Strategic Management- 4010-21
J. Cameron Verhaal
Wal-Mart Case Study
September 16, 2014
Sam Walton started Wal-Mart in 1962. When Wal-Mart was first introduced, it was believed to be the least likely to succeed in the discount retailing business. The central focus of Wal-Mart was on price. By 1970, Wal-Mart had expanded to 30 towns, all in small towns. In order to expand Wal-Mart beyond its small region, Wal-Mart decided to go public. By the 1990s, 100 shares increased in value from $1,650 to $3,000,000. At this time, Wal-Mart had also spread throughout the United States in both large cities and small towns. Wal-Mart had many different opportunities and threats ...view middle of the document...
This was beneficial in increasing Wal-Mart’s profits. The economic general environment posed both a threat as well as an opportunity. Target customers’ income was considerably higher. Target was considered an upscale discount retailer. In areas of higher income, Target succeeded Wal-Mart in their profits. When the population’s average income was less, the more favorable prices allowed Wal-Mart to succeed. International expansion posed a threat to Wal-Mart and other large discount retailers. They found it difficult to move to international markets and they also had trouble adapting to local differences. Wal-Mart was spending a lot of money on spreading internationally. “In 2010, 31% of Wal-Mart’s capital expenditures were spent on international operations” (Hesterly, p. 1-26).
After analyzing Wal-Mart and the overall discount retail industry, using Porter’s 5 forces, I came to the conclusion that the overall expected returns in the industry were high. I concluded that the threat of entry was relatively low. There was no government regulation. Wal-Mart was constantly looking for ways to improve their stores. Wal-Mart was able to differentiate itself from its competitors because even when a competitor was selling at a lower price, Wal-Mart had a policy that they would match all competitors’ prices. They also had economies of scale, because they were able to spread all costs over more stores. The threat of rivalry was relatively high. There are a large amount of similar firms that are competing against K-Mart. Target and K-mart were competitors regarding general discount retailers. Also Dollar General and ShopKo competed with Wal-Mart as discount retailers; however, these two companies were not of much concern. Specialty discount store competition included Office Depot, Staples, Toys “R” Us, Best Buy, Costco, and Sam’s Warehouse Club. All the products were homogenous leading to just personal choice of the consumers. The threat of substitutes was low. Wal-Mart and their competitors do not have to worry about customers switching to substitutes because of high prices. These discount retailers are known for their low prices. The threat of suppliers is relatively neutral. There is a decent amount of suppliers, known of which had unique inputs. Switching suppliers would be disadvantageous because of the costs associated with such switch. The threat of buyers was low. There continues to be a high number of buyers and products remain standard across time.
Wal-Mart and its competitors are in the mature stage of their life cycle. There is increasing competition within the industry. The growth rates are relatively stable, and the number of customers remains relatively constant. Wal-Mart needs to come up with a way to improve their service in a way that differentiates itself from its competitors. This will give them the opportunity to succeed again.
After using the VRIO framework, I concluded that Wal-Mart does not have a sustained competitive...