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Company Overview: Wal-Mart Stores Inc.

Founded by Samuel Walton in 1962 and incorporated in 1969, Wal-Mart Stores Inc. (NYSE: WMT) runs chains of department stores and warehouse stores in 15 countries under different names. Ever since going public in 1972, the American retail giant has grown considerably over time to become the third largest public corporation in the world; The Walton Family controls 48% stake in Wal-Mart businesses. Wal-Mart is rated as one of the valuable companies in the world, according to the Fortune Global 500 list. Wal-Mart operates successfully as Walmex in Mexico, Asda in UK, Best Price in India, and Seiyu in Japan. The Wal-Mart operations in Germany and North Korea were less successful, compared with South American and Chinese operations. (Frank, 2006)

Wal-Mart enjoys the status of a near monopoly with minimal challenges in retail segment supported by its logistics and information technology establishments. This allows the company to study how products are performing across markets and stores. In simple words, the modern technologies continue to strengthen the Wal-Mart’s time-tested procurement methods.  The Wal-Mart stores operations are organized into three main divisions: Wal-Mart Stores U.S., Sam’s Club, and Wal-Mart International. In turn, these divisions control the Wal-Mart businesses that make up different models of retailing stores: Supercenters, food and drugs, merchandise stores, discount stores and restaurants. (Frank, 2006)

Initially, the success of Wal-Mart heavily relied on providing goods to the consumers in a cost-effective way, and thus Samuel Watson (in his tenure as CEO) mostly focused on structuring costs and procurement; he worked successfully to cut costs on the procurement fronts and passed on the discounts to consumers to propel sales volume. This demanded loading of stores’ inventories on a continuous basis, often referred as cross docking in logistics and this loading efforts paid rich dividends as expected. Wal-Mart Stores now concentrates more on developing advanced supply chain management to exploit the existing advantage in different markets. (Frank, 2006)

On the acquisition arena, Wal-Mart is keen to acquire stores in existing markets than to eye on new potential regions; While addressing the investor conference recently, The CEO of Wal-Mart International, Doug McMillon spoke on the retailer giant’s acquisition plans for the future; he said the company is keen on consolidating its place in the existing markets than to expand to new markets, however declined to give any specific targets.  He also said the company will take up opportunities in potential markets if presented.  Following the announcement, Consensus expects Wal-Mart to acquire more assets in Japan. Also, the retailer may consider acquiring the famous U.S. drugstore chain Rite Aid or Natalie Berg in United States. (Boyle, 2011)

With Tesco unveiling plans to exit the Japanese market, the acquisition arena for Wal-Mart in the island nation remains favorable. Earlier in 2012, the retailer entered Africa by acquiring major stake in Massmart Holdings for $2.1 billion. The company is optimistic about its U.S businesses while cautiously expanding across the globe. The international division generates over $100 billion in sales for the U.S. based retailer every year. (Boyle, 2011)

On Monday, February 11, 2013, Wal-Mart market capitalization totaled little less than $240 billion with 3.35 billion outstanding shares. Wal-Mart stock listed in NYSE closed trading at $71.48 (up 0.35%) on a per share basis.

 

 

 

Industry Overview

If not mistaken, Wal-Mart, Carrefour, Tesco and Metro are the four international retailers fighting for the market share, as growth and conditions at their homes appear gloomy.  In a recent research report, Lucintel (2012) said growing population and GDP along with greater disposable income will drive the global retail industry and the market is estimated to grow CAGR of 3.9% to an estimated $20,002 billion in 2017.

From the industry perspective, Wal-Mart has lot do in the international markets as it moves forward to the projected growth rate of 4.9%; at this growth rate, Wal-Mart will derive over 50% of its revenues from international markets. The retailer is keen on consolidating its place in South American and African markets, and as the Chinese and Mexican markets for the retailer continues to expand in the future years, Wal-Mart is trying to redesign its approach for U.S. with many initiatives. (Ellwood, 2012)

Tesco is the fastest growing retailer in the global grocery retailing business with CAGR of 6.8%.  Right now, Tesco enjoys a market share of over 30% in U.K with the nearest competitor, Wal-Mart owning 17% of the market. With European retail businesses expected to grow by 4.2% CAGR, the French retailer Carrefour is facing a huge challenge and using cash reserves efficiently is high on its agenda. On the other hand, Carrefour expects a strong growth in its Chinese and south American markets. (Ellwood, 2012)

For Metro, international operations have been favorable, however the growth rate in domestic markets is visibly slow; the company is expected pronounce 5% CAGR growth overall for the upcoming years. Metro Cash and Carry is also keen on expanding to China’s tier 2 cities and the company is looking for potential markets, outside Europe.  In Eastern Europe, Metro tested a retail model – soft franchise format aimed at helping independent retailers and in the role Metro provides marketing support, training and discounts on volume sales.

The growth potential in Brazil, Russia, India and China is more promising than countries in Europe and North America. BRIC nations is said to be the key marketplace for retailers by 2015. As china sets itself to the rapid growth, India will also be steadily moving forward favoring the giant retailers. India has already relaxed investments on retail industry and retailers like IKEA and Marks & Spencer could now operate without Indian partners and accelerate expansion. Tesco and Wal-Mart now operating as wholesale and support providers in India could move further to benefit from the Indian market place. On the other hand, Metro has announced plans to grow its base of nine stores to fifty in India.

Wal-Mart Positioning in Global Market – Analysis

Strongly supported by cash reserves and technologies, Wal-Mart has everything in reserve to hold on to its market share; with relatively high entry barriers in retailing, Wal-Mart has an outstanding logistics, brand name, and financial capital to fight its competitors. Wal-Mart famous for its discounts has the absolute cost advantage over other competitors. Among established companies, Target is the only company that is as competitive and forward moving as Wal-Mart and the stiff competition provided by Target remains the sole concern for Wal-Mart in domestic market place. The bargaining power of consumers is very minimal or nil; on the other hand, though Wal-Mart offers business to wholesalers, Wal-Mart has low to medium pressure from large suppliers like Proctor & Gamble and Coca-Cola on pricing factors.

 

 

References

Boyle, M. (2011). Wal-Mart Says M&A Strategy Will Focus on Existing Markets. Retrieved from http://www.bloomberg.com/news/2011-10-12/wal-mart-says-m-a-strategy-will-now-focus-on-existing-markets.html

Ellwood, C. (2012). What next for Walmart, Carrefour, Tesco and Metro? Retrieved from http://www.igd.com/our-expertise/Retail/retail-outlook/4895/What-next-for-Walmart-Carrefour-Tesco-and-Metro/

Frank, T.A. (2006). A Brief History of Walmart. Retrieved from http://reclaimdemocracy.org/brief-history-of-walmart/

Lucintel. (2012). Global Retail Industry 2012-2017: Trends, Profits and Forecast Analysis. Retrieved from http://www.researchandmarkets.com/reports/2173102/global_retail_industry_20122017_trends_profits