Market trends in the retail market are not difficult to track. “Any major initiative Wal-Mart undertakes has enormous supply chain implications worldwide” (ThomasNet News, 2010). The analysis for this paper is to look at the approach of Wal-Mart in a very competitive industry and examine how Wal-Mart is so successful. Some of the areas that will be examined are the Market Structure, the impact of new companies entering the market, prices, productivity, and cost structure, price elasticity of demand, competitors, supply and demand analysis, and impact of government regulations.
When locating new stores, Wal-Mart tends to first look at more rural areas where there is less population, a higher income and where consumers are less likely to travel to larger cities. This may be due to the economics of the region or the size of city in which they propose to occupy. The company’s market is the same market as Target and K-Mart. The company’s growth will in all likelihood cause other smaller retail businesses to fail. New firms entering the market will continue to drive Wal-Mart’s prices lower.
The impact of new companies entering this market would affect pricing indifference between companies. “Wal-Mart is the world’s largest retailer and second largest corporation. It is the largest private employer in the United States and Mexico. Wal-Mart is the largest grocery retailer in the United States, with an estimated 20% of the retail grocery and consumables business, and the largest toy seller in the United States, with an estimated 45% of the retail toy business, having surpassed Toys “R” Us in the late 1990s. Wal-Mart has 1,929 stores which as of 2005 sales figures totaled about $155 bilion in sales.
Wal-Mart’s revenue as of 2006 was an estimated $315 billion USD, net income $11. 231billion USD, and employs more than 1. 8 million employees” (Information Food Source, 2006). Wal-Mart’s major competitors in the grocery market are the Kroger co. #2 in annual sales, Albertsons’ Inc. #3, Safeway, Inc. #4, and Costco Wholesale Group #5. Now even though Wal-Mart is leading the way in total sales the #2 and #3 businesses lead the way with total # of stores. The Kroger Co. has 3,302 with Albertsons at 2,476 stores nationwide.
Wal-Mart’s total sales for that year alone were beating its 2nd place competition alone by more than 80 billion dollars. Wal-Mart’s major competitors in low-end general merchandise department would include Sears Holding Corporation’, the slowly diminishing K-Mart chain, and Target whose trying different approaches including building Super Target stores to compete with the Super Wal-Mart. With Wal-Mart moving into the grocery business it has put a strain on grocery retailers also including: H-E-B, Kroger, Albertson’s, Publix, Giant Eagle, Safeway, Winn Dixie, Food Lion and Save-A-Lot.
Wal-Mart’s CEO Lee Scott in 2005 embarked on an energetic campaign to revive the company’s image. He installed Eduardo Castro-Wright to overhaul operations in America. Who remodeled 1,300 shops, modified merchandise and cut prices. Wal-Mart has had a number of suits filed against if for unfairly paying the female employee’s, not promoting the female employee’s fairly, placing them into positions where they can not advance, and paying them less than their male counterparts.
Wal-Mart, Wally World or what ever the public wants to call wants to call it does not change what it is: A corporate machine that has made a major and horrific impact on the global economy. Wal-Mart has been accused of denying benefits, working employees off the clock, and denying them rightly earned over time pay. They also have exploited suppliers and been associated with monopolies. These are reasons that Wal-Mart, the corporate machine, the menace to the global community, must be stopped. Wal-Mart capitalizes on the use of the good value strategy when pricing their products.
If Wal-Mart were to increase the price of their products then the demand for them would likely decrease and the demand for the competitor’s merchandise would likely increase, where if the price of the products drops at Wal-Mart then the demand will likely increase at Wal-Mart and decrease at the competitor’s stores. If Wal-Mart increased to match the prices then the demand would be perfectly elastic. Competition for Wal-Mart encompasses many different areas such as retail, electronics, club stores, and gasoline sales to name a few. In the US, Wal-Mart’s main competitors are department stores such as Target, K-Mart, nd ShopKo.
When considering Wal-Mart’s Club store competitors one must look at Costco and BJ’s Wholesale Club in the eastern part of the US. Wal-Mart’s main US retail competitor is Target and seems to be doing very well considering the current market conditions. With Wal-Mart’s push to add greater sustainability and eco-friendly techniques to its repertoire, it becomes that much more difficult for the competition to stay with the industry leader. In 2009 Target’s EBIT (Earnings before Interest and Taxes) were 4. 74 Billion with a net income of 2. 49 Billion (Daily Finance an AOL Money and Finance Site, 2010).
Target Inc. operates in the United States exclusively which keeps the Wal-Mart competitor in a distant second place. Although economic conditions in recent months have been difficult overall, firms operating in the consumer staples sector, and especially the food and staples retailing industry, have enjoyed a certain amount of stability, and even growth, which exceeded performance in other sectors of the market. This is especially true for those firms that have diversified into international markets. Access to a range of markets stabilizes earnings by reducing risk across a range of differing economic cycles.
Although demand in the United States, Wal-Mart’s primary market, has been modest, it has continued on a general growth trend over the years. There have been months where demand fell; however, the overall trend has continued to rise. There are two major economic conditions that have worked in concert to contribute to moderate, but continued growth. First, income has generally suffered in Wal-Mart’s home market. Stagnant and declining wages, combined with rising unemployment have reduced the buying power of retail consumers. The sales of many consumer goods declined, and have only recently begun to recover (U. S. Census Bureau, 2009; U. S. Census Bureau, 2010).
This reduction in demand would cause a shift to the left in the demand curve for many of the products sold by Wal-Mart. On a global scale, Wal-Mart experienced a range of economic growth rates affecting demand in the markets where it has operations (United Nations Statistics Division, 2010). Overall, demand on a global scale was influenced by two primary mechanisms. Of greatest importance is an increasing customer base. As the firm reaches more consumers through new outlets and new markets, generally demand would increase across all products.
Since many of Wal-Mart’s international markets are growth markets, incomes are increasing alongside the expanded consumer base. Although the company strives to bring value to all of its customers, since many of its products in growth markets are new to the market, income increases result in the reduction of demand for existing inferior goods in the market. In many ways, the items sold by Wal-Mart in growth markets are considered normal goods. Thus, increasing incomes actually increase for most of Wal-Mart’s products in these markets (Colander, 2008).
Wal-Mart’s expansion into international growth markets may have helped the firm’s bottom line, but not without some upfront costs to overcome barriers to entry. At home, the firm must adhere to a range of labor, product safety, and reporting and audit requirements to do business. Similar regulations will likely be encountered in each of the markets where business is done. Some markets may actually have more rigid requirements than what the company has to deal with at home. The most important types of regulation the company will need to be responsive to deal with corruption and foreign direct investment.
To combat corruption in both business dealings and interaction with governments, the United States requires its businesses to adhere to the Foreign Corruption Practices Act (FCPA). Along with other unscrupulous practices, the law aims to prevent bribery as a business practice while improving transparency in business dealings. There may be similar regulation in some of the markets where Wal-Mart does business. In terms of Foreign Direct Investment, Wal-Mart must deal with a complex patchwork of laws that differ from each of the other countries in which it has operations.
Some countries, such as Canada and Mexico, allow Wal-Mart to directly operate its stores as long as it maintains certain capital and operational conditions. Other countries, however, require the company to undertake operations through or in collaboration with a native firm. Likewise, regulation may restrict the types of business operations a firm may undertake or the area of the market in which it may operate. Both China and India have restrictions along these lines, requiring Wal-Mart to partner with existing retailers to do business (U. S. Commercial Service, 2008).
Trends in the world’s retail markets may not be difficult to track, but due to the complexity of handling such a wide variety of goods and the wide range of competitors they can be difficult to understand and successfully do business in. To be successful in understanding the retail marketplace an entity must be dedicated to comprehensive research of the landscape. Additionally, an understanding of economic principles is critical to putting the extensive amount of available information into context.