Walmart is perhaps one of the most well-known corporations in the world. Although it started from humble origins, the corporation quickly grew to become one of the most formidable retailers in the world. Although some analysts see Walmart’s rise as meteoric, particularly in the United States, the retailer’s aggressive overseas expansion has raised concerns regarding Walmart’s business model and internal controls to survive worldwide.
In order to become one of the world’s largest retailers, Walmart possesses a myriad of strengths. The first main strength is efficiency in operations, particularly in supply chain operations. One may argue that the firm’s ability to establish “lean” supply chains and superior inventory are the key planks of the firm’s business model, a business model that has not been replicated by any other retailer.
These operational strengths “feed through” the system to establish another one of Walmart’s strengths: pricing (low prices). While many believe that retailers establish low prices through aggressive purchasing, one of the largest components in costs for retailers is overhead expenses. By cutting overhead expenses, Walmart has become one of the most efficient operators in the retail space, leveraging its strengths to solidify its competitive position at home and abroad.
Although Walmart boasts numerous strengths, recent performance has also revealed important weaknesses. The most important weakness is the company’s internal control system, particularly in overseas operations. Walmart has been tarred with numerous “corruption” scandals involving local managers paying bribes to governments in order to secure preferential treatment for store authorization permits and preferential tax treatment. Indeed, although Walmart boasted of increased revenue and profits from overseas, apparently their system of efficiency and internal controls did not follow leading to a larger weakness of overexpansion and inability to replicate their model.
At the same time that Walmart is experiencing unprecedented challenges overseas, it is also experiencing reduced sales at home in the United States. Although this slowdown is partially due to remaining economic problems and deleveraging of consumers, there are also questions regarding the ability of Walmart to compete amongst a growing cadre of low-cost retailers.
Walmart still has several key opportunities to grow its business. First, if the firm can better manage operations abroad, there are numerous emerging middle class consumers (particularly in Africa) where the firm can build its business. There are also numerous locations in the United States, particularly urban ones, where Walmart could expand operations to increase revenue streams and profitability.
Another potential opportunity is different ways to sell items. As the sword of Damocles swings over brick-and-mortar retailers, Walmart is expanding online offerings.
Due to Walmart’s (previous) success, it has bred larger and more capable rivals. Firms such as Amazon and Costco have tried to replicate Walmart’s model; Amazon has arguably been the most successful replicating essentially all of the products Walmart offers in its store. If other competitors emerge and are able to compress margins even more, Walmart could face an existential threat down the line.
Walmart. Available at: http://www.walmart.com
Amazon. Available at: http://www.amazon.com