Analysis Write a brief assessment of the Walmart case found attached. Address four questions based on Walmart’s business-level strategy:
How well is Wal
Write a brief assessment of the Walmart case found attached. Address four questions based on Walmart’s business-level strategy:
- How well is Walmart performing? To what extent is its performance attributable to industry attractiveness and to what extent is it attributable to competitive advantage?
- In which of Walmart’s principal functions and activities (namely: purchasing, distribution and warehousing, instore operations, marketing, IT, HRM, and organization and management systems/style) do its main competitive advantages lie? Identify the distinctive resources and capabilities in each of these functions and activities.
- To what extent is Walmart’s competitive advantage sustainable? Why have other retailers had limited success in imitating Walmart’s strategy and duplicating its competitive advantage?
- What challenges does Walmart currently face? What measures does it need to take to sustain its recent performance and defend against competitive (and other) threats?
Your analysis should follow APA format including a title page, references page, in-text citations, and use Times New Roman, size 12 font.
Walmart, Inc. in 2018: The World’s Biggest Retailer Faces New Challenges*
In 2018, Walmart was not only the world’s biggest retailer, it was also the world’s biggest company in terms of revenue—a position it had first attained in 2000 and had held for most of the intervening years.
Since going public in 1972, Walmart’s record of growth and profitability was remarkable. Between 1972 and 2009, its average annual sales growth was 22% and its return on equity had not fallen below 20%.
Yet, sustaining Walmart’s phenomenal record of growth and profitability was proving to be an ever more daunting challenge. As Walmart continued to expand its range of goods and services—into groceries, fashion clothing, music downloads, online prescription drugs, financial services, and health clinics—it was forced to compete on a broader front. While Walmart could seldom be beaten on price, it faced competitors that were more stylish (T.J.Maxx), more quality‐focused (Whole Foods), more service‐oriented (Lowe’s, Best Buy), and more focused in terms of product range. In its traditional area of discount retailing, Target was an increasingly formidable competitor, while in warehouse clubs, its Sam’s Clubs ran a poor second to Costco.
However, all these competitive threats were trivial compared to that posed by online retailing—and, specifically that posed by the world’s emerging retail colossus: Amazon. During 2017, the turf battle between the two became increasingly acute: while Walmart expanded its online operations, Amazon shocked the retail world with its acquisition of Whole Food Markets. In December 2017, the company announced that it was changing its name from Wal‐Mart Stores Inc. to Walmart Inc. reflecting “the company’s growing emphasis on serving customers seamlessly however they want to shop: in stores, online, on their mobile device, or through pickup and delivery.”1
Competition was not the only external threat that Walmart had to deal with. Its growth had made “The Beast of Bentonville” a bigger target for environmentalists, antiglobalization activists, women’s and children’s rights advocates, small‐business representatives, and organized labor, which had long sought to unionize Walmart’s 2.2 million employees. In response, Walmart had become increasingly engaged in social and environmental responsibility, corporate ethics, and government relations—all of which meant greater involvement of top management with government agencies, external interest groups, and the media.
These headwinds were reflected in Walmart’s financial performance. During its five most recent financial years (2014–18), annual sales growth had averaged just 1.3% and return on equity had dipped below 20% (see Table 1).
aSG&A: sales, general, and administrative.
bIncluding long‐term lease obligations.
cNet income before minority interest/average assets.
dNet income/average shareholders’ equity.
eIncludes US Sam’s Club outlets.
fIncludes overseas Sam’s Club outlets.
Walmart’s success had rested heavily upon its ability to combine huge scale with speed and responsiveness. Walmart’s increasing size and complexity—including its presence in 29 countries of the world—threatened this agility. One component of this agility was its short chain of command and close relationship between top management and individual store managers. Walmart’s Saturday‐morning meeting at its Bentonville HQ, once described as “the pulse of our culture,” was progressively downgraded between 2008 and 2015.2
Given these challenges, could Walmart’s outstanding retailing capabilities sustain its outstanding performance in a retail sector that had always been brutally competitive, but was now being torn apart by online giants such as Amazon and Alibaba?
History of Walmart
Discount stores—large retail outlets offering a broad range of products—began appearing in the United States after World War II. Conventional wisdom held that cities with at least 100,000 inhabitants were needed to support a discount store. Sam Walton believed that, with low enough prices, discount stores could be viable in smaller communities: “Our strategy was to put good‐sized stores into little one‐horse towns that everyone else was ignoring.”3 His first Walmart opened in 1962; by 1970, there were 30 Walmarts across Arkansas, Oklahoma, and Missouri.
Distribution was a problem for Walmart:
Here we were in the boondocks, so we didn’t have distributors falling over themselves to serve us like our competitors in larger towns. Our only alternative was to build our own distribution centers so that we could buy in volume at attractive prices and store the merchandise.4
Walmart’s expansion strategy involved entering new areas by building a few stores that were served initially from a nearby distribution center. Once a critical mass of stores had been established, Walmart would build a new distribution center. By 1995, Walmart was in all 50 states and was competing in major conurbations as well as in smaller towns.5
Different Store Formats
Sam Walton experimented continually with alternative retail formats—this continued under subsequent CEOs:
Sam’s warehouse clubs were wholesale outlets which required membership: they offered products in multipacks and catering‐size packs with minimal customer service.
Supercenters were large‐format stores (averaging a floor space of 178,000 square feet, compared with 105,000 square feet for a Walmart discount store and 129,000 square feet for a Sam’s Club). They combined a discount store with a grocery supermarket, plus other specialty units such as an eyeglass store, hair salon, dry cleaners, and photo lab. They were open 24 hours a day, seven days a week.
Neighborhood Markets were supermarkets with an average floor space of 42,000 square feet.
Walmart Express convenience stores of about 12,000 square feet were launched in 2013; however, in January 2016, Walmart closed all 102 of its Express stores.
Walmart’s overseas expansion followed no standard pattern: it might enter through greenfield entry, through joint venture, or by acquisition. Unlike the globally standardized approach of retailers such as IKEA and H&M, Walmart adapted its strategy to each country’s consumer habits, infrastructure, competitive situation, and regulatory environment. Its overseas operations have met with varying degrees of success. In the adjacent countries of Mexico and Canada, Walmart was highly successful. Walmart withdrew from Germany and South Korea after sustaining heavy losses and, in March 2018, it was negotiating the sale of its Brazilian stores. Walmart’s subsidiaries in UK and Japan, Asda and Seiyu, have each found profitability elusive.6
China represents Walmart’s greatest international success outside of North America. In 2018, China accounted for 20% of Walmart’s retail square footage outside the United States. It was also the lead country for Walmart’s online operations. Through an alliance with JD.com, Walmart offers a guaranteed one‐hour fresh grocery delivery service through a network of mini‐warehouses.7
Sam Walton and His Legacy
Walmart’s strategy and management style was inseparable from the philosophy and values of its founder. After his death in 1992, Sam Walton’s beliefs and business principles continued to guide Walmart’s identity and development.
For Walton, thrift and value for money were a religion. Undercutting competitors’ prices was an obsession that drove his unending quest for cost economies. Walton established a culture in which every item of expenditure was questioned. Was it necessary? Could it be done cheaper? He set an example that few of his senior colleagues could match: he walked rather than took taxis, shared rooms at budget motels while on business trips, and avoided any corporate trappings or manifestations of opulence or success. For Walton, wealth was a threat and an embarrassment rather than a reward and a privilege. His own lifestyle gave little indication that he was America’s richest person (before being eclipsed by Bill Gates). He was equally disdainful of the display of wealth by colleagues: “We’ve had lots of millionaires in our ranks. And it drives me crazy when they flaunt it … I don’t think that big mansions and flashy cars is what the Walmart culture is supposed to be about.”8
His attention to detail was legendary. As chairman and CEO, his priorities lay with his “associates” (as Walmart employees are known), customers, and the operational details through which the former created value for the latter. Much of his life was spent on the road (or in the air, piloting his own plane) making impromptu visits to stores and distribution centers. He collected information on which products were selling well in Tuscaloosa, why margins were down in Santa Maria, how a new display system for children’s clothing in Carbondale had boosted sales by 15%. His passion for detail extended to competitors’ stores: he visited their stores and counted cars in their parking lots.
Central to his leadership role was his relationship with his employees, the Walmart associates. In an industry known for low pay and poor working conditions, Walton created a spirit of motivation and involvement. He believed fervently in giving people responsibility, trusting them, but also continually monitoring their performance.
After his death in 1992, Sam Walton’s habits and utterances became enshrined in Walmart’s operating principles. The “10‐foot attitude” pledge embodied Sam Walton’s request to an employee that: “I want you to promise that whenever you come within 10 feet of a customer, you will look him in the eye, greet him and ask if you can help him.”9 The “Sundown Rule”—that every request, no matter how big or small, gets same‐day service—became the basis for Walmart’s fast‐response management system. “Three Basic Beliefs” formed the foundation for Walmart’s corporate culture:
Service to our customers: “Every associate—from our CEO to our hourly associates in local stores—is reminded daily that our customers are why we’re here. We do our best every day to provide the greatest possible level of service to everyone we come in contact with.”
Respect for the individual: Walmart’s emphasis on “respect for every associate, every customer, and every member of the community” involves valuing and recognizing the contributions of every associate, owning “what we do with a sense of urgency” and empowering “each other to do the same,” and “listening to all associates and sharing ideas and information.”
Striving for excellence: this comprised innovating by continuous improvement and trying new ways of doing things, pursuing high expectations, and working as a team by “helping each other and asking for help.”10
Sam Walton’s iconic status owed much to his ability to generate excitement and fun within the seemingly sterile world of discount retailing. Walmart’s replacement of its mission slogan—“Everyday Low Prices” by “Save Money, Live Better”—was intended to reflect Walton’s insistence that Walmart play a vital role in the happiness and well‐being of ordinary people.
Walmart in 2018
Walmart described its business as follows:
Walmart Inc… . helps people around the world save money and live better—anytime and anywhere—in retail stores and through e‐commerce and mobile capabilities. Through innovation, we are striving to create a customer‐centric experience that seamlessly integrates our e‐commerce and retail stores in an omni‐channel offering
Walmarts’ Operations and Activities
Purchasing and Vendor Relationships
The size of Walmart’s purchases and its negotiating ability made it both desired and feared by suppliers. As a Walmart vendor, a manufacturer gained unparalleled access to the US retail market. At the same time, Walmart’s buying power and cost‐cutting fervor means razor‐thin margins for most suppliers. Purchasing is centralized. All dealings with US suppliers take place at Walmart’s Bentonville headquarters. Would‐be suppliers were escorted to one of the spartan cubicles on “Vendor Row” where they prepared themselves for an intimidating and grueling encounter: “Expect a steely eye across the table and be prepared to cut your price,” counseled one supplier.12 To avoid dependence on individual suppliers, Walmart limited the total purchases it obtained from any one supplier. The result was an asymmetry of bargaining power: Walmart’s biggest supplier, Procter & Gamble, accounted for about 3% of Walmart’s sales, but this represented 18% of P&G’s revenues.
However, Walmart’s relationships with its suppliers are anything but arm’s‐length. Walmart’s Standards for Suppliers Manual is a 38‐page document that covers suppliers’ hiring and employment practices, environmental policies, health and safety, provision of canteen facilities for workers, and financial integrity.13 Collaboration involves a constant quest for efficiencies through enhanced cooperation—though Walmart receives a disproportionate share of the resulting cost savings. Walmart’s arrangements with P&G were a model for these relationships. Electronic data interchange (EDI) began in the early 1990s and within two years there were 70 P&G employees based at Bentonville to manage sales and deliveries to Walmart.14 EDI was extended to almost all Walmart’s US vendors. Through Walmart’s “Retail Link,” suppliers could log onto the Walmart database for real‐time store‐by‐store information on sales and inventory for their products. This collaboration allows suppliers and manufacturers within the supply chain to synchronize their demand projections under a collaborative planning, forecasting, and replenishment scheme, resulting in Walmart achieving faster replenishment, lower inventory, and a product mix more closely tuned to local customer needs.
In 2017, Walmart increased its synchronization with suppliers through its “on‐time, in‐full” initiative. From January 2018, suppliers were obliged to deliver full orders within a specified one‐ or two‐day window 85% of the time or be fined 3% of the cost of the delayed goods.15
Warehousing and Distribution
Walmart’s world leadership in distribution logistics is a central component of its cost advantage. While most discount retailers relied heavily on their suppliers and third‐party distributors for distribution to their individual stores, about 85% of Walmart’s purchases are shipped to Walmart’s own distribution centers, then distributed to Walmart stores in Walmart trucks. Walmart’s hub‐and‐spoke configuration, where each distribution center serves between 75 and 110 stores within a 200‐mile radius, permits control over the scheduling of deliveries, larger drop sizes, fuller utilization of trucks, and greater flexibility. On backhauls, Walmart trucks bring returned merchandise from stores and pick up from local vendors, allowing trucks to be over 60% full on backhauls.
Walmart continuously adapts its logistics system to increase speed and efficiency:
Cross‐docking allows goods arriving on inbound trucks to be unloaded and reloaded on outbound trucks without entering warehouse inventory.
“Remix” adds an additional tier to Walmart’s distribution system: third‐party logistic companies made small frequent pick‐ups from suppliers allowing Walmart a five‐day rather than a four‐day week ordering cycle from suppliers.
The international extension of Walmart’s procurement system involves direct purchases from overseas suppliers, rather than through importers, giving Walmart direct control of import logistics. In China it has global purchasing centers in Shenzhen and Shanghai. Imports are funneled through its huge import distribution center in Baytown, Texas.16
Walmart pioneered the use of radio frequency identification (RFID) for logistics management and inventory control.
In 2008, Walmart introduced a new system of packing trucks—allowing a better use of their capacity.
Walmart’s management of its retail stores is based upon satisfying customers by combining low prices, a wide range of quality products carefully tailored to customer needs, and a pleasing shopping experience. Walmart’s store management was distinguished by the following characteristics:
Merchandising: Walmart offers a wide range of nationally‐branded products. Between 2006 and 2009, it had expanded its range of brands, focusing in particular on upscale brands. Traditionally, Walmart had placed less emphasis on own‐brand products than other mass retailers; however, after 2008, Walmart greatly increased its range of private‐label products. Its “Store of the Community” philosophy involves tailoring its range of merchandise to local market needs on a store‐by‐store basis—a goal that is facilitated by Walmart’s meticulous analysis of point‐of‐sale data for individual stores (see Information Technology below).
Decentralization of store management: Individual store managers are given greater decision‐making authority in relation to merchandise, product positioning within stores, and pricing than is typical in discount retailing where such decisions are concentrated at head office or at regional offices. Similarly, decentralized decision‐making is apparent within stores, where the department managers (e.g., toys, health and beauty, consumer electronics) are expected to develop and implement their own ideas for increasing sales and reducing costs.
Customer service: Most Walmart stores in the United States are either 24 hours or 6 am to midnight (sometimes with shorter hours on Sundays). Despite the primacy of “Everday Low Prices”, Walmart seeks to engage with its customers at a personal level. Within stores, employees are expected to look customers in the eye, smile at them, and offer a verbal greeting. Walmart’s “Satisfaction Guaranteed” program assures customers that Walmart would accept returned merchandise on a no‐questions‐asked basis.
Marketing and External Relations
At the core of Walmart’s strategy is Sam Walton’s credo that “There is only one boss: the customer” and the belief that value for customers equated to low prices. Hence, Walmart’s marketing strategy is built upon its slogan “Everyday Low Prices.” Unlike other discount chains, Walmart does not engage in promotional price‐cutting.
“Everyday Low Prices” also permitted Walmart to spend less on advertising and other forms of promotion than its main rivals. Its advertising/sales ratio in 2017 was 0.6%—less than half that of its main rivals (Target’s was 2.0%). Nevertheless, Walmart advertising budget of $3 billion exceeded that of any other retailer.