Managerial decision making in competitive market environments

Managerial Decision Making

Walmart is the largest retail store outlet in the United States. The business operations that are done by Walmart as an establishment encompasses cafeterias, hypermarkets, retail supply stores and also warehouse clubs. Some of the risk factors that influence the company include domestic and international macro-economic factors, lack of response to consumer preferences or trends, obstacles in the expansion and extension of the international operations of the company, changes in laws, and issues in aspects of labor. The market structure in which the company is set in is monopolistic competition. This is because there are numerous buyers and sellers in the market and there is freedom of entry and exit from the industry. Of course the company makes its pricing decisions and production decisions on the basis of its market structure. Therefore the company has to set low prices because it is set in a market that has numerous buyers and sellers.

Managerial Decision Making

Walmart overview and a brief history of its operations

Wal-Mart Store Inc. was initially founded and established in the year 1945 and is in the contemporary day undertaking its operations in retail stores in over 27 countries. The corporation is fragmented into three main segments. These segments include Walmart International, Walmart United States and Sam's Club. The business operations that are done by Walmart as an establishment encompasses cafeterias, hypermarkets, retail supply stores and also warehouse clubs. The company also undertakes e-commerce through its website Walmart.com. With regards to retail products, the supplies being traded in Walmart's retail stores consist of baby products, medical products, domestic goods, electronics, books, automotive products, apparel, fittings and decor, alcohol, grocery, paper products and a whole lot more.

Walmart is a United States worldwide retailing company that operates chains of considerable discount subdivision and warehouse stores. The business is considered to be the largest establishment as a private company in the whole world having hired over two million employees. The corporation is also the leading retailing firm on a global scale. Walmart brags of its huge, devoted and dependable consumer base. The company earns the confidence and conviction of its customers every single day basically by providing a varied range of products that are of great quality in addition to services that are inexpensive and low-priced. The corporation also cultivates an organizational culture that rewards and confirms mutual respect, uprightness, and diversity. The majority of the shares of the company are owned by the Walton family which possesses around forty eight percent of the stocks of the company. Walmart was established by Sam Walton and therefore shows why the family owns majority of the business.

Financial Performance

The following graphs illustrate the financial performance of Walmart Corporation over the years.

Figure 1: Walmart Corporation Income Statement

Source: https://www.google.com/finance?q=NYSE:WMT&fstype=ii

The figure above shows the income statement items which are the revenue, net income and profit margin levels of the company in the past five years. It is shown that the company's revenue amounts have gradually increased over the years. On the other hand, the net income and the profit margin of the company have been steady over the years.

The following figure indicates the balance sheet items which are total debt, total assets and percentage rate of debt to assets of the company. The graph indicates that the company in the year 2012 and 2013 invested in assets and has maintained a steady level ever since. The total debt amount of the company decreased in the past year.

Figure 2: Walmart Corporation Balance Sheet

Source: https://www.google.com/finance?q=NYSE:WMT&fstype=ii

The graph below shows the cash flow items of the company which are the operating activities, investing activities and financing activities. The level of financing activities of the company has deteriorated in the past year. The operating activities of the company increased by a considerable level while the investing activities did increase in the past year but by only a slight level.

Figure 3: Walmart Corporation Cash flow Statement.

Source: https://www.google.com/finance?q=NYSE:WMT&fstype=ii

Overall, the graphs above indicate that the financial performance of Walmart Corporation has improved consistently over the past five years or so.

Sources of Risks and Uncertain Activities and Changes that have affected Walmart's financial outcomes

In accordance to Walmart's annual report, the company's business operations face several risks, uncertainties, factors not only on the domestic level but on the international level as well some of which are even beyond the control of the company. Some of the risk factors include domestic and international macro-economic factors, lack of response to consumer preferences or trends, obstacles in the expansion and extension of the international operations of the company, changes in laws, and issues in aspects of labor. There are also risk factors in terms of political, economic and regulatory risks and lastly there are also natural disasters and also changes in climate that might impact the operations of the company's businesses (Walmart Form 10-K, 2014). There are risky activities and changes that ultimately appear to have impacted the financial outcomes of the company. To be specific, Walmart, for the first time ever, in its financial reports, indicates that the programs initiated by the government for taxpayer-funded social assistance have had an important impact on the company's revenue and profits (Walmart Form 10-K, 2014). This is largely for the reason that the company works with consumers who are low-income earners. In the preceding year, the company did not expect that the termination of programs, such as the extension of unemployment benefits, would have impacted it. In specific, the decreases and declines to the Supplemental Nutrition Assistance Program are a source of risk to the company operations (Young, 2014).

New Products introduced and markets created. The impacts these have had on company finances

Walmart has introduced new products and services at the outset of the preceding year. In October last year, Walmart started offering almost all the services that consumers get at a bank or financial institution such as cashing of bank checks, prepaid debit cards and also checking accounts (Douglas-Gabriel, 2014). This has had positive impacts on the company. This is because the increase in diversity of the products and services being offered by Walmart has increased the revenue levels of the company which can be illustrated in the income statement graph that was shown above. The consumers consider this as a convenience rather than standing in queues at the banks and financial institutions.

Demand elasticity for its products and discuss the availability of close substitutes for its products. How does that affect pricing decisions?

The demand elasticity for the products and services being offered and retailed at Walmart is dependent on price changes. This is because a change in the prices of these products and services has an impact on the demand for them. For instance, if Walmart opts to increase prices of products the demand will decrease as the consumers will opt to purchase such merchandise from other outlets. This is because there is availability for close substitutes which can be easily obtained from the several other stores and outlets. This as a result greatly affects the pricing decision of the company in the sense that an increase in prices decreases the demand levels and a decrease in the prices increases the demand levels from the consumers.

Walmart's profitability and the economy or industry influences on its costs, operations, and profitability

As was indicated in Figure one above, the profitability of Walmart has been on a steady incline in the past five years. However, influences in the economy and industry do have an impact on the costs, operations and profitability. One of the industry influences is diversity. Walmart is a supercenter and with that, it is expected to have diversity and a wide range in the products and the services that it offers. As a result, over the past few years, Walmart has introduced a wide range of products and services. Not only has it started retailing its products, but the company has shifted its operations into banking, retailing old cars, offering traveling products and even internet access products and services. This has caused the company to increase its operations. However, the positive influence is that the corporation has consumers over 100 million in numbers and this increases the profitability of the company. This is because by having all products and services under one roof makes the shopping experience of the consumer to be one that is convenient and efficient.

Competitive environment in which the firm operates the distribution of market power and the strategic behavior of the firm and its competitors. Company's market structure. How does the company make pricing and production decisions? Is your observation supported by the theoretical models? Refer to the financial reports for illustration.

Supercenters are exceptionally large stores that retail a widespread and extensive variety of products and services. They are distinguished from more old-fashioned shopping outlets that every so often concentrate and dedicate itself to a precise grouping. For instance it can be perceived that supermarkets focus in retailing food, even though they bring other products, whereas a supercenter will retail food, apparel, prescription drugs, attire, home office provisions, and electronic equipment. Walmart usually comes across substantial and weighty opposition from challenging and contending retail outlets and also from labor unions, who every so often are representatives for the workers in these opposing retail outlets. Walmart charges considerably lower prices compared to old-fashioned or customary retail outlets. The customary outlets naturally react to this move done by Walmart simply by lowering and lessening their prices and making an attempt to decrease wages and remunerations to their unionized labor force. As a result, neither opposing nor contending retail outlets nor their unionized labor force approve of Walmart's entry. Over the past few years this corporation has come to be the largest supermarket chain in the United States. The company, with the exclusion of Sam's Club, at the present has supermarket- associated incomes just about 51% bigger and greater compared to the following retail store Kroger, and also bigger than Albertsons and Safeway, which is the third and fourth largely ranked supermarket chains in the United States combined. Different studies have indicated and shown that the prices for foods are about eight percent to twenty seven percent lower compared to the other large supermarket chain stores, even with the inclusion of other aspects such as discounts, loyalty consumer cards and other special offers. Taking this into account, other normal supermarkets take the initiative and reduce their prices due to the increased level of competition (Hausman and Leibtag, 2005).

Regardless of the fact that Walmart boasts of having a very large market share in the retail industry, this does not imply that the market structure in which the corporation is set in is a monopoly. The market structure in which the company is set in is monopolistic competition. This is because there are numerous buyers and sellers in the market and there is freedom of entry and exit from the industry. Of course the company makes its pricing decisions and production decisions on the basis of its market structure. To begin with, the company has to set low prices because it is set in a market that has numerous buyers and sellers. Even though the company creates its own branded products, it is very easy for consumers to shift because there are several substitute products and services being retailed by other supermarkets and outlets (Douglas, 2012). This can be supported by economic theory because in monopolistic competition, every firm makes an attempt to retail products which are slightly different compared to the competitors and will make an attempt to place an emphasis on these differences. In this case, Walmart does this by branding its products and coming up with its own products and also having more diverse products and services compared to its competitors.

Government Regulation

There are a number of regulations implemented by the government which have an impact on the businesses of Walmart Corporation being in the retail industry. One of these regulations is that of deceptive or false discount prices. This regulation elucidates that it is illegal for Walmart as well as other corporations in the retail industry to fail to honor any price discounts that they have advertised. Walmart and other companies are also not permitted to trick or mislead consumers into believing that there is the existence of a discount when there is not. This is an aspect that impacted Walmart a number of years back. This aspect took place in the past year when there was a false discount placed in the prices of Walmart products. Last year, several products worth $100 at Walmart had been priced as $10. Such an aspect should be fulfilled by the company if this is not done as a pricing mistake. This is because it can be deemed as a violation of the consumer protection laws. Another regulation placed for Walmart and other retail companies are consumer protection laws. These laws are placed with the main objective of stopping companies from making use of misleading and deceptive marketing campaigns with the main intent of increasing the sales numbers. This ensures that these companies act in a responsible manner with regards to how they make use of their marketing techniques so as to increase sales revenue. This not only applies domestically but internationally as well as nations such as Taiwan prevent companies such as Walmart from undertaking violation of these laws and harming the consumers (Juang, 1997).