customers. To identify and track its logistics, Wal-Mart relies on radio frequency identification (RFID) technology. This technology uses a system to communicate through electromagnetic waves in order to exchange data between a terminal and the electronic tag which is attached to the delivery box. 3. Human Resource management innovation Wal-Mart develops its HR policies to adapt the changing environment. All employees from top managers to clerks are called associates, in which everyone receives a great autonomy and can continuously communicate about their performance within the company and about the operations of the stores. This relationship and incentives provide a strong safeguard fro achieving its strategy. The recruitment of people with the proper skills, competence and working experience can influence the morale of all employees.

Group 14

Wal-mart

The problem with motivation as well as the remuneration of associates has been a reason of concern in recent years. Thus financial incentives and other forms of motivations must be constantly evaluated and adapted to ensure the satisfaction of associates. 4. Organization and management styles The management of Wal-Mart has been based upon the values and principles of the founder, Sam Walton. The managers always keep in touch with its customers as well as the operations o the retail stores, which leads to an effective communication between each store and companys headquarters. Wal-Mart puts a lot of effort on innovation and development of its organization and management.

5. Suppliers relationship development Wal-Mart used to adopt the centralized purchase method, in which all the transaction took place at the headquarters of Wal-Mart. Furthermore, Wal-Mart also refused to negotiate with manufacturers from the year 1992 and only allowed them to supply no more than @.5% to avoid the dependence on a manufacturer. In order to compete in the global market, Wal-Mart had to establish closer cooperative transactions with local suppliers, which aligns with the needs of its consumers and lower the inventory cost. Moreover, since 2008, Wal-Mart also requires its suppliers to attach RFID technology to its deliveries. 6. Distribution and storage

Group 14

Wal-mart

The cost of distribution and storage is a part of the products selling price. Thus Wal-Mart handles 80% of the purchases that are directly shipped in the warehouses to reduce logistics cost. Wal-Mart is still continuously upgrading and innovating its process and system of distribution where the products that arrive via the inbound trucks are loaded and unloaded on outbound trucks without sitting first in the inventory of the warehouse. 7. Social Responsibility and sustainability Wal-Marts objective to establish as a key player in the society must also incorporate cost innovation capabilities and social responsibility into their future business model which looks promising as indicating ways to sustainability. It has tried t rebrand itself as a pioneer in environmental sustainability. It aims at reducing the phosphates in detergents by 70% and amount of packaging material by 5% until 2015. They have classified their involvement into five categories: sustainability, feedback to communities, care for the children, support for education and disaster relief. For last 13 years these employees have spent more than $180,000 in voluntary work for public interests in their communities. COMPETITORS OF WAL-MART Wal-Mart has its presence in 14 countries namely Argentina, Brazil, Canada, Mexico, China, Puerto Rica, Costa Rica, El Salvador, Guatemala, Japan, Nicaragua, UK and India (51:49). It has 10,000+ stores. Sales in 2010: $405.04 bn CAGR 2005-10: 7.3% Wal-Marts major competitors worldwide according to sales: 1. Carrefour

Group 14

Wal-mart

It is the strongest competitor of Wal-Mart. Sales in 2010: $119.88 bn CAGR 2005-10: 3.4% 2. Metro (Germany) Metro AG is a wholesale and cash and carry group in Germany. Sales in 2010: $90.85 bn CAGR 2005-10: 3% 3. Tesco (United Kingdom) Tesco plc is global grocery and general merchandise retailer in United Kingdom. Sales in 2010: $90.43 bn CAGR 2005-10: 10.9% 4. Lidl Stiftung & Co (Germany) Lidl stores are present in 20 countries in Europe. Sales in 2010: $77.22 bn CAGR 2005-10: 9.8% Area wise some major competitors are: North America - Kmart, Target, ShopKo and Meijer Canada Zellers, the Real Canadian Superstore and Giant Tiger Mexico Commercial and Sorian. Wal-Mart moved into grocery business in the late 1990s and competed with the supermarket chains in the United States and Canada as well.

Group 14

Wal-mart

VALUE CHAIN The value chain includes Primary activities and support activities. Primary Activities Inbound Logistics o It includes VMI and Electronic Data Interchanges. o CPFR Collaborative Planning Forecasting and Replenishment. o Hub and Spoke model distribution system o Cross docking Operations

Group 14

Wal-mart

Outbound Logistics Marketing and sales o Every Day Low Prices act as the marketing strategy for Wal-Mart After sales o It assures customer with quick response i.e. Sundown Rule o Satisfaction and guarantee policy

SUPPORT ACTIVITIES Firm Infrastructure o It has huge stores. o It has a large fleet of trailers and trucks o It has large number of stores all over the world (10000+ stores nationally and internationally) Human Resource Management o Non-unionized labour o Full autonomy o Profit sharing program
Group 14 Wal-mart

Technology Development o It owns satellite system o EDI o VMI o CPFR Procurement o Maintains long term relationship with suppliers. o No nonsense policy o VMI enabled inventory o Cross docking Wal-Marts strong value chain helps it to gain advantage over other competitors.

CONCLUSION If it can no longer reduce the price, then Walmart will be left with nothing to differentiate from competitors. Walmart target area is rural areas and tier2 cities.Now when Walmart will cover all of it, it will have to switch to the urban areas and then it will not be able to compete on low price front as in urban areas teh various other cost factors would increase. To enter in this industry is challenging. As the current players have made their roots strong through the value chain and strong supply chain. And

Group 14

Wal-mart

also if the grocery (mom n pop) stores become organized in terms of IT and variety, then they will enjoy the high frequency of purchase. The initial cost required is very high to keep a large amount of inventories .In the war of price, it reduces the profit margin, so there is no economies of scale.

Group 14

Wal-mart