IndexExecutive SummaryIntroductionDemand DeterminantsConsumer PreferencesProduction Operations and CostsCompany Ownership and GovernanceMarket StructurePricing StrategiesRisk ManagementExecutive SummaryWal-Mart has maintained power as a leading retailer with a reputation for crushing the competition with its unparalleled prices for decades. Once upon a time, when Wal-Mart came to a city, local businesses would close their doors and disappear soon after, unable to compete with the department stores. However, with the advent of the Internet and e-commerce, this steadfast retail giant now struggles to remain relevant. In this new age of social media and instant gratification, Wal-Mart strives to reduce dead weight, revamp its technology, appear to be a morally conscious company, and stay true to its mission of providing customers with low prices every day. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Introduction Wal-Mart Incorporated is a publicly traded retail company on the New York Stock Exchange, under the symbol WMT. Wal-Mart offers discounted prices on common household items and essentials at supercenters, discount stores and local markets. Founded by Sam Walton in 1950 in Bentonville, Arkansas, it now operates in 28 countries, with 11,700 stores. Wal-Mart Inc. sells items such as groceries, appliances, housewares, furniture, clothing, etc. Along with these products, it also offers photo lab, pharmacy, financial, automotive repair and maintenance, and wireless phone services to its approximately 270 customers. millions of customers weekly. The cornerstone of Wal-Mart's business model is making low prices available to its customers every day by working directly with manufacturers. Eliminating markups and providing affordable products for purchase allows Wal-Mart to attract cost-conscious and price-conscious shoppers. Their clientele is predominantly low-income buyers who earn less than $50,000 a year and are more likely to have children at home. Wal-Mart can afford to offer such low prices for its products due to the sheer volume it sells, making it an optimal example of economies of scale. By keeping operating costs low, Wal-Mart can manage low margins and not only remain profitable due to large quantities sold, but it also gives the company a high level of bargaining power with suppliers. While Wal-Mart focuses on providing customers with high value at a lower/lower cost alternative, it also seeks to remain a strong, competitive retailer, its employees' conscience, and customer satisfaction. Demand Determinants Although Wal-Mart has a smaller percentage of consumers who have higher incomes, the prevailing theory is that Wal-Mart's products are also inversely affected by the income of its consumers. Some researchers argue that Wal-Mart provides more affordable substitute goods than those of other high-end retail stores, meaning that as income increases, demand decreases. This is believed to have been especially clear during the Great Recession from 2008 to 2012, when consumer purchasing power declined significantly, even as Wal-Mart somehow remained profitable. In the study “Everyday low price – a blessing in disguise for Wal-Mart during the recession”, Dr. Ravindra P. Saxena and Arpana Sharma (2011) stated the following: In 2008, while the recession was at its worst , Wal-Mart was one of the most popular stocks on Wall Street. In recession, whenmost retailers struggle for their survival; Wal-Mart records its growth year after year. It appears that Wal-Mart is immune to economic pressures and appears to be benefiting from this recession. Wal-Mart's advantage during the recession is not only the low prices but also the good value they offer to their customers proving their saying "save money, live better". EmekBasker of the University of Missouri used Wal-Mart's quarterly revenue data from 1997 to 2006 to find the elasticity of demand. He concluded that Wal-Mart's price elasticity of demand is -3 with an income elasticity of demand of approximately -0.72. This means that if “personal incomes fell by 2%, revenues at each of Wal-Mart's stores would increase, on average, by 1.44%.” However, more convincing opposing data was presented in 2016 by University of South Dakota economics professor Dr. Mandie Weinandt. Weinandt explains that by extending the data range from 1997 to 2010 to include data from the US recession, Wal-Mart is not as "recession-proof" as Basker describes it. He calculates a positive income elasticity of 0.919 and concludes that Wal-Mart products are normal goods. This means that if income increased by 2%, revenue would also increase by 1.84%. “Wal-Mart's strategy is very advantageous in times of recession as they experience a relatively less negative effect on revenues. The downside is that Wal-Mart's revenues will not benefit much from the economic boom." Ultimately, the biggest determinant of demand for Wal-Mart products is price. Consumer Preferences Wal-Mart has built its reputation on low prices; at its peak, competitors in the form of small local businesses or other large retailers had difficulty competing for consumers' attention. With Wal-Mart's low prices and equal if not greater value, consumers were much more easily enticed to spend at their stores. Wal-Mart was and continues to be a powerful contender, with a place as one of the most important retailers for shoppers. However, with the increased availability of e-commerce retail, shoppers can now choose not only Wal-Mart as a convenient retailer, but also Amazon. Due to the wide range of items and services offered by Wal-Mart, the company is in constant competition with other retailers who sell perfect substitutes for their products. There are four stages in the purchasing process: needs recognition, pre-purchase activities, purchase decision and post-purchase activities. The first two phases involve searching for further information about the product, while the purchase decision phase concerns consumers' purchasing behavior. With easy and free access to the Internet, shoppers can easily compare prices to find the best retailer to buy from. They no longer assume that Wal-Mart sells the item they intend to purchase at the lowest price. Shoppers can now easily scan a barcode and compare prices from their phones. However, despite these comparisons, Wal-Mart uses several methods to increase value in the minds of consumers, one of them is bundling. While Wal-Mart may not offer “buy one get one free” (BOGOF) sales, it does accept manufacturing coupons and occasionally lower the price of complementary products to increase demand for both. Another method to pursue is to alter the formatting of the price shown to consumers; Wal-Mart displays the current sale price of the item as well as the highest original price of the item. This formatting positively affects consumers' willingness to purchase and reminds them ofbenefits of shopping at Wal-Mart. Creating a sense of added value for the customer is an effective strategy for increasing sales, however, it does not always succeed in preventing consumers from shopping elsewhere. Operations and Manufacturing Costs Ensuring that each Wal-Mart store can handle the 270 million weekly customers, Wal-Mart employs 2.2 million employees worldwide, 1.5 million in the U.S. In addition to employees, Wal-Mart uses various technologies to track inventory, sales, returns and distribution conducted by customers and staff. The $16 billion spent on automation and online and mobile accessibility brought about by these technologies helps improve the employee and shopper experience. “The Wal-Mart brand is at the center of a new ecosystem that integrates shopping, services, health and wellness, and first-party and marketplace electronic communications,” Oliver Chen, a financial analyst, wrote to Wal-Mart investors. “WMT is seizing the moment to transform through innovation and leveraging unique assets for stores, groceries and people. We believe the new guidance appears achievable and beatable.” , with manufacturing locations that extend beyond the United States and in many other countries including China, India, Bangladesh, Cambodia, Chile, Mexico and Peru. As a company, Wal-Mart is “focused on improving productivity across the organization and optimizing expenses.” While they are not where they would like to be, they are committed to “improving processes and increasingly using technology and automation to be more productive.” Wal-Mart's variable costs total $373.4 billion and include labor benefits and employees, transport, energy, utility costs, etc. The fixed cost of $105.31 billion includes Wal-Mart property rent, advertising costs, insurance, etc. Mart's fixed costs are high, in the short term it would not change any production decisions, it would only influence long term production decisions. Furthermore, although Wal-Mart's variable costs are high, because it operates economies of scale, the average variable cost would decrease significantly due to the level of quantities sold. As long as Wal-Mart's average variable cost curve remains below the point at which the marginal revenue curve intersects the marginal cost curve, the point at which Wal-Mart's profits are maximized or at that point, in the short term Wal-Mart should continue production. Although Wal-Mart demonstrates large economies of scale, it also demonstrates economies of scope. Instead of specializing in a single product or service, Wal-Mart uses this cost advantage to sell a wide variety of items. In this situation, it is cheaper to produce more of one good or service through the same organization than separately. Furthermore, by adding a learning curve, a graphical representation of the effect learning has on productivity, the average total cost would decrease. Through learning by doing, the average cost of producing goods for a firm operating in economies of scale would decrease while production would increase. The more units a worker produces, the less time it takes for the worker to produce the same unit, increasing Wal-Mart's efficiency. Company Ownership and Governance Although top managers and countless employees have worked to make Wal-Mart Inc. not only successful but successful, not all aspects of Wal-Mart may be morally or ethically agreeable. Many times over the course of his run, shareholders have benefitedstatus as a publicly traded company. If Wal-Mart was privately owned by a sole proprietor or in partnership with someone in the Walton family, they would have been responsible for the hundreds of lawsuits filed against Wal-Mart. In October 2018, Wal-Mart agreed to pay $65 million in a class action lawsuit against 100,000 current employees for failing to provide them with chairs to sit on. 18 days later, it was also reported that Wal-Mart settled a $160 million lawsuit alleging that Wal-Mart "made false and misleading statements in Securities and Exchange Commission filings about allegations of bribery at a pension fund. In as a company, the liability of shareholders is limited, since Wal-Mart is a separate entity. This means that the burden of paying legal fees and necessary transactions falls on the company. The costs of being a publicly traded company may include the cost of labor to generate financial data, audit committees, accounting oversight committees, to ensure that the company complies with the Securities Exchange Act of 1934. This results in the loss of autonomy and control over certain decisions, in ownership quality of the organization. With pressure from stakeholders to focus on short-term results, the company may suffer by ignoring long-term success profitability. With too many opinions in the mix, it's a calculated risk for Wal-Mart to remain public. Market Structure Wal-Mart's significant market power and limited competition among other companies such as Target and Costco give it an oligopolistic market structure. In this structure, few companies compete with each other for consumers' attention. Wal-Mart's business model is difficult for even the most experienced company to counter. As an emerging or existing company, it would be difficult to participate in this competition due to the numerous barriers to entry. In an oligopolistic market structure, dominant firms use tactics such as price gouging to compete with smaller or less established firms. This pushes smaller companies out of the market and eliminates any motivation to compete. While this structure generates high profits for Wal-Mart, managers must also constantly keep an eye on other companies' prices to ensure their prices remain competitive. Depending on the actions of other companies, Wal-Mart may have to increase or decrease production, price, advertising, etc. All these decisions made by Wal-Mart can affect its profit, costs and position in the market. market, Wal-Mart is doing relatively well compared to its competitors in terms of profit. While nearly three times higher at $9.86 billion in 2018, Wal-Mart's accounting profit has been steadily declining since 2014, when it stood at $15.9 billion. However, when comparing its profitability ratios, Wal-Mart comes up short. Its 2018 return on assets (ROA) is 4.89, return on equity (ROE) is 12.67, and revenue per employee is 217,540. However, Target's ROA is 7.55, ROE 25.47 and revenue per employee 204,975; Costco ROA 8.14, ROE 26.66, revenue per employee 579,449. When these ratios are taken into consideration, Wal-Mart's competitors are currently more efficient at using their resources and capital to increase sales. Pricing Strategies Remaining competitive with other department stores and online retailers is necessary for Wal-Mart's continued profitable success. In an effort to reduce shipping costs, Wal-Mart uses a price discrimination strategy to mark up the price of online products higher than the.