Challenges to Wal-Mart
Although Wal-mart is still a leader in retail consumer industry and setting new heights of success in its industry but it is also a fact that Wal-mart sales growth rates are declining continuously. Category and specialized stores have also become more challenging for Wal-mart stores. Compare to US market; Wal-mart does not get as positive response in few international markets. It is due to cultural variance and ineffectiveness of its distribution channel in those economies.
Wal-mart is trying to overcome this obstacle through acquisition of local stores chains in host countries to get familiarized with local customer preferences and buying patterns. On strategic grounds Wal-mart is facing a great challenge of expanding its sales through increase in consumer share of spending on its goods. In the presence of tough competition through advertising and marketing campaigns of Target, Kohls and Macys etc, Wal mart requires another strategic move. Wal-mart is also facing criticism and challenges on human resource front.
It is continuously accused of being an employer to kill small town and small business operations and retail chain stores. The history of Wal-mart is filled with obligation on management for employee discrimination, low wages and steps against non unionization of labor. Wal-mart also
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Wal mart is selling branded products at low prices. “There is so much more to the low price strategy at Wal Mart than simply buying from the manufacturer at the lowest possible price. ” (Michael Bergdahl, pg 121, 2004) Its strategy is to force competitors to keep their prices low in order to stay in the market. It forces them to reduce their profit margins to minimum and earn less money. Fewer profit margins make them less competitive in industry because they won’t be able to stock large inventories. Simultaneously, it follows the strategy that no vendor sales volume can exceed more than 4% of total sales volume of Wal-Mart.
Wal-Mart is playing the role of intermediary between vendors and retailers to cater consumer’s needs. It helps in controlling the bargaining power of suppliers and reducing substitution affect. This approach reduces Wal-Mart dependence on any particular vendor and helps in substituting a vendor incase of any dispute or issue arises. Wal-Mart strategy of lowering down prices is not very successful for its international operations. In Germany Wal-Mart was officially asked to raise its prices little bit in order to respect competitor’s right according to German Law. Wal- Mart has moved to China because most of its vendors are from China.
It is also gaining popularity among masses in China but a threatening question for Wal Mart in Chinese economy is the fact that most of Chinese retailers are selling their goods at cheaper rates than Wal-Mart due to their longer presence in the market and strong relations with low cost suppliers. Discounting has been the dramatic strategic weapon for retailers in food and grocery segments. “Through market segmentation each discounter has focused on serving a distinct segment of the American market. ” (Thomas O. Graff, 2006, pg 54)Due to this reason most of businesses are capable of maintaining their stake in the retail industry.