Walmart Perfomance Analysis (Essay Sample)

Walmart Performance Analysis
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Walmart Performance Analysis
Wal-Mart is the world’s largest retailer with revenues exceeding hundreds of billions of dollars each year. It consequently is also the world’s largest employer with a workforce of about 2.1 million people globally. A company of its size is prone a tirade of ethical issues and in the period between 2005-2011, Wal-Mart paid out approximately $ 1 billion in damages to employees in the U.S. in six different cases all related to ethical malpractices. The company has also been involved in multiple cases of bribery over the years, the most conspicuous case being the suspect payments made to Mexican officials that exceeded $24 million. In Asia alone, Wal-Mart had received about 90 reports of bribery from the 18 months beginning January 2012. However, despite the enormity of all settlements made by Wal-Mart to close cases related to ethical malpractices, the settlements rarely exceed $2 billion which is a tiny fraction of Wal-Mart’s global earnings.
Ethical issues extend to problems such as minimum wage for manufacturers in developing countries that supply their products to Wal-Mart. Most recently, the minimum wage of textile workers in Bangladesh, the world’s second largest exporter of garments after China, which amounted to $37 per month was among the lowest in the world and amounted to utter exploitation. Bangladeshi officials have been advocating for an increment of the minimum wage but they were met with resistance from foreign companies because it would result in increased prices for the eventual buyers of the garments around the world. Meanwhile, the CEO of Wal-Mart got a significant raise in his annual salary which amounted to $20.7 million.
Over the past eight years, 2007-2015, Wal-Mart stocks have generally been on an upward. This is in resonance to the general economic recovery since the stocks market crash and recession that began in 2007. The economic slowdown significantly impacted Wal-Mart operations and a number of strategies were adopted in an effort to enhance revenues while also sticking to the corporation’s core competence of providing affordable products to its customers.
Wal-Mart operates wholesale and retail stores across the world and its current store count stands at 11,156 stores. However, Wal-Mart’s earnings before interest, tax depreciation, and amortization trailed that of another major retailer, Costco, despite Wal-Mart achieving greater overall profitability. This could show that Costco runs its store much more efficiently than Wal-Mart which translates to greater EBITDA. Costco’s revenues per square foot were about three times higher than Wal-Mart’s. But this is explained by the fact that Costco is a wholesaler, which translates to greater sales metrics but this surely impacts its margins.
Wal-Mart’s per square foot profitability also trails other major retailers such as Metro AG, Tesco and AHOLD. To alter this position Wal-Mart has initiated several strategies aimed at improving its store profitability. Part of the solution to this problem is a shift towards larger stores, supercenters. Supercenters comprise the largest market segment reportedly worth $585 billion(Rothaermel, 2012). It provides Wal-Mart the opportunity to provide its whole variety of merchandise to customers thereby providing an opportunity for the company to improve it store profitability.
The supercenters also enable Wal-Mart to use them as fulfillment centers for its online sales as well as distribution points for the much smaller stores. Wal-Mart plans to increase its number of supercenters by 120 in 2015 and another 70 in 2016. This will translate to greater revenues and its stock prices will rise as a result. However, Wal-Mart will have to contend with information on the expected acquisition of Family Dollar Stores by Dollar Tree.
The most significant retail trend in recent years has been the surge in e-commerce activity and Wal-Mart has invested significantly in this area. Wal-Mart has put into great effect its existing network of supercenters and other retail outlets to be applied as fulfillment centers for its e-commerce sales. Wal-Mart has a significant competitive edge over its main e-commerce rival, Amazon, because if this incredible network of fulfillment centers while Amazon is trying to expand its network of fulfillment centers. Also noting that Wal-Mart is the world’s largest merchandiser of grocer, which is also Wal-Mart’s biggest revenue provider.
Wal-Mart particularly enjoys economies in purchasing as well as supply chain management and hence can offer lower prices than smaller companies. Besides grocery, Wal-Mart also provides a large variety of products ranging from electronics, health and wellness products, home improvement, among many other products. Entertainment also provides significant amount of revenue for Wal-Mart and this category accounts for up to 11% of Wal-Mart’s revenues annually.
Wal-Mart is particularly looking to exploit international markets from the current 27 countries within which it operates. However, Wal-Mart faces stiff competition from other international retailers such as Carrefour SA, Metro AG, Loblaw Companies, Tesco, and Ahold. Wal-Mart has had a surge in international revenues which grew at a compounded annual growth rate of 7.3% from 2009 to 2014. However, Wal-Mart’s international operations still trail its US operations which are partly due to high front-end costs that are involved in expanding their overseas efforts.
Wal-Mart isn’t really pushing towards investing the China market, which offers sig...