Global Strategy Analysis: Wal-Mart
Global Strategy Analysis: Wal-Mart
One of the known industries all over the world is Wal-Mart. Wal-mart is considered as a retail giant due to the company’s successful business over the years. With good management practices and unique marketing strategies, Wal-Mart was able to operate successfully not only in the United States but also in international market (Hayden et al, 2002). Wal-Mart Stores, Inc. was first established and founded by Sam Walton at Rogers, Arkansas in 1962. The business growth of the retail store was momentous that within a span of seventeen years in operation, Wal-Mart had already topped annual sales at one billion US dollars. By the end of January in 2002, Wal-Mart has been recognized as the largest retailer in the world a sales record of 218 billion US dollars. With this huge and continuous development, it is no wonder the retail store was able to operate at the global level. The global operation of Wal-Mart was marked by the establishment of its first international store in 1991 at Mexico City (Govindarajan & Gupta, 2001).
Through its international reach, an estimate of one hundred million customers are said to visit a Wal-Mart store found somewhere in the world. A total of 1.3 million associates worldwide are employed by the company and are distributed within its 3,200 stores in the United States as well at over a thousand other stores in Canada, Brazil, Mexico, Argentina, Puerto Rico, China, Germany, Korea and in the United Kingdom (Govindarajan &Gupta, 2001).
The retail stores of Wal-Mart are operated in different formats worldwide. In general, the business is divided into three main segments: Wal-Mart Stores, Sam’s Club and International Stores. The Wal-Mart stores are further subdivided into Discount Stores, Supercenters and Neighbourhood Markets. Sam’s Club on the other hand, is a business segment that consists of membership warehouse clubs. According to the New York Stock Exchange (2005), Wal-Mart Stores operates about 1,478 Discount Stores, 1,471 Supercenters, 538 Sam’s Club and 64 Neighbourhood Markets within the United States as of January 31, 2004. In addition to this huge local operation, Wal-Mart and its international segment conducts retail operation within eight countries and Puerto Rico. Wal-Mart’s international segment is made into several formats, which include retail stores, restaurants, discount stores, Sam’s Club and Supercenters. Aside from these operations, Wal-Mart also owns a 37.8% unconsolidated minority interest in one of Japan’s retailers, The Seiyu, Ltd. (New York Stock Exchange, 2005).
Key Problems and Issues
With the growing influence of globalization, competition within businesses and markets is inevitable. However, with an established goal and appropriate techniques, a company can gradually lead its way towards success. In the retail business industry, Wal-Mart faces several issues and problems, which include the issue of their competitors. Among its strongest contenders is Kmart, which is considered as the second largest retailer in the United States. Although both retailers have been successful in the retail industry, there is a significant difference in terms of their business strategies. While Wal-Mart is focused on the establishment of stores at US’ small towns and communities, Kmart had concentrated on building its stores at populated areas (Shah & Phipps, 2002). This strategy of Kmart is apparently implemented in line with the goal of obtaining a larger market scope, thus, higher product sales.
However, contrary to expected outcomes, the product sales of Wal-Mart are estimated to be four times more than those of Kmart’s, totaling to a $36.3 billion difference. Moreover, the discount stores of Wal-Mart are larger than Kmart’s, generating sales of about $385 per square foot, which is twice the amount of what Kmart is producing (Shah & Phipps, 2002). In this aspect, Wal-Mart was able to confirm the credibility of its strategy and that the achievement of a company’s goal is not solely reliant on size and quantity. Another problem that has been encountered by Wal-Mart before is the lack of strategic vision. According to Kim Ellis, Public Relations Coordinator of Wal-Mart, the company’s lack of a formal vision is attributable to its belief that the interest of their customers are focused on the business’ other aspects. The company is then more concentrated on meeting their consumers’ basic necessities. Nonetheless, if a formal mission statement is made for the company to uphold, Ellis stated that it will probably be “To provide quality products at an everyday low price and with extended customer service…always” (Shah and Phipps, 2002).
Analysis of Wal-Mart Strategy
Having been able to recognise the importance of providing solutions to the issues and problems faced by the company, Wal-Mart has been able to initiate some competitive business strategies. One of the strategies of Wal-Mart for outgrowing their rival organisation is the company’s strategic vision which has a strong affiliation to its customers. The main idea of the company’s vision is focused on meeting the needs of the consumers and providing the best possible services.
In terms of strategy, Wal-Mart focused itself on the establishment if large discount stores within small rural towns during its early years of operation. This strategy is particularly diverse from its competitors like Kmart, which concentrated on building stores within large towns having a population count of more than 50, 000. The marketing strategy of Wal-Mart is to ensure that low prices are guaranteed for every transaction. The company uses this communication strategy in order to attract potential customers. On the other hand, traditional discount retailers are dependent on advertised sales.
Bob L. Martin, president of Wal-Mart’s international segment, stated that one of the major strategies of the company is the promotion of a global brand name. This insignia helps in promoting the Wal-Mart trademark: low cost, best value and greatest selection of quality merchandise as well as highest standards of customer service. One of the main features Wal-Mart has been known for is its pricing strategy. Wal-Mart tries to meet or undersell local competition but maintains uniform prices except when lower prices are necessary to meet local competition. Wal-Mart stores also maintain a “satisfaction guaranteed” program to promote customer goodwill and acceptance. Wal-Mart’s policy requires that store managers regulate the retail prices charged by competing retail stores in their respective market area and lower costs for highly competitive products without regard to the cost of individual items. This price is often below Wal-Mart’s cost of obtaining some of these goods in highly competitive markets. The purpose of the pricing policy of Wal-Mart is to “meet or beat” the retail prices of competitors for highly competitive, price-sensitive merchandise; to maintain “low-price leadership” in the local marketplace; and to “attract a disproportionate number of customers into a store to increase traffic” (Shah & Phipps, 2002).
The term known as “Every Day Low Price” (EDLP) speaks much of what Wal-Mart is all about. This means that Wal-Mart provides goods that are of best quality at the lowest price, always. Consumers have always expected Wal-Mart to sell items lower than its competitors, and Wal-Mart always does, always has and always will (Newsome, 2000). Through the strong commitment Wal-Mart has for its policies and customers, the business becomes highly recognized and easily remembered. Clients become more attracted to visiting the store as Wal-Mart tries its best to provide what they need. This interaction between customer and business is developed strongly through the establishment of trust. The inclusion of emotional appeal to such a relation further strengthens the business-client bond.
In order to stick to this policy, expense control is essential for Wal-Mart. Wal-Mart is able to deliver such commitment by maintaining not only low operating costs but one that is considerably lower than the competitors’ expenses. In several large and small ways, Wal-Mart was able to keep their operating costs at bay. One example is the “Yes We Can Sam!” formal idea program where associates offer their ideas to the management, who in turn listen and implement many of these ideas. In turn, Wal-Mart has been able to save millions of dollars (Newsome, 2000).
The potential strategy was evident as the international segment of Wal-Mart has grown in sales to more than 12 billion US dollars in less than seven years (Shah & Phipps, 2002).
Aside from these marketing strategies, the Wal-Mart management has also been able to include the use of internet and other advance technology to market their products and services worldwide. The introduction of using the internet in retail industry for instance, has enabled Wal-Mart to open its services to online users. Through technological networking, Wal-Mart was also able to put up WIN or Wal-Mart’s Innovation Network, allowing entrepreneurs to gain entry into the company’s huge distribution system. By doing so, the company not only helps businessmen to distribute their products efficiently, it also increases diversified product lines that are of quality for its customers (Shah & Phipps, 2002). The internet possesses interesting aspects that will definitely be advantageous to the growing market. In the case of Wal-Mart, profit gain was not achieved as easily. In addition, several concerns must be taken into account in order to succeed retailing online. Examples of these problems include issues of delivery costs, merchandise returns and data security. Since 1997, Wal-Mart has been selling its products through the internet. The company intends to continue investing on this development as well as learn more on online retailing. In 2000, the company had already launched its improved website, which now features travel services, a pharmacy, and photography center. The site also helps customers with their shopping (Shah & Phipps, 2002).
The key to Wal-Mart’s success online is attributable to its ability to integrate its online and offline channel. In other words, the company’s real world stores are tied to its website (Johnson, 2002). Thus, in spite of Wal-Mart’s lagging status online, its power to integrate has enabled the company to leverage its massive offline presence to compliment its online operation (Maguire, 2002).
Certain protocols such as the “Satisfaction Guaranteed” policy are also one way how Wal-Mart delivers great services. This policy means that every associate will do everything that they can possibly can to satisfy the needs of the customers. Moreover, products that need to be repaired, exchanged or refunded are entertained by the store with a smile and a thank you (Newsome, 2000). This policy gives importance to Wal-Mart clients that make them come back again and again. This particular behaviour is naturally derived from the common observation where people that are given respect and importance are more appreciative, cooperative and loyal.
In addition to technological access, Wal-Mart is able to achieve its organisational objective by constantly improving its management systems. The company provides due importance to its “associates” or employees through various programs, benefits and plans so as to help them improve, in terms of skills and finances. With this management system, Wal-Mart provides the best each employee deserves, who in turn are capable of helping the company progress further. Moreover, satisfying the needs of the employees also enables them to provide good services for the customers
Competition within the business world is omnipresent, and retailing industry is no exception. Rather than being discouraged by this, Wal-Mart was able to become the world’s largest retailer through visions and efficient strategies. In addition to these, other factors have contributed to the retail company’s success. Values perhaps had played a significant role to make Wal-Mart of what it is at present. The business for instance strives to improve itself to achieve better performance. Its willingness to try new ideas and practices had made Wal-Mart an initiator to most well-known standards in retailing. Making change constant within the store has indeed made wonders for Wal-Mart. In addition, the participation of the associates, particularly in the generation of ideas had made Wal-Mart a stronger business. The removal of the wall between management and associates resulted to the production of new and better programs and policies that had greatly benefited the business. Upon analysing Wal-Mart’s practices and environment, one aspect that is significantly emphasized is the company’s strong attachment to meeting customer needs. Perhaps, the most important thing to point out is the company’s effective provision of service, one that is beyond what is expected. From this case discussion, it has been illustrated how a simple greeting or thank you to shoppers can make a difference. Thus, such notable practices and objectives should be taken in by retailers of the future.
Govindarajan, V. & Gupta, A. (2001). The Quest for Global Dominance: Transforming Global Presence into Global Competitive Advantage. John Wiley & Sons, Inc.
Hayden, P. et al. (2002, April). Wal-Mart: Staying on Top of the Fortune 500 A Case Study on Wal-Mart Stores Inc. Corporate Strategy and Public Affairs Lecture, The Graduate School of Political Management, George Washington University.
Johnson, B. (2002). The Wal-Mart Effect: Information Technology Isn't the Whole Story Behind Productivity. The McKinsey Quarterly, 40.
Maguire, J. (2002). Case Study: Walmart.com. Retrieved January 5, 2005 at the E-commerce guide website available at http://www.ecommerce-guide.com
New York Stock Exchange. (2005). Wal-Mart Stores Inc. Retrieved January 4, 2005 at the NYSE website available at http://www.nyse.com
Newsome, D. (2000). Think Small One Customer at a Time, One Associate at a Time. Business Perspectives, 12(4), 20.
Shah, A. & Phipps, T. (2002). Wal-Mart Stores, Inc -- 2001. In F. David, Strategic Management: Concepts and Cases, pp. 41-55, Prentice Hall International, Inc.
Read our customer feedbacks