WALMART CASE ANALYSIS

SWETHA VASU

EXECUTIVE SUMMARY
For long, Walmart has been able to retain its spot as the worlds largest retailer. Much of this
success can be attributed to Walmarts positioning in the industry on the grounds of price
differentiation, and its strong supply chain management. However, in order to remain on top,
Walmart needs to adopt innovative strategies that respond to dynamic changes in the consumer
market. We hence recommend the following strategies for Walmart:
1. Expand ecommerce operations
2. Avoid introduction of organic products
3. Enter international markets with caution
STRATEGIC ANALYSIS
When Walmart entered the retail segment, its strategy of playing on price differentiation aided
its growth, helping this company beat the then existing players such as Ben Franklin, and the
new competitors such as Kmart and Target. Walmarts sales (and net income) figures witnessed
continuous growth and soon the firm was producing a better return on equity (ROE) for its
shareholders than its biggest competitors (Exhibit 1). While Walmart remains a dominant player
in the retail segment even today, its competitors such as Target arent far behind. In order to
sustain in this competitive segment, Walmart needs to restructure its strategy in order to respond
to the changing preferences in the industry, while simultaneously leveraging its resources
effectively.
Lets take a look at Walmarts current strategy in general (Exhibit 2) and its strategy in terms of
the value that it offers to both its employees and to its consumers (Exhibit 3). We see that
Walmart boasts of a comfortable position in terms of its cost leadership, and an efficient and
stable value chain that aids in its current operations. However, with consumer needs evolving
continuously, we believe that Walmart needs to consider the following:
(a) Target ecommerce segment (b) Stay away from organic products (even if competitors
introduce organic products in their stores) (c) Target global markets with caution
ECOMMERCE OPERATIONS
While Walmart has an online presence, its penetration into the ecommerce segment has been
low. A lot of products are still restricted to In Store purchases only. With companies like
Amazon introducing Amazon fresh, and with more and more consumers tending towards
ecommerce, Walmart stands a risk of losing its market share to players such as Amazon if it
continues to rely on its current strategy. Walmart can make use of its connected distribution
system to deliver to homes quickly by incorporating back and front end ecommerce solutions
that can handle large volumes of orders. This is important from the perspective of fuel
consumption too, in some ways- as Walmart moves towards delivering directly to home using its
current logistics (say, trucks that can drop goods at home, en-route to the stores etc.) people can
increasingly start relying on this, while reducing the number of trips to the store.
INTRODUCTION OF ORGANIC PRODUCTS
A typical customer at Walmart is looking for a cheaper product that serves his requirements. This
need of the customer is also partly driven by the brand that Walmart has built around itself:
Always low prices. With the USA market showing a strong potential for organic products, it
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WALMART CASE ANALYSIS

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seems like a tempting strategy for Walmart to enter into the organic foods business. However,
lets look at the value chain elements for the price differentiators (Exhibit 4) to understand
whether Walmart can venture into this business without changing its brand reputation of being
low cost. A simple analysis shows that Walmart is not in a strong position to enter this
segment.

With organic foods, customers would demand freshness, and quality- two attributes that
may not be achievable given transportation requirements in bringing organic food from
the farms (at different locations) to the Walmart stores (only specific stores closer to the
farms will have the advantage)
The increase in the organic food consumption is mainly because of peoples belief in its
superior quality. In other words, this product represents a luxury (Veblen) commodity.
So, even if Walmart managed to source the food at a reduced cost, it remains to be seen
whether people would trust the product for its quality (Price and quality are
proportional in most cases)
The growth in the organic products can be attributed to 2 things:
o More customers are shifting to organic products
o The same customers are buying more and more of the organic products
If the reason is the latter, and if there is no difference in the nutrient content between the
organic and the conventional products, the need to shift to organic products would be low
in the segment that has a lower annual income- that in turn typically constitutes
Walmarts customer base

GLOBAL MARKETS
An international presence would be a crucial step in boosting revenues. Walmart also has the
expertise to reproduce its successful model in the USA on international grounds. However, not
all countries might be open to a Walmart in their home-grounds. For instance, in India, a
widespread presence of Walmart will most likely wipe out all the smaller retailers who earn their
living through selling in corner-of-the-road shops. While Walmart will attract consumers on
account of its cheap prices, it would come at the cost of convenience of buying in shops across
the road- not to forget the traffic congestion that might occur in the Walmart zones. It might
also not be feasible for Walmart to comply with the Indian governments rules of sourcing 30%
from small suppliers, and last year, their contract with the Indian company Bharti was dissolved
owing to various reasons (marking another roadblock in their growth in India). Although
Walmart currently operates about 20 stores, its growth remains a question in this country. This
question arises on hindsight- after the retail giant invested in its operations in the country.
Exercising caution while targeting international countries is also important in terms of preserving
the reputation of the brand. A fiasco such as the bribery charges in Mexico could sully the brand
value for customers.
CONCLUSION:
While Walmart is doing well for itself at the moment, it needs to modify its current strategies to
remain competitive. The future of Walmart may still be profitable owing to its strong
positioning, but its competitive edge might be lost if Walmart doesnt innovate. Will these
suggested strategies work for Walmart? Weve made an educated guess, and as for rest, only
time can tell.
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APPENDIX
Exhibit 1: Financial figures of Walmart and its competitors
Company
Walmart
Target
K Mart

Sales
48620
28039
11743

% Change in sales
17.5
5.7
13

ROE
31.2
13.8
15.8

Source: Wal*Mart stores, Inc., Stephen P Bradley, Pankaj Ghemawat

Exhibit 2: Walmarts cost leadership strategy

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Exhibit 3: Value Chain of Walmart stores

Exhibit 4: Value chain elements for low-cost leaders

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