Walmart Strategic Analysis: Marketing, HR, and Global Growth

Executive Summary and Core Challenges

Walmart faces a daunting series of challenges, beginning with the need to refine and strengthen its core marketing strategies in the U.S., resolve Human Resources compliance violations, and learn from its failures to expand globally — particularly in China and India. In addition to these internal challenges, Walmart faces competitors who are growing in strength and marketing expertise both domestically and globally, and must also confront an emerging global recession. All of these pressures are made more urgent by the slowing revenue growth and store expansion the company is experiencing at home and abroad.

With the board of directors having been given a commitment of 7.5% growth globally and 7% U.S. market growth — after the company had achieved 10% growth in preceding years — capitalizing on core strengths is becoming a strategic priority. While the Low Price Every Day (LPED) value proposition has been updated to "Save Money, Live Better," Walmart faces the challenge of becoming relevant in the high-growth economies of China and India, where the company's core messaging does not resonate as strongly as it does in the U.S. Compounding this is the fact that the customer base Walmart relies on domestically is having its income squeezed by an oncoming recession, and the company must first find ways to increase same-store sales if the 7% growth goal is to be attained.

The intent of this analysis is to provide recommendations on how to refine Walmart's marketing strategies and Human Resources (HR) practices, increase the potential for success from global expansion efforts, and compete profitably while alleviating the effects of a recession threatening the company's overall strategy.

The five strategic challenges that Walmart faces are: (1) getting the U.S. marketing strategy better aligned with core market segments; (2) developing more effective governance and compliance in Human Resources; (3) developing more effective international growth strategies based on lessons learned from failures in Germany and Korea; (4) developing a more effective competitive strategy against Target and other big-box retailers; and (5) developing contingency strategies for managing through the beginning of a global recession. Each of these challenges is analyzed below for the purpose of developing alternatives and recommendations.

Re-Aligning the U.S. Marketing Strategy

It is not enough to merely redesign store layouts, add faux flooring, or introduce designer clothing lines in an attempt to increase same-store sales. This has unfortunately been the strategy Walmart has relied on in conjunction with its LPED value proposition (Frazier, 38). As Walmart has been very successful in the past with straightforward, low-price store interiors, there is organizational resistance to changing store layouts, augmenting merchandising, or significantly upgrading the shopping experience (Blanchard, Comm, Mathaisel, 169–170). Increasing same-store sales cannot be "bought" through these external investments alone. They do contribute to a more pleasant shopping experience, yet Walmart's most loyal shoppers return to the store because the prices help them make ends meet — many have incomes at or below the U.S. per capita income (Walmart Annual Reports).

The traditional logic of retailing therefore does not completely apply to Walmart. The ambience of shopping is secondary to price savings and the trust that its most loyal customer segments have in product quality and availability. What gives Walmart its competitive advantage on pricing, availability, and speed of new store rollouts is its supply chain management (SCM) practices and strategies, considered among the best worldwide (Mottner, Smith, 535). Walmart has pioneered the development of Collaborative Planning, Forecasting and Replenishment (CPFR), a critically important supply chain framework that shares forecasting processes across suppliers and retailers to alleviate out-of-stock conditions during periods of high demand (Doiron, 53–54). Walmart uses CPFR for toys during the holiday season to ensure products remain in stock, and also applies it to electronics products — including plasma flat-screen TVs — that compete directly against Target.

In evaluating how CPFR plays a critical role in Walmart's marketing strategies, it is important to keep in mind that the core customer base — often called the "Price Value Shopper" in the company's annual reports and SEC documents (Walmart Annual Reports) — relies on Walmart as a primary means of keeping family budgets in balance. If Walmart does not continually meet or exceed the Price Value Shopper's expectations over time, same-store sales from this most valuable segment will decrease. The continual addition of services, initially appearing to be unrelated, are all aimed at increasing same-store sales to the Price Value Shopper while also increasing sales into other segments Walmart is attempting to penetrate with new selling strategies.

Walmart is known for its ability to quickly analyze supply chain performance in the context of per-store performance through the use of advanced analytics (Todd, 35). This inherent strength — managing the retail industry's most complex and diverse supply chain while continuously opening new stores in multiple countries — needs to be continually improved to make both same-store sales and new market penetration strategies successful.

From an analysis of Walmart's annual reports and SEC filings (Walmart Annual Reports), the current structure of the Walmart customer base can be ascertained. An analysis of seven key segments shows those Walmart has identified as most potentially profitable based on demographic and psychographic research (Walmart Annual Reports).

As the segmentation data illustrates, Walmart needs to increase same-store sales across all segments to attain 7% growth in the U.S. Of all segments, the largest is the Brand Aspirationals, comprising 29% of the total installed customer base (Walmart Annual Reports). Research reveals a paradoxical nature to this segment that creates larger problems for a same-store sales strategy. Brand Aspirationals are heavily committed to Walmart behaviorally — they seek pricing advantages on name-brand merchandise. Yet they are often unwilling to pay even the reduced prices at Walmart for name-brand apparel, preferring to wait for quarterly or seasonal sales. This is a trap that Walmart has fallen into with its merchandising and store refurbishment strategy: this segment, the largest at 29%, has a household income of less than $40,000 per year on average. Same-store sales strategies targeting this segment frequently stall because it waits for end-of-quarter and seasonal sales to purchase name-brand apparel.

Further complicating matters, the majority of Brand Aspirationals are located in urban areas, outside the rural and suburban markets where Walmart has its greatest retail strength in the U.S. This segment is also younger than the mainstream Price Value Shopper, who has a median age of 34 and is often a working mother (63%) who relies on Walmart to keep her household budget balanced. In attempting to move up-market to attract Brand Aspirationals through store revamping, Walmart risks alienating its most loyal customer base. From a strategic branding standpoint, the company also risks undermining its rural strength as a one-stop shop at a reasonable price for household products and services.

The remaining segments are eclectic in their use of retailing outlets and tend to be more brand-loyal than store-loyal. An analysis of these segments based on insights shared in Walmart's Securities and Exchange Commission filings over the five-year study timeframe (2002–2007) illustrates how the seven customer segments align relative to loyalty to Walmart. At 11%, the Price-Sensitive Affluents are a third group Walmart is addressing with its merchandising strategies.

The Price Value Shopper, Brand Aspirationals, and Price-Sensitive Affluents are the three most critical segments for enabling greater same-store sales. Yet the strategies Walmart is currently pursuing appeal primarily to Brand Aspirationals and risk alienating the predominantly rural-based Price Value Shopper. The Price-Sensitive Affluents are not highly influenced by improvements to the shopping experience; they are most influenced by Walmart doing what it does best — working with suppliers to deliver exceptionally high quality merchandise at exceptionally low prices. This is particularly true as the emerging global recession during this timeframe takes hold.

Human Resources Compliance and Governance Failures

Admittedly, nearly two dozen superstores are very dated in their décor and layout and do need to be revamped (Frazier, 38). Yet as this customer segment analysis demonstrates — based on Walmart's SEC filings over time (Walmart Annual Reports) — the far greater contributing factor to growing same-store sales is concentrating on supply chain initiatives that deliver new suppliers with innovative new products at prices unavailable elsewhere. There is an expectation across all three most strategic segments that unbeatable prices are the most critically important concern, followed by faster checkout and wider aisles (Walmart Annual Reports). Walmart must keep these expectations in context if it is to overcome the first and most critical challenge of growing same-store sales in its key segments.

The lack of compliance and governance, and the absence of a Corporate Social Responsibility (CSR) initiative to unify the global Human Resources functions of Walmart and its suppliers, have significantly degraded the company's brand. Accused of allowing and even promoting its suppliers to use child labor and unethical sourcing practices globally to achieve the lowest possible prices (Fishman, 69–70), Walmart has exposed the dark side of its low-price-leader strategy. There are also claims of age and gender discrimination in its stores, and the use of illegal immigrants hired as cleaning crews to avoid healthcare costs (Department of Labor, 2005).

Statistical analysis of Walmart's hiring practices shows rampant age and gender discrimination at the department level throughout the company's many stores and locations (Drogin, et al.). The deliberate strategy of reducing worker hours just enough to avoid the legal obligation to provide healthcare benefits — while employing those workers enough to qualify for Medicaid — has been documented by the U.S. government and has led to substantial fines for the company (Department of Labor, 2005).

In response to these claims, Walmart initially refuted any significant difference in pay scales and promotions for men versus women. This has since been shown to be more of a public relations strategy than a genuine HR policy, as demonstrated by the statistical analysis of Dr. Richard Drogin (4, 6–10). Dr. Drogin's analysis shows that even when women have worked nearly a decade for Walmart and have nearly perfect performance records, they are routinely passed over for promotions relative to their male counterparts. The Drogin analysis also shows that women have significantly fewer opportunities to attain senior management positions within the company. The difference in Regional Vice President and General Manager salaries is striking: only 10.3% of those positions are held by women as of the timeframe of this case study. According to Drogin (26), women in these positions earn $279,772 versus $419,435 for their male counterparts — a difference of over $139,000. Women in the Walmart culture appear destined to remain Associates, with very few advancing into management.

Examining HR practices at the store level reveals another dimension of how the company maintains a non-unionized workforce. Walmart typically targets full-time workers at 70% of total store staff (Department of Labor, 2005), consistent with its approach to staffing a typical 24-hour SuperCenter with approximately 450 total employees — yielding on average 315 full-time associates (Walmart Annual Reports). From Drogin's analysis (25–30), fewer than 23% of employees are minorities. Walmart relies on a distinctive management structure to accomplish this full-time/part-time mix: only after a Support Manager is promoted to Management Trainee are they taken off an hourly wage and placed on salary. According to Drogin, this chain of command also enables Walmart to selectively promote based on cultural congruence, which he contends (39–40) results in a form of discrimination against women that is difficult to track and prove — but which his aggregate analysis shows takes place consistently across U.S. locations.

Walmart has had to answer to its shareholders, the U.S. Department of Commerce, and the U.S. Department of Labor regarding its global HR practices. Ironically, despite all these efforts to gain competitive cost advantages, Walmart faces the daunting challenge of creating a company-wide CSR strategy that satisfies both its shareholders and the U.S. government. The role of Sarbanes-Oxley compliance requirements further exacerbates this challenge. Of all the challenges facing Walmart, this is potentially the most expensive to resolve and the one that requires the deepest cultural change.