External Environment Analysis

Topics: Wal-Mart, Retailing, Department store Pages: 6 (1935 words) Published: March 4, 2012
External Environment Analysis
October 21, 2010
Patti Berlin

External Environment Analysis
Sam Walton began Wal-Mart in 1962 and opened the first store in Rogers, Arkansas (History, 2010, p. 1). Walton was not new to the retail industry and had traveled the United States to learn as much as possible about the industry. Walton knew that customer needs were important to success and he wanted to know as much as possible about the industry to meet those demands. Sam Walton experienced strong competition from retailers such as Target and Kmart when he decided to expand the company. Currently, many retailers compete with Wal-Mart; however, the company has diversified to tire servicing, pharmaceuticals, home improvement, and in-store restaurants. Wal-Mart is presently capable of competing in a wide-ranging market. Wal-Mart operates throughout the world in various segments including super centers, neighborhood markets, discount stores, and the Wal-Mart website. Wal-Mart’s net sales for the 2010 fiscal year were approximately $405 billion, a 1% increase from 2009 (Walmart Annual Report, 2010, p. 15). Wal-Mart also experienced 5.1% increase in operating profit from $22,798 million in 2009 to $23,950 million in 2010 (Walmart Annual Report, 2010, p. 15). Further, net profits increased from 7% from $13,400 million in 2009 to $14, 335 million in 2010 (Walmart Annual report, 2010, p. 30). Wal-Mart’s reputation for low prices, product variety, and convenience has enabled the company to grow significantly and expand globally. Wal-Mart has capitalized on its strengths to increase successes. According to Pearce & Robinson (2009) Wal-Mart redefined discount retailing and outperformed the industry in profitability by 4.5% of sales—a 200% improvement. Four resources—store locations, brand recognition, employee loyalty, and sophisticated inbound logistics—allowed Wal-Mart to fulfill customer needs much better and more cost effectively than Kmart and other discount retailers (p. 173). Wal-Mart has set the precedent for retailing through its innovative logistics, distribution, and online sales capabilities. Although the financial reports illustrate much strength for the company, weaknesses are prevalent within the corporation as well. Wal-Mart experiences the most difficulty in expanding into market areas. Many small towns throughout the United States deny Wal-Mart from penetrating the local market because of the economic affects Wal-Mart is known for. Many small businesses are forced to close because of the inability to compete with Wal-Mart’s pricing. Wal-Mart appears to have a capable organizational structure; although some flaws are prevalent that create challenges for the company. Offering the lowest prices and meeting customer needs is a goal Wal-Mart is successful in maintaining. However, reducing costs has created a conflict within the organization’s culture. Cutting costs has helped meet customer needs but only at the apparent expense of the employees. The savings consumers receive are gained by cutting corners with employee compensation and benefit programs. Inadequate wages and forcing employees to work without pay, has affected employees negatively and poor customer service is a result. This practice has caused employees to lose respect for the company and that attitude has transpired to the customer. Forcing employees to work off the clock is unjust and detrimental to the company’s culture and consumer needs. These issues have created a negative image of Wal-Mart and a major reason the company experiences difficulty in penetrating new markets. Further, legal issues are viewed poorly by the public and reduce continuity. External Business Market: Wal-Mart’s Continuity Plan

Creating a strategic business continuity plan includes analyzing possible risks. Important factors to consider when developing a continuity plan are employees, equipment, and data. In the event of a disaster, the company must be prepared to...
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