Wal-Mart is one of the world largest retailers. The company is incorporated in the United States of America and also operates international outlets in a number of countries worldwide. It is one of the largest employer in the world with an employee base of over two million people through it numerous facilities in the United States and other nations. The history of Wal-Mart dates back in early 1960s in America. In 1962, Sam Walton risked all his property to secure finances to start-up a new venture in the discounts retail industry. In the same year three other discounts retail stores commenced there operation. These stores included Kmart, Target, and F.W. Woolworth. The store has had it’s up and down but still thrives in the retail business to extend its growth to other regions across the world. The company has strategically established itself in the United Kingdom, Canada, Brazil, Mexico, Germany, Japan, and also South Korea. The retail store does not deal on specific goods but deals on a variety of goods and services through its many retail shops world wide (Palepu & Healy, 2008).
Wal-Mart environmental analysis
The analysis of external environment presents the Wal-Mart with a number of opportunities. Firstly, due to its stature in the industry, Wal-Mart is presented with an opportunity to seek strategic alliances, and mergers with other leading local and global retailers focusing on specific market niche. Additionally, analysis of external environment suggests unmet targets in the supercenters business therefore, presents Wal-Mart with an opportunity to continue with is current supercenters strategy. The emergency of new locations and store types present Wal-Mart with an opportunity to exploit market development through diversification to mall-based sites. Finally, there is opportunity for the company to increase it investment in foreign countries especially the emerging markets such as China and other European nations. On the other hand, the biggest threat is increasing competition from local and international competitors. Additionally, the political and media attention about the company threaten the company in terms of its image and operation. The declining manufacturing prices presents a threat to the company since it may result in intense price competition (Wal-Mart. 2012).
Wal-Mart strategies are categorized as either domestic or international strategies. Its strategies are tightly focused on low-cost leadership in the industry. The aim of this strategy is to achieve cost advantage in the industry that is characterized by intense competition from the other large retail chains in the industry. Wal-Mart achieves this through vast economies of scale and hard bargaining with its suppliers. Additionally, the company ensures low-cost through aggressive deployment of technology and inventory control. At the same time, Wal-Mart effectively achieves this strategy through shrinkage reduction to avoid losses resulting from product handling. The company also encourages bulk buying and cutting edge distribution network as a means of gaining cost advantage. This explains why the company has been able to maintain low product prices over a very long period (Ferrell & Hartline, 2011).
Wal-Mart organization has over the years nurtured an excellent culture that ranges from the top to the low level manager. The culture was engineered by the Sam Walton the founder of the company. According to Forbes Global 2000 the company is the largest public corporation in the world in terms of revenue. The company is governed by a board of director who are elected yearly by the shareholders. The managers of the organization also work as members of the board. Executive members of the board should not multi task as managers of the retail store. This is geared in safeguarding the interest of the shareholders which should be separated from the interest of the managers. Corporate governance is crucial in separating the powers of the board and the managers. The function of the board is to protect the interest of the shareholders through checking the function of the managers. The managers are thus responsible for the well running of the organization and how operations of the organization are effected. The board has a task of appointing the managers for the organization and thus managers should not act as members of the board as they may not exercise their powers well when it comes to hiring and appraising managers (Wal-Mart. 2012).
Wal-Mart has a strong governance framework which is rooted in strong values and principles that were taught by Sam Walton, the founder. The company maintains separate Chairman of the board and Chief Executive Officer to enhance oversight leadership and facilitate management development. Currently, Wal-Mart has sixteen members Board of Directors. The Board has independent directors as well as inside directors. The Board has five committees that are appointed annually. These committees include compensation, nominating, and governance, executive, global compensation, strategic planning and finance, and technology and e-commerce. Robson S. Walton is the current chairperson of the board. The current CEO is Michael Terry Duke. The managers are responsible for implementing the strategic plans instituted by the board of directors and thus should be professional in their duties. The managers are responsible for preparing the financial reports which are approved by the board of directors. Some of the management team that should act as members of the board may include the chief executive officer. Then the already prepared reports should be reported to the shareholders during the annual general meetings (Hill & Jones, 2010).
Wal-Mart faces stiff competition from both general and specialty discount retailers. Over the years, Kmart has been the most dominant Wal-Mart competitor. The onset of discount retailing industry in 1962, Kmart was the leading industry performance and Wal-Mart was throne to the periphery for quite some time until Sam Walton successful turnaround of the store. Kmart was hit severely but crisis that successfully enabled Wal-Mart to catch up and become the industry leader. Kmart tried to imitate Wal-Mart strategies but could not catch up. Kmart suffered dramatic losses as high as $300 million in period between 1993 and 1995. Kmart successfully managed to turnaround through restructuring of the business but only little impact was felt by the year 2004. By the year 2010s, Kmart operated 1,300 stores with sales volume of $17.2 billions (Hirschey, 2009).
Retail market strategy
The store is well re-known as a home of value and has a strong reputation for convenience and wide range of products. Additionally, the company has comparatively established core competencies as compared to its competitors. Its core competence comes as a result of its international logistical system and efficient information technology system that ensures efficient procurement. Furthermore, it has a focused human resources management that heavily invests in training, retaining of employees that offers the company substantial strength in the industry. Wal-Mart is also advantaged by its cost leadership position in the industry thus affording to offer its goods and services to the customers at the lowest price possible. The cost leadership enables Wal-Mart to achieve greater buying power suppliers as compared to other companies. It is important to note that to survive in the current market situations that are characterized by intense competition. This is due to deregulation and globalization companies need to adopt high-variety strategies. Wal-Mart realizes this through growth strategies that aim at expanding the operation of the United States and the entire world. The company is accelerating its growth through the establishment of Supercenter stores in the United with the major aim of rivaling Kroger, one, of its fiercest competitors in the United States. Then again, the company is accomplishing this through mergers and acquisitions to strengthen its market presence. At the same time, the company also focuses on establishing of retail stores in foreign countries (Faarup, 2010).
The company has witnessed an increasing trend in operating income in the last four years. It recorded operating income of $22, 767, 000, $24,002, 000, $ 25,542,000, $26,558,000 in the years 2009, 2010, 2011, and 2012 respectively. The bottom line of this increase in operating income is sales devoted to cost of goods sold that has been increasing steadily. The company recorded net sales of $401,087,000 and $405,132,000 in the year 2009 and 2010 respectively. The total sales revenue then increased from $418,952,000 in the year 2011 to $443,854,000 in the years 2012. Total expense accrual also increased in the same period whereby a total of $77,546,000, $79,917,000, and $81,361,000 were spent in 2009, 2010, and 2011 respectively. The total of $ 85,265,000 was spent in the year 2012. Wal-Mart’s inventories have increased from $34 013,000 to $40 714,000 from 2009 to 2012 (Wal-Mart, 2012b). The increase in inventory is strategic to the company’s goal of providing value to the customer. Managing such a big inventory is not easy, and it has necessitated the use of a point-of-sale system in which the system identifies all goods sold in real time and analyses all sales preparing for re-ordering of diminished products. It avoids overstocking that is expensive and also stock-out (Peterson & Fabozzi, 1999).
Wal-Mart has experienced a growth of net sales which has been accompanied by a growth of their operating expenses and a corresponding growth in their operating income. This combination of growth indicators implies that there is effective management of costs and leveraging of operating expense. Generally, companies aspire to achieve a faster rate of growth for net income than the rate of growth of operating expenses and a faster rate of growth of operating income than the rate of growth of net sales. This objective was met in 2011 where the operating expenses increased 1.7% more in fiscal year 2011 as compared to fiscal year 2010. Fiscal year 2011 saw a 3.4% more increase of net sales than in the year 2010. During the period of analysis, the operating expenses grew at a slower rate than the net sales. This positive indicator might have resulted from a number of factors such as increased labor productivity, implementation of an expense reducing incentive plan and strengthened and streamline operations due to organizational change. The objective of growing the operating income at a faster rate that a net sale was met in the fiscal years 2011 and 2010. In this case, the operating income grew by 6.4% and 3.4% more than the net sales in the two respective years. Breaking down these results into segments, Wal-Mart US and Wal-Mart International achieved this objective but Sam’s Club did not. This is due to a $174 million charge incurred in the restructuring of this segment and closure of 10 clubs (Wal-Mart. 2012).