Being one of the largest online retailers in the US and international industry, Walmart Stores Inc. is under pressure to maintain its dominance in the industry that is in its advanced phases with stiff competition (Martinez, Galvan & Alam, 2017). Their core competence, through innovation, is a customer-centric experience that integrates ecommerce and retail stores. However, the company needs to be ahead of its rivals, which prompts them to put strategies forward (Martinez et al., 2017). For their strategies to be effective, there needs to be a strategic analysis of the company using different strategic tools. This paper is going to focus on three main tools, PESTLE Analysis, SWOT Analysis, Financial Analysis, and PORTERS five forces.
Walmart has tried to withstand some of the adverse effects that come with the Political, economic, social, technological, environmental, and legal aspects of the industry (Laszlo & Cescau, 2017). The company has a key mandate to properly handle government activities and political issues that are essentially creating opportunities as well as threats that can affect Walmart directly or indirectly. This success, however, needs a continuous examination of the environment of the retail sector (BARBERA 2014). The environment has factors that affect the success of the company, presented in the PESTLE analysis done below.
The company has some political factors affecting its business operations, mostly involving government policies. Some of the political factors are political stability, political pressure from high wages, and globalization (Laszlo & Cescau, 2017).
Political stability is a crucial pestle analysis factor for the Walmart Company, more so for its manufacturers and suppliers as well (Laszlo & Cescau, 2017). In case the company wants to expand its ecommerce platform and physical stores, then the political stability will play a significant role, specifically in the success of its expansion strategy (Laszlo & Cescau, 2017). Moreover, political stability, especially in certain locations where its manufacturers and suppliers are operating, will enable suppliers to focus on operations while meeting the standards set (Lin, 2019). Another political issue that can greatly affect Walmart is the political pressure for higher wages. For instance, the bill that was introduced by the Vermont Senator to Stop Walmart Act mainly from stock buyback unless the company could raise the minimum wage of $15 per hour (Lin, 2019). Notably, such decisions by the government officeholders can massively affect the brand image of Walmart.
Economic factors include economic stabilities in significant economies, a decrease in unemployment in the US, and growth in developing countries (Saleha, Rashidb & Suwaidc, 2020). Consequently, the company ought to look for opportunities across the globe, with emphasis on fast-growing economies. According to Walmart's annual report, the economic factors can massively affect the companies suppliers due to an increase in the cost of goods sold (Saleha et al., 2020). Thus, lowering the price is regarded as the key competitive advantage of the Walmart inc. As a result of this, the company cannot compete with its rivals for a long time and will eventually face losses or thinner profits margins. Secondly, economic recession or slowdown in the United States, as well as in various countries where Walmart operates, can hugely hinder the consumer demands; hence, the company net sale, as well as inventory turnover, will be greatly affected (Saleha et al., 2020).
According to Lu (2019), sociocultural factors mostly affect the customers' perception of the company. Some of them include cultural diversity, lifestyle trends, and migration habits (Klok, Loseva&Ponomarenko, 2019). These factors are opportunities for Walmart as it can shift their product type to be in line with them.
Technology is significantly influencing a number of industries globally, and Walmart is one of them. These factors include business automation, big data, and an increase in digital device usage (Tsui-Auch & Chow, 2019). They mostly affect the competitive landscape of Walmart. Notably, digital transformation and business process transformation is massively affecting Walmart inc. Also, the use of tablets, laptops, and mobile phones creates a big opportunity for ecommerce businesses, for instance, Walmart inc. The use of new technology is a good opportunity for Walmart since the incorporation of the technology enables its staff to majorly concentrate on serving the customers while selling its products (Tsui-Auch & Chow, 2019). The company is capable of attracting its customers by simply using affiliate marketing strategies as well as websites to maximize sales together with market share (Tsui-Auch & Chow, 2019).
The primary factor here is environmentally friendly products. This poses as an opportunity to them as environmental conservation is a significant concern to most people (Alexander, 2018). Their products are already ecologically friendly and have helped in business sustainability (Alexander, 2018).
The legal factors mainly include regulations on food safety and employment as well as reforms in tax law (Alexander, 2018). Tax law reform might be a threat since it means that the tax rates might increase.
By using PESTEL analysis, managers and leaders of Walmart can be able to determine the factors to focus on in their development of strategies through exploiting the opportunities while protecting themselves from the threats.
SWOT analysis unveils the position of the company in the retail industry through their utilization of their strengths while addressing the weaknesses, threats, and opportunities to maintain their competitive advantage (Gurel, & Tat, 2017).
The strengths of Walmart are majorly related to the sizes of its businesses as well as competitive advantages (Alexander, 2018). They include the global scale as well as the worldwide supply chain, which is efficient. These deepen the pockets of the company; hence they can fund growth projects.
Walmart's weaknesses bring challenges to its capacity to withstand threats in the business environment. They include a business model that can be easily copied, competitive disadvantages, and thin profit margins (Dyer, Godfrey & Jensen, 2016). They are related to the generic strategies of the companies as well as implications o business resources and development capacities (Hassan, Sistani & Raju 2014). Hence expose their vulnerability to competitors.
Walmart has some opportunities that can help them in improving and expanding business operations. They include developing countries with growing markets, quality standard improvements, and advancements of human resource policies that shape competitiveness in the labor market (Gurel & Tat, 2017). These opportunities can be used to address the threats and weaknesses of the company.
According to Gurel and Tat (2017), threats facing the company are related to their market condition and consumer behavior; they include the trend in health and lifestyle, stiff competition, and different sizes of online retailers.
This strategy tool is an indication that it to increase its revenue and profit margin, Walmart has to prioritize on utilizing its strength to exploit its opportunities which they will in turn use to address their threats and weaknesses (Papulova & Gazova, 2016). Also, these organizational strengths will give them a competitive advantage.
The financial performance of Walmart has grown steadily over the past. In the year 2018, their revenue for the first time surpassed 500 Billion dollars, reaching 500.3 billion dollars (Dyer, Godfrey & Jensen, 2016). The total revenue in 2017 was just 485.9 Billion, with their net sales being 481.3 Billion dollars. There was a 2% increase in both net sales and overall revenue between 2017 and 2018. Profit margins in the past five years have been maintained to round 24% (Papulova & Gazova, 2016). However, Walmart's operating income has been declining over the last four years, mainly due to the increasing expenses used in e-commerce and other business operations like an advertisement (Papulova & Gazova, 2016). Their operation income reduced to 20.43 Billion dollars from around 22.8 Billion dollars the previous year (Lu 2019). Consequently, despite growth in its performance, the brand has struggled with its overall success.
PORTER's Five Forces
This strategic analysis tool is widely used across many industries to examine the forces that influence competition and the overall situation of any brand (Papulova & Gazova, 2016). The five forces of Walmart are discussed below.
Suppliers' bargaining power is relatively low for many reasons. The main reason, however, is that Walmart is a big retail company; hence it has different suppliers. Also, they buy their supplies in bulk and have a significant market share, being a giant retailer (Chiles & Dau 2005). Consequently, they have higher bargaining power relative to their suppliers.
Buyers in Walmart also don't have high bargaining power. This mostly comprises the customers that make small purchases (Dyer, Godfrey & Jensen, 2016). Moreover, the two fundamental factors that limit the bargaining power of the buyers to a large extent are convenience in shopping with Walmart as well as the price of their products.
Threats from alternative products do not pose a challenge to Walmart. This is major because of the few numbers of retailers that offer prices as low as the ones provided by Walmart for their products. There are other retail companies like best Buy ad Target, who are competitors for Walmart as they have the same business operations (BARBERA 2014). However, when it comes to pricing of their products, Walmart has a bigger advantage than these other retail brands.
Pressure from potential new entrants into the retail industries is medium. This is mostly because of the large investments required to create a brand as big as Walmart's (Hassan, Sistani & Raju, 2014). Also, Walmart has a vast supply chain and distribution system, which takes lots of time and investment to have.
There is intense rivalry among players in the retail industry. However, their pricing strategy is what keeps them on top of the market ladder (Klok, Loseva & Ponomarenko, 2019). While Costco and Target are big rivals, not many retail brands pose a threat to Walmart.
This analysis tool is a reflection of the potential success the company has in increasing their competitive advantages as well as industry attractiveness. It helps analyze opportunities and threats existing in the retail industry that influence a firm's business operation.
In a nutshell, based on analysis from the strategic tools, it goes without saying that Walmart has to prioritize its strengths while exploiting available opportunities in the industry. Also, the company has to expand its business parameters to exploit opportunities in developing economies. Still, they have to implement their strategies based on their threats and weaknesses.
Alexander, J. (2018). Financial Planning & Analysis, and Performance Management. John Wiley & Sons.
BARBERA MARCILLA, L. A. U. R. A. (2014). Business analysis for Wal-Mart, a grocery retail chain, and improvement proposals (Doctoral dissertation).
Chiles, C. R., &Dau, M. T. (2005). An analysis of current supply chain best practices in the retail industry with case studies of Wal-Mart and Amazon. Com (Doctoral dissertation, Massachus...
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