Walmart Strategy: External Environment and Operations Analysis

External Environment Analysis

Walmart competes using a cost leadership strategy. It promises low prices to consumers and backs this up by leveraging its exceptional purchasing power and its efficient inbound logistics system. In the difficult economic environment of the past few years, this strategy has been successful in helping Walmart avoid the substantial revenue losses faced by many other retailers. At the outset of the recession in 2008–2009, Walmart benefited as consumers traded down to cost leaders from higher-end stores (LaMotta, 2009). Economic recovery has not harmed Walmart either, partly because of the slow gains in employment, and the company continued to see revenue growth over this period as it retained customers attracted during the sluggish economy (MSN Moneycentral, 2011). The Congressional Budget Office was forecasting relatively slow growth, which should help Walmart continue to retain budget-conscious consumers (CBO, 2011).

The legal environment provides few impediments to Walmart. Occasionally, the company has come under legal action for issues relating to workplace discrimination (Stohr, 2011), and this could introduce significant risk given the size of the suit, which was before the U.S. Supreme Court at the time. The size and significance of this case notwithstanding, lawsuits — including class action suits — are a commonly faced risk for companies of Walmart's scale. The company's 2010 Form 10-K indicates that it was facing legal proceedings relating to consumer law, tort law, employment law, and other forms of legal action as well.

The social environment is generally favorable to Walmart. The company may be derided in some quarters, but its sales figures paint the picture of a very popular company with high social standing in the community. Walmart is relatively proactive with respect to social trends — for example, the promotion of green technology and corporate social responsibility. The company's goals for sustainability are to be "supplied 100% by renewable energy, to create zero waste and to sell products that sustain people and the environment" (WalMartStores.com, 2011).

Internal Financial and Management Issues

Walmart has few financial issues. The company operates on a high-volume, low-margin business model and has been expanding rapidly for well over a decade. These characteristics are reflected in the company's income statement and balance sheet. Walmart is a liquid company, despite a relatively high debt level used to fuel growth. The company consistently grows revenues and profits. Its equity, although it dipped in fiscal 2011 (roughly calendar year 2010), is on a long-term growth trajectory, as is cash flow from operations. The company's cash flows are diversified across product type and geography, further insulating it from economic shocks.

Walmart is among the best-managed companies in the United States, and its management is admired by its peers (Fortune, 2011). The company's logistics operations have long proven to be a source of competitive advantage, but in recent years some concerns have been raised about Walmart's ability to continue generating quality executive talent in-house (CNNMoney.com, 2007). The company needs to continue building top management talent from the ground up in order to maintain its leading-edge innovation in the key cost-cutting areas of logistics and merchandising.

Operational Competencies and Project Management

Operational issues are critical to Walmart's success. The company relies on procurement to keep product costs down and on efficiency in its distribution system to deliver goods to stores at a lower cost than its competitors can achieve. Through these two competencies, Walmart is able to maintain its position as the cost leader in the retailing industry. The company works to implement new projects as quickly and efficiently as possible, maintaining tight time frames in order to lower the total cost of implementation. Partners on Walmart projects can expect to receive strict timetables and face fines if they are unable to meet those guidelines, as occurred when Walmart was implementing radio frequency identification (RFID) tags in its distribution system (Wailgum, 2008).

Walmart has long focused on critical paths as a means of reducing cost. Critical path methods seek to find the most effective path for a function, free from bottlenecks, and reduce the amount of time a good spends in inventory (Barry, 2010). Walmart holds its suppliers accountable to tight time frames for the delivery of goods. The company then uses cross-docking techniques to move goods more or less directly from one truck to another and out to the stores. This reduces the amount of goods held in inventory at the company's warehouses. Because goods are ordered on a near just-in-time basis, stores also hold relatively little inventory. Slower-moving goods are often repositioned to better locations within the store to spur sales, as the company prefers not to carry in-store inventory for too long. Inventory turnover is therefore a critical metric for Walmart's operational performance.