Walmart SWOT Analysis and Competitive Advantages


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Walmart SWOT Analysis and Competitive Advantages

  1. 1. WAL * MART By: Divya Mishra & Team
  2. 3. General Information of Wal-Mart <ul><li>Wal-Mart Stores Inc., is the world’s biggest retailer and the second largest company that is founded by Sam Walton in 1962, rural Arkansan. </li></ul><ul><li>Wal-Mart is the discount store offers a number of products and services along with its general merchandise and food products. </li></ul><ul><li>Wal-Mart has ventured into digital photo service, vacation planning, Internet access, flower delivery, DVD rentals, and financial services. </li></ul>Sam believed that , if the prices were right , discount stores could be viable in smaller communities, “our strategy was to put good-sized stores into little one-horse towns that everyone else was ignoring.”
  3. 4. General Information of Wal-Mart <ul><li>Timeline for Wal-Mart </li></ul><ul><li>1960 </li></ul><ul><li> The first discount store in Rogers Ark </li></ul><ul><li>dwest </li></ul><ul><li>1945 - 1961 Sam Walton developed a chain of 15 Ben Franklin franchised variety stores across rural Arkansas </li></ul><ul><li>1960 The first discount store </li></ul><ul><li>1962 The first Wal-Mart opened </li></ul><ul><li>1970 The first distribution center </li></ul><ul><li>1980 The 330 Wal-Mart stores across the south and into the Midwest </li></ul><ul><li>1995 Wal-Mart In 50 states </li></ul>
  4. 5. General Information <ul><li>The main target of Wal-Mart was rural markets (45% stores). But due to competition it moved to urban areas </li></ul><ul><li>Competitors </li></ul><ul><ul><li>Target, Kmart, T.J Maxx, Wholefoods, Lowe’s, Best Buy, Sears, Circuit City, BJ’s </li></ul></ul><ul><ul><ul><li>By 2007, Target had become Wal-Mart’s key competitor among discount merchandisers, partly by courting a clientele that was more urban, more style conscious, and more affluent than Wal-Mart’s customer base. </li></ul></ul></ul><ul><ul><ul><li>Kmart merging with Sears in another big competitor. </li></ul></ul></ul><ul><ul><li>By 1993 , 55% of Wal-Mart stores faced direct competition from Kmart and 23% from Target </li></ul></ul><ul><li>During the decade 2000-9, grown sales at an average : </li></ul><ul><ul><li>annual rate of 10% </li></ul></ul><ul><ul><li>average return on equity of 21% </li></ul></ul><ul><li>On January 31, 2009: in the face of America’s worst economic downturn in 60 years </li></ul><ul><ul><li>Wal-Mart reported revenue growth of 7.2% and net income growth of 5.3% </li></ul></ul>
  5. 6. <ul><li>2008 </li></ul><ul><li> Wal-Mart has 4,227 total units in the US </li></ul><ul><ul><li>Wal-Mart discount stores (914) </li></ul></ul><ul><ul><li>Supercenters (2,576) </li></ul></ul><ul><ul><li>Sam's Clubs (594) </li></ul></ul><ul><ul><li>Neighborhood Markets (143) </li></ul></ul><ul><li>3,210 total units in international market </li></ul><ul><ul><li>Argentina (24) </li></ul></ul><ul><ul><li>Brazil (320) </li></ul></ul><ul><ul><li>Canada (309) </li></ul></ul><ul><ul><li>China (Wal-Mart 108 ; Trust-Mart 100) </li></ul></ul><ul><ul><li>Costa Rica (156) </li></ul></ul><ul><ul><li>Guatemala (149) </li></ul></ul><ul><ul><li>Honduras (48) </li></ul></ul><ul><ul><li>Japan (392) </li></ul></ul><ul><ul><li>Mexico (1,081) </li></ul></ul><ul><ul><li>Nicaragua (47) </li></ul></ul><ul><ul><li>Puerto Rico (55) </li></ul></ul><ul><ul><li>El Salvador (74) </li></ul></ul><ul><ul><li>United Kingdom (347) </li></ul></ul>
  6. 7. <ul><li>2009 </li></ul><ul><li>#1 $401 billion in sales </li></ul><ul><ul><li>over 2 million employees </li></ul></ul>
  7. 8. Wal-Mart’s SWOT Analysis <ul><li>Strengths </li></ul><ul><li>Wal-Mart is known to be a powerful retail brand. </li></ul><ul><li>It has a reputation for value for money based on its founder </li></ul><ul><li>The companies drive is convenience and a wide range of products all in one store which keeps their customers happy and loyal </li></ul><ul><li>Wal-Mart has grown tremendously over these resent years and has also expanded globally… </li></ul><ul><li>The SAMs Club customers are able to buy the products in bulk quantity and getting the advantage of low prices. </li></ul><ul><li>Weaknesses </li></ul><ul><li>The Corporation is huge but still has presence in 14 countries. </li></ul><ul><li>Customers sometimes are curious about the quality of products. </li></ul><ul><li>A system of keeping employees wages low in this economy. </li></ul><ul><li>The market share is low outside the US market. </li></ul>
  8. 9. Wal-Mart’s SWOT Analysis <ul><li>Opportunities </li></ul><ul><li>  Most of the International Market are untapped specially the Asian Countries. </li></ul><ul><li>Joint ventures to increase market share in international market. </li></ul><ul><li>The inflation in US market diverts the customer from buying expensive products towards cheap products. </li></ul><ul><li>Threats </li></ul><ul><li>  Variety of competition nationally, regionally and locally. </li></ul><ul><li>Substitute products more easily because of intense competition. </li></ul><ul><li>The competitors are gaining control over International Market. </li></ul><ul><li>Being a worldwide retailer means that you are uncovered to political troubles in the countries that you operate in. </li></ul>
  9. 10. 1. To what extent is Wal-Mart’s performance attributable to industry attractiveness (Use: Five Forces) and to what extent to competitive advantage (Compare Wal-Mart’s ROCE disaggregation to its competitor’s. Better ratios are competitive advantages)? Five Forces Analysis
  10. 11. Cost Efficiency Efficient In-Store Operation Leading-edge Logistics Cost Efficiency
  11. 12. 2 In which of Wal-Mart’s principal functions and activities (e.g. purchasing, distribution, marketing, IT, HR, etc.) do WM’s main competitive advantage lie? Identify the firm’s core competencies. Cost Efficiency Efficient In-Store Operation Leading-edge Logistics Cost Efficiency
  12. 14. 3 To what extent is WM’s competitive advantage sustainable? Why have other retailers had limited success in imitating WM’s strategy and duplicating its competitive advantage? Competitive Advantage Core Competence Valuable Rare Non-imitable Non-substitutable Assessment Size Y Y Y Y SUSTAINABLE Logistic Y Y Y Y SUSTAINABLE Internal operations Y Y Y Y SUSTAINABLE Cost efficiency Y Y Y Y SUSTAINABLE Location Y Y Y Y SUSTAINABLE
  13. 15. 4 Looking ahead, what measures does WM need to take to sustain its recent performance and defend against competitive and other threats? Criteria of Sustainability
  14. 16. 5 Postscript News Analysis <ul><li>News 1 Wal-Mart being built at 112 th Street and 5 th Avenue in Hammond </li></ul>Source: Sunday, January 30, 2011 NWI Times
  15. 17. News 2 Wal-Mart Canada to open 40 new supercenters in the coming fiscal year Source: Mississauga, Ontario, January 26, 2011
  16. 18. Wal-Mart Expansion
  17. 20. 6. Summarize what you leant from this case <ul><li>The company‘s competitive advantages are so important, they need to be distinguished from the resources and functions. </li></ul><ul><ul><li>Based those competitive advantages and core competencies, which are size, logistic, internal operation, cost efficiency and location, Wal-Mart harbored ambitious expansion plans. Following these strategies Wal-Mart is expanding in the overseas market. </li></ul></ul><ul><li>We have learned that ROCE breakdown tree and Five Forces analysis are very useful when a company try to find out the competitive advantages. </li></ul><ul><li>This model provided a framework that models an industry as being influenced by Five Forces. </li></ul><ul><ul><li>The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates. </li></ul></ul><ul><li>All the same one thing Wal-Mart taught us is not to stay complacent even when you are at the top of all your competitors. Keep reaching to go higher which they have always done which is why the are the #1 fortune 500 company today. The also desire to be profitable but not with standing, they put their customers into consideration first before they think of their pockets. </li></ul>
  18. 21. <ul><li>Sam Walton’s request to a store employee that: </li></ul><ul><ul><li>“ I want you to promise that whenever you come within 10 feet of a customer, you will look him in the eye, greet him and ask if you can help him.” </li></ul></ul><ul><ul><li>Wal-Mart is committed to saving people money so they can live better </li></ul></ul>
  19. 22. According to the DCF (discounted cash flows) paradigm, value drivers of a firm are such as sales growth, operating profit margin, cash tax rate, proportion of net working capital to sales, proportion of fixed assets to sales, and proportion of other long term assets to sales. These value drivers can be used to estimate a firm’s future free cash flows (ultimately the firm’s value). Based on your analysis above, propose a strategic plan that can increase the firm’s future free cash flows (i.e. by improving its value drivers). Read file FCF drivers.doc in your Blackboard vista. Identify which value drivers that can be improved and justify. Calculate the potential value creation of your proposed strategic plan. Assume that the firm has certain competitive advantage period and the residual value is the firm’s book value. For example competitive advantage period of 4 year suggests that there won’t be any economic profit created after year four. Thus, the residual value is the perpetuity value of the firm’s book value at year four and discounted at t = 4Make your own assumption as necessary.  
  20. 23. <ul><li>The value driver that is changes is the cost of capital, everything else stays the same. </li></ul><ul><li>VALUE DRIVERS (FREE CASH FLOWS) </li></ul><ul><li>The value driver that changed is cost of capital. </li></ul><ul><li>Value1=FCF1/(1+r1)+HV1/(1+r1)=117 </li></ul><ul><li>Value2=FCF1/(1+r1) +FCF2/(1+r2) ² +HV2/(1+r2) ² =145.6 </li></ul><ul><li>HV1=FCF1(1+g)/(r1-g) </li></ul><ul><li>HV2=FCF2(1+g)/(r2-g) </li></ul><ul><li>Value2-Value1=28.6 </li></ul><ul><li>Decreasing the cost of capital by 2%, increases the value creation by 28.6 billion. </li></ul>Value Drivers Year 1 Year 2 Sales growth 7% 7% Operating profit margin 6% 6% Cash tax rate 4.2% 4.2% Net working capital/sales 3.4% 3.4% Fixed assets/ sales 8.4% 8.4% Other long term assets/ sales 13.2% 13.2% Cost of capital 10% 8% FCF 11.7 11.7
  21. 24. Questions