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Fundamentals of Management: A Report on Wal-Mart Stores (1) Wal-Mart is the largest American retailing company. There are close to 3.000 Wal-Mart discount stores in USA alone. Companys headquarters are located in Bentonville, Arkansas. The most of its stores Wal-Mart has in Arkansas, Oklahoma, Mississippi and Missouri. Eighty seven percent of Companys annual profit is based on domestic sales. Companys management is based on well-structured hierarchical principle. Wal-Marts production line consists of three thousand retailing supercentres.
Sixty five percent of all sales are done in USA, even though Company also tries to expand on international market - it now has outlets in Mexico, Britain, Japan, Canada, Germany and China. Wal-Marts revenue increases every year. In year 2005, it was increased by 14% - from $191 billion in 2004 to $218 billion. At the same time, Companys earnings do not increase as rapidly as they used to at the initial stages of expansion. One of the reasons for this is the fact that Wal-Marts managerial efficiency is being negatively affected by its growth. The financial position of Wal-Mart is very stable.
Companys continuous expansion attracts new investments. In year 2006, Wal-Mart made $256 billion in sales, which makes it one of the biggest commercial operators in the whole world. Company invests in long-term projects; which is a very good indication of its financial stability. Such indication is a crucial, when it comes to attracting potential investors. It is likely that Companys financial stability is going to remain one of the most important factors that define its marketing strategy. Wal-Marts total assets were increased from $78.130 billion in 2004 to $83.451 billion in 2006.
This shows that Companys managers will not have to worry about Wal-Marts financial stability in near future. Wal-Mart uses the latest technology to make operating of its stores as effective as possible. Every retailing outlet is fully computerized. The emphasis is being put on increasing the efficiency of Companys employees by giving them an appropriate training. Company maintains 3000 fully operational warehouses in U.S. and plans to open 24 new ones, within a matter of next few years.
Companys officials stress out that Wal-Marts expansion will gain even more momentum, once it manages to win competition with Costco. Currently, Wal-Mart has 1.3 million people employed, which makes it the largest private employer in U.S. Companys approach towards increasing the efficiency of its personnel can be defined as inadequate. The entry position salary is $8 an hour, which is the lowest of all retailing operators. Because of this, Company annual employees turnover rate accounted for 65% in 2004. Recently, Wal-Marts officials had realized that this percentage needed to be reduced otherwise it would threaten Companys normal functioning.
Few years ago, a so-called People Asset Review program was launched. It was meant to increase workers efficiency through application of selective principles for employees promotion. According to this program, Companys top managers have to track down promotable individuals, in order to give them career-making opportunities. Wal-Marts target market can be considered as truly universal. Even though Company mainly focuses on exploiting the American market, its competitive prices allow Wal-Mart to successfully operate even in such countries as China. (2) Wal-Marts positioning derives from its strong association with retail industry. Company strives to attract customers by offering a competitive price. However, at the same time, it also tries to convince them that they buy high quality products. This, of course, can hardly be achieved, simply because a high quality item cannot be cheap. Therefore, Wal-Mart promotes its image of Retail Company that is focused on exploiting a middle class share of the market, while in fact, 50% of Wal-Marts customers belong to the underprivileged social strata. By shopping at Wal-Mart, people think that they cheat the commercial realities, because Wal-Marts products are much cheaper then anywhere else.
At the same time, they think of Wal-Mart as fully legitimate company, in terms of public image. As for today, the most profitable Wal-Marts line of products consists of electronics, clothing, pharmaceutical products and food items. However, Company also needs to put emphasis on selling luxury items through its network, as Costco does. As practice shows, the principle of targeting specific customers cannot be overlooked. Wal-Mart seems to be only focused on targeting one group of customers, namely lower-middle class. Yet, Wal-Mart could be selling luxury items as well.
Apparently, even those who buy such items also want to save money by paying competitive prices. Before expanding internationally, Wal-Mart needs to fully exploit U.S. retail market opportunities. There have been suggestions that Wal-Mart would do better, had it employed different pricing strategies, such as Broad Differentiation Strategy, which emphasizes on lowering buyers overall costs and making customer more satisfied with the purchased value by continually improving the quality of the product and adding to the customers satisfaction non-economically, through making him associated with well-respected brand. Yet, there is no doubt, in my opinion, that whereas it could have helped to improve company's public image, Wal-Marts sales margins would drop. Wal-Mart does not have a choice; it uses the expansionist strategy, as the mean of remaining competitive.
In other words, it can only remain economically successful by continually expanding, by pushing competitors out of business. The end of expansion would automatically mean the beginning of decline for the Wal-Mart. Therefore, the Wal-Marts ability to offer low prices is the most important factor behind this company being able to dominate the retail market in U.S. Wal-Mart is known to actively use the method of loss-leader, to promote the line of its products. Nevertheless, it is also not a secret that the practice of loss-leader is considered to be illegal, under certain circumstances. There is no doubt that company, which applies this method, intentionally misleads the customers.
Using loss-leader is nothing but taking advantage of human psychological weaknesses. It is can be thought of as highly immoral. Yet, we live in capitalist society, where the possibility of making profits supersedes any other considerations. Therefore, in my opinion, Wal-Mart has chosen the right strategy. It definitely works, because it is a well-known fact that it is only the matter of time, before other retail stores close down, after Wal-Mart moves into the new area. The continuous expansion of Wal-Mart retail outlets is the best indication of loss-leaders effectiveness.
Wal-Marts officials are very reluctant, when it comes to implementing progressive methods of management. Unlike its main competitors, Wal-Mart does not encourage branch managers to come up with executive decisions, which makes every store heavily dependable on Wal-Marts main office. This reduces Companys commercial flexibility, even though that such flexibility is a crucial factor on todays dynamic retail market. Company clearly prefers an authoritarian management style, when instructions are just being passed down for implementation of decisions that were made in the main office. Although Companys staff turnover has shrunk from 60% in 2004 to 44% in 2006, it is still too high. Wal-Mart is being continually sued by its former employees over the violations of Fair Labor Standards Act. There are also numerous reports of Wal-Mart employing illegal aliens. So far, Wal-Mart was able to avoid any investigations, as result of these allegations.
Still, the probability that this will happen in the future is very high, as Companys officials seem to be very reluctant, when it comes to changing Wal-Marts business strategy. Wal-Mart deploys various celebration of diversity programs, which are meant to appease watchdogs of political correctness. Just like in McDonalds, workers discontent over being underpaid is dealt with by application of team spirit at workplace. This, of course, cannot be effective, in the long run. As practice shows, economic ways of insuring employees loyalty cannot be replaced with psychological ones, without reducing Companys operational effectiveness. At present time, Wal-Mart faces 40 lawsuits over its discriminatory practices towards women and visual minorities. Companys workers are not unionized, which allows managers to force them to work overtime, without being paid.
It appears that Wal-Marts top officials simply lack an understanding of a simple fact that, only through giving workers more rights and increasing their salaries, Companys efficiency can be substantially increased (3) Wal-Marts main goal is to increase its profits, just as it is a goal of every commercial enterprise. The strategy it employs to reach this goal is continuous expansion at the expense of pushing smaller retailers out of business. It needs to be recognized that Companys old-fashioned business approach proved to be quite efficient, up to this date. In case of Wal-Mart, growth and acquisition came hand in hand. In my opinion, this strategy is appropriate at present time. The Wal-Marts rapid growth is the best proof of this.
The demographic dynamics in USA shows that more and more people are becoming price sensitive. This is because majority of new immigrants to U.S. come from Third World countries and they are generally poor. Their concept of quality is much different from generally accepted American standards. The marginalization of American society is a factor that benefits Wal-Mart. At the same time, there are clear indications that companys growth might become stagnant in near future.
That is why Wal-Mart might need to consider selling off some of its assets throughout the world, in order to make retail operations more manageable. The main threat to Wal-Mart does not seem to originate from competition with other retailers. However, since it has failed to embrace a truly progressive management strategy, Companys margins are likely to be continuously reduced in the future. This will inevitably lead to situation when Companys officials will not be able to disregard this threatening tendency any longer. Wal-Mart weaknesses originate from the fact that this company has grown too large, which makes its marketing strategy inflexible. Still, its size is also its main strength if Company finally becomes U.S.
retailing monopolist, the inflexibility of its marketing strategy will cease to have any importance. Wal-Mart does not have any supporting programs implemented to enhance its market competitiveness at this time. It is quite explainable, as this company is an immediate-profit oriented. Yet, if Company survives competition in the future, its executives will have to consider expansion strategy turning into the strategy of strengthening Wal-Marts reputation. In modern Globalized Economy it is only the matter of time, before smaller commercial enterprises are going to be acquired by larger companies. Wal-Mart is having an immense advantage when it comes to that.
What enables Company to offer very low prices on the line of its products, is its dependency on cheap Chinese labor. Ninety five percent of all the goods sold by Wal-Mart are made in China. Still, the immediate consequence of buying cheep products is the low quality. We can talk of psychological manipulation practices, being deployed by Wal-Mart. It exploits peoples desire to save, without guaranteeing quality. In the future, Wal-Mart is likely to loose its present competitive edge, because the living standards in countries where Wal-Marts products are being made continue to improve.
In its turn, it will force Companys officials to offer competitive salaries for its workers overseas, which will have an impact of products prices in U.S. The senile owners of Wal-Mart are incapable of adjusting Companys business strategy to correspond to the realities of nowadays. The fact that they are heavily involved with Bible thumping reveals them as people who are quite incapable of opening their minds to new ideas. Given the fact that Wal-Mart is basically a family enterprise, the next generation of Companys owners is likely to be as close minded as its present owners. However, as practice shows, basing business strategy on the denial of objective reality had never proved to be beneficial, in the long run. Bibliography: Arnall, Dan Wal-Mart's November Not So Jolly.10 Nov. 2006.
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