Internal Analysis of Walmart: Strengths, Weaknesses & Strategy

Introduction

The Walmart Corporation is among the most successful, recognizable, and well-known brand names in the world. The chain of retail stores is associated with low prices, convenient one-stop shopping, and geographically pervasive accessibility. However, the retail chain is also frequently associated with a poor record on labor rights, negative environmental performance, destructive community orientation, abuse of human rights in its developing-world production operations, distribution of low-grade products, and a general strategy of stifling local business enterprises and devastating local economies.

The result is a mixed outlook for Walmart, which will certainly continue to enjoy some level of dominance in U.S. and global retail markets but which must also work to make internal organizational changes that can improve its reputation and its compliance with expectations regarding the environment, human rights, labor, and community citizenship. The internal analysis conducted below assesses various dimensions of Walmart's corporate policies, market orientation, and operational practices, balancing consideration of both the positive and negative conditions that comprise the retail giant's identity.

Strategic Capabilities: Resources and Competencies

With respect to the resources at its disposal, Walmart is easily among the most successful firms in the world. The real estate, operational, transport, and monetary resources claimed by Walmart are substantial. According to Chandran (2003), the retail chain reported revenues of $219.81 billion in 2002. This also translated, at that juncture, to ownership of over 3,500 Walmart stores, Walmart Supercenters, and Sam's Clubs in the United States and an additional 1,170 locations outside the U.S. (Chandran, p. 2). The company also maintained a highly visited e-commerce operation at walmart.com. (Chandran, p. 2). Chandran further reported that Walmart carried roughly 1.28 million employees on its global payroll and that its ownership of its own trucking fleet, distribution centers, and warehouses, as well as its close partnerships with suppliers in developing countries, made it one of the most pervasive firms in the global retail business (Chandran, p. 4).

One of Walmart's core competencies is its capacity to control costs for the consumer. The result is a relative market singularity for the firm, which is therefore capable of expanding rapidly and maintaining massive retail locations across income areas of wide variance. In particular, Walmart has made customer-loyalty inroads with lower- and lower-middle-class socioeconomic demographics that are the most penetrating in the retail industry. This is reflected in the company's own stated orientation: "Our commitment to price leadership helped them save money when they needed it the most, which drove significant increases in store traffic. More people shopped at Walmart U.S. this year than ever before. More customers also shopped online during the year and their use of our Site to Store® free delivery service led to a record year for sales with this program." (Walmart, 2010, p. 1).

Value control is among the central features of Walmart's corporate strategy. The company has historically positioned itself as offering the lowest possible market prices for the products on its shelves. This begins at the site of production, which is often chosen because of the legal flexibility that allows for lower factory operation expenses. Typically, production is engaged in parts of the developing world where no legal minimum wage exists, where labor protections are scarce, and where the economy cannot sustain environmental regulation.

VRIN Analysis

Banker (2010) reports that decisions made throughout the process of selecting production locations, cataloguing specific products, and placing store locations all comprise the value chain for the company. Banker notes that "merchandising's job is to make the best product choices for Sam's Club members. The company attempts to select relevant and unique products with a superior value proposition. This value proposition combines quality, price, brand, package size, sustainability, and service. But in selecting products, Walmart thinks about the whole value chain. The company's goal is to reduce costs by carefully analyzing the end-to-end supply chain." (Banker, 2010, p. 1).

This indicates that Walmart's priorities as a business have long been directed toward the final cost of products sold in its retail stores. Thus, at every step in the value chain, steps are taken to squeeze lower price margins from business processes. Just as this is achieved in product selection, so too is it achieved in areas such as the physical distribution of retail output. Banker notes that Walmart has "linked its ongoing efforts to transport goods more efficiently with its private fleet to its efforts to benefit the environment, lower its operational costs, and improve its ability to offer lower prices to consumers (its price rollback program)." (Banker, 2010, p. 1). The maintenance of its own trucking fleet has made Walmart uniquely capable of controlling the considerable costs associated with shipping. At a time when the cost and volatility of fuel can have dramatic effects on a company's ability to turn a profit, Walmart's ability to make internal decisions about transport efficiencies allows it to cut costs that are ultimately passed on as savings to the consumer.

Walmart's rarity can perhaps be best captured in the ranked accomplishments that make the firm so distinctly recognizable. According to the Forbes ranking of Fortune 500 companies in 2001–2002, Walmart ranked first in revenue (Chandran, p. 2). The same report notes that its closest competitors at the time — Sears Roebuck, K-Mart, JCPenney, and Nordstrom — combined did not equal Walmart's revenue (Chandran, p. 2). Chandran also identifies Walmart as the largest employer in the United States besides the Federal Government. These characteristics all help to highlight the rarified level of success achieved by the firm.

One factor that prevents Walmart's competitors from imitating the firm's model for success is the manner in which the company has bypassed many of the traditional phases in supply chain management by maintaining so many of the required resources within its own firm. Its trucking fleet and distribution centers have allowed it to focus directly on partnerships with manufacturers. As Chandran indicates, "Walmart always emphasized the need to reduce its purchasing costs and offer the best price to its customers. The company procured goods directly from manufacturers, bypassing all intermediaries. Walmart was a tough negotiator on prices and finalized a purchase deal only when it was fully confident that the products being bought were not available elsewhere at a lower price." (Chandran, p. 4). This approach created an ingrained relationship between Walmart and its suppliers that competitors simply could not imitate.

Moreover, because of the inroads that Walmart has made with selected demographics, its strategy has essentially reversed the traditional relationship between the retailer and the supplier, making substitutability quite an unlikely prospect. Walmart has singularly overturned the historical power dynamic by which suppliers have generally controlled pricing in the retail business. Walmart's relative enormity and its success at stifling competition in so many local and regional markets has left major manufacturers and suppliers with little choice but to negotiate on Walmart's terms. This is consistent with the other strategies discussed in the value chain analysis presented above.

With respect to its many strengths as a business, Walmart's supply chain management approach is widely considered to be among the best in the world. According to Blanchard (2008), "Walmart is the largest retailer in the world, and one of its drivers of financial success is its focus on efficient and effective supply chain management (SCM)." (Blanchard, p. 166). This is underscored by the wide array of operational strengths produced by commitment to this strategy. Walmart's pricing is generally impossible to compete with, and even more so for small local businesses. This makes the firm particularly adept at eliminating competitors in local markets. Additionally, the sheer scale of its store locations typically creates a single shopping experience that discourages the shopper from seeking items elsewhere. These characteristics have served Walmart's unquenchable thirst for growth.

Conclusion

The internal analysis provided above helps to elucidate some of the core strengths that have made Walmart so distinctly successful, but it also points to areas where improvement must now be managed. Because it has been so effective at sidestepping many of the traditional cost-cutting limitations foisted upon retail operations, Walmart now has considerable economic latitude to become a global leader in improving environmental, labor, and human rights standards.