I. Current Economic Picture
In 2008 and early 2009, the U.S economy fell into a huge recession that was merged with an acute financial crisis. The Consequence was a decline in employment in the period, and a rapid increase in jobless rates. The recession ended in June 2009 and from then on there was an economic growth through 2010—six quarters. During the fourth quarter of 2010, the GDP (Gross Domestic Product) had redeemed the economic advancement lost during the recession.
However, the recovery has not been uniform. In compairong the fourth quarter 2010 GDP with that of 2007 fourth quarter GDP, the recovery appears to be influenced by three sectors which are (DATAMONITOR, 13): federal government spending; exports; and consumer spending. Federal government spending leads the increase in terms of dollar and percentage, growing by a net 19% in the same period. The second performer was exports registering a 6% growth in the fourth quarter of 2010. Consumer spending was the third with a mere 1% increase, but it is important to note that it is important for the economy as consumer spending is large. For 2011 and 2012, the forecasting issues entail government spending and budget, and consumer spending.
Consumer spending, the largest sector of the economy, holds one of the keys to a successful retailing business.
The country’s unemployment rate currently, has fallen from 9.4% and will continue to do so up to 9% by the end of 2011 and less than 8% by end of 2012 (DATAMONITOR, 22). It is important to note that numerous economic factors can have an impact in the retailing business and the companies doing retail. The state of economy of a country will influence the impact of these factors on retail companies. The positive issues in the retail consumer market today are (Retail Industry Profile, 2010): low interest rates; high risk of impulse buying and expenditure; low inflation rates; technology; advertising techniques; and low unemployment rates. Negative issues are involving the weakening confidence of consumers (Retail Industry Profile, 2010).
II. Retailing Industry
Over the last decade, the retail industry has changed minimally. Today, Wal-Mart is still seen as the best retail store, same situation as ten years ago (Speciality Retail Industry Profile, 2010). Since the last decade, consumer demand has changed, and more so the use of technology in the retail industry. This has forced major retailers to use the globalization model to dilute fierce competition, restrictive legislation, and saturated local markets. Since the last decade many countries have opened their economies to foreign investment and free markets that have been of great help to retailers. Conversely, of late there has been a global economic crisis that has caused a sudden cutback of capital spending and in corporate IT. This has caused consumers to be price conscious and conservative in buying especially in developed economies.
In effect active professionals have suggested that concerns of retailers is due to (Research and Markets, 2010): absence of pricing power; global over-stocking; economic stagnation; decreased consumer confidence; deflation; slump in global tourism. Even prior to the economic recession technological advances was the trend in retail companies. Technology has provided the competitive edge for retailers in the last six years. With the focus being on technology and cost-control, the other retailers insist on being demand-based. They find new markets through globalization. The consequence is that four years ago 53% of the top 200 retail stores operated in one country and today the figure dropped to 44%. This shows that the trend will continue so in years to come because the accomplishments of higher sales and greater economies of scale are too attractive to be ignored.
Today the world wide retail sale is at the $7 million mark with the top 200 retailers alone explaining the 30% global demand. The sales is as a result of consumers being able to dispose income and willingness to buy which has boosted the money spent on household by 72% between 1980 and 2010 (Goode, 52). The leader is USA where two thirds of the American economy is consumer spending. In this segment 40% is spent on flexible products and services (Goode, 54). In Europe, the current turnover is approximately 5000 billion with the trend on the increase (Goode, 54). In Asia, Japan not included, there is an expected increase of 9% in the 2011-2012 period (Goode, 55).
III. Company Data
Wal-Mart, presently known as Walmart since 2008, is a retail corporation that was started in 1962 by Sam Walton in Arkansas Town as a family discount store. The foundation of the company was on values of the community and its workers, and commitment to under-pricing rivals. According to the Forbes rank of 2010, the company was ranked as the largest public corporate in terms of revenue—400billion in 2009. Furthermore, it is the largest private employer in USA (2,100,000) and second only to the federal government in terms of overall employment (Walmart Annual Report, 2010). The retail store has over 4300 stores in America and over 8000 stores in fifteen countries. However, in USA it operates in the fifty states as its own brand name of Walmart. Globally, it operates as in Puerto Rico as Walmart, Asda in United Kingdom, as Walmex in Mexico, as Seiyu in Japan, and as Best Price in India (Walmart Annual Report, 2010).
The formula for financial success of the company was in (Jantez et. al, 302): leveraging government subsidies; limiting health benefits; and having a labour that was low-waged. Since beginning operations in its first store in Bentoville, the company has grown into dominating rural retail and sub-urban markets in USA. Having conquered these markets, the company has always aimed at exploring the market that is outside USA as they are the most lucrative. The company has moved into cities that were seen to be off-limits in light of lack of space for expansion (store size) and the negative impact of the company on local economy and small business.
The company addressed its first obstacle—store size—in these cities by altering its big store model into a more flexible model that involves stores that vary in size greatly, up to the extent of a few thousand square feet. These smaller designs are expected to generate money especially in urban areas—a new market. The management of system of Walmart is whereby each and every store has an outlay centre and is assessed on its returns relative to the inventory investments (Goode, 57). The sales, losses, expenses, expenditure, and profits are collected from each individual store, analyzed, and conveyed immediately electronically. Data is then analyzed either on region, district, store, department or item within a store basis. Walmart has always incurred costs in pilferage and shoplifting. They have dealt with this issue by implementing a policy that involved sharing of fifty percent of the savings from store pilferages through incentive plans.
Like any other large retail and grocery store, Walmart offers store brands, or generic brands, which are referred to as low priced alternatives of a specific product. These store brands are many each aimed at satisfying the needs and desires of a specific customer. Nearly all products offered in Walmart are private label hence can be found in every Walmart store. The major brands are: Sam’s choice which is a retail brand in food and certain hard goods; Great Value a national brand in grocery; Equate a brand for consumable pharmacy, beauty items, and health; Ol’ Roy a brand for dog food; Parents Choice a brand for baby products; and White Stag and George which are brands for women and men clothing respectively.
The product that is waiting on the wing is a sustainable product index that was announced in 2009 (Jantez et. al, 304). The index if implemented will measure the environmental costs that are incurred in the creation of Wal-Mart’s products. This concept would educate customers to not only to know the impact of a product in monetary terms, but also the impact the product has made on the environment from when it was manufactured, transported, and eventually discarded.
Wal-Mart faces fierce competition despite the fact that it is the best retailer in the world. In North-America there are competitors such as Giant Tiger, Soriana, Commercial Mexicana, Shopko, Kmart, Target, Zellers, and Hart. In foreign markets there is also competition where in Germany it has only managed to capture only 2% of the food market share despite its entry in 1997 (Kruger, 584). In South Korea, the company sold all its 16 stores in 2006 to a local company Shinsegae for $882. The stores were later renamed as E-mart.
The customer base of the company is that each week nearly 200 million—30% of USA population—consumers visit the stores. Customers give the reason of their shopping in Walmart as, the attractive costs offered for brands. Majority of customers shopping at Walmart have an income that is below average, one-fifth of them lacking bank accounts (Poneman et. al, 24). In the company’s 2006 financial report, it was said that their customers are sensitive to increases in petroleum prices and service costs. In that same year the company planned to expanded its customer base in USA. This was through modifying its stores to accommodate all the demographic categories—empty-nesters, Hispanics, Suburbanites, the Affluent, African-Americans, and Rural residents (Goode, 49). The company has also made efforts to attract more liberal customers, such as, rejecting recommendation from AFA (American Family Association) so as to attract more gays and lesbians.
Even though the company has managed to set up operations in urban areas, the small stores continue to impact negatively on the communities that are nearby. Researches on the impact of the retail on local economies show that Walmart lower’s labour benefits and area wages that ultimately lead to decrease of good middle class jobs, destroying more retail jobs than those created, and causes more retail vacancies (Jantez et. al, 306).
Walmart is enjoying record successes in being the best retail store for several years in succession. However, they have not executed their plans as it should be especially when it comes to public relations (Anonymous, 5). There is a notion that the company is a bully and wants to create a monopoly. The recommended alternative strategies that the company could implement in diluting this image so as to not only become the biggest retail store in history but the most popular are:
Implementing a friendlier corporate strategy since currently they are seen to display an innocent attitude in public and an aggressive one off camera.
Gradually introducing themselves in foreign economies, instead of forcing themselves in and taking up already existent companies.
Introduce a proper wage guideline to its employees who are seen to be underpaid so as the perception that they underpay their workers is removed.
Ease of in its ‘anti-unionization policy’ where employees are not allowed to organize themselves in unions. This will enable the management know what employees need and their rights taken care of.
They can utilize their political capital better through studying the experience of local retailers when they want to expand in foreign companies.
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Walmart Annual Financial Report of 2010 at: