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Group 14 Wal-mart
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
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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-
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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 Wal-
Mart, 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 Wal-
Mart. 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
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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
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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 tosurvive)
SUBSTITUTES
(Departmental/General Stores)
BUYER POWER/CUSTOMERPOWER
(Less Bargaining power and lowswitching cost)
COMPETITION
(Wal-Mart,
Carrefour, Tesco)
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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 & thedifference 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.
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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 aboost 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.
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INTERNAL ANALYSIS
Tangible resources
Financial Resources - As Wal-Mart is established and is stable financially, thecapacity if borrowing increases, hence it can easily raise funds for new
innovation or project
Organizational Resources-Wal-Mart employs big executives as top classassociates. 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 ofproducts, they also own their private satellite network for point-of-sales
transmission in all their stores.
Intangible resources
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Human ResourcesWal-Mart follows very stringent laws for employee &
some lawsuits are against Wal-Mart for employee discrimination on gender
basis.
Innovation ResourcesWal-Mart is very innovative in terms of their location
selection, pricing strategies or may be economical planning and merchandising.
Reputational ResourcesAs 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 themarket.
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
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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 effluentsand 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.
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Key Activities
The key activities which are needed to run Wal-Marts business model are:
Purchasing goods Delivery of goods Total cost controlOther 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 self-
improvement, 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
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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, Wal-
Marts 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
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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.).
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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 handthroughout 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
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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 innovationWal-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.
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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
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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 morethan $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 majorcompetitors worldwide according to sales:
1. Carrefour
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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
CanadaZellers, the Real Canadian Superstore and Giant Tiger
MexicoCommercial 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.
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VALUE CHAIN
The value chain includes Primary activities and support activities.
Primary Activities
Inbound Logisticso It includes VMI and Electronic Data Interchanges.o CPFRCollaborative Planning Forecasting and Replenishment.o Hub and Spoke model distribution systemo Cross docking
Operations
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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 Ruleo Satisfaction and guarantee policy
SUPPORT ACTIVITIES
Firm Infrastructureo
It has huge stores.o It has a large fleet of trailers and truckso It has large number of stores all over the world (10000+ stores
nationally and internationally)
Human Resource Managemento Non-unionized labouro Full autonomyo Profit sharing program
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Technology Developmento It owns satellite systemo EDIo VMIo CPFR
Procuremento Maintains long term relationship with suppliers.o No nonsense policyo VMI enabled inventoryo 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 nothingto differentiate from competitors.
Walmart target area is rural areas and tier2 cities.Now when Walmart willcover 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 madetheir roots strong through the value chain and strong supply chain. And
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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.