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Walmart: History & Economic Analysis

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Words: 3552 |

Pages: 8|

18 min read

Published: Apr 29, 2022

Words: 3552|Pages: 8|18 min read

Published: Apr 29, 2022

Table of contents

  1. History of the company
  2. The 'recipes' of success
  3. Marketing Audit. External Analysis
  4. PEST Analysis
    Political
    Economic
    Social
    Technology
    5 forces of Porter: The threat of new entrants
    Bargaining power of suppliers 
    Bargaining power of customers:
    Threats of substitutes
    Competitive rivalry
  5. Internal Analysis
  6. BCG Matrix: Cash cows
    Stars
    Question Marks
    Dogs
  7. Walmart’s Marketing Mix (4Ps)
  8. Product
    Price
    Place
    Promotion
    Walmart’s Generic Strategy
  9. SWOT Analysis
  10. Weaknesses
    Opportunities
    Threats
    Segmentation
  11. Recommendations

History of the company

The company was founded in 1962 by Sam Walton, in Bentonville, Arkansas, one of the poorest states in the United States. In 10 years, the company developed and acquired 9 stores (called at that time 'Walton's stores'). It is one of the assistants who proposes in the same year to change the name to 'Walmart'.

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In 1968, the company expanded its horizons and opened its first store outside of the state of Arkansas.

In 1972, while entering the stock market, the company was present in five US states.

After the national expansion, Wal-Mart decided to international: 29 years after the purchase of his first store, Sam Walton opens his first supermarket abroad, in Mexico City.

A year later, in 1992, he retired and left a flourishing business to his eldest son.

The President of the United States at the time said: 'The success of Walmart is the success of America.'

In 2002, Walmart entered the Global Fortune ranking as one of the world's largest companies. According to the latest ranking published by Fortune magazine in 2010, Wal-Mart is the world's third-largest company, just behind Shell and Exxon.

Its turnover in 2009 amounted to 408 billion dollars for a net profit of 14.4 billion. Such turnover represents the one of Ford, IBM, Boeing, and Microsoft together.

It is linked to its customers and the number of stores in the United States and around the world: 200 million customers worldwide in 2009 came to shop in the distributor's 6,600 stores. Walmart has stores all over the world, in China, Brazil, Argentina, Canada, the United Kingdom ...

The 'recipes' of success

The heart of the Walmart founder's strategy is based on the principle of volume: rather than keeping a large margin on the price offered by the supplier, he decided to reduce this margin in order to sell at the lowest price possible. Walton realized that selling for less means more sales and more production. He also concentrated on small rural markets, which most people ignored.

Sam Walton has built his success on a statement: that is wanting to offer consumers the lowest prices and a better life. But behind this statement lied other strategies implemented by the company. Sam Walton has forged his success by relying on the low salaries of his employees. He explained that 'in the Retail business, whatever you do, salaries are one of the most important parts of overhead and overhead costs are one of the main things you have to fight for if you want to maintain your profit margin. ' This was undoubtedly the reason for his fierce fight against all forms of unionism and the imposition of intense work schedules on employees.

Walmart founder Sam Walton passed away at the age of 74 in 1992. But just before Walton passed away, he was awarded the Freedom Medal by President George H. W. Bush.

Marketing Audit. External Analysis

PEST Analysis

In order to analyze the environment in which Walmart operates, a PEST analysis is carried out. Political, economic, social, and technological factors influence the company's performance and it is, therefore, necessary to have a thorough understanding of them.

Political

Due to its massive size and importance to the US economy, Walmart has been observed several times to interfere with politics. The main reasons for the political interference of Walmart through lobbying and other means were an attempt to have a positive political impact on the business. In 2013, Walmart was persuaded to make political contributions to Republicans to support business conservatives such as Cruz and Boehner. Since 1989, Walmart has been one of the top 100 political donors. As illustrated, Walmart's political expenditure has increased considerably over the past one and a half decades, and these funds have been used to some extent to influence corporate tax and labor laws.

In addition, there are many other political factors that influence Walmart such as:

  1. stability of politics
  2. Political support for globalization
  3. Political pressure for higher wages (threat)

Economic

Walmart's revenues and profits are directly or indirectly affected by a variety of external economic factors. For example, the exchange rate of currency between the USD and other major currencies is an important factor with direct consequences for Walmart's profits.

Walmart is under severe economic pressure. Any such change leads directly to changes in the revenues of the company. Some of these economic external factors in the macro environment of Walmart are as follows:

  • Major economies ' stability
  • Developing countries ' continued growth
  • The low unemployment rate in the United States

All these economic factors demonstrate that Walmart should take advantage of worldwide opportunities. The focus should be on the rapidly growing economies of developing countries, which increasingly demand goods from retail companies such as Walmart.

Social

The social or socio-cultural factors of Walmart's business environment influence the perception and preferences of consumers.

Here are some of the external social or socio-cultural factors in the macro environment of Walmart:

  • Trend in healthy lifestyles
  • Trend in cultural diversity
  • Migration in urban areas

For Walmart, these social factors present opportunities. The company can increase its range of goods. Walmart can also increase the product range to meet different cultural preferences. In addition, the company can adapt its strategies to meet the increasing demand of consumers in cities and surrounding areas.

Technology

For companies like Walmart, moderate research and development in the field of goods selling have always been an excellent opportunity. The improvement of the knowledge management system with the aid of technological advances is certainly an opportunity for Walmart. The increased automation trend in business strategies is certainly a great opportunity as well for internationally recognized companies such as Walmart to expand their business. In addition to this, there are other factors such as the trend in internet marketing, Increasing mobile device usage among consumers, and many other latest technological tricks. This technological revival has therefore explored many new possibilities for goods selling companies such as Walmart.

5 forces of Porter: The threat of new entrants

One of the defining characteristics of competitive advantage is the barrier that exists at the entry of the industry.

Here, the threat of new entrants is relatively low because the barriers to entry are quite high. As a result, Walmart has a distribution system, a geographic presence, a brand name, and financial capital that keeps it out of all its competitors.

Bargaining power of suppliers 

The size of the business plays a determining role in the bargaining power of suppliers.

Indeed, the more the size is important the more power the supplier is small.

In the case of Walmart, suppliers have almost no power because Walmart buys so much that they are wholly dependent on the brand.

The brand holds a very important share of the world market which allows it to be able to change suppliers very easily whenever it wishes.

Bargaining power of customers:

The bargaining power of the buyer is average it is to which the buyer exerts only a slight pressure on the brand. Many consumer groups have complained about Walmart's pricing techniques, but the impact is less on the power of the brand. In addition, the consumer can go to the competition for comparable products at comparable prices, but the comfort offered by Walmart is lost.

Threats of substitutes

There are various other retail brands as well. However, there are not many retailers offering prices as low as Walmart. The only comparable brand is Costco, which is a retail chain based on membership. There are also other retail brands where customers can shop such as Target and Best Buy, however, neither of these brands offers the same price advantage as Walmart.

Online retailers are a challenge for Walmart too, but they still cannot offer prices comparable to Walmart for all products. It’s true that online shopping offers the luxury of not having to pick the product from the shops and everything will be delivered to customers to their homes but while they want to shop online for convenience, Walmart's low prices are still unrivaled. These factors minimize the threat of substitutes.

Competitive rivalry

The rivalry between the existing players in the retail industry is high. However, we always find Walmart with the upper hand and that is mainly due to its pricing strategy. While Target and Costco are the main important competitors of Walmart, the other brands such as Kmart, Sears, Best Buy, etc. are not very strong to pose a significant competitive threat against the biggest retailer in the industry. In conclusion, Walmart is the king when it comes to competition in the retail industry. The strength of Competitive rivalry among the existing players is medium.

Internal Analysis

BCG Matrix: Cash cows

Each company needs cash cow items because they bring more cash into the company through sales but have less market growth. However, they offer potential growth and expansion, which will help them become star products. The cash cows for Walmart are Sam’s club and the international segment. The membership of Sam’s club is limited to cash and carry operations, which motivates consumers to visit the club, as it also offers financial services and credit card facilities. The annual fees are very affordable, together with the bulk displays and the brand-name merchandise. Its international segment growing rapidly, offering the best value at low cost, and several varieties offering the best customer services. It is focusing on global positioning.

Stars

These are considered the best category in the BCG matrix, as these products have the highest market share and market growth. Products or services in this quadrant are mature. However, if the strategies are not correctly maintained, they can become cash cows. for Walmart, the supercenters are its stars. The supercenters provide consumers with nearly everything, such as pharmaceuticals, food, general goods, etc. It provides consumers with more than 28,000 products as it adopted a low-cost and high-volume strategy.

Question Marks

This is the problem for the company, which needs a lot of attention to increase the market share in order to increase the cash flow compared to the outflow. However, it has a high market growth, which means that an effective product development strategy for differentiation can help it become a cash cow, or else it can become a dog. For Walmart, the Neighborhood markets are the question mark, which needs good strategies to increase its share. It must grow, as the profit level decreases from the years before.

Dogs

These are the breakeven products, whose closure does not affect the company. Discount stores are the dogs for Walmart because they do not bring the company many benefits. Its number of shops has already been reduced in 2014 and many outlets have been closed to date.

Walmart’s Marketing Mix (4Ps)

The Walmart Marketing Mix analyzes the brand covering its 4Ps (Product, Price, Place, Promotion) and explains the marketing strategy for Walmart.

Let us begin the marketing mix for Walmart:

Product

Walmart is a retail store with multiple brands offering a wide range of products in its stores. It is easy for customers to find different types of products under a single roof. Walmart is segregated in the departments in which various products are available:

  • Electronics and equipment
  • Products for home and furniture
  • Clothes
  • Babies needs
  • Video games and toys
  • Auto and Tires
  • And so on.

Each department has a variety of products such as wearable tech, cell phones, tablets, computers, home automation under the electronics and office department, music videos, TV shows, songs, and books under the Music & Books department. Etc.

Not only does Walmart offer many products but it also offers the experience with the act of shopping and that’s by providing convenient and efficient service.

Price

Walmart is a market leader, but its product prices are highly competitive and by pricing its products the least, Walmart sets records in its pricing strategy. It supplies products in very large quantities worldwide and therefore its products can easily be priced lower than its competitors can, thus benefiting from economies of scale.

Walmart charges products about 15% less than its competitors. They use different pricing strategies depending on the customers ' purchasing behavior. Special terms such as ' Always low prices ' and ' Everyday low prices ' have been coined to indicate that each product is priced differently each hour depending on the time and the demand. Their tagline ‘Save money, Live better' depicts the company's importance in pricing its products. Therefore, the ' Every Day Low Price ' (EDLP) signature is indeed the foundation of Walmart’s strategy.

Place

Walmart has over 10,020 retail units in 28 countries, operating under 60 banners. It sells in brick and mortar (traditional shops) and brick and click (e-commerce) formats. The average size of each store in Walmart is over 100,000 (1lac) square feet. The operations of its store are categorized as follows:

  • Walmart Discount Stores
  • Walmart Supercenters
  • Walmart Neighborhood Markets
  • Walmart Express Stores

Walmart uses an intensive strategy of distribution or an intensive distribution channel design. Walmart stores offer the same variety of goods in this strategy, while the same roles and responsibilities of the employees apply to each store. The company is also still opening new stores to attract more customers. The place/distribution element of Walmart’s marketing mix thus helps reach more consumers by making shopping locally convenient.

Promotion

The promotional mix consists of advertising, promotional sales, personal sales, and public relations. Walmart uses newspapers and websites to advertise itself.

Walmart also uses special offers and discounts for sales promotions. Personal sales are carried out inside the stores as well where sales staff persuade customers to try out new products or package deals. The company uses press releases in public relations to inform customers and investors about policies, programs, and strategies. The company also sponsors charity programs, occasionally. The promotion component in Walmart's marketing mix thus improves the ability of the company to attract customers to its stores and helps build brand recall.

Walmart’s Generic Strategy

The primary generic strategy used by Walmart to create sustainable competitive advantages is the cost leadership strategy. A company using this strategy mainly aims to keep the prices of its goods and services lower than those of its competitors and Walmart is mainly known for that. Due to economies of scale, Walmart has kept its everyday prices low. It also has established strong long-term relationships with the vendors it buys from in large quantities. This helps the brand to obtain the best deals from its suppliers. For both parties, long-term relations with the suppliers are mutually beneficial. In addition to that, Walmart maintained low operating and production costs. Excellent supply chain management and logistics management contributed to reducing operating costs too.

In the past, Walmart was known for paying its employees very low wages. However, due to prolonged protests and criticism, the brand has increased its employees ' minimum wages. Now, Walmart's situation is much better. The brand has maintained its advantage and that’s why it is one of the best leading retailers. This has not only helped to maintain the image of a low-price brand but also generated enormous sales and revenue.

SWOT Analysis

Strengths

  • Walmart is a powerful retail brand. It has a reputation for valuing money, convenience, and a wide range of products in one store.
  • Walmart has experienced substantial growth in recent years and has experienced global expansion (for example, its purchase of the UK-based retailer ASDA).
  • The company has a core competency involving its use of information technology to support its international logistics system. For example, it can see how products perform nationally, store-by-store at a glance. It also supports the efficient procurement of Wal-Mart.
  • A targeted strategy is in place for the management and development of human resources. People are the key to Wal-Mart's business and they invest time and money in training people and maintaining development.
  • Large customer base
  • Walmart has a high ability to have an impact socially and economically
  • It is the largest employer in the world

Weaknesses

  • Walmart is the world's largest grocery retailer and the control of its empire, despite its computational benefits, could leave it weak in some areas due to the huge span of control.
  • Given that Walmart sells products in many sectors (such as clothing, food, or office supplies), there may not be the flexibility of some of its more targeted competitors.
  • Walmart is a source of criticism over low wages, poor health care, discrimination, and violation of child labor laws
  • Price deflation is caused by purchasing a high quantity of goods and selling it at a low cost (overstocking)
  • There are many stores too close to each other
  • High employee turnover rate
  • So many suppliers they are hard to track
  • The company is global but has a presence in a few countries around the world.

Opportunities

  • Merge or form strategic alliances with other global retailers, focusing on specific markets such as Europe or China.
  • Walmart stores are currently marketed only in a relatively small number of countries. As a result, there are huge opportunities for future businesses to expand in consumer markets, such as China and India.
  • New locations and types of stores offer Walmart opportunities to exploit market development. They have diversified from big supercenters to local sites and shopping malls.
  • Walmart has opportunities to continue its current strategy of great supercenters.

Threats

  • Being the NUMBER ONE means that you are the target of competition, locally and globally.
  • Being a global retailer means that you are exposed to political problems in the countries in which you operate.
  • The cost of production of many consumer products tends to decrease due to lower manufacturing costs. Manufacturing costs have decreased due to outsourcing to low-cost regions of the world. This has led to price competition, leading to price deflation in certain ranges. Intense price competition is a threat.

Segmentation

Walmart uses market segmentation to identify the most suitable environments to open its retail outlets and to determine the best items to sell in its stores. The company uses two forms of segmentation strategies, geographical segmentation, and demographic segmentation.

For geographical segmentation, Walmart group its customers according to their physical location. For example, the store does not sell snow shovels in cities with hardly any snowfall like San Diego, it stores only snow shovels in towns where snowfall is frequent.

In demographic segmentation, Walmart stocks its products based on the age of its customers in a given region. In this case, Wal- Mart stores articles that satisfy customers ' tastes and preferences, depending on their age.

It is important to point out that although Walmart attempts to target customers of all ages through its marketing communications messages, special attention is paid to young consumers, referred to as Generation Y because of the strategic importance of achieving the loyalty of young consumers to long-term perspectives. In addition to promising low prices, Walmart attracts Millennials through efficient integration. Walmart brings Millennials into its marketing communication strategy through the effective integration of social media marketing. As shown in the figure below, Millennials favor Walmart over other stores including Target, Costco, Trader Joe's, and Whole Foods in North America:

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The marketing strategies of Walmart have always been successful, as the company has taken a good approach to define its market segment. The company focuses on extensive marketing research in order to understand the views of its customers.

Recommendations

  • The marketing mix of Walmart proved to be effective in supporting the success of the company. There are, however, still many places where Walmart shops are absent or hard to reach. This is especially true in developing countries ' markets. Walmart should therefore improve the place/distribution component based on the characteristics of its marketing mix. However, Wal-Mart should not use the same strategy form in other countries because of the differences in culture, environment, legal and political factors.
  • In its treatment of its employees, Walmart is notoriously stingy. Walmart was known to reduce wages as legally as possible. It offers low-benefit health plans to its employees and its managers do not benefit from the many benefits that high-level managers in other large companies typically have. These are some of the ways of Walmart to reduce operating costs and keep overhead costs low. I agree that operating costs should be minimized, but I do not agree with achieving this by poorly-paying employees. Instead, I think that in order to minimize operating costs Walmart should do that through wise spending, automation should be used to reduce costs and reduce unnecessary expenses that are not essential for the delivery of high-quality services and products.
  • The expansion of Walmart's online presence is the most important opportunity to strengthen its position in 2019 and beyond. Every year, online retail and shopping sales have grown steadily, not only in the USA but throughout the world. Online shopping not only makes customers more comfortable, more varied, and more discreet but also gives customers better prices. While it's true that Wal- Mart has a wide range of products and low prices but I believe that if Walmart strengthens its presence online it will find out that E-commerce is a very beneficial approach for the business especially nowadays.
  • Following the recommendation of growing the company’s online presence comes to the promotional side of Walmart in order to attract more customers. What many people don't realize is that you can still promote a retail business in the form of email marketing and social media. Walmart can share pictures of people eating in their stores, upload videos to Instagram, and have it tagged. Collect the email addresses of people so you can give them coupons and discounts.
  • From the very first store, the philosophy of Sam Walton was ' Always low prices.' He knew that if he could sell products that people used in their daily lives at prices slightly cheaper than those of other stores, he would be successful which is exactly the main reason for Walmart's great success story. I think that Walmart should either keep working with this strategy or perhaps if it’s possible to reduce prices, even more, to keep up with competitors such as Lidl and Aldi and other stores that offer low prices.
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Walmart: History & Economic Analysis. (2022, April 29). GradesFixer. Retrieved June 21, 2024, from https://gradesfixer.com/free-essay-examples/walmart-history-economic-analysis/
“Walmart: History & Economic Analysis.” GradesFixer, 29 Apr. 2022, gradesfixer.com/free-essay-examples/walmart-history-economic-analysis/
Walmart: History & Economic Analysis. [online]. Available at: <https://gradesfixer.com/free-essay-examples/walmart-history-economic-analysis/> [Accessed 21 Jun. 2024].
Walmart: History & Economic Analysis [Internet]. GradesFixer. 2022 Apr 29 [cited 2024 Jun 21]. Available from: https://gradesfixer.com/free-essay-examples/walmart-history-economic-analysis/
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