Walmart Business Strategy and Recommendations
One has to understand the specific characteristics that make a work place to be considered effective in terms of organizational strength and performance. The retail industry in particular, is faced by many challenges, and the ability to understand the challenges and dynamics of the industry can make the difference between a successful retail business and one that is not successful. For instance, Walmart has been a market leader in the retail business for years, yet Heskett (2017) opines that the company has been unable to stop the wheel of retail business in the industry. This implies that there has to be a limitation in the business strategy that has been used by Walmart through the years. The company uses a discounted retail business model, which experiences certain challenges in the market and makes business performance more difficult to sustain. The fact that Walmart has upheld business performance this far is an indication of certain internal strengths and opportunities that can only be understood well through analysis of the retail business industry, the internal as well as the external business environments in the company.
The Retail Business Industry
The retail industry has grown significantly in the recent years both in the U.S and beyond. In the contemporary times, many changes are also occurring in the industry, requiring companies to be more vigilant of the market characteristics and industry trends for success to be achieved. Walmart currently uses the discount business model which has several characteristics in the contemporary market. According to Brea-Solis et al (2012), the retail business can only improve its profitability through increasing the average revenue per unit product. This can be achieved by selling at higher prices; reducing expenditures on products; reducing the use of other auxiliary business inputs. The total revenue can also be increased through an increase of sales. The discount business model which is currently under use relies on the volume of sales achieved to enhance the total revenue. To a large extent, the revenue that can be gained per unit product is limited by the costs of those products in the market. This implies that Walmart only gains much less revenue per unit product in comparison to what their competitors gain.
For the discounted retailers, Brea- Solis et al (2012) describe the key levers used in the industry to boost the revenue. One of them is to through increased pressure over vendors. Increasing pressure on the vendors could result in lower cost of products hence resulting in higher revenue per unit product in spite of the discounted selling prices. Changes in human resources practices and investment in technology can also be used by discounted retailers as avenues for increasing profitability. Through technology use, businesses in the retail industry reduce human resource related expenditures hence increasing the profits. More discounted businesses are also selecting particular products for sale in their stores and using cost conscious customer service practices to boost the income generated from each of the products. Cost conscious customer service operations function to reduce overhead costs incurred in service to each customer.
As more companies get into the retail market, greater dynamicity is being observed. For instance, Amazon, in recent times, has entered the retail market with a lot of innovation in the practices. Changes in marketing practices and provision of product distribution services are key opportunities that most retail businesses are pursuing to obtain greater profits. Technology use has been the most applicable lever in the contemporary times as more businesses pursue online operations. Deloitte (2017) reported that the consumer economy in the retail industry is continuously tightening. The implication of this tightening economy is that more businesses are experiencing slowed growth rates. The emergence of business strategies that use technology to access more consumers across the world makes it even more difficult for businesses in the retail industry to enhance their productivity. Inflation and the wage growth across countries have made retail business operations even more challenging across the globe. With the rise in inflation, increased marketing and ambitious online growth, many businesses in the retail sector faced significant challenges in terms of physical growth. Deloitte (2017) reports that more than 8600 retail businesses have been closed in 2017 alone.
Roles in retail stores have also been changing over the past few years due to the emergence of online commerce. Moreover, automation has been used to enhance digital migration in many of the retail companies increasing the response to customer needs in specific areas of retail business. Agility is enhanced significantly through various practices. Walmart, like many other businesses in the industry has to put in place strategies for expanding both physically and in the online operations. Companies that have specific and real differentiators have a greater standing in improving market shares. Better customer engagement is also used by industry leaders to keep businesses in operations. Innovation practices in the retail industry include: reduction of overheads and store costs, automation of retail processes, augmentation of the work place, and development of differentiated as well as immersive customer experiences (Deloitte, 2017a).
The online of the retail industry notwithstanding, the pressures on the retail sector are still many. Heskett (2017) asserts that most of the businesses in the discounted retail business focus on low price increase strategies where price reductions are only applied periodically to boost the market shares. Once the shares have been boosted, the businesses can be operated through short term price increments. This however faces significant challenge in that consumer behaviors are also dynamic and sustaining consumers after such price changes can be difficult. Moreover, new competitors are constantly arising resulting in need for sustainable price regulations; the rising costs of products also make it difficult to sustain low cost operations over prolonged periods of time. Currency depreciations, rising fuel prices, increased costs of pensions and pressures in the market are also some of the challenges that the retail sector undergoes, and which companies have to understand how to manage for effectiveness in the retail business operations (Deloitte, 2017a). Most of the companies in the retail sector are using the culture oriented practices by adapting their advertising habits to consumer motives and customer habits (de Mooij & Hofstede, 2010).
Walmart Internal Business Environment: SWOT Analysis
According to Matzler et al (2013), the retail business is handled through various components including unique positioning, consistency in product provision, and a service logic. Effective marketing has also been an essential pillar in the retail business both at Walmart and in other companies. The combination of these components results in the realization of a working profit for the growth of the sector and sustainability of individual businesses. In all these, utilizing the specific business strengths and minimizing the weaknesses can be of great help where the intention is to develop sustainably. Walmart has some visible strengths with which it can work to sustain its performance in the retail sector. At the same time, some weaknesses exist which can be detrimental to the growth of the company’s business. Smithson (2017) describes some of the strengths, weaknesses, opportunities and threats that are extant in Walmart’s business model.
According to Smithson (2017), Walmart’s strengths include the global nature of the business, the global supply chain at the company, high efficiency in the supply chain and effective management. The strengths associated with Walmart Company are linked to the business size strategy, where the company gains most advantages due to its size relative to the competitors. Being a global organization, Walmart can use this as strength to access a wide market. Being a global organization increases the company market shares in the U.S and beyond as more people are likely to identify the company than others. Furthermore, the global supply chain associated with the company is also a significant strength. It gives the company sufficient resilience in business through enhanced opportunities for access to cheaper sources of products. As such, the company can run its discount business model successfully without reducing profit margins by accessing the products from low cost manufacturers in different countries and selling them in areas where there is need for the same. It can use the same strategy applied in bilateral marketing where nations producing more of a specific product can trade in the same product with other countries where the product is in demand. The supply chain being efficient, it implies that strategies put in place for business performance have to result in great profitability, especially through the use of technology.
On the other hand, the weaknesses associated with Walmart include the thin profit margins allowed by the discounted retail business model and an imitable business model. These weaknesses are brought about by the cost leadership strategy that Walmart thrives on. This strategy limits organizational capacity to withstand business strengths. In spite of these weaknesses, the company can still take advantage of the many opportunities it has to expand its profitability (Smithson, 2017). One of the opportunities is that of expanding into developing countries where the disposable income among citizens is limited and discounted retail businesses are likely to do well. Furthermore, Walmart can also improve its HR practices to be more customer-oriented. There has been criticism on the HR practices at Walmart and the company can take this as signals towards greater potential upon adoption of fair trade practices in HR management. With improved HR practices, it is expected that the company will also be able to enhance its quality standards in terms of service delivery (Smithson, 2017). In terms of threats, the company will have to put in place strategies that will make it visible against the aggressive competition. The healthy lifestyle trend among consumers also poses a slight challenge to Walmart’s business as the company will have to adopt practices that align with customer needs. This may require fast and significant change in product sourcing, packaging and handling practices. Online selling also poses a threat to the business of Walmart. As more companies are adopting an online business model, Walmart faces a threat to its business model as more people shift towards the flexible and easily accessible online business locations. The company will have to enhance its online presence in order for it to remain relevant in the market (Smithson, 2017).
Walmart External Business Environment: PESTLE Analysis
As much as the internal environment is an important factor for consideration in business operations, the external environment is also a key determinant of business practices, especially in the retail industry. Rowland (2017) describes certain characteristics of the external environment of Walmart’s business. The first characteristic is the political environment of the company. Walmart operates in different countries and predicting the political environment cannot be generalizable. According to Rowland (2017), most of the countries in which Walmart operates are characterized with high political stability and the support for globalization. These factors can be considered as opportunities for the company to pursue greater profitability. On the other hand, some of the countries have also been subjecting Walmart to high political pressures especially with regards to the need for higher wages for all employees. This is a threat to business profitability (Rowland, 2017).
The economic factors that characterize the external business environment include the economic stability of most of the countries in which Walmart operates. The developing countries, in which Walmart may expand, are also experiencing continuous economic growth. The company also has great opportunities for growth in the U.S where unemployment is decreasing, an indication of a more robust economy. Socio- culturally, the healthy lifestyle trend, urban migration and cultural diversity are the key factors that influence Walmart’s operations across the world. Hofstede’s cultural dimensions can be a good starting point for the company to conduct its marketing practices to ensure that the advertisements and service delivery practices work well with the cultural diversity in the company (Hofstede, 2011). Cultural advertising will be a crucial step towards sustainable profitability. Walmart’s technological environment is characterized by increased automation, increased use of mobile devices, and the application of big data and business analytics. Such technologies are increasingly being used by new as well as existing retail businesses across the world. Walmart has to adapt to the times to ensure it remains relevant in the technological advanced consumer world.
Other factors in the legal business environment are the legal and environmental factors. According to Rowland (2017), the legal factors that could affect Walmart’s operations include food safety requirements, employment management regulations and tax law reforms. These regulations are different across countries and Walmart has to align the operations of each of its branches to the laws of the countries in which those branches operate. The environmental factors on the other hand include sustainable business trends and adoption of environmentally friendly products trend. More individuals, companies and governments are opting for and supporting sustainable business models, also referred to as green business models (Rowland, 2017). Walmart can pursue green business trends through traceability practices from the sources of their products to the end of the supply chain. The company can also push for reverse logistics to address customer issues and to enhance the environmental aspect of operations. Practices such as recycling can be considered to make the company more viable in the green world.
Recommendations for Walmart
The success of Walmart’s business model depends on the company’s capacity to utilize all its available resources optimally. According to Malhotra (1998), businesses can be defined based on components such as entities, objects and activities. The entities in any business can be interpersonal or inter-functional. On the other hand, the objects are physical or informational while the activities are operational or managerial. To improve the business sustainability, changes have to be pursued in each of these components to ensure that all components are working are in tandem with each other. According to Malhotra (1998), the principles for success, especially in the retail business industry include: to organize operation around the available corners, to combine information processing work with the actual work, to capture all information at their respective sources and to treat all the geographically dispersed resources based on their relevance to each process.
In order for Walmart to adapt its processes to the principles recommended by Malhotra and subsequently to increase the company productivity, various recommendations have to be implemented by the company. The first is that the company must have well developed business objectives and visions and to align them to the external business environment. For instance, technological changes that are happening in the retail industry should steer Walmart towards new objectives and new goals in terms of how the company conducts its business operations. The company should also understand all the business processes and to identify those that need redesign. To align with the changing systems and with the principles of effectiveness, Walmart should understand the particular processes that need change. Processes can be managerial, such as human resources practices, or operational such as marketing practices. Advertising strategies also need to be understood and aligned with cultural values to ensure that they are effective towards achieving organizational goals.
Advertisement as a process is increasingly being enhanced through communication and culturally aligned brand advertisement. De Mooij and Hofstede (2010) discussed the role of advertisement in brand positioning. According to De Mooij and Hofstede, the brand positioning in any company depends on the social processes in place, identity of personalities involved, cultural values of the society and the consumer characteristics. Mental processes such as information processing and categorization must also be considered for the company to be able to address the advertising challenge more effectively (de Mooij & Hofstede, 2010). This implies that Walmart also has to understand the existing processes, not only for advertising but for other processes as well. The objective of this would be to understand the processes, identify the areas in need of change and understand the role and capabilities of information technology in that these changes occur. It is only after understanding and redesigning all the processes that the company can enhance its profitability once the new designs are implemented.
Walmart has been a market leader in the retail business industry. However, this can only remain so if the company understands its industry, the external and internal business environments and utilizes the available resources for effectiveness in its processes. The industry is dynamic, with most changes in recent times occurring in terms of technological advancements. This can be a threat to the company, as more competitors are engaging in online businesses hence incurring fewer costs and gaining more in terms of profitability. Walmart has various strengths and opportunities including global presence and supply chain; and the opportunity to expand into developing countries. The ability of the company to use these strengths and to practice culturally aligned advertisement strategies can result in increased profitability and business sustainability.
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