Tuesday, May 14, 2013

The Way Ahead for Wal-Mart

On one hand, Wal-Mart is losing its competency in price leadership in the US, while its international expansion activities are problem-rich. It suffered net loss of $15.699 billion for the year 2012. According to a report by Forbes, the products at Wal-Mart are 19% more expensive than at Amazon.
Moving forward, Wal-Mart must first try to strengthen its competency in price leadership and then expand in the international market. We thus recommend a sustainability strategy followed by growth strategy for Wal-Mart.
Sustainability of its price leadership competence is under fire, causing serious questions on its value proposition. The following strategies could help Wal-Mart regain its competitive edge in retail business in terms of prices:
·         E-Commerce and Mobile Presence
In 2011, online purchases from Wal-Mart website accounted to just 1.1% of total sales. At $4.9 billion sales, it lags even the likes of Apple Inc. in terms of online sales. With lower overhead costs in terms of reduced staff, rental and utility expenses, Wal-Mart would be more competitive in terms of prices if it were to expand its sales percentage through online sales.
Interactive website should be developed to handle the maximum purchase activity. Massive investments are to be put into place for successful delivery of online sales. Integration with mobile applications could help the matter further. But, the return in competitive advantage in terms of pricing means it can then sustain its value proposition.
·         Remodeling Physical Stores
Physical stores could be modified to deliver services. For products, apart from being a sales store, it could act as a showroom with focus on brand promotion and customer acquisition. Sales orders could be taken in store or via the online services, and delivery made through the distribution hubs. Similar model is being followed by the Brazilian retail chain Casas Bahia. This model would help sustain the cost competitiveness of the retail chain by reducing space required for stores, focusing on competency, i.e. SCM, and reduced staff requirements.
·         SCM Improvements
There has been news of empty shelves at Wal-Mart. This means the SCM needs further fine-tuning. In addition, to be able to provide home delivery at humongous proportions, SCM needs to be further improved. 
Ø  Relationships with Suppliers and Employees: Cases of poor working conditions at the suppliers of Wal-Mart have been the talking point for numerous pressure groups. In addition, the employee issues at Wal-Mart are creating lot of negative sentiments in the developed world. Wal-Mart should work with the suppliers and the employees to create better working conditions by creating and strictly following code of conduct. On the long run, the associated costs due to these activities would seem minimal compared to the losses in brand name and legal suits.
·         Social Media and Data Analytics
Social media should be further integrated in the marketing approaches to understand the consumer behavior and serve the customers. With the integration of this into the central MIS, efficient decisions on SCM and other operational activities would be ensured. MIS should be developed to determine demand of customers more accurately throughout its stores to achieve cost advantage by holding the correct inventory. This would further lead to optimum utilization of resources and thus reduce costs.
These activities should be integrated and should consolidate each other to create a synergy and help retain the cost competitiveness to Wal-Mart.
Major part of profits of Wal-Mart is being contributed by the market outside of US. With purchasing power of customers rising significantly in the emerging nations, Wal-Mart has no option but to expand in these markets. Nevertheless, as shown by the failure in South Korean market, Wal-Mart needs to understand that the strategy made for US will not necessarily work in other markets. Customization to cultures and customer behavior are the key; so is the relation with the government. We propose the following model for Wal-Mart in its international expansion:
·         Joint Ventures
The retail industry in the emerging nations is comprised of few organized retail chains and numerous smaller local stores. To understand the consumer behavior and supplier relations, Wal-Mart should enter these markets by joint-ventures with successful local business houses. This will reduce the risks of government intervention too. After understanding the operations and the needs, Wal-Mart can then go for maximum allowed stake (by government of concerned nations) in these partnerships.
·         Customization
As discussed earlier, understanding and customizing to diversity would be a key to success for Wal-Mart in the emerging economies. For this, apart from the local partners in JV, MIS should guide the decisions in the operations in these stores.
Wal-Mart should focus on transnational strategy where it will be able to adapt to local needs of the market like in China, leverage unique advantage of local markets to drive sales, market share and profit growth but with a central corporate facility. Knowledge of customer behavior would strengthen the validity and acceptance of actions.
·         Develop and Follow Standards
One dilemma faced by organizations headquartered in US while expanding in the emerging markets is what standards to follow? - The ones of US or those of the home country. On the short run, the latter may be beneficial, but on the long run, this will come to haunt the organization. A lot of such issues have surfaced for Wal-Mart over the years. While moving ahead, Wal-Mart should develop “code of conduct” for its global operations and comply to it strictly. This will ensure that the international expansion is sustainable and accepted by the home country government and citizens.
Even while following growth strategies, Wal-Mart should work on the sustainability strategies: - strengthening its resources for sustaining its competitiveness in price leadership.

No comments :

Post a Comment