Walmart External and Internal Audit

Strengths

1. Core competency/Cost Leadership- Walmart is known for their “everyday low prices.” This sets them aside from their major competitors such as Target.  Walmart strives for "saving people money so they can live better."  With the cost leadership strategy in effect, Walmart is ensured a steady and returning flow of customers to their stores.  That understood, Walmart has a comparative advantage over their competition.  Consumers are able to feel better about their purchases knowing they are at a discounted price.  Walmart is therefore given a rating of 4 and weighted score of 1.0 in this category.  
2. Economies of Scale- Walmart is rated a 3 with a weighted score of 0.3 in this particular category.  Being the giant that Walmart is, they have a very large scale of operations.  This therefore gives them strong supplier purchasing power and the opportunity to reduce prices.  With their vast amount of products they can spread their fixed costs out lowering the price of the products. “Higher economies of scale results in lower prices that are passed to consumers” (http://www.strategicmanagementinsight.com/swot-analyses/walmart-swot-analysis.html)
3. Wide Range of Products- Walmart has one of the largest ranges of products providing ease for their customers.  Customers are able to have that “one-stop-shopping” experience they so desire.  Consumers certainly like this aspect for the convenience it entails.  Although Walmart’s discount stores do in fact provide a large variety of items, this holds especially true for their Supercenters and Sam’s Club retail units.  As it pertains, Wal-Mart is highly rated here, with a ranking of 4 and weighted score of 1.0.  

Weaknesses:

1. Poorer Quality Products- With such a wide range of products, Wal-Mart’s merchandise tends to be of lesser quality.  This is due to their inability to focus in on one particular item group.  Their broad spectrum of food, clothing, stationary, toiletries, and other household items and commodities makes it difficult to provide high quality.  Factor in discount pricing, and it becomes nearly impossible.  Simply put, consumers cannot expect to have a wide variety of products with high quality and lower prices; it just cannot happen.  That understood, Wal-Mart is given a rating of 2 and weighted score of 0.40.  
2. Large Span of Control- Considering the size of Wal-Mart, it is no doubt that they have a large span of control.  While having a large span of control may be less costly, it also raises some important issues.  For starters, there may be less supervision due to such a wide range, which makes disciplinary actions harder to enforce.  This therefore can result in less control of employees and further entails a poorer quality of performance among the business.  Moreover, it becomes incredibly difficult for the quality of management to stay consistent throughout the company, giving a rating of 2 with a weighted score of 0.2.    
3. Concerns about Ethical Position- Over the years, Walmart has been questioned about their ethical stance regarding their workplace practices.  It is noted that approximately 5,000 lawsuit filings are made every year against the big box store.  Such abuses consist of “wage law violations, inadequate health care, exploitation of workers, and the retailer’s anti-union stance” (http://www.workplacefairness.org/reports/good-bad-wal-mart/wal-mart.php).  Perhaps not all consumers are aware of such mistreatment taken place behind the scenes.  In fact a majority of people do not perform research on the ethical stance of the stores in which they shop, giving Walmart somewhat of a saving grace, and therefore a rating of 1 and weighted score of 0.1.  However, when such offensive stories make headlines, and the behind the scenes wrongdoings are made public, consumers may second-guess where they are shopping, and consequently may have an impact on its current ratings.

Overall, Walmart has received a 3.0-weighted score in relation to its industry.  It appears that its core competency of implementing a cost leadership strategy as well as providing a wide range of products of lower quality has more of an impact in respect to its industry.  Economies of scale, its large span of control and concerns about Walmart’s ethical position are certainly of concern; however, such factors appear to have less of an influence.  

Opportunities:

1. Changing financial lifestyle for consumers- It is no doubt that Walmart has given many opportunities to their consumers.  We see this simply with their everyday low prices.  Such low prices give consumers the opportunity to buy products more suitable for their financial lifestyle.  Sure, most people are already aware of their discount pricing and so it may be thought that their “regular” customers are the basis of their success.  However, with times as tough as they currently are, more and more people are converting to doing their shopping at the discount store.  We can see this everywhere.  Of course, if there is no Supercenter in the customers’ town, the consumer will have to buy their meats and produce in their local grocery store.  It used to be that consumers would prefer the ease and convenience of one-stop-shopping and complete their grocery list at that grocery store.  Nowadays, however, customers are looking to save wherever possible, and are willing to make the extra trip to their nearest Walmart to save a few extra dollars- therefore, changing their consumers’ lifestyles financially.  Understanding this concept, Walmart has received a rating of 4 with a weighted score 0.8.  
2. Emerging consumer markets- Walmart has so far been incredibly successful in taking their stores globally, with retail operations in 28 different countries including the United States.  This allows us to rate Walmart a 4, giving it a weighted score of 0.4.  As of September 30, 2015 there were a total of 11,526 Walmart retail units accounted for with 6,256 found internationally- that is more than the amount reported domestically (http://corporate.walmart.com/our-story/our-locations#/).  That being said, “Walmart’s international revenue is growing fast.  International revenue grew at a compound annual growth rate, or CAGR, of 7.3% from fiscal year 2009 to 2014.  It grew to ~$136.5 billion.  That makes the International segment the fastest growing revenue segment” (http://marketrealist.com/2015/02/walmart-looking-growth-international-markets/).  
3. Supercenters & Sam’s Club- As of August 31, 2015, there are approximately 5,249 reported Walmart retail units in the United States alone.  Of the 5,249 Walmart retail units, 3,445 of them are supercenters and 652 are Sam’s Clubs (http://corporate.walmart.com/our-story/our-locations#/united-states).  The supercenters and Sam’s Clubs average to about 176,000-179,000 square feet compared to their regular stores of about 15,000 square feet (http://247wallst.com/retail/2014/03/22/walmart-now-has-six-types-of-stores/).  Such space provides for Walmart to not only sell their regular merchandise but to expand into more of a grocery store (Supercenter) or wholesale store (Sam’s Club), providing that ease and convenience of “one-stop-shopping” spoken of previously.  This category, is subsequently given a rating of 3 and weighted score of 0.3.

Threats:

1. Threat of Substitute Products- Of course Walmart provides a broad spectrum of consumer goods, making for a “one-stop-shopping” feel.  However, their products can be easily substituted, giving Walmart a rating of 1 and weighted score of 0.4.  With such a broad scope of products, their competition can be found nearly anywhere.  For example, Walmart sells kitchen appliances, which consumers can find at Target, Williams Sonoma, Pottery Barn, Sears, Macy’s, and etc.  In other words, their competition does not just stop at their industry or sector; it goes beyond that and consequently can redirect its customers.  Granted, going outside its industry comes at a price, therefore customers may not be so willing to do so, but the possibility certainly exists.  
2. Supporting Local Business- The trend these days is to support local, independent businesses, rather than supplying to giant chain stores such as Wal-Mart.  There are a number of reasons as to why local is better.  Such reasons include: strengthening the economy of the community in which you live, creating more jobs, becoming more environmentally friendly, putting your tax dollars to better use, supporting the community, and etc. (https://sustainableconnections.org/thinklocal/why).  “Even if chain stores do save us a few dollars now and again, it comes at a great cost. Chain stores contribute far less to the local economy than independent businesses” (https://ilsr.org/impact-chain-stores-community/).  While there are many who would prefer a brand name opposed to a non-brand name, if people truly understood the science behind contributing to local business, more consumers may do their shopping elsewhere.  As a result, this category is given a rating of 2 and weighted score of 0.1.  
3. Fight For Market Share- There is immense competition in the retail industry that Wal-Mart is constantly facing. It seems that there are getting picked apart by other segments eating away at their market share. Other companies such as Amazon are constantly beating out Wal-Mart in the E-Commerce market. Also Costco constantly outperforms Sam’s Club, their revenue from just gas rose .4% compared to 7% at Costco. (http://fortune.com/2015/05/19/walmart-market-share-loss/) Wal-Mart is always facing their competitors skimming small market share from the different segments that they are involved in. Since Wal-Mart has such a large portion of the market share I weighted it .1, but it’s still a concerning issue for the future so it got a rating of 5.

Financial Ratio Analysis: