Wal-Mart SWOT Analysis

Kara Groff

Table of Contents:

Overview……………………………..………..page 3

Strengths………………………………....…….page 4

Weaknesses…………………………...….…….page 6

Opportunities...............................................…...page 8

Threats…………………………………....……page 10

Recommendations…………………………......page 12

References……………………………….…….page 13

Student: Faculty Member:

Kara Groff Dr. David J. Burns

2015 Cleneay Ave. Xavier University Marketing Department

Norwood, OH 45212 3800 Victory Parkway

(419)-656-1234 Cincinnati, OH 45407

GroffKC@Xavier.edu (513)-745-3956

Burnsd@Xavier.edu

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Overview

Wal-Mart was founded in 1962 by Sam Walton when he and his brother James “Bud”

Walton opened the first Wal-Mart Discount City in Rogers, Arkansas. Since then, Wal-Mart has

grown to be the second largest company in the world. In the United States, the company

includes Wal-Mart discount stores, Supercenters, Neighborhood Markets, and Sam’s Club

warehouse membership clubs. The company also has many international operations. Wal-Mart

is considered a variety store which focuses on low prices featuring apparel as well as hard goods,

and has been committed to upholding their basic value of customer service.

Advances in technology have contributed a great deal to the growth of Wal-Mart. Highly

automated distribution centers were implemented and Wal-Mart was able to drastically cut the

costs of shipping and delivery time. Sophisticated computer systems were installed to track

inventory which resulted in quicker checkout time and reordering. More recently, wire-less in-

store systems have been used to increase customer service. Beginning in the early 1990s, Wal-

Mart went to great lengths to increase their market share. They introduced a full line of groceries

into their stores, diversified their market by appealing to certain ethnic groups through bilingual

advertisements, and took steps to promote the awareness of environmental issues.

Currently, Wal-Mart has net sales of $256.3 billion, which is an 11.6% increase over net

sales of the similar period last year (“Wal-Mart Company Profile” 4). Business decisions such as

closing stores that were not profitable, and expanding during recessions when consumers were

looking to discount stores to save money, have made Wal-Mart’s undeniable success all the more

obtainable. However, there have been negative feelings towards Wal-Mart as a retailing giant

because of issues concerning wages, heath care and the environment.

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Strengths

Wal-Mart has an abundance of strengths which is obvious due to its incredible success.

Wal-Mart is the largest employer in the United States and the company is one of the few places

left for people to get a decent job without a college education. Wal-Mart also has the second

largest net sales in the world. This incredible number of sales is due significantly to Wal-Mart’s

aggressive growth strategy. In 2003 alone they added 425 new stores all over the world. An

increase in customer demand for SuperCenters encouraged the company to add 4,000 more.

Overall they added 48 million square feet of retail space (“Wal-Mart Company Profile” 6). They

can also attribute their large amount of sales to the fact that they have stores all over the world.

Their truly global presence is apparent in their operation of “around 1,350 Wal-Mart Discount

Stores, 1,700 SuperCenters, 85 Neighborhood Markets and 550 Sam’s Clubs in the United

States, with numbers continuing to grow…and about 1,300 locations in Canada, Mexico, the UK,

Germany, Asia and South America” (“Wal-Mart Company Profile” 5).

One of Wal-Mart’s competitive advantages is their remarkable logistics system. They are

able to ship merchandise from any of their numerous distribution centers in order to provide the

cheapest and most efficient route. They even have their own distribution center for their online

orders. The invention of sharing sales data with suppliers through computer programs has

allowed Wal-Mart to consistently keep their shelves stocked with popular items. Technology in

general is an unbelievable strength that Wal-Mart is able to invest in to improve their company.

Having a website has allowed for increased sales all over the world. This not only provides

convenience for customers, but with a logistics system like the one Wal-Mart has in place, online

orders have become a breeze to fill.

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Even though Wal-Mart has been criticized for their low wages, they are actually doing a

lot of good for lower income people. They can save a family about $1,000 a year with their low

prices (“Wal-Mart Storm” 3). Wal-Mart can beat out many competitors with their aggressive

pricing strategy. They have the ability to cut prices on some products, such as toys, by thirty

percent in order to stimulate more sales. Wal-Mart has even been able to lure in higher-income

customers when they open store in more urban areas. Since Wal-Mart has become the nation’s

largest food retailer, people from all income levels are shopping there for their necessity items.

They have even been working on a more upscale appearance of their stores to attract these

customers. The service that Wal-Mart offers to its customers is a great advantage as well. They

have a strong image that it is a friendly and helpful place to shop where people are always

willing to make your experience a good one. The added incentives are the constant price

rollback, as well as the store-within-a-store. A great deal of Wal-Mart’s success can be

attributed to the fact that the company was based on identifying, knowing, and understanding

what exactly customers want from a retailer.

A few final strengths are linked to the public criticisms that Wal-Mart has been facing.

They are paying particular close attention to environmental issues and have “vowed to increase

use of renewable energy, reduce waste and carry environmentally sensitive products…Wal-Mart

will soon be selling baby clothes made using organically grown cotton and has plans to improve

its truck fleet efficiency by twenty-five percent in the next three years” (“Two Public Relations”

3). Wal-Mart has also recently been pushing for a higher minimum wage, a step that is

surprising to many other retailers in the industry.

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Weaknesses

In the eyes of some of the general public, Wal-Mart has weaknesses that affect not only

their image, but the lives of other people. Some view Wal-Mart as a retailing giant that has taken

over the retail industry. Because of Wal-Mart’s low prices and well-known name, they have

been able to capture the sales of an unbelievable number of consumers, and have therefore made

it extremely difficult for small retailers to survive. Ethical shoppers, those who are concerned

with the well-being of small retailers, are angry at the monopolizing power Wal-Mart has been

able to gain in the past few decades. Most small shops have been forced to close due to lack of

sales. Some people refuse to shop at Wal-Mart because of these issues. This poor image that

Wal-Mart has in some people’s eyes has taken a toll on its stock price as well.

Many environmentalists are concerned with the large scale buildings that are not sensitive

to the environment. These buildings also cause a problem of traffic pollution and congestion

which can damage small communities. The employees of Wal-Mart can suffer a great deal as

well. Many receive only poverty-level wages and horrible health care benefits. Problems with

these healthcare benefits lead to employees applying for public aid, which in turn means that

taxpayers are the ones paying for Wal-Mart employee’s healthcare costs (“Wal-Mart Storm” 2).

Wal-Mart has been accused of discriminating against female employees and violating child labor

laws. Because of these criticisms, employee morale has been decreased as well.

Wal-Mart sometimes has a disadvantage in the location of their stores. Although Wal-

Mart has grown and expanded a great deal into the international market, they still do not have a

large part of the European market. They are only present in the UK and their competitors are

gaining in the other surrounding countries. Wal-Mart also needs to consider the consequences of

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placing their stores too close together. Instead of increasing the volume of products per store,

they open another one. Wal-Mart has already been facing a problem with a decrease in Saturday

store sales. A lack of products, as well as a decrease in the quality of them, may be attributed to

this loss of sales. They have also been said to have poor presentation and marketing of products

on the floor.

Price deflation is a serious dilemma that Wal-Mart and many discount stores are facing as

well. They often buy too much of one product and then have to put it on sale or clearance in

order to turnover the merchandise. Instead of increasing sales with low priced items, Wal-Mart

is actually lowering their profits. Consumers will only buy so much of a particular product, even

if it is priced low. Wal-Mart has a tendency to overstock and therefore reduce gross margins

when they sell products for reduced prices.

Also, after seeing disappointing numbers, Wal-Mart has repeatedly said that their

company would have increased earnings in the following quarter. Unfortunately, they have not

been able to keep this promise. Wal-Mart has a weakness in that they promise unrealistic

earnings, and then do not meet their expectations. This causes their stock to constantly waiver.

Even as the economy is rising, Wal-Mart’s stock is not necessarily seeing an increase.

Finally, Wal-Mart can have problems with their flexibility. “Since Wal-Mart sells

products across many sectors, such as clothing, food, or stationary, it may not have the flexibility

of some of its more focused competitors” (“SWOT Analysis” 1). These competitors have the

ability to make changes and improve on a certain product lines when the needs of their customers

change. Wal-Mart, however, may have too much merchandise and not be able to focus in on

sectors that need to be improved. They also might not have the available information, resources

and know-how to make any changes.

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Opportunities

Since Wal-Mart is the largest retailer in the United States, it has a very good opportunity

to become the largest retailer in the world. They do not always carry a diverse selection of

products, so they could expand stores and merchandise to attract more customers. An area that

could especially be increased is their musical products. Wal-Mart does not carry a large quantity

or mixture of musical products such as instruments, and these can be high profit items. Their

image could be improved if they focused on having certain products, such as CDs and DVDs

available on their release dates.

Along the same lines, Wal-Mart could diversify their store types. They have been

successful with implementing Neighborhood Markets, and have even tried a mall store recently.

By focusing on a specific target market in a specific area, Wal-Mart could be the number one

retailer for everyone. They already have the available resources to try new store types in new

segments. It is also a logical step to increase and expand their current SuperCenters, which are

expected to increase sales dramatically in the future. “The reason it is expected to drive growth

so affectively is SuperCenters are considered extremely high growth stores, more productive

than supermarkets and expecting to produce $500 in sales per square foot” (“Wal-Mart Company

Profile” 8). Wal-Mart “has yet to penetrate to many East and West Coast food markets that

occupy the top 50 (food retailing markets)” (“New Competitors” 1).

Another great opportunity is to improve on the areas which they have been criticized.

Wal-Mart has already announced a new health care plan which would increase benefits to

employees. They are very concerned with child labor laws, so they have said that they will pay

especially close attention to their overseas suppliers and their labor practices. Also, Wal-Mart

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has the opportunity to work on improving the environment. They have such a large image that

any programs they support have the ability to produce tremendous results. By working on

solutions to these concerns they can help improve their image and increase their market share.

Wal-Mart is such a major player in the retail industry that its decisions can have an effect

on the global economy, the environment and society. They have the ability to slightly decrease

the price of inflation because of their low prices. Also, due to their low prices, there is an

increase in wages in developing countries. For the United States, wages may be low, but in other

places where manufacturing goods is cheaper, wages can actually be considered high. By

offering jobs and increasing the wealth in other countries, it is possible for a substantial middle

class to exist there and also increase Wal-Mart sales by having stores in those areas (“Wal-Mart

Storm” 4.

Continued international expansion is a huge strategic opportunity for Wal-Mart. There is

actually more opportunity for growth in developing countries and Asian markets than there is in

the United States (“Variety Stores” 8). Creating alliances and licensing agreements are ways to

move into these market segments. Other growth opportunities include the Internet and improved

supply chain management through radio-frequency identification (RFID).

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Threats

In order to keep prices low, Wal-Mart has had to cut costs in other areas. This includes

squeezing suppliers to offering their products at much lower prices. This has driven competitors

to do the same, which is causing profits to plunge downward drastically. A threat to Wal-Mart’s

image is the fact that for the few years after they open up a new store, the wages of that county

fall by three to five percent. Another threat is the rapidly growing chain of Dollar General

discount stores. These stores are able to open in smaller areas where there are not enough

customers to support Wal-Mart. The deep discount that is offered at Dollar stores competes

greatly with Wal-Mart.

The economy has a slight effect on Wal-Mart’s customers. They have an advantage

because the do offer cheap products that appeal to people in the time of a recession. However,

most of Wal-Mart’s customers do not directly experience most of the government’s attempts to

stimulate the economy. Wal-Mart must work very hard to compete in times of uncertainty.

Another threat that Wal-Mart faces is brand-name recognition. Although they carry and have

increased their assortment of name brand products, most consumers searching for name brand

products will not look at Wal-Mart to find them. Wal-Mart lacks a direct sales force to increase

sales, whereas smaller retailers are focusing more and more on this aspect therefore increasing

their competition.

A major threat to Wal-Mart is the areas that they are expanding into may not be easily

attainable. It will be difficult for them to gain a good part of the market share of hard-line

products such as home improvements. These areas have greater competition and Wal-Mart does

not have a clear cost advantage. International expansion may also create slow or rough short-

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term growth. The international market is predicted to have excellent long-term growth success,

but these earnings may not be seen in the near future. Also, Wal-Mart has huge expansion plans

that are very public. “If these stores do not open on time, or are subject to delays and build

issues, then analysts’ predictions will not be met and share price may suffer” (“Wal-Mart

Company Profile” 9). On the contrary, if Wal-Mart successfully meets all of its deadlines,

investors may still be hesitant to invest in their company. In the past, when retailers meet their

expectations, and the economy is doing well, they tend to under perform. Also, two of Wal-

Mart’s main product lines, apparel and food, are very slow growth sectors, and Wal-Mart’s

dominating position in the industry may make investors believe there is little room for the

company to grow.

Wal-Mart’s image has been seriously threatened by the numerous accusations of being

“bad for the country” (“Two Public Relations” 1). The documentary movies that are being

produced could seriously hurt the company’s sales, especially since they are being premiered

right as the holiday shopping season is starting. The shopping experience some customers have

at their store is also a threat to Wal-Mart. Customers are often complaining about the long

checkout lines and the insufficient quality of the products that are offered. Once this idea is

spread throughout a community, it is difficult to change the public’s opinion.

Also, RFID could possibly be a threat to Wal-Mart by ruining relationships with

suppliers. This system promises to do a great deal for supply-chain management. However,

there is always the possibility that technology promises more than it can actually offer. Some

manufacturers of low-cost consumer products may not see the advantages of implementing such

a system and not want to comply with Wal-Mart’s mandate for the new system.

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Recommendations

Wal-Mart has been extremely successful in the past, and has a very promising future

ahead of them. Unfortunately, there is always a negative side to success. For Wal-Mart, they are

faced with opposition from people who are concerned with the “little guy.” The fact that Wal-

Mart has the ability and resources to be such a major competitor in the retail industry scares

some people. Small stores in small communities, as well as employees, target Wal-Mart because

they know it is a large company with the resources to defend itself.

In order to improve its image in the eyes of these people, Wal-Mart may want to address

these issues head on. Wal-Mart has already taken giant strides to be seen as a more

environmentally friendly organization, as well as to increase the benefits of its employees. They

should continue this approach, possibly even more publicly than other retailers in the industry.

Wal-Mart could even start a campaign to help the “little guy.” Since they have such a global

impact, any issue they raise will undeniably get a great deal of attention. In a campaign of this

sort, Wal-Mart could focus on promoting the other small specialty stores in their community.

They could help advertise for local shops that do not sell competing products, but complimentary

ones. Instead of taking sales away from themselves, Wal-Mart could change their image to one

of a company that cares about the community.

Along with this, Wal-Mart should focus on their employees. Publicly giving employee

benefits or rewards will increase morale as well as their image. Once Wal-Mart has invested in

their image in their home country, they should also focus on increasing their market share in the

international markets that they are not already involved in. Some other countries hold the

greatest growth potential and these areas should be seriously considered by Wal-Mart.

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References

Cramer, James J. “Wal-Mart, Fess Up to Weakness Within.” Wake-Up Wal-Mart.com,17 August 2005. 18 November 2005. Retrieved from <http://www.wakeupwalmart.com/news/20050817-rmcom.html>.

Kalra, Ritu. “Wal-Mart Storm Swirling.” The Hartford Courant. 2 November 2005. 3 November 2005. Retrieved from <http://www.courant.com/business/hc-walmart1102.artnov02,0,391016.story?coll=hc-headlines-business>.

Lindeman, Teresa F. “Two Public Relations Campaigns pit Wal-Mart Against Critics.” Pittsburgh Post-Gazette. 1 November 2005. 3 November 2005. Retrieved from <http://www.post-gazette.com/pg/05305/598285.stm>.

McClenahen, John S. “Wal-Mart’s Big Gamble.” www.industryweek.com. April 2005. 3 November 2005. Retrieved from <http://www.industryweek.com/ReadArticle.aspx?ArticleID=10055>

“New Competitors Move on Supers.” MMR. 22(10) p.162. 10 June 2005. 3 November 2005. Retrieved from <http://www.findarticles.com/p/articles/mi_hb3235/is_200506/ai_n15059742>.

“SWOT Analysis Wal-Mart.” Marketing Teacher. 18 November 2005. Retrieved from <http://www.marketingteacher.com/SWOT/walmart_swot.htm>.

“The Story of Wal-Mart.” The Cultural Marketplace – The NUR Network. 3 November 2005. Retrieved from <http://doforself.ws/page2.html>.

"Variety Stores."  Encyclopedia of American Industries Online Edition . Gale, 2004. 3 November 2005. Retrieved from <http://ariel1.xu.edu:2058/servlet/BCRC?locID=xavier_main&srchtp=cmp&cc=1&c=1&iType=sic&mode=i&tcp=walmart&docNum=I2501400716&bConts=15659&vrsn=149&rcp=CO&rsic=PK&ste=85&tab=1024&cind=5331+-+Variety+Stores&tbst=tsIS&ccmp=Wal-Mart+Stores+Inc.&n=25>.

“Wal-Mart Stores, Inc. Company Profile.” www.Datamonitor.com. April 2005. 3 November 2005. Retrieved from <http://www.datamonitor.com/~c657fcfba2b74e80baa5c9c06f24d5e6~/companies/company/?pid=8046847E-B325-4AF0-BC79-48100850E764>.

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