Sunday, August 5, 2012

SWOT Analysis of Wal-Mart

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By Vassilis Georgiadis & Panagiota Panagiotou

Principles of Management

Professor MR. Kehagias

When Sam Walton opened the first Wal-Mart store in 16 in Rogers Arkansas, it was the beginning of an amazing American story that no one could have predicted. Sam Walton after the World War opened his first Walton’s Ben Franklin store in Versailles Missouri but the outcome of his business wasn’t what he expected so he moved his business to Bentonville in Arkansas. He was right. Sam built has become the world’s number one retailer. In our days in Wal-Mart Business there is a diversification into grocery (Wal-Mart super centers), international operations, membership warehouse clubs (SAM’S Clubs), and deep discount Warehouse outlets (Bud’s Discount city). Wal-Mart provides work up to 600,000 Americans.

Within the following text we gonna refer to a SWOT analysis of Wal-Mart. A SWOT analysis is a method of analyzing an operation’s competitive situation that involves assessing organizational strengths (S) and weaknesses (W), as well as environmental opportunities (O) and Threats (T).

A strength is an internal characteristic that has the potential of improving the organization’s competitive situation.

· Sam Walton used to open his first shops to towns with small population and after that was creating a distribution center near them. By opening his shops to towns with population less then 50,000 was gaining an advantage. The big companies of its type they wouldn’t be a competitor of his because they wouldn’t care about small markets. So Walton by doing that he had the chance to dominate in the local market and find the money (that at first he hadn’t) to expand. The distribution centers that he was creating near to his shops were giving him another strategic advantage. He was able to refill his selves and change the products of his stores very fast. But the most important was that these distribution centers were planned to support his further expansion in the area.

· Further more another point that can be taken under consideration as strength is the fact that Wal-Mart is trying to have a good relationship with the customers. In every Wal-Mart store there is a greeter for the people who will provide information and smile to everyone that gets into the shop. The staff of the shop is well trained and is very polite and helpful to everyone. There are also established convenient shopping hours for every one. Finally, the prices of each Wal-Mart store are probably lower than any other store in the area and there is a great variety in all kind of goods. By doing all these that doesn’t cost a lot Wall-Mart are gaining customers because people like to be treated nice.

· Wall-Mart Corporation gives also a great importance to the local community and has good relations with them. Wal-Mart has settled a prize of money for the student who will have the best marks in the area at the end of the year. Each store also participates in fund-raising projects with the local community. But the most important is that in every local Wal-Mart store there are all the local products in well-viewed positions. Managers in Wal-Mart have realized how important is to have a good relation with the local community because in that way the local community will support them against their competitors.

· Another strength of Wal-Mart is the good relation with their employees. Most of the employees in Wal-Mart have access in information like costs, freight charges, profit margins that other companies make available only for top managers. Top managers are travelling often to the stores and discuss with the people. That makes people feel that the company cares about them. Also the company identification badges contain only photos and first names. All these are very important for the employee’s psychology because they are not treated like numbers. David Glass Company’s president and chief executive words how the company’s good relation to the employees give to the company a great strength “We have no superstars just only average people operating in an environment that encourages people to perform way above average”

· Another strength that the company has and kept the company from shrinking is the well-established reward system. For every store there is an expected rate of profits. If profits overcome that point then the individuals that run the store take a share of the profits. Rewards are also being given when the money that is being lost from thefts is less than these that were expected. All these make people that run the company considers it, as it was their own.

· Moreover another strength of Wal-Mart and one of its biggest long-term advantages is its hyperproductive culture. The company makes every employ from the C.E.O. to the clerk to work very hard and take a relatively small wage. But the relentless work ethic makes everybody rich at the end because compensation includes stock.

· Another major strength of the company is based on the executives’ controls on the performance of the company. Every Saturday the managers of Wal-Mart select the best 5-week stores and the worst 5 stores. After that they work on what went wrong to the 5 worst stores and try all together to correct the mistakes made or find new ways to improve sales in these stores.

· The company made some joint ventures and acquisitions in Mexico and North America that gives the company a competitive advantage. In Mexico there is a successful partnership with Cifra that still have and run their own stores. Wal-Mart is so satisfied with this joint venture that are going to eliminate a clause that gave it an out under certain conditions. Their partners are planning to build super centers and Sam’s Clubs like the ones that Wal-Mart has under the name Bodega.

· In addition, Wal-Mart is using the cross docking system that gives to the company a great strength opposite to their competitors. The cross docking system although it gives to a company many advantages in saving money and time it’s very difficult to be used. It requires perfect time control and information. Wal-Mart managed to imply this system so it had the opportunity to feed its stores in 48 hours when other companies were making two weeks. When the goods were carried to the docks Wal-Mart didn’t store them in the warehouses but it had such a schedule that allowed them to load the goods immediately to the trucks that the company owned. Another major element is that the trucks were also going to the stores fully loaded and that helped a lot in saving time because they were making fewer courses. But in order this to happen there was a plan for the ships to carry the goods that will full fill a truck, which was going to a particular shop.

· Another advantage that Wal-Mart has is that the company achieved vertical integration and economies of scale. Because of its large size Wal-Mart achieved to have low average cost in whatever they buy. By achieving vertical integration Wal-Mart started depending less to other people such as suppliers or truck owners and that made the company more flexible.

· Wal-Mart had established a very good information and network system that provides everything that the managers need to run such a big company. The network system they established allowed the managers of all stores to have communication via monitors and discuss about the problems of the company face to face even if they were miles away.

· Finally Wal-Mart is able to follow the local tastes of the people because of the well established distribution centers and good information technology. That gave the company a major strength in growth because it was able to go into new markets or global and correspond with success to local people needs.

Weakness is an internal characteristic that leaves the organization potentially vulnerable to strategic moves by competitors.

· The company’s enormous size is creating difficulties in management. During the past years the company has been led from the top and run from the bottom. This was the strategy that Walton followed and his managers as well. But now because of the huge size the company was forced to restructure into four divisions and add more management layers. This is a weakness for the company because there will slow down the decisions and there will gonna be lots of bureaucracy. When an executive asked in how many days could they renew the collection of clothes in all stores the answer that he got was eight months.

· The information system used although it is one of the best sometimes there are troubles because of the big size of the company. For example some stores in Maine were receiving bags of grass while there were snow everywhere.

· The last years Wal-Mart is trying to get into prepared food market. Although is well known as a big retailer, Wal-Mart has no experience from such markets. So this will be a weakness against other competitors that are already well established in the market.

· As Herb Zarkin the C.E.O. of Waban Inc says Wal-Mart doesn’t have the same impregnability in warehouse business as it does in retailing. This is an obvious weakness that Wal-Mart has against its competitors. It’s a weakness that Wal-Mart finally managed to overcome and enforced its rival Kmart to sell to them half of its Pace division stores and close the rest.

An opportunity is an environmental condition that offers significant prospects for improving an organization’s situation relative to competitors

· Wall-Mart has the chance to make use of the space in every department more efficiently. This is an opportunity for Wal-Mart to market down to household level and advertise to a market segment of one. The company wants in order to do that to put on the selves the right quantity in the right time and by doing this came up with the customers need better.

· Wal-Mart wants to move back to the original concept of a warehouse club so it is making some changes in SAM’S club. By doing that they want to sell in the clubs “high quality merchandize at great prices”. That’s an opportunity for Wal-Mart because until now it was well known only for low quality products in low prices. Now in SAM’S club are concentrating on only 800 items that will offer high quality on lower price. These clubs size will be 110,000 to 10,000 square feet.

· SAM’S clubs t is thinking to allow corporations and institutions to buy on credit provided through GE capital. The company is also thinking to create a kiosk through which the companies will be able to bye merchandise. This is an opportunity to broaden sales. It will also help SAM’S locate itself on the information superhighway if the market takes that road.

· The company can also see an opportunity in super centers in order to expand and increase sales. Although Wal-Mart is inexperienced in running stores within there will be food supermarket products and also the usual products of a Wal-Mart store it will have high profitability, bigger earnings, better returns than discount stores because now there gonna be more products on sale. According to analysts super centers returns 6% on investment comparing to 0% for a discount store and 0% for a SAM’S club.

· Further more the company has the opportunity to dominate in Canadian market as well and be the leader of the retailers in North America after the good results that the joint venture with a company in Mexico provided. The company has already acquired 1 Woolco stores that are behind in sales in their region comparing to their competitors. Wal-Mart executives believe that if they use the system with which Wal-Mart is being managed and also bring about some changes in order to meet Wal-Mart standards Woolco will do great in Canadian market.

· The Internet ages we are through by now is a great challenge and by the same time an opportunity for Wal-Mart to expand in new markets. Wal-Mart saw this opportunity and has under consideration to start selling their products within the Internet and with the help of AOL. Selling products through the Internet means even less cost for the company because it is not supposed to pay anything for stores or employees, and lower prices for the customers.

A threat is an environmental condition that offers significant prospects for undermining an organization’s competitive situation.

· Wal-Mart is by know facing price pressures that it never thought will appear. Companies like Limited category killers, home deport and circuit city and some other companies like Spiegel that sells their products through catalogs are going after a price war with Wal-Mart. The result is that low prices getting even lower day by day. This is a threat that company’s executives never expected to come up and it might get worse if they won’t take the proper action.

· Another threat that Wal-Mart faces comes from the target division of Dayton Hudson. This company has the ability of massive production of goods so it’s more likely to be able to achieve economies of scale and low average cost in production. By doing this is able to compete Wal-Mart in prices. Except all these they accused Wal-Mart for mistaking on items used in comparisons. It also tries to attack to Wal-Mart doing something what Wal-Mart already does, improve their public relations.

· Another major threat comes from the citizens of the towns in which Wal-Mart is planing to open new stores. Many citizens protest against that because they see stores as large as Wal-Mart is as a threat for the local economy. Small supermarkets, groceries are more likely to be closed down wherever Wal-Mart super centers are being established because they wouldn’t be able to compete the low prices of such stores.

· Finally a threat for Wal-Mart comes from the Internet as well. Yahoo and Kmart have already gone on a joint venture to support both companies’ interests and sell the products of Kmart through the Internet. So Wal-Mart is by now planning to do the same with a big competitor of yahoo’s AOL.

In conclusion Wal-Mart is by now the largest retailer in America with plans to go over other continents. It has many strengths that can be based on to complete these plans and a few weaknesses that has the abilities to overcome and introduce higher profits. Despite the big size of the company it still has lots of opportunities to become even bigger. On the other hand there are many threats from competitors who would like to take market share from Wal-Mart. Wal-Mart’s accomplishments will be exceeded by not only today’s associates, but also the associates of the future. That was the prediction of Sam Walton as he accepted the Medal of Freedom from President George Bush in March 1.

“We're all working together; that’s the

Secret. And we’ll lower the cost of living

For everyone, not just in America, but

We’ll give the world an opportunity to

See what it’s like to save and have a

Better lifestyle, a better life for all. We’re

Proud of what we’ve accomplished;






Principles of Management Bartol and Martin

Wal-Mart official cite

Business week cite

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