Walmart's corporate strategy, competitive advantages, and future challenges

Fortune 500 Company Analysis

Wal-Mart is the number one retailer in the world in both sales and earnings, dwarfing many of its retail competitors. It offers a full assortment of products ranging from clothing to electronics. It currently has 6000 locations predominately within the United States with over $312.4 Billion in net sales during 2006. In addition to its strong domestic presence, Wal-Mart has expanded aggressively to Canada, Mexico, and Puerto Rico with over 1000 locations within those countries. This expansion can potentially create greater economies of scale for Wal-Mart services and merchandise. The synergies created by expansion will also drive profitability in the future by providing goods and services at even lower costs to consumers. In order to enter foreign markets successful, Wal-Mart engages in both joint ventures and acquisitions. By utilizing this method, Wal-Mart intends to leverage foreign retailer's market knowledge with its own core competencies of merchandising and supply chain management.

The success of Wal-Mart is due in large part to its ability to consistently produce high quality products at a low cost. This is very critical to the future success of Wal-Mart because it provides consistency to customers who are price sensitive. By committing themselves to "Everyday low prices," Wal-Mart assures customers that the products sold within their stores are competitive in reference to its retail competition. This low price strategy also provides Wal-Mart with a sustainable competitive advantage well into the future. This is important, because competitors will find it very difficult to mimic Wal-Mart's low price strategy while maintaining profitability. In fact, in 2004, Wal-Mart's lower prices saved domestic consumers $263 billion, which translates into $2,349 per household. These significant cost savings will be very difficult for competition to impersonate and as result, creates a sustainable competitive advantage that Wal-Mart will utilize well into the future. Currently, Wal-Mart is attempting to appeal to a more affluent customer base. In an attempt to replicate Target's success in catering to high income customers, Wal-Mart is remodeling stores and increasing its selection of designer brands. By combining a low cost avenue and high quality designer brands, Wal-Mart intends to capture customers who ordinarily wouldn't consider Wal-Mart. This strategy has been quite successful as Wal-Mart continues to outperform all of its retail competitors in terms of earnings and profits.

Wal-Mart faces many headwinds however in regards to future expansion and profitability. Within the past five years Wal-Mart has long been vilified for unfair labor and benefit packages. It has also been the target of numerous discrimination and wage labor lawsuits. The most recent of which is the largest employment class action case in U.S. history. The group includes approximately 500,000 to 1.6 million women who claim to have been improperly discriminated against. These women reference disparities between male and female employees in regards to promotion, wage rates, total compensation packages, and managerial salaries. The case is currently pending and could result in hundreds of millions of dollars in losses for Wal-Mart and its shareholders. Wal- Mart has addressed these claims by providing better health insurance and benefit packages. These packages although commensurate with the industry average, will decrease the future profitability of Wal-Mart. Even more damaging is the resistance of local and state governments to allow Wal-Mart expansion. Many state authorities, in particular California, have resisted planned Wal-Mart stores with organized protests. These individuals believe Wal-Mart destroys local business prospects while also increasing traffic within residential areas. California was particularly damaging to Wal-Mart because it is a very lucrative state in regards to retail expansion. Going forward, lawsuits will have a more profound effect on Wal-Mart as it expands internationally. Labor practices differ across countries and as a result, could hinder the overall earnings potential of Wal-Mart. However, I believe the sustainable advantage of providing low cost services far outweigh the downside of lawsuits and litigation.