Intricacies of the Wal-Mart business model

Wal Mart, Inc.: Under Attack

This analysis focuses on the intricacies of the Wal-Mart business model. The aggressive nature of the company’s dominance when it moves into a new market is analyzed in terms of the negative causation that it represents. The overall corporate culture is viewed through the framework of overall attitudes groups and individuals have directed towards Wal-Mart. Specifically, this discussion reviews the core competencies and principles that drive Wal-Mart’s corporate culture and the determining factors that have driven Wal-Mart for the past several years.

Additionally, this analysis discusses the problems that Wal-Mart’s culture, towards its employees and competition has created and the increasingly negative attention these problems are bringing for Wal-Mart. As a result, this discussion presents several solutions that Wal-Mart could implement. First, Wal-Mart could re-examine its aggressive corporate strategy in terms of forcing smaller, more local shops out of business; second Wal-Mart could retool their charitable giving strategy and lastly the company could alter its current position on allowing employees to unionize. All of these solutions, when adopted in tandem could greatly improve Wal-Mart’s standing both in the domestic market and international stage as well.

The Situation

To its fans, Wal-Mart exemplifies pure Capitalism-giving consumers the products they demand at a price lower than the competition. Unfortunately, it is this practice that has condemned Wal-Mart to be hated by a large subset of American society. Wal-Mart is viewed by many as being the penultimate in destroying the “Mom & Pop” stores that so many of a certain generation had grown accustomed to. To this group, Wal-Mart is seen as the antithesis to everything that a small, upstart business in a local community, furthermore, Wal-Mart represents, on some level, the corporate bully moving in, throwing their weight around, undercutting the competition which ultimately drives the smaller shops out of business.

In order to understand the “Wal-Mart Problem” the environment that gave impetus to such a corporate behemoth must be analyzed. What were the main factors leading to Wal-Mart’s rise to domestic corporate dominance and what, if anything, can the organization do to remove the stigma attached to its organization. The roots of Wal-Mart’s growth can be traced to the economic recessionary period of the 1970’s. As individual income and personal spending declined, customers were looking for retail outlets that sold consumer products at lower prices. Sears was the largest retailer in the nation, however due to the sluggish environment they attempted to cater to lower and middle class families. This altercation in the business model, lead to an increase in overhead.

Wal-Mart’s philosophy was to compete for the same group of consumers, however their prices would be significantly lower and their overhead would be reduced beyond that of the competitions. As a result, Wal-Mart would be ascertaining the same customer base but would be able to offer comparable products at lower prices. As Wal-Mart grew in size, the company began to diversify its business model. Wal-Mart recognized that as consumers began to search for low cost products, consumers began to travel to the more rural areas and suburbs-getting away from the urban centers that many larger retailers had target. As a result of this demographic shift, Wal-Mart began to integrate their stores into the more rural and suburban area. This integration has ultimately lead to the negative impression and attitude many individuals have toward Wal-Mart. But is Wal-Mart totally to blame or is the company simply mastering the art of Capitalistic business models? The next section will analyze, Wal-Mart more in depth, its present situation and the factors associated with the negative attitudes and what Wal-Mart can do to rectify this scenario.

Analysis

Analysis of the Situation

Accurate analysis of Wal-Mart from a financial, business cycle and strategic platforms must be conducted to arrive at an accurate explanation of the internal workings of Wal-Mart in order to completely understand the position Wal-Mart finds itself in. Wal-Mart’s product lines range across the entire spectrum of consumer products. It is this diversification of the overall business model that enables Wal-Mart to compete in a variety of market sectors. In addition to this diversification, the goals of management, strategies and overall mission are powerful elements that make up the Wal-Mart model.

There are four core corporate strategies relevant to the Wal-Mart. The strategies that form the backbone of the Wal-Mart corporate culture are: (1) Dominate the Retail market wherever Wal-Mart has a presence; (2) Growth by expansion in the U.S. And Internationally; (3) Create and faster widespread brand recognition wherever Wal-Mart has a presence and (4) Branching out into new sectors of retailing such as pharmacy automotive and the recent addition of grocery stores within the new “Super-Walmart” (Comerius & Hunger, 2006).

Sam Walton had a vision that Wal-Mart would compete in nearly all markets from the main urban sectors to the more rural and suburban markets. To this end, Wal-Mart still follows this core principle. Wal-Mart maintains the philosophy of lowering the mark-up on products as possible while working customer volume to maximize bottom-line revenue. Every Wal-Mart store is prodded to engage in ruthless competition until, the local competition is rendered meaningless and Wal-Mart asserts domination among the local market.

Wal-Mart has demonstrated exponential growth both domestically and internationally over the past several years. Wal-Mart’s expansion throughout the United States and across Europe is yet another component of their corporate culture; a culture that seeks to not only increase their dominance but ensure this dominance is maintained by essentially buying up the competition and increasing the base network of Wal-Mart stores. Currently, Wal-Mart has approximately 1.3 million employees throughout the entire organization. Out of this total, over 1 million are employed within the United States market. Furthermore, Wal-Mart operates over 4,000 stores worldwide with over 1200 stores operating internationally (McGahn, 2004). Logically, domestically, Wal-Mart is the largest consumer retailer.

This presence both domestically and internationally lend themselves to Wal-Mart’s ability to exercise its dominance over the U.S. retail market. This retail market expansion is not only limited to the United States. Wal-Mart has exhibited the same dominance internationally. Wal-Mart has engaged in the same dominance of the international market as they have domestically. In 1994, Wal-Mart purchased 1200 WoolCo stores in Canada, as a result there are 196 Wal-Mart stores throughout Canada. Additionally, in 1998, Wal-Mart bought the Wertfauk chain in Germany consequently, Wal-Mart now operates close to 100 stores in Germany. Finally, in 1999, Wal-Mart bought the ASDA chain in the UK and operates 229 Wal-Mart stores in Britain (McGahn, 2004).

The purchase of these local chains underscores the Wal-Mart corporate culture that is carried out and implemented in order to attain dominance within a market. As a result of this organizational culture, Wal-Mart places itself in a comparative advantage position to take over a new market once Wal-Mart enters this market. Wal-Mart is able to, in one sweeping step, Wal-Mart can overcome market barriers, Wal-Mart can capture a significant market sector of consumers and most importantly, Wal-Mart eliminates the competition and therefore can exert near complete control of an entire retail market within a given market area. Associated with this principle of total market domination, the logical flow out of this domination is the creation and maintenance of brand management wherever Wal-Mart has a presence. Given the analysis thus far, Wal-Mart has brand management capabilities on an international scale.

Wal-Mart is one of the best organizations in the modern era to work on creating and maintaining positive brand management. For Wal-Mart to maintain its cutting edge brand management, even in areas where the story is dominant, Wal-Mart relies on several core competencies. These principles involve respecting the individual, enhanced service to the customer and a constant strive for excellence. These principles are prevalent within the Wal-Mart business model and are part of the paradigm that allows Wal-Mart to establish its stature within various retail markets and compete against well established companies such as Target, Inc.

Wal-Mart’s business model possess several strengths, weaknesses, opportunities to improve its image within the community and threats against it’s model. Wal-Mart’s key strengths include the cost advantage of its model, including lower overhead which in turn allows Wal-Mart to reduce the general overhead leading to an undercutting of product costs to consumers. Furthermore, Wal-Mart has a strong supply chain management apparatuses that allow for constant flow from vendors to Wal-Mart stores. Wal-Mart also has several weaknesses that are among some of the most common complaints that customers of Wal-Mart tend to express (Van, 2008).

First among these weaknesses is that Wal-Mart ignores store decorations in creating an environment that is welcoming for customers to experience. Also, Wal-Mart’s size and multidisciplinary approach to their business model may in and of itself be a weakness. In today’s environment, flexibility is key in navigating the treacherous business environment. Therefore, Wal-Mart may find that it is not as flexible as some of its more focused competitors. Finally, there are threats to Wal-Mart, even though the company is the largest retailer in the United States. Wal-Mart faces intense price competitions across various retail sectors-again predicated on Wal-Mart’s increased size and infiltration into numerous consumer products. Wal-Mart may find that it is not able to “rollback prices” to compete with discount underwriters. One key opportunity for Wal-Mart is to focus on social welfare to improve their stature within the various communities Wal-Mart is located.

Problem Definition

As was stated at the outset Wal-Mart is one of the most reviled corporations within the United States. For the various reasons previously stated, Wal-Mart has attained a vastly negative reputation within certain areas of the United States. This section will identify the problem as developed through the analysis, explain what is the intended accomplishment for proposing various solutions and examination of the root causes. It is important to determine the cause of the problem before alternative solutions can be addressed.

The root cause of Wal-Mart’s negative persona is found in its dominance in smaller retail markets. Wal-Mart does not garner any fans when it arrives in a previously undisturbed rural or suburban setting, muscle into the competitions market space and proceed to undercut other businesses to the point where the competition can simply not compete on a business level with Wal-Mart. As a result, Wal-Mart has put numerous smaller retail stores and countless “Mom and Pop” stores out of business, costing communities jobs. Wal-Mart counters their stores provide hundreds of jobs for communities. This is refuted by pointing out that a 2005 memo circulated around the upper levels of management at Wal-Mart hypothesized various ways the company could save money and the number one model was to cut the wages and benefits of the employees. Information like this combined with the perspective of Wal-Mart being nothing more than a “corporate bully” lend themselves to the negative impression Wal-Mart is currently attached to.

There are solutions that Wal-Mart can implement in order to reverse this negative association and damage to its business reputation. By focusing on social welfare, Wal-Mart will be able to improve its standing and approval ratings within certain aspects of the community. By highlighting the positive influences through marketing campaigns, public awareness programs and media projects, Wal-Mart will place itself within a position to dramaticaly increase its stature.

Alternative Solutions

Currently, Wal-Mart is on pace to have another record year in terms of earnings, despite the lagging economic conditions stemming from the near economic implosion of 2008. Therefore, it is imperative to address various alternative solutions to the company’s likewise lagging approval ratings among certain interest groups. First and foremost could be a reevaluation of Wal-Mart’s ultra-competitive and hyper-aggressive business model and corporate culture (McGahn, 2004).

The first rule of business is to be competitive, however, when competition comes at the expense of local communities and stores that have been part of a communities very fabric for generations, Wal-Mart’s ubercompetitive nature should be reexamined. The current culture of Wal-Mart creates the image of a bully and a tyrant along with a company that tramples on the rights of its workers for the sake of the bottom-line. Wal-Mart must project an image of understanding to the needs of the customer, the community and to the employee.

Wal-Mart must also re-examine the nature of its charitable contributions. Wal-Mart claims in its corporate filings to donate over $100 million to charities such as the United Way, however this figure is the result of individual employee contributions, not direct contributions from the direct funds of Wal-Mart. Wal-Mart must improve its philanthropic operations to foster the image of an organization that can balance the intense competition of the retail space but also provide much needed charitable work to improve its standing within the community (Van, 2008). With their current charitable giving, it appears that Wal-Mart is not only uncaring but also “cheap” in that it relies on employee contributions when the company is making millions. The final solution for Wal-Mart could be a modification of the company’s policy toward unions.

Currently Wal-Mart will not allow employees to discuss the prospect of unionization. Therefore, this gives the impression, Wal-Mart does not care about the rights of its workers. If Wal-Mart made strides in modifying this attitude it would make significant changes in the attitudes many individuals and groups have regarding the retailer (McGahn, 2008).

Conclusion

Wal-Mart is an inherently complex, fascinating case study in Capitalism vs. social perception. From a clearly text-book economic standpoint, Wal-Mart is a classic case of a business providing goods and services at lower prices than their competition and satisfying various needs for the consumer. However, the question remains: to what degree does Wal-Mart’s policies, cultures and behaviors factor into and directly cause such a harsh negative attitude toward the company?

The answer can be readily seen in the analysis provided herein. Wal-Mart has an extremely aggressive corporate culture aimed specifically at extending Wal-Mart’s brand recognition and dominance within the markets it integrates itself into. However, this competitive model and culture has lead to significant negative impressions of the company as corporate bully and tyrant. Wal-Mart’s claims about putting people to work is a misnomer when considering the fact that Wal-Mart puts the smaller more local retailers out of business in a community in order ensure Wal-Mart is the dominate retailer in the area. As described in this analysis, this attitude is not only limited to the United States, Wal-Mart has taken this aggressive attitude to Europe as well.

Wal-Mart does have many strengths as well as weaknesses. However, if Wal-Mart is to rectify its negative impression among individuals and groups it must radically alter this perception of an over-eager, corporate raider. Wal-Mart must examine its corporate culture and determine if it wants to improve its public persona or continue on the path that has lead to this negative relationship in the first place. Furthermore, Wal-Mart must improve its philanthropic activities. No longer must the company equate employee contributions as charitable donations incurred by the company, this makes Wal-Mart look cheap and uncaring.

Lastly, Wal-Mart must improve its attitude toward collective bargaining and employee unionization. Current attitudes toward unionization give Wal-Mart the stigma of not caring about its employees. This perception makes it difficult to improve Wal-Mart’s persona. Change corporate attitudes toward unionization will greatly improve Wal-Mart’s perception in the community.

References

Camerius, J., & Hunger, J.D. (2009). Wal-Mart Stores, Inc. Under Attack. Strategic Management and Business Policy Achieving Sustainability (pp. 2-28). New York: Prentice Hall.

McGahan, a. (2004). All Industries Change. Harvard Business Review, Fall, 28-38.

Van, J. (2008, February 16). Wal-Mart: The Bully of Bensonville. Barrons, p. 1.

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