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EXECUTIVE SUMMARY

For long, Walmart has been able to retain its spot as the worlds largest retailer. Much of this

success can be attributed to Walmarts positioning in the industry on the grounds of price

differentiation, and its strong supply chain management. However, in order to remain on top,Walmart needs to adopt innovative strategies that respond to dynamic changes in the consumer

market. We hence recommend the following strategies for Walmart:

1. Expand ecommerce operations

2. Avoid introduction of organic products

3. Enter international markets with caution

STRATEGIC ANALYSIS

When Walmart entered the retail segment, its strategy of playing on price differentiation aidedits growth, helping this company beat the then existing players such as Ben Franklin, and the

new competitors such as Kmart and Target. Walmarts sales (and net income) figures witnessed

continuous growth and soon the firm was producing a better return on equity (ROE) for its

shareholders than its biggest competitors (Exhibit 1). While Walmart remains a dominant playerin the retail segment even today, its competitors such as Target arent far behind.In order to

sustain in this competitive segment, Walmart needs to restructure its strategy in order to respond

to the changing preferences in the industry, while simultaneously leveraging its resourceseffectively.

Lets take a look at Walmarts current strategy in general (Exhibit 2) and its strategy in terms of

the value that it offers to both its employees and to its consumers (Exhibit 3). We see that

Walmart boasts of a comfortable position in terms of its cost leadership, and an efficient and

stable value chain that aids in its current operations. However, with consumer needs evolvingcontinuously, we believe that Walmart needs to consider the following:

(a)

Target ecommerce segment (b) Stay away from organic products (even if competitorsintroduce organic products in their stores) (c) Target global marketswith caution

ECOMMERCE OPERATIONS

While Walmart has an online presence, its penetration into the ecommerce segment has been

low. A lot of products are still restricted to In Store purchases only. With companies likeAmazon introducing Amazon fresh, and with more and more consumers tending towards

ecommerce, Walmart stands a risk of losing its market share to players such as Amazon if it

continues to rely on its current strategy. Walmart can make use of its connected distribution

system to deliver to homes quickly by incorporating back and front end ecommerce solutionsthat can handle large volumes of orders. This is important from the perspective of fuel

consumption too, in some ways- as Walmart moves towards delivering directly to home using itscurrent logistics (say, trucks that can drop goods at home, en-route to the stores etc.) people canincreasingly start relying on this, while reducing the number of trips to the store.

INTRODUCTION OF ORGANIC PRODUCTS

A typical customer at Walmart is looking for a cheaper product that serves his requirements. This

need of the customer is also partly driven by the brand that Walmart has built around itself:

Always low prices. With the USA market showing a strong potential for organic products, it

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seems like a tempting strategy for Walmart to enter into the organic foods business. However,

lets look at the value chainelements for the price differentiators (Exhibit 4) to understand

whether Walmart can venture into this business without changing its brand reputation of being

low cost. A simple analysis shows that Walmart is not in a strong position to enter thissegment.

With organic foods, customers would demand freshness, and quality- two attributes thatmay not be achievable given transportation requirements in bringing organic food from

the farms (at different locations) to the Walmart stores (only specific stores closer to thefarms will have the advantage)

The increase in the organic food consumption is mainly because of peoplesbelief in itssuperior quality. In other words, this product represents a luxury (Veblen) commodity.

So, even if Walmart managed to source the food at a reduced cost, it remains to be seen

whether people would trust the product for its quality (Price and quality areproportional in most cases)

The growth in the organic products can be attributed to 2 things:

o More customers are shifting to organic products

o

The same customers are buying more and more of the organic products

If the reason is the latter, and if there is no difference in the nutrient content between theorganic and the conventional products, the need to shift to organic products would be low

in the segment that has a lower annual income- that in turn typically constitutes

Walmarts customer base

GLOBAL MARKETS

An international presence would be a crucial step in boosting revenues. Walmart also has theexpertise to reproduce its successful model in the USA on international grounds. However, not

all countries might be open to a Walmart in their home-grounds. For instance, in India, a

widespread presence of Walmart will most likely wipe out all the smaller retailers who earn theirliving through selling in corner-of-the-roadshops. While Walmart will attract consumers onaccount of its cheap prices, it would come at the cost of convenienceof buying in shops across

the road- not to forget the traffic congestion that might occur in the Walmart zones. It might

also not be feasible for Walmart to comply with the Indian governments rules of sourcing 30%from small suppliers, and last year, their contract with the Indian company Bharti was dissolved

owing to various reasons (marking another roadblock in their growth in India). Although

Walmart currently operates about 20 stores, its growth remains a question in this country. Thisquestion arises on hindsight- after the retail giant invested in its operations in the country.

Exercising caution while targeting international countries is also important in terms of preserving

the reputation of the brand. A fiasco such as the bribery charges in Mexico could sully the brand

value for customers.

CONCLUSION:

While Walmart is doing well for itself at the moment, it needs to modify its current strategies toremain competitive. The future of Walmart may still be profitable owing to its strong

positioning, but its competitive edge might be lost if Walmart doesnt innovate. Will these

suggested strategies work for Walmart? Weve made an educated guess, and as for rest, onlytime can tell.

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APPENDIX

Exhibit 1: Financial figures of Walmart and its competitors

Company Sales % Change in sales ROE

Walmart 48620 17.5 31.2

Target 28039 5.7 13.8

K Mart 11743 13 15.8Source: Wal*Mart stores, Inc., Stephen P Bradley, Pankaj Ghemawat

Exhibit 2:Walmarts cost leadership strategy

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Exhibit 3: Value Chain of Walmart stores

Exhibit 4:Value chain elements for low-cost leaders