Walmart Analysis

Executive Summary

Walmart is one of the largest retailers in the United States and dominates the discount retailing business. It has historically outperformed and continues to outperform its competitors. To improve slowing growth, Walmart must focus on retaining its strengths in I.T implementation, distribution planning and vendor and store management but implement these skills in growing internationally and including organic products in its merchandise.

Analysis

Walmart succeeded in the US by selling branded products at a lower cost that other options available to customers. Walmart’s centralized purchasing system allowed it to have better economies of scale than its competition. It is also never too dependent on a single vendor so it maintained its bargaining power. Its logistics set up was also much more efficient with about 80% of all merchandise going through its own distribution system .Also its electronic hook ups to its vendors allowed both Walmart and the vendors to reduce inventory costs and transfer the savings to its customers.

Walmart also grew initially by building stores in small rural towns and saturating the market. These locations resulted in lower operating expenses but the towns were not big enough for another store, this effectively created a barrier for competitors to enter these saturated markets.

Walmart’s financial performance favors comparably compared to its competitors and by 1993 had achieved an ROE of 33% annually since inception. In the same time Walmart had achieved 25% y.o.y sales growth as well. Walmart had a market cap of 57 billion dollars. The company hoped to continue this growth with internal forecasts predicting sales of $84 billion in 1994.

International markets

In order to maintain its rate of growth Walmart has to expand internationally as it has already saturated the domestic market and growth is harder to find. Competition from the likes of K-Mart and Target was beginning to deprive the company of the single market locales that had led to tremendous growth. International markets show huge potential for growth in discount retailing. To undertake global expansion Walmart can leverage its huge buying power with large domestic suppliers to procure goods cheaply for its international stores. It can also utilize its expertise and know how in store management, I.T and distribution networks to benefit its international operations. It can also possibly implement its international learnings to improve the profitability of its domestic stores.

Its competitive advantage in Distribution, I.T and store management are sustainable though some aspects may be replicated by competitors. Fr example its distribution network design based on hub and spoke model may be implementable if the competitor’s stores are geographically aligned to fall within 200 miles of a distribution center. Moving stores to fit with this model is very capital intensive. However if they do align then competitors can math this strategy.  Its I.T system can also be partially replicated as the technology itself is not unique. However Walmart’s technology works well because it utilizes its distribution network effectively. Without the distribution network, the effectiveness of a similar I.T system will be minimized. Walmart’s Store management will be tough to replicate as almost no other competitor has higher buying power than Walmart. The influence of Walmart will ensure Walmart gets the best deals on goods. Also Walmart’s culture of low cost may be tough to replicate. And established European competitors will have difficulty in reducing labor costs as they have unionized workforces which Walmart doesn’t.