OVERVIEW

When Sam Walton founded the first Wal-Mart in 1962, the idea of bringing in a

discount shopping store into rural America was almost unheard of, except for the local

five and dime stores. When Walton noticed that he had a lot of competition from regional

discount chains, him and his wife Helen traveled the country to study other new retailing

concepts, and were convinced that it was the wave of the future. With Walton's vision,

Wal-Mart grew to be a multi-billion dollar, international company, operating about 4,600

stores around the world.

Wal-Mart competes in many industries that include: 5331- Retail-Variety stores,

5411 Grocery stores, 5311-Department stores, 5812-Eating Places, 5399-Miscellaneous

General Merchandise store, and 5912-Drug stores and Proprietary stores. Since there are

several industries to choose from, our group chose to go with retail-variety stores, SIC

code 5331. These establishments are primarily engaged in the retail sale of a variety of

merchandise in the low and popular price ranges. Sales are made on a cash and carry

basis, with the open selling method of display and customer selection of merchandise.

SWOT MATRIX

INTERNAL FACTOR EVALUATION (IFE)

KEY INTERNAL FACTOR WEIGHT RATING WEIGHTED

SCORE

STRENGHTS

1. Well established brand awareness 0.18 4 0.72

2. Cost leadership in comparison with competitors 0.13 4 0.52

3. Continuous growth 0.1 4 0.4

4. Profitable organization of distribution channels 0.09 3 0.27

5. Control over suppliers 0.05 4 0.2

WEAKNESSES

1. Lack of presence in many developed countries 0.13 3 0.39

2. Failure of entering foreign markets 0.1 2 0.2

3. No formal mission statement 0.08 1 0.08

4. Continuous product recalls 0.08 2 0.16

5. “Everyday low price” could be connected to poor

quality

0.06 3 0.18

TOTAL 1 3.12

STREGHT1 .Well established brand awareness

With their more than 8,500 stores, Wal-Mart represents the number one retailer in

the world. By providing 15% to 25% lower prices for grocery products than the average

retailer store68 Wal-Mart can support their strong brand attribute of offering “everyday

low prices”. As shown within a study Wal-Mart is the only retailer in the U.S. that carries

two brands which are directly identified and connected to Wal-Mart by more than 52% of

all American women.

2. Cost leadership in comparison with competitors Wal-Mart makes use of the cost leadership strategy which gives them a

competitive advantage. In the beginning, when Wal-Mart was not that well known, they

had to develop economies of scale and find as many ways as possible to reduce costs.

One way was to cut down overhead costs, keep the inventory level as low as possible and

gain high control over suppliers. Today they are able to keep their concept of “everyday

low prices” on offer.

3. Continuous growth Wal-Mart is a continuously growing company. From their foundation in 1946

until today they developed a network consisting out of 891 discount stores, 2612

Supercenters, 602 Sam´s Clubs and 153 Neighborhood Markets. When taking a look at

the net sales from year 2007 up to 2009 one can see an increase from $344.7 billion to

$401.2 billion. Important to mention in this case is that although there was a financial

crisis within these years Wal-Mart was still able to keep on growing

4. Control over suppliers All in all it is possible to say that many of Wal-Mart´s suppliers totally depend on this

collaboration. The majority receives more than 30% of their revenues from the huge

retailer. Because of increasing debts and financial problems Wal-Mart founded the

“Supplier Alliance Program” that they offered some selected supplier to give them a new

financing option. With the help of this program Wal-Mart wants to ensure the steady flow

of inventory. From the view point of suppliers it makes them even more dependent on

Wal-Mart.

5. Profitable organization of distribution channelsBy making use of latest technology Wal-Mart creates highly automated

distribution operations. To be as cost effective as possible Wal-Mart frequently orders

their stock and maintains a close connection with their vendors.

WEAKNESES

1. Lack of presence in many developed countries At this point in time Wal-Mart is mainly present in continental US and additionally 14

other countries. It is important to mention that they are not present in Europe yet, except

for the United Kingdome. Other developed countries such as Australia are not entered yet

either.

2. Failure of entering foreign markets The unsuccessful entrance in the German market symbolizes a significant example for

this weakness. In the year 2007 Wal-Mart finally decided to sell 85 German stores to its

competitor “Metro”. Because of poor inter-cultural management and a poor approach to

international marketing Wal-Mart lost a lot of money. They had to realize that simply

trying to convert the American way of retailing to Germany did not work out.

3. No formal mission statement The mission statement should give an answer to the question “What is our business”.

Within the mission people can identify the company´s main purpose and objectives. This

is especially important for employees to ensure that everybody knows in which aspects

the company is engaged in and that everybody is working in the same direction.

Therefore a lack of a formal mission statement can lead to an internal weakness.

4. Continuous product recalls The company image is always suffering if it comes to product recalls. In the year 2007

for example Wal-Mart had to recall several toy products which were produced in China.

What huge impact this has for the image shows a customer study made afterwards. This

study documents that 39% of respondents were more fearful to buy products from Wal-

Mart in comparison to 22% for their competitor Target.

5. “Everyday low prices” could be connected to poor quality There are several people who believe that Wal-Mart offers low quality just because their

prices are so extremely low. Everybody knows that if a company always offers way

lower prices than competitors, it is in need of cheap production and operations.

EXTERNAL FACTOR EVALUATION (EFE)

KEY INTERNAL FACTOR WEIGHT RATING WEIGHTED

SCORE

OPPERTUNITY

1. Trends towards online shopping 0.15 4 0.6

2. Potential of Europe market 0.13 3 0.39

3. Customer of higher income group 0.1 4 0.4

4. Trends towards “one stop shopping” experience 0.07 4 0.28

5. Control over suppliers 0.05 3 0.15

THREATS

1. Fast changing technology 0.2 2 0.4

2. Fierce price competition in retail industry 0.13 3 0.39

3. High bargaining power of customer 0.07 3 0.21

4. Instable due to external factor 0.05 3 0.15

5. Law requiring more investment into employee

benefits

0.05 2 0.1

TOTAL 1 3.07

OPPORTUNITY

1. Trend towards Online Shopping Online Shopping is a new technological trend and provides huge potential to

interested businesses. The amount of time consumers spend shopping online is increasing

rapidly. For those businesses that are already active in the market, opening online stores

can lead to additional sales. Besides these points, products from online stores can usually

be marketed at lower prices than their equivalents in retail shops. This is due to cost

savings. Online stores do not need retail stores nor do they need sales staff and other

costs associated with these stores

2. Potential of European Market Half a billion people live in Europe37 and the GDP per capita was $32,900 in

2010. It can be said that Europe has a very large buyer market and that the money

generating potential is very promising.

3. Customers of higher income group The higher income group is an opportunity for Wal-Mart. Experts says that the

people from higher income groups spend about 40% more on retail articles than people

from the lower income groups do. Consequently, they are seen as potential candidate to

boost sales considerably.

4. Trend towards “one-stop shopping experience” “One stop shopping” is a trend as it allows customers to buy everything they need

at only one store, saving them the trouble of spending extra time and traffic to go to

another store to buy other products they need. The advantage for businesses providing a

“one stop shopping experience” is that it keeps customers longer in the store and that they

are more likely to buy all their needed products there instead of going to a competitor.

5. Trend in sustainability awareness The consumer’s awareness in sustainability issues rises and they begin to favor

products from businesses’ that focus on sustainable production.41 Businesses that do not

put more pressure on the environment than necessary are preferred42 as well as products

that are as biological as possible.

Threats

1. Fast changing technology (e.g. online shops) This issue provides a threat as it gets increasingly difficult to always stay on top

of technological trends and to use them in creating a competitive advantage. An example

for Wal-Mart is the online shop development. Some businesses like Amazon and EBay

developed a well working technology incredibly fast which helped them in their rise to

industry leadership.

2. Fierce price competition in retail industry In the retail industry, especially in food and clothing exists fierce price

competition. Prices decrease and as a consequence so do profit margins. Businesses have

to develop new ways of saving costs to stay competitive in the industry.

3. High bargaining power of customers Customer bargaining power is high in the industry due to the large number of

customers. Besides that, product differentiation is low in Wal-Mart’s case which also has

a strengthening effect on bargaining power of customers. Consequently, customers are

very price sensitive and perceptible to lowest price offer, which drives down Wal-Mart’s

profit margin.

4. Instabilities due to external factors (e.g. unemployment) Instabilities that arise from external factors, like unemployment, can affect the

retail industry because people’s feelings of security change. This aspect is influenced by

psychological factors. People who are insecure about what is going to happen are more

likely to save their money than to spend it. This has a negative effect on businesses.

5. Laws requiring more investments into employee benefits Wal-Mart employs 2,100,000 employees. If the U.S. government decided to

bring a new legislation under way requiring businesses to invest more money into

employee benefits, this would mean huge costs for the big employer.

SWOT Matrix

This matrix is an important matching tool. It matches key external and internal factors and helps

us to develop four types of strategies: SO (strengths- opportunities) strategies, WO (weaknesses-

opportunities) Strategies, ST (strength-threat) strategies and WT (weaknesses-threats) strategies

SO Strategies

1. Introduction of a premium product line (S1, S3, O3)

The introduction of a new premium product line would make Wal-Mart more appealing

to high-income customers. Obviously, the products within this product line should have a

satisfying quality and therefore cost more than a standard product of a similar product group. If

Wal-Mart succeeds in convincing the customers with a higher income (which usually do not buy

at Wal-Mart) that they are able to offer premium quality products for a fair price, than they have

the chance to gain some steady customers out of this group. However, it will be necessary that

Wal-Mart can ensure and maintain the highest quality standards for this product line. High

income customers would probably not come back to Wal-Mart if they are not satisfied with the

quality of their products at first try.

2. Extensive sponsorships in Europe (S1, O2)

Extensive sponsorships in Europe could increase Wal-Mart´s chances of succeeding in Europe.

Even though, Wal-Mart´s brand awareness in Europe is not as high as in the United States, most

of the Europeans will link the retailing business to Wal-Mart. However, before entering a

European market the brand awareness could be further increased through sponsorships.

Sponsoring of sports events, fairs, concerts or festivals are possible ways of improving the

chances of Wal-Mart to gain ground in the respective market and even offer Wal-Mart the

possibility to gain more experiences about the local culture

WO Strategies

1. Enter European countries through joint-ventures (W1, O2) Wal-Mart has a recognizable lack of presence in many developed countries. This lack could be

filled by making use of the potential that exists in the European market (W2, O2). At the moment

Wal-Mart operates mostly in the US, despite the UK as the only European country. Due to the

fact that they already have a strong presence in the US, increasing sales even more would be

difficult to realize but therefore in Europe. Wal-Mart needs to be aware of the fact, that in

Europe the brand awareness will not be as high as in the US. Factors like customer buying

behavior, cultural aspects and competitors, will influence their operations in Europe. The entry

can be performed by doing joint-venture. This is a partnership between two (or more) partners to

form a joint venture in the new market. Reasons for that might be complementary technology or

management skills and it increases the speed of the market entry and saves additional costs.

2. Improvement of general image through environmental friendly operations (W5, O5)

Furthermore Wal-Mart could make use out of the growing trend towards sustainability.

According to the CEO Mike Duke sustainability is an important part of Wal-Mart’s culture (O5).

They strive for being supplied by 100 percent renewable energy, create zero waste and sell

products that sustain their resources and the environment. 80 Right now there does not exist a

time frame for this goal. An implementation within the near future could lead to an improvement

of Wal-Mart´s image. Customers would recognize that Wal-Mart is not just searching for the

cheapest way of production and supply but also for the most environmental friendly one. Quality

and sustainability play an important role within their operations. (W5)

ST Strategies

1. Backwards integration and take over the function of suppliers (S2, S4,T2, T3) Wal-Mart is cost leader in the industry and this is to a great degree due to their high bargaining

power over suppliers. Wal-Mart was able to negotiate supplier prices down to a minimum but at

this point there are no more savings to be realized from this area. However, price competition in

the retail industry is fierce and customers have high bargaining power. Consequently, Wal-Mart

has to find new ways to lower prices to keep its status of cost leadership in the market. A suitable

strategy to follow is: backwards integration in doing so, Wal-Mart takes over the supplying

function and can look for new ways to save costs in this area.

2. Target people with financial uncertainty by more aggressive “best deal” marketing (S1, S2, and T4) During the economic crisis, many people from the higher income group turned to Wal-Mart. The

same applies to people who are unemployed. The feeling of insecurity and the desire to save

costs where possible can be used by Wal-Mart to target these people and bind them to Wal-Mart

through offering the lowest prices.

3. Improve existing e-commerce by investment into IT and online presence (S1, S2, S3, and T1) If Wal-Mart invested more money and resources into its online presence, they might profit from

it in the long run. It might lead to higher sales, Wal-Mart will be able to save more costs in

online sales and is therefore in a position to stay cost leader, and the businesses’ strong brand

image can help in reaching the target group more easily. This can only be achieved with an

increased investment in IT to develop a superior online shop system.

WT Strategies

1. Improved customer satisfaction trough better quality management (W4, T3) Because of the extremely high bargaining power of customers Wal-Mart has to keep their

customers as satisfied as possible. Because of the fact that within the retailer business there exists

much more supply than demand customers do have a lot off power. Continuous product recalls

can harm the company image and motivate customers to switch to competitors. Therefore Wal-

Mart should improve their quality management to avoid future product recalls. They should have

clear requirement for all their suppliers. This would ensure that they only collaborate with high

quality suppliers. By making use of regular statistics and accurate capturing of information and

data it is easier to control suppliers. If it still comes to product recalls Wal-Mart can directly

identify the source and decide on follow up activities.

Space Matrix

`The Strategic Position and Action Evaluation (SPACE) matrix is a matching tool, which helps

to determine if either an aggressive, conservative, defensive or competitive strategy is best fitting

to the company. The different average scores regarding to their financial-, stability-,

competitive-, and industry-position lead to a X- and Y-coordinate, through which a graph can be

drawn that shows which type of strategy (aggressive, conservative, defensive or competitive) is

most attractive.

SPACE MATRIX

INTERNAL STRATEGIC

POSITION

EXTERNAL STRATEGIC

POSITION

FINANCIAL POSITION SCORE STABILITY POSITION SCORE

INVESTMENT RETURN 4 TECHNOLOGICAL CHANGE -3

INVENTORY TURNOVER 3 RATE OF INFLATION -2

OPERATING PROFIT 4 PRICE CHANGE

COMPETITORS

-2

LIQUIDITY 6 DEMAND AND VARIABILITY -4

PROFIT MARGIN 6 RISK INVOLVE IN BUSINESS -3

AVERAGE SCORE = 4.6 AVERAGE SCORE 2.8

Y-AXIS = 4.6-2.8=1.8

COMPETITIVE POSITION SCORE INDUSTRIAL POSITION SCORE

MARKETSHARE -2 GROWTH POTENTIAL 5

PRODUCT RANGE -2 PROFIT POTENTIAL 6

PRODUCT QUALITY -4 FINANCIAL STABILITY 5

PRODUCT LIFE CYCLE -5 RESOURCE UTILIZATION 4

CUSTOMER LOYALTY -4 EXTEND LERVERAGED 5

AVERAGE SCORE -3.4 AVERAGE SCORE 5.0

X-AXIS (-3.4)+5.0=1.6

When looking at the final result, one can see that the graph with the directional vector point

(+2.2|+1.8) is positioned in the aggressive sector. This means that the organization is in a good

position to use its internal strengths, take advantage of external opportunities, overcome internal

weaknesses and avoid external threats. For these reasons, market penetration, market

development, product development, backward integration, forward integration, horizontal

integration or diversification are feasible strategies dependent on the circumstances.

In the case of Wal-Mart one could focus on using their control over their suppliers to apply

backward integration, which means taking over or seeking increased control over their suppliers.

Additionally, the lowest price strategy applied by Wal-Mart is the right way to penetrate the

respective markets in order to compete aggressively against their competitors and putting them

under pressure.