Wal-Mart: A Case Analysis
Wal-Mart, its headquarters located in Bentonville, Arkansas, is currently the largest retailer offering different formats of stores to fit the needs of the neighborhoods in which they are located. The company operates in several different countries: Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico, and the UK. With all of these locations, Wal-Mart employees over 2 million employees. Wal-Mart recorded a bold $408,214 million in revenue for the year ending in January 2010, an increase of .09% over 2009. Furthermore, Wal-Mart recorded an operating profit of $23,950 million, an increase of 5.1% over 2009, and a net profit of $14,335 million, an increase of 7% over 2009 (DATAMONITOR: Wal-Mart Stores, Inc. 2010). Facts
While being a huge target for the competition to pursue, Wal-Mart offers an everyday low price strategy to stay ahead of the competition, retain, and attract more consumers to its stores. An everyday low price strategy enables them to retain this position. Wal-Mart is also growing rapidly in international markets, further increasing the company’s ability to stay at the top. Furthermore, Wal-Mart has streamlined its inventory system, enabling it to turn product fast. This allows product to be delivered in time to stores for customers to purchase. However, some news reports say Wal-Mart’s everyday low price strategy has created problems, such as low wages, high insurance cost, capped wages, and more part-time positions added instead of full-time positions. Everyday low pricing means that Wal-Mart has to cut somewhere to make up for the cost of reducing prices (Hightower, 2007).
Wal-Mart’s centers its business strategy on everyday low pricing. To achieve low prices, Wal-Mart focuses on keeping its costs low. For example, the company receives favorable pricing from vendors as Wal-Mart frequently exercises its buying power when purchasing product from suppliers; this gives them an advantage over the competition by paying less for goods. Furthermore, Wal-Mart syncs it suppliers inventory with its own to ensure rapid store delivery of product; this ensure the stores stay fully stocked, while product is delivered fast and efficiently. Equally important, Wal-Mart’s groceries are an average of 12% lower than market value. This inspires consumer confidence knowing that they are paying less for groceries at Wal-Mart. Another, strategy Wal-Mart uses is the one stop shop for everything; customers only have to visit one store for all of their needs. Wal-Mart offers a no-frills shopping environment so it can offer the lowest prices to its customers. Lastly, Wal-Mart is always looking for ways to keep cost down so they can pass these savings on to the consumers. This active approach continually keeps their prices low as possible. (DATAMONITOR: Wal-Mart Stores, Inc. 2010) Problems with Everyday Low Pricing
There are issues that arise from Wal-Mart’s everyday low price strategy; among these are low wages combined with high health insurance cost. The average employee works for about $8.23 an hour and has to pay 41% of their health insurance plan that offers a high $3,000 dollar deductable (Hightower, 2007). Furthermore, Wal-Mart stores have put caps on wages and have added more part-time workers, taking away from full-time jobs that would earn these employees benefits. Wal-Mart saves money on its human resources to an extent they are creating a bad image for themselves. The company not only faces high human resource costs, but also problems from the rising costs of goods. When gas prices increase, transportation costs do as well; this forces prices to go up. Wal-Mart must combat this to stay competitive. Lastly, Wal-Mart’s large stores are not friendly for urban environments because...