Industry Analysis – Walmart

Industrial Analysis-Walmart

A.    CEO Profile and Assessment of Effectiveness

CEO Profile

Walmart is a multinational retail organization based in America and operates hypermarkets and grocery stores in various countries. The current CEO of Walmart Inc., Doug McMillon, holds a business administration degree and master’s degree of the same from Arkansas University and Tulsa University, respectively. McMillon has worked at the company in his entire career, where he started as a buyer, promoted to management before rising to the top seat. The selection of McMillon came at a time when the company was struggling to adjust to political, social, and technological change.  Selectin was done shortly after he led Walmart’s team to respond to a mass shooting at one of the stores. McMillon is humble, soft-spoken, and productive or rather a performer.

Walmart has strategized to adopt a tech-powered and people-led business model. Technology has been in use for the longest time, but with the available resources, Walmart Inc. aims at collecting more data and applying various technologies to improve customer service. McMillan is the most appropriate person to lead the company towards the successful implementation of these strategies. He started his career at Walmart as an associate and advanced to higher positions with time up to the top. He understands the challenges various employees face since he has been there. Employees shall also be free to present their challenges and recommendations to one of their own.

CEO Effectiveness: Impact on Walmart

Walmart has had various achievements since McMillan took over. One, the company managed to increase the presence of grocery e-commerce through the expansion of autonomous, same day and curbside pickup delivery. For this reason, the food industry has continued to grow and shall continue to grow as the company targets more stores to cover a larger population. He has led the company to utilize its power to innovate and size to lead in different sectors of the industry. The company has continued to renovate its stores to look more attractive.

B.     Board of Directors Profile and Analysis

An influential committee of the board of directors is essential for the success of any business. The board of directors at Walmart Inc. are elected during the shareholders meeting held yearly. The elected members are assumed to hold office until successors’ election and qualification, resignation, removal of their death. The board are allowed by the by-laws to decrease or increase the board size if the need arises. The board key strength is its diversity; the members have an impressive record in their respective expertise. There a few things that Walmart need to adjust in regard to the board. The board has a higher number of leaders originating from the traditional industries and aged above fifty-five years.

There have been changes to the board in the previous years. For instance, in 2016, there were changes to with the aim of creating a stronger board and at the same time maintaining its diverse background, experience and independence. The changes included retiring four members of the board so that to support organizations’ strategy through maximization of its efficiency. The board of directors has a balanced number composed of people from different backgrounds and diverse expertise. The diversity of the board is to create a platform of channeling ideas that will lead the company towards success.

C.    Industry Assessment

Competition

Walmart Inc. faces competition from other major organizations in the industry, such as Amazon, among others. Competition has forced Walmart Inc. to create policies that protect the business against external factors in the industry. Walmart has a competitive advantage against its rivals in the industry. There is a large number of retail organizations that can be categorized into various groups, not forgetting that they are aggressiveness to lead the market (Hicks, 2012). Therefore, Walmart must be aggressive to retain its reputation as a leading retailer internationally.

Porter’s Five Forces Model

Buyer Power

Walmart experiences minimal influence from the customers’ bargaining power. The high population of buyers in the retail industry has insignificant pressure on retailers. Walmart experiences weak forces from consumer diversity, a high number of buyers, and a small number of personal purchases. Clients’ bargaining power weak and therefore has little or minimal effect on Walmart and other retailers in the industry.

Substitutes

The risk of substitution or substitutes has minimal effects on retailers. Walmart Inc. has a wider range of products and services that have a lesser number of substitutes is any exists. Factors such as substitute’s high cost, low variety, and lack of availability expose Walmart to the weak risk of substitution.

New Entry

Walmart must be ready to develop strategies to overcome the strong influence of new entrants to the market. Some new entrants have the resources to create a strong brand that will lower the cost of doing business (Hicks, 2012). For instance, small firms spend lesser on their businesses than large firms do, and therefore, they have the potential to become threats to Walmart in the future.

Supplier Power

The availability of a high number of suppliers reduces the intensity of their effect on Walmart.  Walmart is able to manage suppliers’ effects of business; there are many of them competing to supply to large organizations such as Walmart.

D.    Direct and Indirect Competition

Direct Competition

Walmart faces direct and indirect competition from other organizations in the industry. Direct competitors of Walmart are those whose products and services are similar to those of Walmart. For instance, Target competes directly with Walmart in the domestic market and pose a bigger threat or risk to Walmart’s market share. Target is a key player in the retail industry in the United States, which is currently undergoing transitions and, by doing so, gaining more market share. Target is a major to Walmart at almost every level due to various reasons. Walmart and Target have adopted a low pricing strategy, which has made more people weigh options between buying at Walmart or Target (Atif, 2014). Target is growing slowly through its strategy of incorporating a wider range of products in its grocery stores. Target has also expanded its business by opening more grocery stores locally and internationally.

Indirect Competition

Indirect competitors of Walmart are those that offer different services and products but have the potential to satisfy the same customers’ needs and achieve a similar goal. Examples of indirect competitors of Walmart are grocery stores and pop up shops. These stores threaten the presence and existence of Walmart Inc. grocery stores may contain food products that are similar or different to those offered by Walmart, but eventually, customers shall be satisfied. Grocery stores have more customized options for their commodities since they have a direct touch with their clients. They understand clients’ needs and preferences better, and therefore customers are more likely to shop at a grocery store than Walmart. More stores are emerging on a daily basis, which sharing of customers. Walmart may hold a large market share now, but there is a probability of decrement in the future.

E.     Internal Strengths and Weaknesses

Understanding Walmart’s internal strengths and weaknesses require a strategic analysis tool, such as a VRIO framework that uncovers the organization’s resources and capabilities. In addition to uncovering, the VRIO strategy helps protect these capabilities for sustainable competitive advantage by identifying the valuable, rare, imitable, and organization dimensions (Ratap, 2020). VRIO analysis in Walmart helps uncover internal resources, assesses how they provide a sustainable advantage, and how they can be improved.

Strengths

Walmart has several strengths, which puts the company in a better position than others. It has a global and large supply chain, which is composed of hundreds of thousands of suppliers in various parts of the world. According to VRIO analysis, this global supply and distribution networks are a valuable resource in Walmart, as they can reach many customer bases, exhibiting high organizational skills. This, in turn, increases the organization’s revenues and promotional activities turn into sales, as they are readily available. It also becomes rare, as competitors require much investment and the supply distribution network is integrated by a few companies (Ratap, 2020). The costly nature, thus, becomes challenging to imitate, hence maximized sustainable competitive advantage.

Walmart has a price bargaining power over its competitors; it buys bulky goods from its suppliers at a reduced price and, in turn, pass the favor of reduced price to its customers. The company has an efficient and effective way of handlings its inventory. It has suppliers and stores in over twenty-five countries, but the whole network is managed like a single firm. The bargaining power and effective inventory handling become valuable to Walmart as they maximize the comparative advantage, which strengthens its financial resources (Ratap, 2020). Substantial financial resources help Walmart invest and exploit external opportunities as well as addressing possible threats. Strong financial resources are also rare and less imitable as only a few companies can possess and integrate, due to the costly investments required. Moreover, they are found in companies with long-term profits. Concisely, financial capabilities in Walmart are organized to capture value for maximized and sustainable competitive advantage.

Walmart enjoys brand equity more than any other retailer in the United States (Ratap, 2020). Brand equity creates a strong bond with its customers, thus improving customer loyalty. In addition to growth in ecommerce, Walmart has invested heavily in technology with the aim of improving customer service such as online buying, ecommerce, among others. Walmart’s equity of the brand is valuable, rare, imitable, and well organized through the firm’s processes, systems, product differentiation, and business models. The brand is organized to create and maximize value as well as a sustainable competitive advantage (Ratap, 2020). Ecommerce and technological capabilities, however, become only valuable as they are arranged to create value. These capabilities are not rare but imitable as many organizations have adopted the digital economy and invested in technological sophistication.

Weaknesses

However, there is a weakness exhibited by Walmart that threatens its existence and presence in the future. Weaknesses put the company in a challenging position of being unable to withstand external and internal factors. Walmart has been accused of poor treatment of staff and working conditions. Some of the few issues that have been made public are low salary rates, poor working environment, and healthcare inadequacy, among others. Poor employee treatment and gender discrimination become invaluable resources, which are susceptible to easy imitability, thus less rare (Ratap, 2020). Competitor organizations have similar human resource limitations, which does not enhance competitive advantage. Walmart has been focusing on being the market price leaders, but this has reduced the company’s profit margin. Therefore, the company might have little resources from investment and business expansion.

Walmart has also been accused of gender discrimination; in a recent lawsuit, Walmart allegedly discriminates against women against wage increment and job promotions. Reduced profit margins are because of invaluable cost structure due to increased operational costs that affect profits in the organization. It becomes a weakness, as it requires correcting. Since cost structures are invaluable and minimize competitive advantage, they are not rare and are easily imitable (Ratap, 2020). Besides its large business size, Walmart has a business structure that can be imitated easily by other organizations.

VRIO Table

          V         R         I         O
Supply Chain     ✓       ✓     ✓     ✓
Power of bargaining     ✓     ✓     ✓     ✓
Inventory management     ✓       ✓     ✓     ✓
Equity of brand     ✓     ✓     ✓     ✓
Ecommerce     ✓         ✓
Technology     ✓           ✓
Human resource Management            ✓
Cost structures and profit margins      
Business structure      

 

F.     External Opportunities and Threats

Opportunities

There are pending opportunities that could be exploited by Walmart in the future. One, Walmart is bound to benefit in times of economic slowdown. Buyers tend to bargain and prefer cheaper items during economic slowdown due to a reduction in their salaries. During such time, Walmart shall gain and maintain customers’ loyalty and increase its sales by selling its goods at prices that are affordable. In addition, Walmart has the opportunity to explore the Asian and European markets, which have not been exploited by retailers. These markets have not been exposed to retailers, and therefore, this could be a perfect opportunity for Walmart to expand its business. Open more stores and outlets in Europe and Asia and sell its goods at an affordable price. Walmart can send regular updates to customers concerning its new policies and products through social media platforms. This will help the company reach out to more people globally.

Threats

Walmart is under the pressure and risks of stiff competition from rival companies in the industry. This is a company that created a good reputation and company image over the years, and therefore, it is capable of handling competition from both rising and big corporations. However, Walmart can avoid or reduce competition through product differentiation and having affordable prices for various products. The brand may also avoid competition through massive campaigns and advertisements to ensure that it remains relevant in the industry. Reduction of prices during an unstable economy. The other threat is that Walmart faces political instability in countries that it operates in. Walmart has created that is able to sustain itself during the harsh political condition. Should Walmart find itself in a compromising situation, it should focus more on the welfare of employees. In addition, it should properly examine and understand foreign markets and be ready to adapt to people’s culture.

SWOT Analysis

Strengths (S)

§  Recognized internationally.

§  Efficient way of handling inventory.

§  Brand equity.

§  Has adopted technology.

§  Global supply chain.

§  Price bargaining power.

Weaknesses (W)

§  Poor treatment of employees.

§  Poor working conditions.

§  Small profit margin.

§  An easy business structure that can be imitated.

Opportunities (O)

§  Business expansion.

§  Customer service improvement

§  Quality standards improvement.

Threats (T)

§  Strong competition

§  Political instability.

 

G.    Overall Competitive Position

Generally, Walmart has a competitive advantage that is sustainable for an extended period. More importantly, the top management’s aim in regard to the competition is to adopt strategies in pricing, assortment, experience, and access. Since appointing McMillion, the company has been able to increase employment opportunities while providing more training and higher salaries to its employees. The company has opened more grocery stores locally, internationally and increased the range of products offered in the stores. It has also enhanced customer experience and flexibility (Efron, 2017). For instance, it has integrated physical stores with online business such that customers can collect their online orders from the nearest outlets. These strategies help Walmart compete in an industry characterized by stiff competition where they can protect their business strategies for sustainable competitive advantage.

Using Porter’s competitive advantage model, Walmart can efficiently conduct a strategic management analysis that evaluates its external milieus and assess their competitive advantage. According to Walmart’s VRIO and SWOT analyses, there are substantial strengths that can be used to maintain and maximize its industrial position and competitive advantage. Walmart employs a generic competitive strategy integrated through various strategies but mostly led by the cost leadership tactic. In addition to cost leadership, Walmart uses the Ansoff matrix intensive strategy for growth and minimize external forces that may mitigate its competitive advantage. The illustration below shows Walmart’s Ansoff Matrix with market penetration as a primary strategy followed by the market and product development, as well as diversification. Nevertheless, Walmart enjoys a strong strength in the five forces in relation to competitive rivalry. In conclusion, these strategies, namely, the Ansoff intensive matrix and costs generic leadership strategy, attribute to a sustainable competitive advantage for Walmart against its rivals.

H.    Recommendations

From the analysis, it can be realized that Walmart needs to expand its business internationally to increase the shareholders’ value. It has been noted that there are opportunities in the European and Asian markets. Therefore, it is recommended that Walmart conduct thorough research and develop strategies on how to penetrate the market (Hunt, 2018). By adopting this strategy, it is expected that the company will increase brand awareness and raise sales volume. However, there is a risk of incurring losses while opening up a business in the new market.  This move will influence retailers to open more outlets while some may fear. Consumers shall be able to shop at their favorite store conveniently.

It is recommendable for Walmart to adopt a product differentiation strategy in various stores. This move is prompted by the need to retain customers and survive the stiff competition against rivals in the industry. Product differentiation means accommodating a wider range of products. This shall enable customers to shop conveniently since they can access most items from a single outlet. The move shall not only boost customer loyalty bust also increase the flow of new clients. Other organizations are likely to respond by adopting the same move; however, Walmart shall remain on top due to its affordable prices.

References

Atif, M. (2014). History and the complete Market and Competitor Analysis of Wal-mart and the factors that influence Wal-Mart’s Management. Retrieved from https://www.academia.edu/7103938/

Efron, L. (2017). Why Wal-Mart Is Winning In A Losing Industry. Retrieved from https://www.forbes.com/sites/louisefron/2017/05/31/why-wal-mart-is-winning-in-a-losing-industry/#285c735444d5

Hicks, M. J. (2012). Mom-and-pops or big box stores: Some evidence of Walmart’s impact on retail trade. Economic Development Quarterly, Vol 26(4): 311-320.

Hunt, I. W. (2018). Walmart’s international expansion: successes and miscalculations. Journal of Business Strategy.

Ratap, A. (2020). VRIO Analysis of a retail brand, Walmart. Retrieved from In Notesmatic: https://notesmatic.com/2020/01/walmart-vrio-analysis/

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