Question

Walmart’s Bargaining Power over Suppliers Case Study

When Walmart and other discount retailers began in the 1960s, they were small operations with little purchasing power. To generate store traffic, they depended in large part on stocking nationally branded merchandise from well- known companies such as Procter & Gamble and Rubbermaid. Since the discounters did not have high sales volume, the nationally branded companies set the price. This meant that the discounters had to look for other ways to cut costs, which they typically did by emphasizing self- service in stripped- down stores located in the suburbs where land was cheaper (in the 1960s, the main competitors for discounters were full- service department stores such as Sears that were often located in downtown shopping areas).

Discounters such as Kmart purchased their merchandise through wholesalers, who in turned bought from manufacturers. The wholesaler would come into a store and write an order, and when the merchandise arrived, the wholesaler would come in and stock the shelves, saving the retailer labour costs. However, Walmart was located in Arkansas and placed its stores in small towns. Wholesalers were not particularly interested in serving a company that built its stores in such out- of- the- way places. They would do it only if Walmart paid higher prices.

Walmart’s Sam Walton refused to pay higher prices. Instead he took his new company public and used the capital raised to build a distribution centre to stock retail. The distribution centre would serve all stores within a 300- mile radius, with trucks leaving the distribution centre daily to restock the stores. Because the distribution centre was serving a collection of stores and thus buying in larger volumes, Walton found that he was able to cut the whole sales out of the equation and order directly from manufacturers. The cost savings generated by not having to pay profits to to wholesalers were then passed on to consumers in the form of lower prices, which helped Walmart continue growing. This growth increased its buying power and thus its ability to demand deeper discounts from

manufacturers.

Today Walmart has turned its buying process into an art form. Since 8% of all retail sales in the United States are made in a Walmart store, the company has huge bargaining power over its suppliers. Suppliers of nationally branded products, such as Procter & Gamble, are no longer in a position to demand high prices. Instead, Walmart is now so important to Procter & Gamble that it is able to demand deep discounts from them. Moreover, Walmart has itself become a brand that is more powerful than the brands of manufacturers. People do not go to Walmart to buy branded goods; they go to Walmart for the low prices. This simple fact has enabled Walmart to bargain down the prices it pays, always passing on cost savings to consumers in the form of lower prices.

Since the early 1990s, Walmart has provided suppliers with real- time information on store sales through the use of individual Stock Keeping Units (SKUs). These have allowed suppliers to optimize their own production processes, matching output to Walmart’s demands and avoiding under production or over production and the need to store inventory. The good organization that manufacturers gain from such information are passed on to Walmart in the form of lower prices, which then passes on those cost savings to consumers

By reading the case above answer the following questions accordingly; (900 words minimum)

1. Analyse the competitive structure of Walmart on the bases on strategic environmental analysis methods.

2. What conclusions do you draw on the usefulness of the environmental analysis methods?

please provide reference

Answer 1

Introduction

Walmart is the world's largest retail corporation which was set up in 1962. Now it has more than 11000 stores worldwide. It's was founded by Sam Walton.

Method

To conduct the analysis we shall use the following method:

• SWOT Analysis

SWOT Analysis

SWOT Analysis depict the Strengths, Weaknesses, Opportunities, Threats of a concern which can be depicted in the following tabular form:

Strengths	Weaknesses
Opportunities	Threats

Strengths

1. Brand Value : The Company was founded in 1962 and since that year it has been able to build goodwill amongst consumers with the strategy of providing good prices. It has also built the brand recognition by the concept of departmental stores where the consumers can find almost everything under one roof.
2. Low Price : As stated above it can provide low priced goods by purchasing directly from manufacturers passing the benefits of eliminating middle men to them.
3. Global Presence : It enjoys a global presence in over 27 countries.
4. Online : It has online presence through e-commerce in many countries which expands its selling frontiers and supplements the revenue generation.
5. Logistic Management : The logistic management strategies of the company prove to be a boon for the company as it employs a huge and efficient workforce.
6. Alternates : Walmart’s global organizational size gives the business deep pockets to fund growth and expansion. The global supply chain also provides business resilience from market-specific risks.
7. Influence : Its large organizational size and global reach have made Walmart capable enough to exercise market power over suppliers and competitors.

Weaknesses:

• Low Wages : Due to a large organizational size the employees suffer from lower wages, no healthcare support and employee turnover problems.
• Business Model can be copied : The business model of such concern can easily be copied these days which makes a huge loss to the company as competitors can rise.
• Low Profit Margins : As it sells at a lower price it suffers from low profit margins because of it's cost leadership strategy.
• Controllability issues : Its highly extended size and massive span of control could leave Walmart weak in some areas.

Opportunities

• Expansion : Expansion into developing countries can immensely benefit Walmart as there is a huge consumer base. Recent expansion into countries like India will prove to be a boon in the future. Walmart is also gearing up it's entry into markets like Middle East and also has foothold in China.
• Acquisition : It's recent acquisition of Companies like Flipkart which in a popular e-commerce giant will prove to be a boon as it not only adds to it's revenue but also adds to it's innovation and technological advancement.
• Quality : Low-cost products render low quality sometimes. Walmart has the opportunity to enhance the quality standards of its products to address the health concerns of consumers.
• Economies of Scale : The biggest favoring factor is it's economies of scale.  It has fixed costs for thousands of products. Thus, it’s one of the cheapest shopping places in the world.

Threats

• Inclusion of poor quality products : A threat to Walmart’s business because many of the company’s goods are perceived as not healthful, not organic or not natural.
• Competitors : The competitors target Walmart due to it's market share and formidable size. Target, its direct competitor, offers similar products but with higher quality. Similarly, Costco offers customers to buy items in bulk.
• Online Competition : Companies like Amazon are a threat to Walmart due to their innovation and quality. There are many small emerging startups which possess a threat to Walmart.
• Legal Issues : A huge concern like Walmart has already attracted various law suits such as Impeach 45 Controversy, Fake craft beer controversy etc.

Conclusions :

• Walmart should concentrate in the online sector as the future of the market will certainly be more technology oriented and it will help it to compete as well.It needs to upgrade it's technology more so that it will satisfy the growing demands.
• Boosting marketing and promotional activities will help the company to enhance its brand image and attract new customers.
• Walmart can improve its HR management standards and product quality standards to improve firm performance.
• The company must continue expanding its business to exploit economic opportunities in developing markets. As the future economic powers are rising.
• Walmart should also play an active role in environmentally sustainable practices to create a positive image in the industry.
• Make upgrades to it's existing supply chain and logistics system to further it's prospects.