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Walmart Strategic Analysis

Essay by   •  February 4, 2011  •  Case Study  •  1,986 Words (8 Pages)  •  2,337 Views

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Wal-Mart Stores, Inc.:

A New Set of Challenges

Part I

Strategic Direction

Mission: Wal-Mart is an American - based discount retailing store that implements that lower prices will result in higher sales volume, so to continue to provide customers with quality goods at everyday low prices will keep our customers satisfied and coming back.

Objectives:

Short Range:

* To have 90% of the customers leave the store satisfied with their experience at the store.

Long Range:

* To be the world's largest low cost store that carries all types of merchandise for all possible consumers.

* To maintain strong customer loyalty.

* To increase the amount and type of stores internationally, as it is in the United States.

Industry Environment - Porter's five forces of competition

Rivalry of Existing Competitors:

* Wal-Mart has a strong competitive advantage against its competitors Kmart and Target.

* Rivalry in this industry is not as strong for the competitors compared to Wal-Mart.

Barriers to Entry:

* High because it is hard to form a large organization that will be competitive at the same size as Wal-Mart with such low prices.

* This industry has high barriers because it is too expensive for new firms to enter and to be competitive.

Substitutes:

* Medium because it depends on where you live and what type of Wal-Mart stores are closer to you.

* Substitutes would be going to another grocery store, a toy store, a hardware store; basically going to specialty stores instead of going to one store that has everything in one, as a Wal-Mart can.

POWER of Buyers:

* Weak because basically the prices are low from the beginning so there would not be any potential for buyers to bargain with.

POWER of Supplies:

* Weak because Wal-Mart uses its own distribution centers that are located close to its stores.

* Wal-Mart is also far and away the biggest customer of virtually all of its suppliers. It's scale of operation allowed it to bargain hard with suppliers and get their bottom prices.

SWOT Analysis

General Strengths

* Provides customers with everyday low prices.

* Wal-Mart has various domestic and international stores that were served by 108 regional general merchandise and food distribution centers.

* New stores were usually clustered within 200 miles of an existing distribution center so that daily deliveries could be made cost-effectively.

* Wal-Mart always expands into adjoining geographic areas, saturating each area with stores before moving into new territory.

* Quick to imitate good ideas and merchandising practices employed by other retailers.

* Much of management's time was spent talking to vendors, employees, and customers to get ideas for how to improve the store.

* Industry leader in testing, adapting, and applying a wide range of cutting-edge merchandising approaches.

* All of the stores are close to the distribution center.

* Uses a lot of technology.

* Is considered one stop shopping with strong customer service.

* Passes cost savings on to customers in the form of low prices.

Financial

Comparison To Industry & Market

Valuation Wal-Mart Industry1 Market2

Price/Sales Ratio 0.64 0.61 1.27

Price/Earnings Ratio 18.34 18.44 18.90

Price/Book Ratio 3.93 3.53 2.62

Price/Cash Flow Ratio 12.60 12.22 10.41

* 1Industry: Discount, Variety Stores

Annual Income Statements

All amounts in millions of US Dollars except share amounts

Year Revenue Gross Profit Operating Income Total Net Income Diluted EPS (Net Income)

Jan 05 285,222.0 69,834.0 14,324.0 10,267.0 2.41

Jan 04 256,329.0 61,434.0 12,673.0 9,054.0 2.07

Jan 03 244,524.0 56,118.0 11,643.0 8,039.0 1.81

Strengths:

* Wal-Mart's shrinkage is estimated to be just above one percent, versus an industry average of two percent.

* First company to reach $1 billion in sales in such a short time.

* Offers significant price discounts to expand sales volumes and increase overall profits.

* Sales grew at an average annual compound rate of 19%, pushing revenues up from $20.6 billion to $165 billion.

Weaknesses:

* Frugality, meaning that every penny matters.

Marketing

Strengths:

* Wal-Mart's marketing strategy relied primarily on word-of-mouth advertising.

* Wal-Mart spent only 0.5 percent of every sales dollar on advertising, compared to 2.5 percent for Kmart. The savings further helped the company to reduce

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