Walmart has disrupted many businesses since its creation. It was the store that had everything that people could want. Walmart disrupted the traditional family run stores that were prevalent before big box stores. Walmart did this by understand their own position internally and externally. Walmart also implemented strategies for their home country business and international businesses. However, recently they have become the disrupted by competition with Amazon's online shopping and competition with other grocers and dollar stores with their low prices (O'Keefe, 2015). These disruptions can be overcome with OODA loop and merger & acquisitions.
Sam Walton was a man that always thought low prices. Sam started out in working in Ben Franklin, Arkansas. His business strategy for Ben Franklin was to sell stock at low prices and sell more to make up the difference and the idea took off. In his three years working the store he increased sells from $80,000 to $225,000. He then took his business concept and made Walton's Five and Dime under the backing of Ben Franklin. The store took Walton's low price and high volume strategy and turned it into a success. When Ben Franklin proposed to the Butler brothers, owners of Ben Franklin, that they split the margins, the brothers declined. Walton went and developed the first Walmart in 1962 in Rock, Ark. Funded by his and his wife's money he put his strategy and everything he had learned and turned Walmart into a huge success. (Goldman, 2011)
Walmart is now in every state and around the world. Walmart's current CEO Doug McMillon is just the fifth CEO to run the company (O'Keefe, 2011). McMillon has made many changes within the company including a new vision statement in 2017 that stated Be THE destination for customers, to save money, no matter how they want to shop (Ferguson, 2018, para 4). The mission continues to be to save people money so they can live better (Ferguson, 2017, para 3). The management team has gone from one man to a tall corporate structure. The core of this structure is Walmart's business model that has always been EDLP (Everyday Low Prices) which is part of an overall cost leadership strategy.
Walmart competes with major retailers such as Amazon, Target, Costco, eBay, and the up and coming Aldi. Our team has developed a Porter's 5 Forces analysis to identify external factors that affect Walmart. Competition is very strong in the retail industry because of the amount and variety of the firms. These firms are also quite aggressive in order to stay competitive. Another strong force is the threat of new entrants. In comparison to Walmart, smaller businesses can come in and compete based in convenient location, specialty items and other factors. For smaller business comes the luxury of lower costs of doing business especially in comparison to Walmart and can keep up operations to eventually become potential threats.
The last three forces are all relatively weak in comparison to the first two. Walmart customers have both high diversity and come in high volumes so this makes the bargaining power of the the consumer very weak and because of this, it does not have a strong impact on such a global firm. Next you have the bargaining power of the suppliers; because of the vast amount and strong competition among suppliers, there is very low potential impact on Walmart. Because of the high availability of supply, it is difficult for suppliers to impact Walmarts growth. The last factor is the threat of substitutes. Walmart sells a wide assortment of products and services that have little to no substitutions. Because of this low assortment of substitutes, consumers tend to lean on the readily available products that Walmart has to offer. Some substitutes can also be more expensive than goods that already available
During its early years, Walmart was a disruptive force in the industry of retail. However, today it faces competition with not only other large supercenters like Target and Costco, but with grocery stores as well. Aldi draws in customers with its unbeatable low prices. This strikes a big concern with Walmart as about 55% of its U.S. revenues are from grocery sales (O'Keefe, 2015). As of 2017, Aldi represented 1.55% of the U.S. grocery market while Walmart represented 22%, however Aldi's sales were expected to grow at a rate of 15% while Walmart was only expected 2%. Aldi does this by building a business model that attracts customers to its private brand which allows Aldi to price products lower. Also, Aldi displays products directly on pallets which calls for less stocking time and less training costs to stock. (Chatterjee, 2017). Similarly, Aldi's market share of the grocery industry was 7.6% compared to Walmart's 26% (Morrison, 2018; Statista, 2018). However, Aldi's share will continue to grow, as customers are attracted to Aldi due to its small store layout which allows for faster shopping times, clean parking lots due to locked shopping carts, and of course, low prices (Chatterjee, 2017).
Further, Walmart is disrupted by Amazon. Walmart's market share of the e-commerce industry is 3.7% while Amazon holds an outstanding 49.1% (Lunden, 2018). Retail analyst Edward Jones states, Amazon and online retailing is probably the biggest disrupter of retail since Walmart itself. Shoppers enjoy the convenience of online shopping and having a sense of control. Walmart.com is said to be harder to navigate than Amazon, giving unrelated search results. Also, Amazon Prime gives shoppers the option of free shipping which is difficult to deny (O'Keefe, 2015).
Walmart has been constantly trying to keep up with the competition and be innovative at the same time. Walmart is still behind in e-commerce; only reacting when Amazon does something. For example, when Amazon came out with Amazon Prime membership, Walmart came out with its own membership fee and then got rid of the membership fee altogether to keep up with Amazon. Walmart is going through changes to stay on top. For example, competing with Aldi by making a grocery store pickup facility (O'Keefe, 2015); where customers order groceries online and park in the lot and have their groceries brought to them. Walmart needs to be able to make fast strategies and enact those strategies as quickly as possible.
Walmart should implement the Observe Orient Decide Act (OODA) Loop created by John Boyd. The OODA loop will help Walmart with making and enacting strategies. The OODA loop will help Walmart have a competitive advantage by using the cycle to keep up with and come out with innovations faster (Thompson, 1995). Decentralization will help with this process (Thompson, 1995). Walmart is currently trying do this by making giving lower level managers the power to make more decisions. This will encourage managers to give faster responses to consumers and employees (O'Keefe, 2015). Activity accounting will also help make the process faster (Thompson, 1995). This means controlling overhead costs, including procurement costs, product development cost, and setup and rework (Thompson, 1995, p88). Since Walmart is a big company controlling these costs will help lower prices.
Many retail companies feel pressure and threat from Amazon. The treat has increased following Amazon's purchase of Whole Foods in 2017, with Sears' recent bankruptcy filing as an example. Alex Monahan, a consumer products senior analyst at tax and consulting firm RSM US LLP, believes that the challenges that retailers are facing are due to lack of innovation and investment in technology, and the inability to compete with Amazon. Monahan states, Investors want to see that retailers are adjusting to consumer's changing preferences and striving to provide seamless multi-channel experiences, while also investing in technology to address the tight labor markets (Diakantonis & Flynn, 2018a). Many superstore retailers, including Walmart, utilize merger and acquisition strategies to help with those challenges. Walmart has recently formed a partnership with Advance Auto Parts Inc. to create a car parts section on Walmart.com.
Expected in 2019, the online store will allow customers access to Advance Auto Parts inventory of aftermarket items. Orders will be available for delivery and same- day pick up in both stores. Further, Walmart strengthens its e-commerce offerings through acquisitions in order to compete with Amazon. Walmart purchased Bare Necessities, an online lingerie retailer, and Cornershop, an online delivery company of consumer products in Chile and Mexico (Diakantonis & Flynn, 2018b). Researchers encourage Walmart to acquire Sears after its recent bankruptcy, as studies show that 92% of Sears' shoppers also shop at Walmart and there is overlap between each companies' shoppers in terms of age and income (Hanbury, 2018).
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