There are a number of weaknesses that Wal-Mart is currently facing. Currently, Wal-Mart is facing a number of legal lawsuits which could impact its financial position in the near future. In most of the legal proceedings, the company is forced to make accruals for the ongoing cases which impact its financial position. For instance, the company is currently engaged in a lawsuit with the Braun/Hammel as the plaintiff. In 20006, Wal-Mart was forced to pay $ 78 million after losing a lawsuit filed by a former employee (“Walmart,” 2016). Another weakness is that Wal-Mart’s business model can easily be copied by other firms. Wal-Mart lacks a unique competitive differentiator from other companies apart from its large business size. Wal-Mart is facing stiff competition from other stores such as Kmart and Target. The home consumer sales segment of Wal-Mart is also facing stiff competition from small dollar stores such as Dollar General and Family Dollar. Wal-Mart charges low prices for their products which leads to a low profit margin for each item sold. Lastly, Wal-Mart has a high employee turnover rate partly due to low compensation.
In the recent period, Wal-Mart introduced the neighborhood store format that is basically a chain of grocery stores. These grocery stores bridge the gap between supercenters and discount stores. The new neighborhood format stores does not run counter to the cost-cutting strategy employed in traditional stores. Neighborhood store format is meant to increase sales growth by diversifying in different products. According to Walmart (2015), the new neighborhood market format contributed to about 6 percent of the total sales growth recorded in the company in 2015. Although service departments like neighborhood stores are attributed with high labor costs, Wal-Mart has been able to offset these costs. Neighborhood market provides basic grocery operations in addition to an assortment of foods which consumers can carry to cook at home. Such foods have low costs to the company. Also, Wal-Mart provides ready-to-eat foods at these stores. These foods have little costs in terms of storage and other costs. Other foods are self-service and need only be heated. This reduces running costs for these stores.
There are a number of challenges that Wal-Mart faces in its international expansion strategy. Wal-Mart has already experienced some of these challenges, as evidenced in the poor international revenue growth of 1% recorded in 2013 (“Trefis Team,” 2014). As the company expands, it is exposed to global economic conditions in overseas countries. For instance in Mexico, the company recorded low sales in 2014 following a slowdown of the economy. Another challenge lies in understanding consumer buying decisions and preferences in international markets. For example in the U.S., low prices attract consumers to Wal-Mart. However in places such as China, Wal-Mart has experienced problems understanding the local’s buying decisions as they are not entirely driven by price (“Trefis Team,” 2014).
Wal-Mart also faces intense competition in foreign countries. Currently, local stores in foreign countries have copied Wal-Mart’s model. Since these foreign stores have a better understanding of consumer behavior and preferences, they are better placed at beating the competition. Difficulties in understanding the local culture have also had a negative impact on Wal-Mart’s international stores. For instance in Germany 2006, the store’s management required salespersons to give customers a smile. This was however interpreted as flirting especially if it came from a lady directed to a male customer (Landler & Barbaro, 2006).
Walmart. (2015). 2015 Annual Report. Retrieved from: http://s2.q4cdn.com/056532643/files/doc_financials/2015/annual/2015-annual-report.pdf
Landler, M., & Barbaro, M. (2006, Aug. 2). Wal-Mart Finds That Its Formula Doesn’t Fit Every Culture. The New York Times.
Trefis Team. (2014, April 2). Challenges Wal-Mart Faces In Mexico and China. Forbes.