Walmart

In today’s competitive world of retail consumers are spending less money due to the economy. Even though some businesses have gone out of business Wal-Mart is a company which has the endurance and stamina to out sell other retail stores. This essay will focus on Wal-Mart’s company overview and current and future market conditions. Additionally, will be discussed the team’s final recommendations for price and production. Finally, this essay will address if the Wal-Mart should continue expand, invest in new plants, and merge. First, for discussion is the company overview. Company Overview Sam Walton the founder of Wal-Mart has a goal for customers to save money in order to live a better lifestyle. Now 40 years later and operations in 14 markets the company continues to deliver the same promise to its customers worldwide just as Sam Walton had envisioned. Millions of customers shop worldwide every week at Wal-Mart and its associated clubs. The company aims to sell the best quality of merchandise for the lowest prices. Additionally, the company strives to provide supercenters globally in order to save customers time and money by combining a full grocery department and general merchandise under the same roof Wal-Mart, 2009). For example, hair salons, automotive centers, vision centers, photography studios, nail salons, and a pharmacy to name a few. Wal-Mart employs 1.8 million people globally with a majority of its employees holding full-time positions. Additionally, the company offers 18 different healthcare plans which have considerable lower rates than most companies. Furthermore, the company offers healthcare plans to its part-time associates. In an independent study Wal-Mart saves the average household $2,300 annually. Finally, the store was named retailer of the century and operates more than 3,800 facilities in America and more than 2,600 in other countries (Wal-Mart, 2006). Current Market Conditions Current Market Structure Wal-Mart current market structure is an oligopoly, do to other department stores that are very similar, although smaller, such as Target and K-Mart. The reason for Wal-Mart’s success has been their ability to create a basic structure for their very own business ecosystem. Wal-Mart came to the conclusion that if they offered a variety of well-known brands and sold them about 15% cheaper than other retailers, then this would make them a powerful force in the retail business. Wal-Mart typifies the markets for most department stores, the characteristics are a small number of large stores in the industry, products that may or may not be differentiated and an average cost curve that reflects substantial economies of size. Wal-Mart is aware of and “. . . probably reacts to output and prices of other stores. Because only a few stores are in this type of industry Wal-Mart can watch the competitors closely and typically react to any market strategy the competitors choose to pursue.” (Bailey, 2005). Impact of New Companies Entering the Market New companies trying entering into the market are unable to compete against Wal-Mart unless they are offering a specialty that can’t be purchased at Wal-Mart. Wal-Mart has become a one-shop stop. New companies are impacted by Wal-Mart, because of the cost of start-up and trying to compete with their prices. Due to the high cost of living and the state of the economy consumers cannot afford to shop at department stores where they are not getting the most for their money. According to the Poughkeepsie Journal just because Wal-Mart comes to town, local retailers do not have to fade away. But they cannot remain idle, according to Kenneth E. Stone, Ph.D., and professor of economics at Iowa State University. During a two-hour address to 150 retailers and assorted business executives in Poughkeepsie, New York; Stone said local businesses can compete against the nation's largest retail chain if they create a niche for themselves and do not compete directly with Wal-Mart on the exact same merchandise. (Stone, 1997). Current Market Prices Price leadership is another characteristic of an oligopoly where a dominant firm in an industry sets price and others follow. Wal-Mart is well known for setting prices in the industry. Wal-Mart can offer a large variety of items at a cheaper cost due to their purchasing power; they buy large bulks at a cheaper price per item. Non-price competition is a method for providing incentives to customers to buy a product without changing the price of the product; special offers, rebate and coupons. These methods offer temporary incentives to customers without reducing the base price of the product.. Productivity Wal-Mart is the largest company in the United States representing 1.5 million employees, the largest trucker in the country, 2.3% of the gross domestic product, one of the country’s biggest grocery stores and the third largest pharmacy. Additionally, the company’s sales are larger than Kmart, Sears, JC Penny, Kroger, Safeway, and Target combined. Wal-Mart is a powerhouse retail chain, which has dominated other competition and remains the leader in the retail industry. Retail stores have truly contributed to the county’s productivity boom since the mid 90s and Wal-Mart is no exception. Part of Wal-Mart’s success is because of low labor costs compared to other companies like General Motors for example, formerly the biggest company in the country, dating from 1950s. A majority of Wal-Mart employees’ salaries are lower, compared to a unionized employee at a typical local grocery store. (Madrick, 2004). Cost Structure Wal-Mart is on its way to being the biggest discount retail store globally stealing the title away from Kmart and becoming the largest retailer beating Sears. Wal-Mart continues to grow by building more Wal-Mart supercenters, Sam’s Club, and international stores. The company has a predicted annual unit growth rate of 15%. With the company profits rising, margins will drop. However, Wal-Mart’s efficiencies should offset margin erosion. Research concluded that Wal-Mart’s everyday low prices were lower than Target or Kmart (Business Network, 2008). Price Elasticity of Demand One thesis for the price elasticity of demand compares Wal-Mart to one of its competitors Target. For example, a survey conducted showed that customers who shopped at Wal-Mart had lower income ratios compared to customers who shopped at Target. As one knows the prices at Target are overall higher compared to Wal-Mart. This study conducted wanted to show that Wal-Mart sold inferior goods; this shows a negative income elasticity of demand. Basically, a demand for inferior goods declines as one’s income rises. Now with the economy weakening consumers are now more attracted to shopping to Wal-Mart Competitors The evolution of Wal-Mart has created a new trend in retail competition. As Wal-Mart added grocery and pharmacy departments; other retailers responded by developing “big-box” retail outlets. Since Wal-Mart has increased the amount of customer services, the company has come into competition with varied retailers. In addition to K-Mart, Target, Sears and JC Penny, grocery chains such as Food Lion, Safeway, Fred Meyer, Albertsons and Kroger have felt the price competition from Wal-Mart. More recently Wal-Mart’s resources have brought pressure to the retail pharmacy industry. National chains such as Walgreen and Rite Aid have altered business models in response to Wal-Mart’s influence. Some small retailers have had success competing against Wal-Mart in niche markets. Family Dollar and Dollar General are examples of chains competing for home consumer sales. The sheer size of Wal-Mart’s operations makes competitors of virtually all but the most “high-end” retail outlets. Supply and demand analysis Wal-Mart has been instrumental integrating point-of-sale (POS) data with demand planning tools. Wal-Mart has led the way, providing its suppliers POS data per store, updated several times a day, allowing suppliers to adjust their distribution, manufacturing, and marketing efforts based on what's actually selling and where. ‘Wal-Mart is setting the gauge for this supply-chain railroad,’ says Don DePalma, supply-chain analyst at Common Sense Advisory. Other major retailers . . . are following suit. (Gruman, 2005). POS software coordinates retailers and manufacturers. Demand models are made to anticipate regional and seasonal demands. “For example, analyzing POS data for promotions may tell you that 70 percent of an item is typically sold on the first Saturday of the promotion, letting you arrange your distribution accordingly.” (Gruman, 2005). Systems driven by demand permit organizations to adjust inventory levels, responding to unanticipated issues. (Gruman, 2005). Impact of Government Regulations Government regulations impact Wal-Mart by enforcing laws and responsibilities that Wal-Mart must follow; including the relationship between Wal-Mart and its suppliers, by ensuring fair business practices. The suppliers used are based on objective criteria and there must not be a conflict of interest between Wal-Mart and its suppliers. Another government regulation that must be followed is the child labor law and other laws including the Family Medical Leave Act, the Fair Labor Standards Act, and the Equal Employment Act. Wal-Mart must also answer to the Internal Revenue Service for tax purposes and to Sarbanes-Oxley as a publicly traded company. Since the stores sell and serve food in the deli, local health departments are also inspecting and ensuring that regulations are followed. The impact of these regulations and laws could shut stores down and hinder their service, which would in turn cut their profits and put many people out of. work Conclusion Wal-Mart has made profits selling everyday household products at a price that the average American family can afford. Their new sales pitch is “Save money live better” and it works for them just as their old sales pitches did including the longest running sales pitch of “Everyday low prices”. Many retailers sell the same type of products, but they cost a bit more; so unless the competitors decide to lower prices and profits, Wal-Mart will remain the front-runner for consumers. Future Market Conditions Future Market Structure Wal-Mart plays a large and ever-growing role in the U.S. economy. Today, 7,390 Wal-Mart stores and Sam’s Club locations in 14 markets employ more than 2 million associates, serving more than 200 million customers per year. (Wal-Mart, 2009b). Wal-Mart’s investment in technology and its tight control over the supply chain have changed the competitive environment. (Basker, 2007). Impact of New Companies Entering the Market Wal-Mart is the largest retailer in the world. From a global perspective Wal-Mart’s sales are larger than the next three retailers combined; Carrefour of France, Home Depot of the United States and Metro of Germany. Wal-Mart has been a leader in the retail sector on many fronts, its investments in information technology, its transformation of supply-chain relationships by establishing private-label brands and purchasing more products directly from overseas producers, and its embrace of a low-service “one-stop shopping” format have all been emulated by other retailers. As the retail sector continues to evolve, Wal-Mart provides a useful format through which to evaluate these changes, and its current innovations may well be harbingers of the future. Wal-Mart recently announced plans to open stores as part of a joint venture in India and is reportedly looking for a partner in Russia (Basker, 2007). Wal-Mart’s productivity advantage, due to its large and early investment in information technology, has permanently changed the retail sector. Wal-Mart continues to formulate ambitious expansion plans, including the addition of geographic markets, both in the United States and abroad, and new products, such as organic foods and financial services. As its large chain competitors strive to emulate Wal-Mart’s technological innovations, and suppliers worldwide become increasingly connected to their downstream buyers, the retail sector as a whole has become more efficient at providing consumers with the goods they want at better prices and with increased convenience. Wal-Mart’s biggest and most obvious effect is that it provides lower prices to consumers. The competitive pressure the firm creates for competitors have lowered prices that consumers pay even when they do not shop at Wal-Mart. This pressure also reduces the profitability of other stores, and in some cases had forced competitors, especially small rivals, to shut down. Prices Wal-Mart’s 2005 revenues exceeded that of the next five U.S. retailers combined; Home Depot, Kroger, Sears Holding Company (which includes Sears and Kmart), Costco, and Target (Basker, 2007). Wal-Mart currently accounts for 28% of Playtex’s sales, 25% of Clorox’s, 21% of Revlon’s, 13% of Kimberly-Clark’s, and 17% of Kellogg’s (Basker, 2007). Wal-Mart also accounts for over 15% of U.S. imports of consumer goods from China. More than a 120 million U.S. consumers shop at Wal-Mart every week, and 84% of Americans shopped at Wal-Mart at least once during 2005 (Basker, 2007). Productivity Wal-Mart has become the largest retail store chain in the United States and is feared by competitors not because of the company’s spending money on equipment or plants but because of its operational innovations basically, the company’s business know-how. Wal-Mart continues to buy stores overseas and opening new stores. In Japan and Brazil the company bought 545 stores in just the month of December. Wal-Mart is a potent and powerful retail store competitor in America and on a global scale. In 2005 the company’s international sales were $63 billion and this alone makes the company the biggest retailer in the world. If the Wal-Mart stores overseas apply the same business know-how to its stores then the stores overseas productivity rate will grow just like in America. This would mean current and future profits will increase for the company (Mandel, 2005). Cost structure The company total revenue continues to grow each year. Of course, the growth seems little because of so many stores in the country and worldwide. For example, if one added a dozen new stores to 100 stores the growth rate would be obvious. Now if one were to add a dozen new stores to 3,000 stores the growth rate would not be obvious. Basically, the larger the company gets the smaller% of growth is present. The company’s pricing strategy is what keeps the company ahead of the competition by offering everyday low prices. The company has had a slowdown in same store sales growth but the company says this was due to changing management (Bhatnagar, 2004). Price elasticity of demand Price elasticity is basically the public’s response to changes in price like a rubber band it stretches. Since Wal-Mart is the number one retail store people flock to buy merchandise or use the store’s services. For example, prescription drugs Wal-Mart has reduced some generic drugs to 4 dollars for a 30 day supply. Additionally, the company has lowered the prices of 150 name brand drugs by 20%. Wal-Mart’s prescription drugs are lower compared to other places like Walgreens or CVS. Once the demand for generic drugs adjusts the company’s revenue from generic drugs will continue to increase. Due to the United States economic state companies like Wal-Mart are thriving in sales across the country. Furthermore, Wal-Mart not only sells electronics, computers, groceries, household goods, clothes and even some locations have gas stations, beauty and nail salons, photography studios, and eye centers. When the country’s economy is down, sales soar at Wal-Mart and decrease at places like Target. Once the economy gets more stable sales at Target will increase and Wal-Mart’s sales will decrease. When people make more money they tend to shop at more expensive places and when they make less, consumers will shop lower price retail stores (Basker, 2008). Competitors The evolution of Wal-Mart will continue to develop new trends in retail. As Wal-Mart has added grocery and pharmacy departments; the company will certainly continue to experiment with addition categories. Recent success with hair salons and eye examinations and related products will lead to expansion of these services. In 2008 Wal-Mart announced the intention to increase electronically filed prescriptions: By partnering with physicians and other providers, Wal-Mart will increase the number of electronic prescriptions if fills to 8 million by the end of 2008. This will amount to a 400% increase in the . . . number of e-scripts filled by Wal-Mart in the United States . . . . (Wal-Mart, 2008a). If Wal-Mart management believes that company revenue can be increased; plans will be developed to expand into new retail categories. This willingness to take on new challenges is balanced against the company’s driving principle as stated by founder Sam Walton: “If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better life.” (Wal-Mart, 2008b). Just as “old” competitors such as K-Mart and Food Lion have been forced to greater efficiency, new competitors will need to reinvent business practices in order to vie with- Wal-Mart. Supply and demand analysis Wal-Mart continues as an industry leader in attempting to streamline and maximize supply chain management. Wal-Mart has been leading the effort to integrate radio frequency identification (RFID) technology into the retail industry. Comments from Simon Langford, principal architect of Wal-Mart’s implementation of electronic product codes: Here at Wal-Mart, we are always searching out ways to improve our operations and the efficiencies of our business. I feel strongly that RFID will revolutionize the way we handle our merchandise. This will mean: total supply chain visibility, faster receiving and shipping, improved quality inspection, fewer out-of-stock items – resulting in improved shopper satisfaction, greater predictability in product demand, and a better value for the customer as the supply chain becomes more efficient. (Honeycomb Connect, 2006). Impact of Government Regulations Government regulations impact Wal-Mart by enforcing laws and responsibilities that Wal-Mart must follow both current and future. With government regulations changing constantly Wal-Mart employs their legal team to help keep them up to par with changing regulations. CEO Scott Lee stated in the International Herald Tribune that “We live in a time when people are losing confidence in the ability of government to solve problems but at Wal-Mart, we don’t see the sidelines that politicians see and we do not wait for someone else to solve problems that might hurt our business or affect our customers in a negative way” (Lee 2008). The impact of these regulations and laws could shut stores down and hinder their service which would in turn cut their profits and it would also put a great deal people out of work if their store had to shut down by not following the proper policies set forth by the government and all its entities. Final Recommendations Price The team recommends that Wal-Mart should continue operations as scheduled via the 5 year plan the company has in place. In 2010 the company has plans to build 250 more superstores in America. Additionally, room still exists for 4,000 more stores in the U. S. market. Furthermore, in China alone the company intends to grow 30% to 50% in square footage annually. As for banking aspects, Wal-Mart has filed an application to operate from one industrial bank located in Utah to handle the company’s electronic payment processing. Once approved the company can save billions of dollars since Wal-Mart uses a third party to process roughly 140 million dollars monthly. Wal-Mart should consider in getting into the banking industry. This would be another area which the company could flourish. Imagine if there were full service banking at Wal-Mart supercenters (Wal-Mart Watch, 2009). Additionally, the company has been so successful due to good strategy and implementation. Using cutting edge technology and cross-docking inventory systems the company has flourished above its competitors and still manages to give its customers everyday low prices while banking millions of dollars. Finally, the company needs to continue relationships from suppliers who maintain the company’s standards. Production and Composition of Inputs Wal-Mart does not produce any of the products it sells, however, the composition of inputs allows for them to have some say in the manufacturing of the products it does sell. The differences in the composition of output are typically contributing to the growth of total labor input. Wal-Mart is the largest retailer, which employs more people than any other. Wal-Mart has made it their business to keep up with supply and demand by adjusting its market strategies and products based on the demand of their customers. Wal-Mart customers drive their product selection; in turn this drives the production and composition of input as it relates to the products Wal-Mart chooses to sell. Summation Wal-Mart opens six new stores in the month of January. One being a Supercenter and the other five are neighborhood markets. Wal-Mart is also expanding existing stores by offering new services to make them a complete one stop shopping. In each Supercenter there will be Wellness Clinics. These clinics will make healthcare affordable for those who cannot afford insurance. The locations of the new stores in the month of January are in Vineland, New Jersey which will help boost Cumberland County’s economy, Canada, and San Leandro, California which will bring low prices to East Bay residents. Also, Greenacres, Florida which will produce over 100 jobs, Clearwater, Florida, and Pinellas Park Florida. Wal-Mart has plans to expand and be in every state and every community across the world; with this Wal-Mart will bring the people of those communities’ employment opportunities and the opportunity to save money. References Bailey, D. (2005). Market Structure and Marketing Strategies. Retrieved December 22, 2008, from http://diverseag.org/files/uploads/marketing/market%20structure%20and%20market%20strategies%20Ag%20Toolbox.pdf Basker, E. (2008). Does Wal-Mart Sell Inferior Goods' Retrieved January 8, 2009, from http://economics.missouri.edu/working-papers/2008/WP0805_basker.pdf Basker, E. (2007). The causes and consequences of Wal-Mart’s Growth. 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