Strategic Analysis of Wal-Mart

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Founded in 1962 by Sam Walton, Wal-Mart followed an amazing pattern of success and growth, eclipsing all other U.S. department store retailers by the early 1990’s. In early spring 2001, Wal-Mart enjoyed a huge market capitalization of over $230B, which was down from highs of nearly $300B in early 2000. Wal-Mart Stores, Inc. is the world's largest retailer and the largest company in the world based on revenues, ignoring profits (income), assets, and market capitalization. In the fiscal year ending January 31, 2002, Wal-Mart had $219 billion in sales and $6.6 billion in net income. It employs over 1 million people in the United States at 3,400 stores and 1.4 million people worldwide at 4,500 retail units in 10 countries: the United States, Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, Germany, and the United Kingdom (where it owns the ASDA chain of supermarkets). Sam Walton, the founder of Wal-Mart, opened the first Wal-Mart store in Rogers, Arkansas in 1962. The company is publicly traded at the New York Stock Exchange under the symbol WMT and has its headquarters in Bentonville, Arkansas.

Wal-Mart operates large discount retail stores selling a broad range of products such as clothing, consumer electronics, drugs, outdoor equipment, guns, toys, hardware, CDs and books. Its typical products are basic, mass-market equipment, rather than premium products stocked at specialist stores. Wal-Mart also operates "Supercenters" which include grocery supermarkets. SAM'S CLUB stores are also owned by Wal-Mart; these are "warehouse clubs," which require a paid membership to access. (Compare Costco)

Wal-Mart's chief competitors as discount retailers include the Kmart Corporation and the Target Corporation. With respect to traditional operations, Wal-Mart continues to enjoy success. Despite the emergence of other bricks-and-mortar competitors such as Target, Wal-Mart’s cost position and relationships with suppliers still differentiate it from the competition. Its value proposition continues to be successful, and it remains a darling of Wall Street analysts. Finally, as the fervor over business-destroying dot-com ventures wanes, Wal-Mart continues to show a high level of durability potential in its traditional operations. Perhaps the transition difficulty in the early years rested in the area of Wal-Mart’s technical prowess. One of Wal-Mart’s core competencies is its operational ability to streamline the supply chain through cross-docking inventory systems and efficient means of communication through technology.

Wal-Mart operates as an aggregator, distributor, and retailer of consumer goods. Due in part to its size, to the connectivity involved in its operations, and to the zest with which it has traditionally negotiated supplier contracts, Wal-Mart has established itself in a key position in the value chain of its suppliers. It is consumer goods giant Procter & Gamble’s largest customer, and holds a significant power position relative to other smaller suppliers. This position has enabled Wal-Mart to obtain superior price breaks relative to the competition on the products it carries. Its size has obviated the need for separate distributors or wholesalers in the value chain. Coupled with the efficiency of its distribution network and store model, Wal-Mart has achieved a well-entrenched position in the value chain of its customers as well – that of the lowest cost consumer goods retailer. Hence, the value that Wal-Mart provides is two-fold. First, it provides value to its suppliers by operating as a large, relatively stable, nearly omnipresent channel for sales of goods, which provides rapid feedback on unit sales and localized demand. Secondly, and arguably more importantly, Wal-Mart provides value to customers by offering aggregation of a wide variety of consumer goods in a single location, and selling those goods at the lowest prices.

Wal-Mart Stores, Inc....
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