Term Paper on "Formal Analysis of a Publicly Traded Company"

Term Paper 18 pages (5503 words) Sources: 1+

[EXCERPT] . . . .

Wal-Mart Stores, Inc. (NYSE:WMT) has become a dominant retailer in the United States and has spread its operations into 14 foreign countries. The company has created success by offering low-priced goods and developing ancillary services, such as automotive maintenance, pharmacies and sales of eyeglasses and other vision products. Due to the fact that Wal-Mart has now attainted a dominant position in the U.S. retail space, its growth in the U.S. market has begun to slow (Naughton, 2006). For the most part, Wal-Mart sees its future avenues of growth as coming from foreign markets, particularly China.

In order for Wal-Mart to continue its impressive history of growth, I am recommending the following additional steps be taken:

Wal-Mart must adopt a stronger growth strategy in Europe, where there is a solid middle-class presence.

Wal-Mart must continue to develop ancillary services in the U.S., particularly a line of automotive-themed business such as gas stations and convenience stores, perhaps with oil-change facilities and car washes.

3) Wal-Mart must launch a marketing campaign designed to show its appreciation for its employees.

These steps will allow Wal-Mart to open new avenues for growth despite stagnant U.S. sales in its core retail stores.

Introduction

Wal-Mart is an international retailer that operates in 15 nations, including its home base, the United States. The company's annual sales for 2005 were $329.86 billion and Wal-Mart has become the largest private employer in the U.S. Wal-Mart's share of the U.S. retail and grocery market is estimated to be as much as 35%, although its share is much higher in some communities (Wal-Mart says, 2005).

Wal-Mart has achieved its dominant market position through its ability to offer better pricing than competing retail stores. It has a reputation for offering the least expensive products, and the company works diligently to keep costs down by negotiating aggressively with suppliers and minimizing labor costs where possible. Several competing retailers - such as Caldor and Ames - have gone out of business trying to compete with Wal-Mart and K-Mart was able to stay afloat only after a bankruptcy reorganization and a merger with Sears (Bhatnagar, 2004).

Wal-Mart also has shown a knack for extending its brand, and it has added several ancillary services such as a buying club, automotive maintenance centers, pharmacies, portrait studios, and vision care centers. The company also has been attempting to grow more overseas, particularly in China.

Despite Wal-Mart's attractive market position, sales are beginning to plateau in the U.S. And the company is frequently under attack from labor groups who accuse the company of union busting, denying employees decent benefits, and buying products from overseas sweatshops. Wal-Mart, like any large and successful companies, has its share of problems.

The goal of this report will be to analyze Wal-Mart's strengths and weaknesses as a company and to provide analysis of the markets in which Wal-Mart operates. Then, I will use that information to produce meaningful recommendations on steps Wal-Mart can take to continue to grow and to improve its brand and image.

Environmental Analysis (SWOT)

Strengths

Wal-Mart's main strength is its dominance of the American retail market. Wal-Mart is estimated to have achieved 35% market share in the U.S. retail and grocery space (Wal-Mart says, 2005). Over the past 60 years, Wal-Mart has grown from a small regional chain to a dominating force that has picked off several of its rivals along the way and has arguably become one of the most feared competitors in global industry. According to Wal-Mart's Web site, most Americans now live within 25 miles of a Wal-Mart location.

Another strength for Wal-Mart is brand awareness. The company has achieved top-of-mind brand recognition and is a household name. Americans associate Wal-Mart with low prices, which is another company advantage. By taking tough stances with its suppliers and constantly looking for ways to trim costs, Wal-Mart has been able to sell retail merchandise for less than its competitors.

An additional strength for Wal-Mart is its ability to expand its brand. The company has branched out from straight retail merchandise sales to incorporate other successful ancillary services such as automotive maintenance, pharmacies and sales of vision-related products. Wal-Mart has also extended its brand overseas and has shown that it can duplicate its success in foreign markets. Wal-Mart has a 60% market share in Mexico and has become a major force in Canada, the United Kingdom and South America, and is looking for aggressive growth in China (Naughton, 2006). The applicability of Wal-Mart's business model to foreign markets will be a major strength for the company going forward.

Weaknesses

Wal-Mart's main current weakness is that it seems to be maxed out in the U.S. market. U.S. retail sales growth have slowed to between 1% and 3% a year, as Wal-Mart finds it difficult to expand on its already significant market penetration (Naughton, 2006).

A second weakness for Wal-Mart is that the company is perceived as a bad employer and a community blight by many Americans. Wal-Mart has become the scorn of U.S. labor groups, who claim the company, which has been able to turn away unions at its U.S. retail operations, has used illegal tactics - a position that has been more or less supported by National Labor Relations Board rulings (Wal-Mart wages, 2006). The company also has lost or settled suits for not paying workers overtime and denying workers lunch hours (Wal-Mart wages, 2006).

Whether Wal-Mart is truly a terrible employer is a matter of debate, but, without a doubt, the company spends a good deal of time defending itself against such allegations and has suffered some public relations bumps and bruises.

Opportunities

Wal-Mart may have peaked in the U.S. retail sales market, but it still has additional opportunities for growth. The first opportunity, obviously, is the international market. Wal-Mart now operates in 14 countries outside of the U.S. And has been particularly successful in Latin America (Naughton, 2006). The company has said that it plans to aggressively grow in China, where retail sales are growing at a strong pace, and Wal-Mart is expected to acquire a major Asian retailer that would give Wal-Mart almost 9% of the Chinese retail market (Naughton, 2006). Clearly, if Wal-Mart can have the type of success in China that it enjoys in the U.S., there are plenty of opportunities for growth.

Wal-Mart also has opportunities to continue expanding into ancillary retail markets. This process has begun with automotive maintenance facilities, pharmacies and vision services, but certainly there is much more room for expansion. For example, there are other ancillary retail markets that Wal-Mart has not yet meaningfully pursued, such as gasoline, convenience stores and car washing. In America's consumer economy, there are still many places for Wal-Mart to expand its brand.

Threats

The greatest threat to Wal-Mart is that is could fail to find new growth solutions in the U.S. market. Wal-Mart's U.S. retail sales growth is slowing, and the company is still very much dependent on those sales. Wal-Mart must find new areas for growth.

As Wal-Mart pursues new areas of growth, it will face threats from many competitors. The company already competes with other major retail chains such as Target, K-Mart, Sears, and Walgreen's, and, to some extent, with the higher-end retailers such as Macy's and JC Penney. Because of Wal-Mart's market dominance, all of those competitors will look for ways to compete better strategically with Wal-Mart and perhaps even duplicate its methods. Wal-Mart also faces competitive threats in the ancillary markets in which it operates. For example, it is competing with Jiffy Lube and Valvoline in the oil-change space and with several regional food supermarkets in the grocery space. Those companies also will be looking for ways to beat back the Wal-Mart threat.

As Wal-Mart focuses its attention overseas, it will become more exposed to risks associated with overseas economies. As was mentioned, Wal-Mart has a heavy presence in Latin America, which has a history of economic instability and widely fluctuating currency exchange rates. and, certainly, any downturn in the Chinese economy or major policy changes regarding U.S. companies could damage Wal-Mart's future plans in that country.

And, finally, U.S. labor unions are not done with Wal-Mart. They will continue their public relations assault on the retailer and will continue looking for ways to organize Wal-Mart employees. If such organizing ever occurs, it could increase worker raises and benefits and put pressure on Wal-Mart's traditionally low prices. In fact, Wal-Mart recently had to accept unions at its Chinese stores - essentially as a condition of operation (Naughton, 2006). In short, Wal-Mart's labor problems are not going away.

Porter's Five Forces of Competition

Porter's Five Forces of Competition - which includes the bargaining power of customers; the bargaining power of suppliers; the threat of new entrants; the threat of substitute products; and overall rivalry - provides us a matrix for analyzing the level of competition in Wal-Mart's key retail market. As we'll see, the majority of trends in these five categories point to a diminished level of competition, which is… READ MORE

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