Part 2 of Paper

Walmart Expansion Analysis - Part 1

Marquita Green

University of Arizona Global Campus

BUS625: Data & Decision Analytics (FTF2117A)

Dr. James C. Hyatt

June 1, 2021

Introduction

Walmart U.S is considered to be one of the most successful multinational retail corporations based in North America. Started in 1962, today the company has over 2.2 million employees, and over 11,400 stores worldwide. Currently being one of the most well-known and valuable brands worldwide, the company recorded $ 341 billion in 2020 fiscal year. This figure represents over 2.8 per cent growth from 2019’s net sales of $ 331.7 billion. Walmart’ financial performance has been on the rise since its expansion in North America. According to estimations by future investors and lucrative analysts, the company is expected to be valued at $ 580 billion by 2026. Even with this projection, the company is still struggling with the current competition from companies like Amazon, Target and Costco which are actively investing in other markets (Martínez, Galván & Alam, 2020).

Walmart Market Strategy

The goal for this case study is to identify the potential and availability of business in alternate regions that will be feasible and eventually profitable for Walmart to expand to. From studying, Walmart’s presence in other countries, the company has diversified and branded its business through other business names worldwide. While this strategy improves the presence of Walmart in the country, it blindfolds customers over the real owner of the business. For example, in the United Kingdom, it is called Asda, Flipkart Wholesale in India, and Seiyu group in Japan. These business names help the business to familiarise the business to its customers by using locally identifiable names.

The research study, therefore, focusses on the implementation of Walmart shopping store in the Egyptian market. To effectively analyse the potential performance of Walmart in this new unventured market, we will identify the most recent expansions of the franchise in countries like Saudi Arabia (UAE) and South Africa where Walmart has grown and is part of the market. Walmart has managed to claim these markets by implementing their strategy where it continues to develop technology tools that better serve the customers by being more efficient in the delivery of services and maintaining 24hr services. This is achieved through more use of automated tools such as unloading conveyor systems, autonomous shelf-scanning robots and more.

With the introduction of the internet age, the company was found to benefit more from the supplier performance to benefit greatly on the market power and dominance in the US market. Suppliers according to research and findings from Mottner & Smith show that suppliers choose a low-cost strategy for low gross margins, and lower operating incomes (Mottner & Smith, 2009). As a result, these suppliers have a higher turnover from conducting business with the Wal-Mart franchise to gain market power.

According to market analysis over the last 5 years of Walmart operation from 2015 to 2020, the corporation has experienced a steady reduction in operating income from $27,100 in 2015 to $ 20,568 in 2020 ("Walmart Financial Statements 2005-2020 | WMT", 2020). Similarly, an income from continuing operations has been affected by seeing a reduction of income from $ 16,800 in 2015 to $ 15,201 in 2020. This is greatly dependent on the performance of the business in the 5yr span. As statista.com shows, the company had experienced a huge burst in expansion up to 2018 with over 11,700 stores worldwide ("Total number of Walmart stores worldwide 2008-2020 | Statista", 2020). 2019, saw a decline of most of these stores totalling to 11,301 stores open by end of the year.

Egypt Market Analysis

Egypt is the largest consumer market and most diversified market in the Arab world. Being an oil giant, the country has a high global national income generated from the sum of value-added products in taxes. The country has had a GNI per capita above $ 3460 from 2016 which has seen a reduction of about 22.25% decrease to 2019’s GNI per capita at $ 2690. Other than petroleum and natural gas exports from the country, Egypt also has a positive economy from agricultural products and tourism with millennia-old monuments siting along with the fertile lands of Egypt. With such a rich culture, it catapults the country to third best performing economy in all of Africa

The country is the third most populated country in Africa. With the internet service penetration all over the country, this has boosted the overall e-commerce business growth becoming the largest online market in Africa and the Middle East mostly from its large population.

While focussing on the Egypt retail market the retail of groceries and farm products is largely distributed by small or medium grocery retailers. According to US retail analysts, Egypt’s retail foods sector is expected to generate over $15 billion through all these forms of retailers. The retailing business from megastores and supermarkets is expected to grow with the overall use and penetration of internet services.

Population and demographic data

With a population of over 102.3 million residents in 2020, the country is one of the largest countries with the highest population. The population saw an increase of 1.94 % from 2019 which helps to show the viability of healthcare as well as the quality of life for most of the Egyptian residents. The life expectancy of most of the old generation is about 73 years.

The high population of residents in the country is concentrated around the Nile River. As a major source of water and food products, most residents concentrate around the banks as farmers and any other economic activity revolving around the resource ("Demographics of Egypt", n.d.). About 99.7 of all residents are native Egyptians while 0.3% constitutes other foreign nationalities such as Greeks, Italians Syrians and over 90,000 refugees from Palestine and Sudan.

Economic Inflation

Inflation rate in an economy results from the reduction of buying power of the currency used by the country; Egyptian Pound (EGP). Egypt’s economy has seen an increase in the annual inflation rate to 4.5 % as of October 2020. This was found to be as a result of the increase in the cost of vegetables and increasing the cost of education for the residents. The rise in inflation from a previous low of 3.4 in August 2020.

Labor Market Data

The unemployment rate in the country has seen a reduction in the last 10 years. From a rate of 13.1 in 2013, the rate has reduced to 11.4% as of the end of 2019. The reduced unemployment has improved the economies buying power making the economy robust and reduced jobless people. The effects of the February to July nationwide lockdown caused a significant effect on the unemployment rate with labour market offering fewer jobs and more residents being retrenched ("Egypt’s unemployment rate rose to a near two-year high in 2Q2020 | Enterprise", 2020).

Market environment

With an economic freedom score of 54.0, it ranked 142 as the freest economy according to 2020 index. With a low rank, it has reduced the growth in GDP over more than two decades. The country should be looking into improving their policies to enact regulations that best promote the business and improve the investment climate of the country.

Foreign exchange

Little foreign investment. Affecting currency exchange rates and fiscal policies. Investing in foreign investments for the country by improving the fiscal reforms can improve the investment climate for investors into the country. This can also help in reducing the countries public debt.

Credit environment outlook

The country has an all-time high external debt reaching $ 123. Billion in June 2020. This is an increase of over 10.3% from the previous year’s external debt of $ 111.3 billion. The increase in debt within one year can be attributed to the global pandemic of 2020. With such high debt, the country has a foreign direct investment which increased by $ 970 Billion by March 2020 and falling foreign portfolio investment.

Strategic risks

Competition

The Carrefour store, a UK brand was expanding into the Egypt market between 2019 and 2020 with significant capital of over EGP 500 million in both years. This financial decision shows the viability of the Egypt market for retail stores. Carrefour looks to establish over 30 stores in the country with the majority of the capital being used in the logistics and buying of existing stores from other businesses. Samir (2019) As of the end of 2019, Carrefour, the major Walmart competitor had 47 stores and 14 hypermarkets with most of these stores located in malls and around the major cities such as Cairo, Damanhour, Qena and Marsa Matrouh.

Local competition might also be stumbling block for Walmart presence in the country. Similar to other countries like India, the jurisdiction recommends that the organisation must source 30% of its products from local manufacturers and companies to boost their local economy. With such restrictions, Walmart might face more issues with the planning and forecasting of projected revenue within the Egypt market. Other competing mega-markets such as Mido, Saudi and Bandh also have huge markets.

Culture, Religion, and Language

The countries culture and religion might present possible risks with the introduction of a new mega-market franchise in the industry. Most of the populations consist of 90% Muslims and 10% Christians. This presents a cultural problem where there is a language barrier while trying to penetrate the retail industry. The political culture as well as the changing international business operational situations in the country is also tense and arouses uncertainty in every election period which causes an increase in inflation within the country ("Egypt Investment Risk", 2020). This and more risks might affect the business should Walmart choose to penetrate the retail industry in Egypt.

However, with a high unemployment rate, Walmart may present an increase in income for some communities and cities with high populations. The high population in some of the cities, it presents a lucrative market for the business to penetrate especially in eCommerce platforms. This might help the business enjoy low risks such as skilled and low-cost workforce as well as unique tourist potential customers that are familiar with the Walmart brand.

Generally, the penetration of a substantial and already performing retail business in Egypt such as Walmart will be opposed by the industry. This is because of the already proven track record and profitable nature of the business in other industries. The major hindrances for entry include government policies and regulations as well as the local industry that occupies the larger percentage of local retail of groceries and products. However, through persistence and cultural understanding, Walmart can take over other local supermarkets and improve their operations to match up the current industry heavyweights through local takeovers and merger contracts (Durand & Wrigley, 2009).

Walmart’s Business Strategy in Egypt.

Following the already functional strategy in other foreign markets, the company needs to adopt the same global market. The entering of the Egypt market will focus on providing existing products and services already available in the country. This allows the company to invest in both financial and non-financial resources to penetrate this market. Being a mass merchandiser, the company holds a wide variety of products in grocery, entertainment, health and wellness home and apparel merchandise. Providing low prices compared to the competition will always encourage residents to move towards the market offering from Walmart.

Promotional mix to attract new customers to their franchise is an important step for the business as it expands into Egypt. This can be achieved through an awareness of the services offered by the business as well as loyalty development programs and localisation of activities that helps in attracting customers for a trial purchase experience. Promotional services will run for over a year before bringing in in more channels such as internet advertising and announcements to further capture the market. The supply chain the company chooses and point of entry of products into the country also plays a huge role in the product pricing and forecasting for most of the products available from the store.

Conclusion

By focussing most of the investment capital into controlling a percentage of all supplied products into the country at low costs, Walmart can gain a piece of the retail industry, especially for non-locally produced goods. By capturing the supply market, the business can therefore manage to present a retail store that provides all the necessary products and goods locally at affordable rates better than the competition. In the same process, the company can manage to takeover processes for some smaller stores and become an angel investor to help in expanding and growing already existing businesses instead of having to open new stores on an unfamiliar brand. The projected sales and turnover from this strategy might prove to be better with over 9% turnover when compared to other failed stores both in Egypt and other countries such as India and Germany.

References

 Country risk of Egypt: Investment. (2020). Retrieved 31 May 2021, from https://import-export.societegenerale.fr/en/country/egypt/country-risk-in-investment

Demographics of Egypt. Retrieved 31 May 2021, from https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/d/Demographics_of_Egypt.htm

Durand, C., & Wrigley, N. (2009). Institutional and Economic Determinants of Transnational Retailer Expansion and Performance: A Comparative Analysis of Wal-Mart and Carrefour. Environment And Planning A: Economy And Space, 41(7), 1534-1555. DOI: 10.1068/a4137

Egypt’s unemployment rate rose to a near two-year high in 2Q2020 | Enterprise. (2020). Retrieved 31 May 2021, from https://enterprise.press/stories/2020/08/18/egypts-unemployment-rate-rose-to-a-near-two-year-high-in-2q2020-20456/

Martínez, A., Galván, R., & Alam, S. (2020). Financial Analysis of Retail Business Organization: A Case of Wal-Mart Stores, Inc. Retrieved 31 May 2021, from http://journal.nileuniversity.edu.ng/index.php/NileJBE/article/view/105

Mottner, S., & Smith, S. (2009). Wal-Mart: Supplier performance and market power. Journal Of Business Research, 62(5), 535-541. DOI: 10.1016/j.jbusres.2008.06.012

Samir, N. (2020). Carrefour to invest EGP 700m, EGP 500m by end of 2019, 2020 respectively - Daily News Egypt. Retrieved 31 May 2021, from https://dailynewsegypt.com/2019/10/11/carrefour-to-invest-egp-700m-egp-500m-by-end-of-2019-2020-respectively/

Total number of Walmart stores worldwide 2008-2020 | Statista. (2020). Retrieved 31 May 2021, from https://www.statista.com/statistics/256172/total-number-of-walmart-stores-worldwide/

Walmart Financial Statements 2005-2020 | WMT. (2020). Retrieved 31 May 2021, from https://www.macrotrends.net/stocks/charts/WMT/walmart/financial-statements