Organizational and Industry Analysis of Wal-Mart
Introduction
Wal-Mart is among the biggest multinational companies and retailers in America and the world as a whole. It has been a market leader for a long period due the effectiveness of its low-cost structure despite the market instabilities. However, Wal-Mart does not operate in a vacuum and thus faces some threats including stiff competition from players in the retail industry. Further, Wal-Mart is surrounded by a few weaknesses that require improvements in the future to sustain the Company’s progressive growth. The purpose of this paper is to provide organizational analysis of Wal-Mart to help it accomplish greater success as well as sustaining competency in the face of a dynamic environment (Institute of Grocery Distribution, 2002). The analysis touches on different aspects including threats, opportunities, weaknesses and strengths. In addition, the paper highlights the history and the retail industry in which Wal-Mart operates to provide a deeper understanding of organizational analysis of Wal-Mart enterprise. The paper provides recommendations that need to be implemented to enable Wal-Mart take advantage of opportunities and its strengths to eliminate weaknesses and threats.
Brief history of Wal-Mart
Walton established Wal-Mart in 1962 alongside his brother James Bud in Rodgers. It had expanded operations to 18 stores by 1970 with approximately $44 Million sales turnover. Wal-Mart continued growing and was incorporated in the same year. Consequently, the company’s profits grew significantly allowing it to spot more areas to establish operations. It had 276 stores by 1980 reporting total sales of approximately $1.2 billion. Wal-Mart operated its first Sam’s Club back in 1983 commonly known as Sam’s Club. Later, it opened a hypermarket that was run as a joint venture in collaboration with Cullum Companies. Sam Walton retired from Wal-Mart as the Company’s CEO in 1988. During his tenure, Walton portrayed shrewd leadership to see Wal-Mart grow from one store to over 200 stores in United States reporting billions of money as turnover (Peterson & Mannix, 2003). David Glass took over from Sam Walton as Wal-Mart CEO who maintained the pace of Walton to foster growth of Wal-Mart. In 1990, Wal-Mart acquired McLane distributors and later ventured into international markets. It first ventured into Mexico through a joint venture with the largest retailer called Cifara. By 1994, it expanded to Canadian market and acquired Woolco retailers. Subsequently, Wal-Mart ventured into China, Germany, Brazil and United Kingdom between 1996 and 1999. In 2002, it ventured into Japanese market by acquiring 6% of SIEYU retailers increasing the acquisition to approximately 36% by the year’s end (Vance & Scott, 1994). Wal-Mart diversified its operations in 2004 by launching online music shop that increased competition in the music industry with rivals such as Napster and Apple.
Retail Industry Overview
The retail industry today faces a slow down resulting from the bad economic times that reduce consumers’ purchasing power. As consumers decrease the income spent on consumer goods, receipts for industries operating in the retail industry decrease proportionately. 5% decrease in consumer spending for instance implies that retailers hardly make profits. Most retailers have in the recent past closed their stores including Circuit City and Steve Barry. The remaining stores have opted to execute other strategies to sustain growth and profitability such as manipulating the selling price to increase sales. Others have retrenched their employees as well as laying off some to reduce the wage bill. However, not all players in the retail industry are facing sales turnover problems. Wal-Mart continues generating huge sales and reporting big profits. In-depth analysis of Wal-Mart at organizational level and industry level will help in making recommendations that the management needs to consider implementing both in the long run and short run.
The strengths of Wal-Mart
Wal-Mart is commonly known for its low-cost structure. The low cost-structure is portrayed even in its mission of saving customer’s money to enable them live well. Contrary to other retailers, Wal-Mart provides goods of high quality to customers at relatively low prices. This has given Wal-Mart competitive advantage over other retailers in the industry. The low prices that Wal-Mart charges its customers are as a result of soliciting supplies at lower prices. Since Wal-Mart has influence in the retail industry, it has bargaining power over its suppliers. The strength of Wal-Mart is associated with its sustainability power compared to other players in the retail industry (Gopinath & Siciliano, 2014). This is evidenced by the huge profits the company reports even during bad economic times. Closer analysis of Wal-Mart statement of comprehensive income shows that the company sales have maintained an upward trend. The net sales from 2010 to 2014 are $408, $421, $446, $469 and $476 billion respectively. The excellent performance is as a result of robust strategies the management executes. The strategies aim at expanding into international markets, increasing inventories and increasing shareholders’ wealth by increasing the value of the company’s share. It has established operations in areas of high growth such as Argentina, China, Mexico and Brazil. Investment in foreign markets gives Wal-Mart comparative advantage over its rivals. The overseas operations enable Wal-Mart to earn huge profits even when the value of the dollar reduces relative to other currencies.
Opportunities for Wal-Mart
Wal-Mart has two major opportunities that it should leverage to maximize profits. That includes; continue expanding internationally in the developing countries where it has already set up stores to increase market share and opening new stores in markets where it has not ventured. Wal-Mart should grab the opportunity of developing further in high growth areas where it has operations. Since it has knowledge of consumer tastes, preferences and cultures, it will be in a better position to set up new stores in these areas (Alvesson, 2002). The future of Wal-Mart seems brighter in Europe, north and South American countries as well as China and Japan. It should increase stakes in these countries to acquire large market share as possible. To increase profitability, Wal-Mart should venture into developing countries where it has not set up stores such as Asian and African countries. It should focus on areas such as business parks that are ideal for setting up retail stores.
Weaknesses at Wal-Mart
Despite performing well compared to other retailers in the industry, Wal-Mart’s reputation has been adversely affected especially by the labor unions and environmentalists. It has in the past faced lawsuits on issues such as environmental problems, inferior working conditions, wage problems and discrimination (Gopinath & Siciliano, 2014). For instance, it has been charged with discrimination on the basis of gender and disabled persons. In 2005, Wal-Mart lost in case of discrimination based on disabled people leading to loss of approximately $7.5 Million. In 2007, Wal-Mart was charged with racial discrimination against black Americans during recruitment. It further lost over $17 million in the case. Wal-Mart has also lost in a case related to violation of environmental Acts in the United States. In 2006, it violated the clean water Act and was subjected to a fine of $3.1 Million. In relation to wages, it faced protests from workers due to low wages. It was involved in the case of unpaid overtime as well as forcing workers to extend work during weekends without pay in Germany in 2007. In all these cases, Wal-Mart lost and paid huge amounts of money in terms of compensation for the aggrieved parties. Other cases that have adversely affected the name of Wal-Mart include exploitation of child labor and use of equipment that exposed employees’ to high risk such as folk lifts, paper balers and chain saws. It has also been charged due to hiring of illegal immigrants in its American stores to work as cleaners. Wal-Mart lost over $10 million in this case to the government of America. Currently, Wal-Mart has numerous pending cases that are likely to cost it millions of money to settle in full. The charges against Wal-Mart portray a bad relationship between the company and the employees. Reduction in health benefits for employees also shows that Wal-Mart needs to improve the relationship with its workers. Wal-Mart should draw useful lessons from the lawsuits it has been involved. In relation to these weaknesses, I would make three recommendations. Wal-Mart should implement policies that prohibit forced or unpaid overtime. Overtime work should be advanced based on the consent of the employees, which should be 20% more than the regular wages (Gopinath & Siciliano, 2014). The company’s Management should learn to obey and respect international and local labor standards that outline guidelines for handling labor related issues. Wal-Mart should allow its workers to voluntarily join labor unions to fight for their rights. To show its intentions of facilitating better favorable working environment, Wal-Mart should improve health benefits for its workers to retain the existing employees as well as attracting new ones. In fact, it should offer its workers free health benefits to remain competitive.
Threats to Wal-Mart
Wal-Mart faces threats externally from competitors and the economy. The competition remains stiff due to large number of new entrants into the retail industry. As a result of globalization, customers are now demanding more than in the past in terms of quality and price. In response, Wal-Mart must execute new ways to counter the dynamic environment. It should change shelving and store layout. It should place selling items at eye grabbing spots to make it convenient for customers (Gopinath & Siciliano, 2014). Apart from the physical changes, Wal-Mart should execute strategic amendments such as reducing unnecessary activities to increase efficiency. To accomplish this, it should utilize activity based costing approach that helps in identification of activities that do not add value. Once identified, Wal-Mart can reduce or eliminate them in full. Implementation of ABC costing will also help Wal-Mart in insetting prices accurately. It eliminates the possibility of over costing or under costing of overhead costs, variable and fixed costs.
In conclusion, after analyzing Wal-Mart both at organizational and industry level and identifying the strengths, weaknesses, opportunities and threats, Wal-Mart should take advantage of its strengths, leverage on opportunities, make improvements on areas of weakness and eliminate threats (Vance & Scott, 1994). The management of Wal-Mart should take into account the recommendations advanced on each of the four aspects to accomplish greater profitability, growth and development.
References
Alvesson, M. (2002). Understanding organizational culture. London: SAGE.
Gopinath, C., & Siciliano, J. (2014). Wal-Mart Stores, Inc. SWOT Analysis. Letchmore Heath, Watford: IGD.
Institute of Grocery Distribution. (2002). Wal-Mart: A strategic review. Watford: IGD.
Peterson, R. S., & Mannix, E. A. (2003). Leading and managing people in the dynamic organization. Mahwah, NJ: L. Erlbaum.
Vance, S. S., & Scott, R. V. (1994). Wal-Mart: A history of Sam Walton’s retail phenomenon. New York: Twayne Publishers.