Walmart's low-cost leadership strategy and competitive advantage in 2003

Wal-Mart's Competitive Advantage 2003

Wal-Mart stores are the largest retailer of discounted products across the globe with numerous superstores primarily in small towns throughout the United States. It consists of discount stores, supercenters, and neighborhood markets. About 75% of its stores are in the U.S. And due to awakening of globalization; Wal-Mart is also expanding in global markets. (Wal- Mart annual report, 2003)

Nature of competitive strategy

According to Daniel MillSap,(2009), every business exists to make profits and to maximize value for its shareholders. Higher revenues do not necessarily mean higher profits as this depends on the strategy that the organization pursues.

From Wal- Mart report, (2003) its evident that leading superstore is pursuing low price/cost leadership strategy. In Wal-Mart, this is an every day strategy of delivering low priced and quality products at a price everyone can afford.

According to departmental research, low priced consumer goods are more preferred. Any where in the world the consumer would love to reduce the cost of consumption and use the extra money on something else on an investment. It is said that half of the American families shop at Wal-Mart at least once a weak and this association creates a strong competitive advantage (Millsap, 2009).

The major industry competitors of Wal-Mart include; Target Corporation with annual sales of $63 billion, Costco Wholesale Corporation with annual sales of $68 billion, while Wal-Mart annual sales exceed $200 billion.

Wal-Mart low cost pricing strategy is based on consolidation and aggressive takeover of other chain stores. Due its higher sales revenue margins and an increasing drive to maximize shareholders value, Wal-Mart time and again moves its stores to bigger towns, for example, acquisition of French hypermarket giants Casino and Auchan, and Mycal a Japanese supermarket.

The threat of new entrant becomes low in such instances as the cost of entry becomes high. To illustrative this, it would practically be hard for any company to offer low prices at go on its entry and make the revenues Wal-Mart makes. Though substitute products can be found, they don't carry low prices due to economies of scale.

With the acquisition of Asda of Britain in 1999 for $10.8 billion, Wal-Mart gained an upper hand as it gained another 17% of market share that Asda held. Without large financial muscle, other supermarket chains are kept at bay as it becomes costly in race for neck to neck completion. The weaker firm in terms of financial resources becomes the biggest looser.

Wal-Mart became ultra competitive through disrespectful of its associates. Competitors argue that Wal-Mart concept is just not right for the German market. The aggressive acquisition such as the purchase of 74 German stores from the Interspar chain in December 1998 is a cause for worry among the German competitors.

Sustainability of the advantage

Wal-Mart competitive strategies are not sustainable as it results to abuse of suppliers and neglect of workers plight a reason for numerous lawsuits against it. A case in point is the anti-Wal-Mart websites that discredited the supermarket chain drawing an increasing resistance in most sections of the society including workers, shopkeepers as their small retail sections are " swallowed," customers and non-governmental organizations.

Millsap,(2009) hypothetical analysis, clearly depicts that Wal-Mart has to change its marketing tactics if the company wishes to solidify its market position. Secondly the belief and values that company follows is not the same with belief and values such the Chinese, Japanese and the Germans. Further these governments have different regulations in terms of; distribution, pricing and promotion of products, and some practices done by Wal-Mart will have to be reviewed or phased out.

Transferability of advantage to new formats

Wal-Mart sells everything from pharmaceuticals to guns. About 60% of its sales are non-grocery items. This desire to be the colonial master's economy by driving out smaller business out of the race makes them to employ every means possible to win the public trust irrespective of their shortcomings.

In United Kingdom, planning laws make it difficult to develop hypermarkets. Since they have diversified in many products, its possible to create and operate stores in busy towns and where human traffic is greater in places where superstores may not be allowed by the government. These new formats may range from food chain grocery, drinks and non-grocery items as well. This can be followed by aggressive advertisement campaign to make the consumers aware of where they can access the products they looking for at low price. Corporate watch,(2004)

Weakness of Wal-Mart

Wal-Mart is negatively viewed by various stakeholders as it is bent in taking over the retail businesses and killing the smaller retailers. This is due to the pricing strategy that they employ that captures a wide range of shoppers making it extremely hard for the smaller players in the same market to survive.

Product diversification .The chain store also has a problem in retaining their more focused customers due to the fact that they stock a variety from a wide range of suppliers. Focused customers may want all their products from one particular brand yet in Wal-Mart they will find the complementary products from other brands hence missing out on a complete set of the same brand. This then becomes an undoing for Wal-Mart since the competitors are able to adjust in term of their brands in accordance to the needs of the clients.

The other dilemma that Wal-Mart is more often caught in is the pricing fact. The chain store buys goods in bulk and eventually has to price them at low sale prices so as to be able to enjoy the benefits of volume marketing. This then makes it hard for them optimize on the profits and the thinner the profit margin the poorer the pay. In Germany, there has been various labor complains about the wages that the employees get, the negligence of the environmental rules as well as the health care covers and subsequent strikes by workers as the case was in 2005.

Poor relationship with suppliers; Wal-Mart suppliers have been abused and disrespected. Suppliers in USA are forced to follow rules and conditions, and have been involved in several corporate crimes and lawsuits.

Reference

Corporate Watch UK,(2004). ASDA/WAL-MART: Corporate Profile. Retrieved October 6, 2011

from http://www.corporatewatch.org/?lid=800

Daniel Fortunato Millsap, (2009) Hypothetical Wal-Mart strategic marketing plan for 2009-2010

Retrieved October 6, 2011 from .http://danielmillsap.com/research/wal-mart-hypothetical-strategic-marketing-plan.html

Marketing Teacher, (2011) SWOT Analysis Wal-Mart. Retrieved October 6, 2011 from http://marketingteacher.com/SWOT/walmart-SWOT.html

Wal-Mart Stores Inc., (2010). Walmart Reports Fourth Quarter and Fiscal Year 2010 Results.

Retrieved October 6, 2011 from http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-newsArticle&ID=1392384&highlight