WALMART CASE ANALYSIS
SWETHA VASU
EXECUTIVE SUMMARY
For long, Walmart has been able to retain its spot as the world‟s largest retailer. Much of this success can be attributed to Walmart‟s positioning in the industry on the grounds of price differentiation, and its strong supply chain management. However, in order to remain on top, Walmart needs to adopt innovative strategies that respond to dynamic changes in the consumer market. We hence recommend the following strategies for Walmart: 1. Expand ecommerce operations 2. Avoid introduction of organic products 3. Enter international markets with caution STRATEGIC ANALYSIS
When Walmart entered the retail segment, its strategy of playing on “price differentiation” aided its growth, helping this company beat the then existing players such as Ben Franklin, and the new competitors such as Kmart and Target. Walmart‟s sales (and net income) figures witnessed continuous growth and soon the firm was producing a better return on equ ity (ROE) for its shareholders than its biggest competitors (Exhibit 1). While Walmart remains a dominant player in the retail segment even today, its competitors competitors such as Target aren‟t far behind. In behind. In order to sustain in this competitive segment, Walmart needs to restructure its strategy in order to respond to the changing preferences in the industry, while simultaneously leveraging its resources effectively. Let‟s take a look at Walmart‟s current strategy in general (Exhibit 2) and its strategy in terms of the value that it offers to both its employees e mployees and to its consumers (Exhibit 3). We see that Walmart boasts of a comfortable position in terms of its cost leadership, and an efficient and stable value chain that aids in its current operations. However, with consumer needs evolving continuously, we believe that Walmart needs to consider the following: (a) Target ecommerce segment (b) Stay away awa y from organic products (even if competitors introduce organic products in their stores) (c) Target global markets – markets – „„with caution‟ caution‟ ECOMMERCE OPERATIONS While Walmart has an online presence, its penetration into the ecommerce segment has been low. A lot of products products are still restricted to „In Store‟ purchases only. With companies like Amazon introducing „Amazon fresh‟, and with more and more consumers tending towards ecommerce, Walmart stands a risk of losing its market share to pla yers such as Amazon if it continues to rely on its current strategy. Walmart can make u se of its connected distribution system to deliver to homes quickly by incorporating back and front end ecommerce solutions that can handle large volumes volume s of orders. This is important from the perspective of fuel consumption too, in some ways- as Walmart moves towards delivering directly to home using its current logistics (say, trucks that can drop goods at home, en-route to the stores etc.) people peop le can increasingly start relying on this, while reducing the number of trips to the store. INTRODUCTION OF ORGANIC PRODUCTS A typical customer at Walmart is looking for a cheaper product that serves his requirements. This need of the customer is also partly driven b y the brand that Walmart has built bu ilt around itself: “Always low prices”. With the USA market showing a strong potential pot ential for organic products, it Page 1|4
WALMART CASE ANALYSIS
SWETHA VASU
seems like a tempting strategy for Walmart to enter into the organic foods business. However, let‟s look at the value chain elements for the price differentiators (Exhibit 4) to understand whether Walmart can venture into this business without changing its b rand reputation of being “low cost”. A simple analysis shows that Walmart is not in a strong position to enter this segment.
With organic foods, customers would demand freshness, and quality- two attributes that may not be achievable given transportation requirements in bringing organic food from the farms (at different locations) to the Walmart stores (only specific stores closer to the farms will have the advantage) The increase in the organic food consumption is mainly because of people‟s belief in its superior quality. In other words, this product represents a luxury (Veblen) commodit y. So, even if Walmart managed to source the food at a reduced cost, it remains to be seen whether people would “trust” the product for its qu ality (Price and quality are proportional in most cases) The growth in the organic products can be attributed to 2 things: More customers are shifting to organic products o o The same customers are buying more and more of the organic products If the reason is the latter, and if there is no difference in the nutrient content between the organic and the conventional products, the need to shift to organic products would be low in the segment that has a lower annual income- that in turn typically constitutes Walmart‟s customer base
GLOBAL MARKETS An international presence would be a crucial step in boosting revenues. Walmart also has the expertise to reproduce its successful model in the USA on international grounds. However, not all countries might be open to a „Walmart‟ in their home-grounds. For instance, in India, a widespread presence of Walmart will most likely wipe out all the smaller retailers who earn their living through selling in „corner-of-the-road‟ shops. While Walmart will attract consumers on account of its cheap prices, it would come at the „cost of convenience‟ of buying in shops across the road- not to forget the traffic congestion that might occur in the „Walmart‟ zones. It might also not be feasible for Walmart to comply with the Indian government‟s rules of sourcing 30% from small suppliers, and last year, their contract with the Indian compan y Bharti was dissolved owing to various reasons (marking another roadblock in their growth in India). Although Walmart currently operates about 20 stores, its growth remains a question in this country. This question arises on hindsight- after the retail giant invested in its operations in the country. Exercising caution while targeting international countries is also important in terms of preserving the reputation of the brand. A fiasco such as the bribery charges in Mexico could sully the brand value for customers. CONCLUSION: While Walmart is doing well for itself at the moment, it needs to modify its current strategies to remain competitive. The future of Walmart may still be profitable owing to its strong positioning, but its competitive edge might be lost if Walmar t doesn‟t innovate. Will these suggested strategies work for Walmart? We‟ve made an educated guess, and as for rest, only time can tell. Page 2|4
WALMART CASE ANALYSIS
SWETHA VASU
APPENDIX Exhibit 1: Financial figures of Walmart and its competitors Company
Sales
% Change in sales
ROE
Walmart
48620
17.5
31.2
Target
28039
5.7
13.8
K Mart
11743
13
15.8
Source: Wal*Mart stores, Inc., Stephen P Bradley, Pankaj Ghemawat
Exhibit 2: Walmart‟s cost leadership strategy
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WALMART CASE ANALYSIS
SWETHA VASU
Exhibit 3: Value Chain of Walmart stores
Exhibit 4: Value chain elements for low-cost leaders
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