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Wal-Mart Inc. is the largest retail store in the U.S. The company was founded in 1962 by Sam Walton and since then it has grown based on three policy goals; striving for excellence, service to customers and respect for the individual. The company has more than 4,150 stores worldwide and holds the number one spot by its total sales volume (Walmart). This paper will discuss Wal-Mart’s strategic audit detailing the company’s financial performance, the company’s resources and do a PESTLE analysis.
Strategic Audit Analysis
Wal-Mart is responsible for 7.5% of consumer’s total annual expenditure on retail goods and 21% on groceries in the U.S. Wal-Mart is a strong discount store providing goods at low prices with very high revenues; in 2008 for example Wal-Mart’s total sales revenue hit about 406 billion dollars. The company encourages consumers to buy goods at low prices hence the reason for high sales. In 2008, the company was ranked number 2 by Fortune 500. The company had a 7.2% increase in revenue the following year with 401.2 billion in 2009 (this was a 25% increase from 2005) and 405.1 in 2010. In 2009, domestic stores accounted for 63.7% of revenue and a 79.6% operating income. The company’s gross margin has been increasing slightly; in 2007= 23.4%, 2008= 23.5 and in 2009= 23.7%.
Some of Wal-Mart’s financial ratios in the last five years include;
- Current ration_ which measures the company’s ability to pay debts when they are due and is equal to current assets divided by current liabilities. The company’s CR has been low at around 0.88-0.9
- Acid-test ratio_ current assets divided by current liabilities. It has been relatively low at around 0.16-0.2. This has been due to high account payable and long-term debts due within one year.
- Debt ratio_ total liabilities divided by total assets and the company’s DR has been hovering around 60%. This is due to high long-term debts indicating a positive outlook for the future.
- ROI_ dividing net income by average owner’s equity and the company’s ROI has been at 8%
- Profit margin_ this is the profit earned per dollar of sales and the Wal-Mart’s PM has been slightly over 3%.
- Net income_ net income for the company has been increasing over the years but slowed down in 2008 due to the economic meltdown.
- Earnings per share_ the company’s EPS has been growing steadily since 2005 from 2.46 to 3.35 in 2009. (Bowen, et al., 2009).
The VRIO framework combines value, rarity, imitatability and organization are needed to create value and companies need to succeed in all these areas especially through the use of real estate and other possible means. The company determines which resources and capabilities result in the strength or weakness of the company. Wal-Mart has succeeded in all these as shown below;
- Value_ Wal-Mart has created its retail shops as a one-stop shop that provides all necessary goods and services located in residential areas. The shops edged out specialty shops that dominated by then.
- Rarity_ Wal-Mart invented a unique retailing of one stop shopping which has been copied all over by other retailers.
- Imitatability_ With its unique retailing method, Wal-Mart secured ample estate locations that cannot be compromised.
- Organization _The organization allows store managers to act like store owners. They were free to do whatever they felt was necessary to boost sales and get the job done.
Wal-Mart’s Five Forces Analysis
The five forces analyze the business environment under which an organization operates. The five forces will look at the five key areas; threat of entry, power of buyers, power of suppliers and competitive rivalry.
Threat of entry: low
Wal-Mart has an outstanding distribution system, brand name, financial capital and thus entry barriers are very high fending off competitors.
Power of buyers: medium
An individual buyer has no pressure on Wal-Mart. Wal-Mart’s pricing techniques have seen consumers complaining. Although consumers can buy at competitor shops, they lose the Wal-Mart convenience.
Power of suppliers: medium
Wal-Mart has a lot of power when suppliers are concerned because it holds much of the market share offering a lot of business to manufacturers and wholesalers.
Competitive rivalry: medium
Wal-Mart enjoys a mature industry unlike its main rivals like Sears, K-Mart, Target and Amazon.com. Target is Wal-Mart’s main rival in retail industry but Wal-Mart’s relationship with its clientele gives it an edge.
Threat of substitutes: low
There are not many substitutes that offer Wal-Mart’s low pricing with a lot of convenience. Wal-Mart has also introduced online shopping for many of its customers’s to enjoy reduced prices (Ehmke, et al.).
- The company has the option of attracting more online customers especially for those who are not near their retail shops and should up their IT game.
- The company also has the option of franchising in some potential countries like in the developing world.
- The company also has the luxury of buying out some of its competitors.
If Wal-Mart needs to continue staying at the top then they have to continue following the company strategy and achieve key goals. They have to be very careful on how they deal with their all the stakeholders involved and ensure that their reputation is well.