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SWOT analysis of Walmart

By Ovidijus Jurevicius | 15.02.2013 | Comments

Company Background

Name Wal-Mart Stores Inc.
Logo Wal-Mart logo
Industries served Retail
Geographic areas served Worldwide
Headquarters Bentonville, U.S.
Current CEO Mike Duke
Revenue $ 466.950 billion (2012)
Profit $ 15.699 billion (2012)
Employees 2.2 million (2012)
Main Competitors Costco Wholesale Corporation, Dollar General Corporation, Dollar Tree, Inc., Kohl's Corporation, Macy's Inc, Sears Holdings Corporation, Target Corporation

Walmart is a US based multinational retail company that sells general merchandise and groceries. It is the world’s largest retailer, third biggest public company, largest private employer and one of the most valuable companies in the world.
You can find more information about the business in its official website or Wikipedia’s article.

SWOT

Walmart SWOT analysis 2013

Strengths

Weaknesses

  1. Scale of operations
  2. Competence in information systems
  3. Wide range of products
  4. Cost leadership strategy
  5. International operations

Weaknesses

  1. Labor related lawsuits
  2. High employee turnover
  3. Little differentiation
  4. Negative publicity

Opportunities

Threats

  1. Retail market growth in emerging markets
  2. Rising acceptance of own label products
  3. Trend toward healthy eating
  4. Online shopping growth

Threats

  1. Increasing competition from brick and mortar and online competitors
  2. Increasing resistance from local communities
  3. Rising commodity prices

Strengths

  1. Scale of operations. Walmart is the largest retailer in the world with more than $400 billion in revenue and 10,130 stores. It makes Walmart the giant that no other retailer can match. Due to such large scale of operations, the corporate can exercise strong buyer power on suppliers to reduce the prices. It can also achieve higher economies of scale than competitors because of its size. Higher economies of scale results in lower prices that are passed to consumers.
  2. Competence in information systems. The corporate achieves significant cost savings because of its extensive information systems that tracks orders, inventory levels, sales and other related information in real time. All this information can be instantly accessed, analyzed and decisions made at each store. Effective management of supply chain and logistics is one of the most important factors for Walmart success.
  3. Wide range of products. Walmart can offer wider range of products than any other retailer. It sells grocery, entertainment, health and wellness, apparel and home related products among many other categories and offers both branded and own label goods. Wide range of products attracts more customers to Walmart stores.
  4. Cost leadership strategy. This strategy has helped Walmart to become the low cost leader in the retail market. This strategy requires selling products ant the lowest price possible and providing a no frill services to achieve higher economies of scale and attract masses of consumers and that is exactly what the company is doing. It sells products at much lower prices than competitors do, builds warehouse style superstores that contain extensive range of products but doesn’t offer much additional benefits or services. All of this result in cost reductions and lower prices for consumers.
  5. International operations. Walmart does not rely on sales from US stores only as its competitors do. It has earned $135 billion in sales in 2013 from its international operations, which grew at a much faster rate than sales in the home market. Foreign markets open up new opportunities for Walmart’s growth and provide new experience for the company as it operates quite differently abroad than in the home market.

Weaknesses

  1. Labor related lawsuits. Walmart faces labor related lawsuits every year, which costs millions of dollars for the company. It is criticized for poor work conditions, low wages, unpaid overtime work and female discrimination. In addition to litigation costs, corporate’s reputation has been damaged and fewer skilled workers are willing to work for it.
  2. High employee turnover. The business suffers from high employee turnover that increases firm’s costs, as it has to train new employees more often. The main reason for high employee turnover is low skilled, poorly paid jobs.
  3. Little differentiation. Walmart has no differentiation compared to its competitors, which might hurt the company in the future if commodity prices or average consumer income would increase. In this case, low cost leadership strategy wouldn’t be as effective as it currently is and Walmart’s main competitive advantage would erode.
  4. Negative publicity. The company is often criticized for its questionable practices such as bribery of authorities or poor work conditions. Negative publicity damages corporate’s reputation.

Opportunities

  1. Retail market growth in emerging markets. Retail markets grew by at least 5% on average in emerging markets in the last year, opening huge opportunities for Walmart’s revenue growth. The business currently operates in Brazil, Mexico, China and India markets. Walmart should increase its presence in these markets to sustain future growth.
  2. Rising acceptance of own label products. The sales of private label products have increased by more than 40% over the last 10 years. This reveals increasing consumer acceptance of supermarket chain products compared to national brand products. Walmart has an opportunity to increase the number of private label products sold at its stores and earn higher profit margins.
  3. Trend toward healthy eating. The current trend of eating healthier food has resulted in higher demand for grocery products. Walmart has an opportunity to expand its grocery stores to earn more income from this trend.
  4. Online shopping growth. Online retail sector grew by 4.7% in the US in 2011, reaching $197 billion. Walmart being the biggest offline retailer has huge opportunities to expand its presence in online retail market. The company can offer convenience to pick up the goods ordered online in its more than 10,000 stores and can offer even lower prices online than at the store. As a result, Walmart can reach more customers and increase its revenue.

Threats

  1. Increasing competition from brick and mortar and online competitors. Competitors like Target, Costco, Amazon and Tesco (in UK) are putting huge efforts to eliminate price differences that Walmart enjoys. Except the lower prices, Walmart doesn’t differ from other low cost retailers and will experience increased competition from them in the future.
  2. Increasing resistance from local communities. Walmart superstores have a negative impact on local retailers and communities. Some of the local retailers are usually forced to close off when Walmart superstore opens in the area. This affects not only the retailers but their families and the community as a whole.
  3. Rising commodity product prices. Rising commodity prices squeeze Walmart’s profit margins and erode its competitive advantage. As prices go up, the cost difference between the retailers decreases and competition shifts from price to product and service differentiation.

Sources

  1. Walmart (2013). Walmart Corporate. Available at: http://corporate.walmart.com/?povid=P1171-C1093.2766-L4
  2. Yglesias,M. at Slate (2013). Is Wal-Mart in Trouble. Available at: http://www.slate.com/articles/business/moneybox/2013/05/wal_mart_sales_decline_america_s_largest_retailer_is_slipping_as_customers.html
  3. Business Standard (2013). Walmart lobbying case 'closed'. Available at: http://www.business-standard.com/article/current-affairs/walmart-lobbying-case-closed-113051700875_1.html
  4. Wikipedia (2013). Walmart. Available at: http://en.wikipedia.org/wiki/Walmart

Written by Ovidijus Jurevicius

I'm interested in strategic management and business strategy. I like sharing my knowledge and ideas about these topics with you.

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