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Walmart Expansion Analysis

Washburn. O. Kelly

Data & Decision Analytics/ BUS625

Dr. Efiong Akwaowo

March 31, 2020

Walmart Expansion Analysis

Introduction

Walmart is one of the largest stores in the United States, selling general merchandise with branches across the country with some branches in foreign countries. Walmart has featured well as a performing company, followed by the Target Corporation in both business operations and financial basis. The two giants sell similar goods, varying from groceries, household items to clothing with almost equal performance. However, Walmart is considered to have more extensive assets base with higher sales revenues compared to its rival company; hence, placing the company is a better position for foreign growth. It also has several branches as compared to Target; thus, indicating its extensive operations in the box-store industry.

Walmart Expansion

Walmart Inc. has dominated the U.S. retail market, with a strategic plan to exploit global markets. The success of the company is attributed to proper market analysis with appropriate business strategies, as well as models that have positioned the business in the industry. Besides, corporate governance and approaches have set out management structure and systems that has seen the firm strategically fit business operations with predetermined goals and objectives. Today, Walmart Retail Company is running more than 11,277 hypermarkets, stores, and grocery stores, engaging more than 2.3 million employees worldwide. Besides, it has maintained sustainable business growth and expansion amidst stiff competition in the sector. Over the next five years, Walmart has adopted aggressive foreign expansion strategies to the Australian market through its integrated business model alongside corporate policies to achieve a global strategic fit.

Financial Performance

The income statements, balance sheets, and the cash flows for the past two years give basis to financial performance for the company, with a better presentation from financial indicators, such as ratio analysis. There are four categories of ratios showing its relevance in explaining financial status. The profitability ratios in the past two years 2018 and 2019 analyses the operating success of Walmart and the projection of businesses' success. Secondly, the liquidity ratios are used to measure the business's ability to meet short-term financial obligations and can be compared between the two entities. Besides, the solvency or the leverage ratios measure long-term ability to survive in its operations. Finally, market ratios explain the performance of the business based on earnings, market value, and performance.

Measure Outlook: Ratio Analysis and Comparison

Profitability Ratios: Walmart recorded ROE of 23.6% and 24.8% in 2018 and 2019, respectively, as compared to Target's ratio of 17.5% and 18.2% (Walmart, 2019). It is evidenced by the ratio that there is sustainable growth, with a marginal drop in the net income as compared to Target recording lower net income levels, but its equity for the two years was low; thus, recording higher ROE value. It is also manifested in 7.3% and 8.4% for Walmart and 6.9% and 7.4% for Target in 2018 and 2019, respectively. Furthermore, the profit margin for the two companies obtained by dividing net income from sales revenues is 3.9% and 4.6% for Walmart and 2.8% and 3.0% for Target in 2018 and 2019, respectively. From this ratio, the profitability levels for the two companies are declining marginally, with Walmart recording sustainably high sales revenue.

Liquidity Ratios: The current and quick ratios are the most common liquidity ratios. The current ratio indicates debt-paying ability in the short-term, while the quick ratio measures immediate short-term liquidity. In 2018, Walmart recorded a current ratio of 111.9%, which dropped to 94.4% (Walmart, 2019). Its ability to meeting short-term obligations dropped an indicator. However, this was much better as compared to Target, whose debt-paying ability dropped from 93.2% to 86.2% in 2017. It is replicated with Walmart, a quick ratio of 29.0%, and 43.8% as compared to 21.9% and 24.4% in 2018 and 2019, respectively. Inventory turnover is one of the essential ratios that show the liquidity of inventory or inventory management and efficiency. It is obtained by dividing the cost of sales by the total inventory. Target had an inventory turnover of 1.9 and 2.0 in 2018 and 2019, respectively, while Walmart's inventory turnover was 2.4 and 2.2 times. This implies that Walmart had strong inventory management that translates to improved liquidity (Walmart, 2019).

Long-term Solvency Ratios: The debt to the total assets for Target was 23.1% and 25.1% in 2018 and 2019, respectively, while Walmart recorded 34.1% and 31.7%. It implies that Walmart has a more substantial asset base that leads to a lower ratio, an indicator that it can meet its long-term financial obligations. Besides, the debt to equity is another ratio that indicates the leverage of the company. Target had a ratio of 110% and 94% in 2018 and 2019, while Walmart had 59% and 62%. It is evidenced that Target has lower and declining long-term solvency ability, unlike Walmart, with a more substantial leverage ratio that has improved over the past two years (Walmart, 2019).

Market-value Ratios: The P/E and the market to book ratios are used to measure the relationship between the market price for every share and the earnings per company share. Although lower performance based on the profit ratios, Walmart has a higher P/E of 26.41 as compared to 15.07 recorded by Target. It implies that Walmart has a higher stock price despite higher earnings per share for Target. Besides, the markets to book ratios recorded for Target and Walmart in 2019 were 3.43 and 3.81, respectively, implying that Walmart had more true market value (Walmart, 2019).

It is evidenced that the financial outlook and business trend of Walmart as compared to its competitors, assure of sustainable expansion and operational activities. The outlook is essential in assessing the profitability index of a company; for example, Target and Walmart, whose profitability ratios indicate excellent performance for Walmart with a long-term solvency performance. Besides, Walmart has a stronger ability to survive over a more extended period. From the analysis, Walmart has portrayed its resilient domestic growth; hence, the strategic focus should be venturing into the potential Australian market. Thus, financial ratios help management in assessing strategies for global expansion.

Foreign Expansion Strategies

Walmart Inc. operations in the retail sector have been attributed to the attractiveness and business potentiality of the industry in which it operates. Its position in the sector has determined the profit margins recorded by the business. It has adopted different strategies to win market share and gain an optimal opportunity to generate higher profits (Jensen & Zamborsky, 2018). Moreover, it has leveraged internal business processes and strengths to achieve sustainable business performance, such as sustainable business strategies

Low Cost

The benefit attributed to significant economies of scale due to its large operations in the U.S. allows the company to offer the lowest prices to the new Australian. The approach seeks to target and broaden the market with potential demand. The strategy offers the lowest prices for its products. Walmart Inc. feature as a cost leader, it charges as little as possible price. Customers prefer the company since it offers low-cost alternatives. The firm has achieved increased sales volume and, at the same time, builds the company profile in the retail market. Secondly, the reduction in costs translates to increased profits. The business has served a larger market share with global branches and enjoys reduced product costs has the potential to increase profit margin (Adekola & Sergi, 2016). The costs can be lowered on direct materials and labor costs, bringing down the total costs. The ultimate impact of the two options is reduced company costs and winning a new market.

Best Value

There is more than one company that applies the best-value to offer different types of goods and services to diverse customers. It is regarded as the best-value strategy since it avails products at the best price in the market. The best price is achieved through prudent management of resources to reduce costs and the value-chains lead-time. Walmart Inc. would sell at the best-value discounts products or services that do not bring cost-value. The company, due to its extensive operations, has relatively applied the strategy that covering broader markets, characterized by substantial budgetary allocations. The retailer enjoys economies of scale that can be shared with customers by offering the best prices. The strategy has worked well in its stores, as evidenced by global dominance in the real-world retail business.

Differentiation Strategy

The differentiation strategy focuses on the development of products or services, making it unique and attractive to customers. Walmart Inc. understands the perceptions by delivering products in the new market, which are valued by customers better than other competing products in the market. The uniqueness of the product can be achieved by adding value to the products or services offered according to the new market. The additional costs in enhancing the product or service can be recouped by charging a premium price. The premium will not only cover extra costs but also meet the profit margin set by the company. Due to traditional loyalty in other markets, a slight increase in the price may not affect the demand since substitutes have less in the market.

Currency Translation Adjustments

Foreign operations introduce currency translation challenges. However, the company has focused on a narrowed market segment and offers low prices for its products and services. The strategy targets a niche market characterized by little competition. The lowest price offered is informed by the ability of the business to understand market dynamics and sensitivity to the wishes of consumers. Thus, a business pursues the lowest costs and retains prices in a bid to obtain a cost advantage in the market. The success of the strategy stems from the ability of a firm to balance the production costs and delivery to the market by finding markets with optimal costs. Necessarily, it entails adding something extra and not only serving the niche.

Besides, offering unique products and services to a niche market characterized by the best value. The strategy adopts the firm establishment of a brand that seeks to build loyalty among consumers. The uniqueness of products or services places a firm ahead of any possible competition. The essence of the strategy includes unique products for a focused market. Therefore, the business solely depends on the habits of customers to develop products, which must be balanced between the production costs and delivery to the market by emphasizing on customers' unique needs. Customers' loyalty and the value for the firm’s products discourage other firms from entering the market. The strategy has worked for Walmart with some of its retail sections, such as high-end products, home appliances, and the electronics that seek to meet a specific niche market. The company has successfully addressed these needs owing to its intense research and innovation team guided by market demand. The business has successfully embraced by making its products to be unique, edging outs its competitors, such as Target Store. However, the recent advancement in technology and customers’ changes in tastes and preferences may affect the application of differentiation focus strategy.

Successful Business Model

Walmart Inc. has embraced the transaction revenue model, which is informed by customers’ visits to stores to purchase franchises. The model can seamlessly work with a cost leadership strategy adopted by the company and focused on the internal processes to achieved reduced costs. Fewer expenses recorded by the business can allow more investment in projects, such as increasing wages and salaries or committing on the product research. It has maintained a relatively constant and sustainable profit margin in situations where rivals’ firms engage in price wars, as other competitors make losses. The benefit that accrues to the firm can be attributed to the ability to sell goods or services at average prices and earn more profits as compared to competitors, hence, entering a new market. The approach is appropriate for Walmart since it has a substantial level of capital and distribution or efficient logistics systems.

Corporate Strategy

Walmart Inc. has already established retailing processes guided by efficient decision-making systems. Active management defines the corporate strategy of the organization; Walmart has been keen on setting out procedures and runs global stores through different principles designed to meet customers' expectations. Besides, a constant supply of low costs supplies that have positioned the company as a retail giant and substantial competitive cost advantages. The board and management have been instrumental in making sustainable decisions, proper planning, and giving daily supervision (Rothaermel, 2017). Subordinates are managed, and every department runs its activities but coordinated by the unit heads. Moreover, leveraging on the internal manufacturing and outsources services can be cheaper but guarantee quality services to the firm, eventually, enhancing competitive advantage. Despite the immense internal strengths, there are risks such as technology that has heightened competition and the ability of other firms to lower costs.

Strategic Foreign Growth

Besides the ability to identify a target market, Walmart Inc. has remained the cost leader that has streamlined internal operations, which has built a strong brand in the retail sector. It has helped the store understand customers and how it should handle their expectations. The company engages strong marketing and promotion teams in defining the brands and its uniqueness to achieve the desired success with the strategy. The promotion of a product's use and the durability boost appeal to customers and create a sense of value. Secondly, the uniqueness of Walmart products, such as grocery and services, has been attained through the engagement of reliable supplies and creative research and development expert.

Moreover, the firm has embraced technology, including the self-checkout system, and online marketing has boosted its retail business. Lastly, corporate reputation and efficient management system have fostered quality service delivery in stores, thus, connecting with customers with brands and guarantee long-term loyalty. However, the risks of the strategy include imitations by rival businesses, changes in customers’ tastes and preferences, as well as the emergence of focus strategies by other firms.

Conclusion

The global business strategy positions a company in the foreign market and offers consumers a better value, gaining competitive advantage or edge over other rivals. Some firms may be competitive than others when they lower prices to increase market share, while some may adopt approaches that focus on delivering unique brands of goods and services to the market. Therefore, strengthened economies of scale and lower operations costs are appropriate strategies that have been applied by Walmart Inc. to enhance competitive advantage on a broad scale. The utilization of the focus strategy cost and differentiation focus has been to boost competitiveness within a narrower market, and some of the retailing products. Despite the success of these different strategies, there is a need for businesses to apply integrated strategies due to business dynamics, the emergence of new technologies, and the desire to retain customers, as well as the market share. Understanding these strategies would help businesses adopt competing ways informed by multiple factors such as price, style, quality, and convenience.

References

Adekola, A., & Sergi, B. S. (2016). Global business management: A cross-cultural perspective. Routledge.

Jensen, C., & Zamborsky, P. (2018). Conviviality evaluated: Market entry and expansion strategies at the Pernod Ricard group. SAGE Publications: SAGE Business Cases Originals.

Rothaermel, F. (2017). Strategic management concepts (3rd ed.). New York, NY: McGraw-Hill.

Walmart Inc. (2019). Annual report. Retrieved from https://finance.yahoo.com/quote/WMT/financials?p=WMT