SWOT Analysis Essay Sample
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Introduction of TOPIC
Deciding on a company to invest in should not be done without careful consideration. An analysis should be done first to help determine if the risks of investing in a company are likely to pay dividends. A SWOT analysis is a way to help an investor make that decision. A SWOT analysis is a tool that evaluates the strengths, weaknesses, opportunities, and threats of an organization (“SWOT Analysis,” n.d., para. 1). Taking the information from an environmental analysis and separating it into internal and external issues is the method the SWOT analysis uses to evaluate an organization (“SWOT Analysis,” n.d., para. 1). Even before investing in a Fortune 500 company like Wal-Mart with revenues of $447 billion in 2012, it is important to evaluate the company to determine if it will continue to be a successful investment (“Wal-Mart Stores,” 2012, para.
1). SWOT Analysis
A company does not climb to the top of the Fortune 500 list without possessing a few strengths. The size and consumer reach of Wal-Mart is massive. Wal-Mart stores service 200 million customers per week (“Our Story,” 2012, para. 1). The company operates more than 10,000 retail stores in 27 countries (“Where in the World,” 2012, para. 2). The largest grocer in the United States with more than $120 billion in food sales per year is Wal-Mart (Bustillo & Kesmodel, 2011, para. 3). Wal-Mart’s ability to negotiate lower prices from other companies and pass that savings on to customers is also an advantage. The company’s customer base is so large compared to other retailers that it can negotiate reduced prices with suppliers on some products that make it virtually impossible for other businesses to compete (“How Did Wal-Mart,” 2006).
Wal-Mart has a very organized inventory, warehouse, and distribution structure that not only helps to maximize its ability to bring products to customers but also reduces costs for the company and its patrons. A computer inventory system is connected to Wal-Mart headquarters and keeps track of inventory as it is scanned at the check-out line and automatically sends order requests to the warehouse (“How Did Wal-Mart,” 2006). The system helps to ensure that products are available when needed and automatically adjusts orders for fast selling items to make sure the products are in the stores. To maximize efficiency of distribution from the warehouses to the stores, distribution centers are planned and built sometimes five years ahead of projected new outlet locations so that each center can service the maximum number of stores within a minimal distance (“How Did Wal-Mart,” 2006). Wal-Mart’s distribution and technologically advanced inventory system allows the company to operate at a very high and stable level of efficiency.
There are no perfect businesses. Wal-Mart, like other businesses, has weaknesses. One weakness can be the variety of products that Wal-Mart sells. The diversity of products allows Wal-Mart to capture a piece of many markets, but it does not allow the company to specialize in any. Consumers may choose to shop at other businesses that can provide specialty products that big-box retailers like Wal-Mart do not carry (Brooks, 2011, expression 3). Wal-Mart’s size does not allow the more personalized customer experience that other companies can provide nor does it allow for a strong nostalgic connection with the community (Brooks, 2011, expression 7). Although the size of the company gives it an abundance of power and persuasion, Wal-Mart’s size does not allow for the finesse to win over certain demographics looking for a more specialized product or customer service. Wal-Mart’s ongoing crusade to bring its customers the lowest prices causes problems and can be argued is a weakness.
The company can negotiate the discounted prices for its customers, but trying to establish everyday low prices can limit the quality of items its stores carry. Consumers are not always looking for the lowest price or average quality, and stores that offer high quality products have an advantage over Wal-Mart and their low cost philosophy (Brooks, 2011, expression 1). Companies like Nike offer discount retail versions of their products like Starter to Wal-Mart customers instead of their high-end merchandise (Callimachi, 2005). If customers want the high-end product they have to shop elsewhere. The low price philosophy that Wal-Mart adheres to limits their ability to provide customers with some of the products they want.
There are many aspects a company can influence or control on its own, but there are outside events that can affect the business as well. The United States economy is one outside factor that companies like Wal-Mart cannot control. The recession has led to consumers needing to spend less as individuals have lost their jobs or homes. Marshal Cohen, who is chief industry analyst at The NPD Group Inc. who specializes in consumer behavior, says “Consumers still want name-brand products, but t
hey want them for less” (Birkner, 2012, para 9). A company like Wal-Mart with its business plan of
Government policy changes can have an effect on Wal-Mart’s success. Analysts say that “foreign direct investment (FDI) in India’s largely unorganised [sic] retail sector will help curb inflationary pressure by easing supply side constraints and revive economic growth” (“FDI,” 2012, para. 1). Prime Minister Manmohan Singh of India helped make the decision to allow up to 51% FDI in multi-brand retail (“FDI,” 2012, para. 4). This decision makes way for Wal-Mart to invest in front-end retail stores in the country. Governmental policy changes like India’s can open new opportunities for a business such as Wal-Mart that it did not have previously.
Just as outside influences can provide positive opportunities for a company, they can also pose threats to the company’s ability to do business. Politicians and union groups like those in New York City fear that Wal-Mart will have a devastating effect on local businesses so have worked tirelessly to try to block Wal-Mart from opening stores in their areas (Bhasin, 2012, para. 3). Patrick Purcell, a spokesman for the United Food and Commercial Workers Union Local 1500, claimed that blocking Wal-Mart from opening stores in New York City is a win for the community (Bhasin, 2012, para. 6). Wal-Mart is opposed by outside forces like politicians, unions, and consumer advocacy groups that prevent stores from being opened in communities. Wal-Mart can control the way it operates itself to attract business, but it cannot control outside companies from drawing away its customers. Online shopping has become very popular and companies like Amazon do online retail extremely well.
Even with its discounted prices, primarily brick-and-mortar stores like Wal-Mart cannot compete with some of the prices of online outlets like Amazon with its super low overhead and ability to sell merchandise without sales tax in some states (“Walmart vs Amazon,” 2012, para. 2). Companies like Amazon that operate strictly online are better at watching for personal shopping trends and offer customers enrollment in discounted shipping programs that Wal-Mart cannot compete with (“Walmart vs Amazon,” 2012, para. 5). Amazon became the thirteenth largest retailer in 2011, and although Wal-Mart can make adjustments to its own practices, it has no control of outside companies growing and competing with them in the new online markets (“Walmart vs Amazon,” 2012, para.
Employees are stakeholders who Wal-Mart invests in. Sam Walton, founder of Wal-Mart, said, “Our people make the difference” (“Working at Walmart,” 2012, para. 2). Wal-Mart employs over 2.2 million people and offers a benefit package that includes options like up-front cash to pay for eligible medical expenses as well as matching up to six percent of contributions to their 401k program (“Opportunity,” 2012). The business also does its best to groom its employees to take on larger responsibilities within the company. Nearly 75% of Wal-Mart management team members began at Wal-Mart as hourly associates (“Opportunity,” 2012). Wal-Mart’s employee pool is diverse and includes associates from countries all over the world, and the company promotes employees without regard to gender. There were 180,000 hourly associates in 2011 that received promotions and 53% of those associates were women (“Opportunity,” 2012). Developing a diverse and invested workforce assists in the success of the company. The community is another stakeholder in the company. Wal-Mart started the “Fighting Hunger Together” program in 2010, which is a $2 billion cash and in-kind commitment that will run until 2015 to help fight hunger in the communities the business serves (“Hunger Relief,” 2012).
The program to date has provided communities with more than $122 million in grants and 594 million pounds of food (“Hunger Relief,” 2012). Wal-Mart has nine disaster distribution centers across the country stocked and ready to provide rapid response to communities in the event of a natural disaster (“Walmart Logistics,” 2012). In August 2012, Wal-Mart announced a program that provided 90,000 teachers with $4.5 million in school supplies to bring back to their classrooms at struggling schools (“Walmart Classroom Supplies,” 2012, para. 1). In addition to some of its charitable contributions, Wal-Mart brings jobs to communities in a time when jobs are sorely needed. Approximately 300 jobs with benefits are created every time a Wal-Mart Supercenter opens its doors (“Our Story,” 2012).
The company also encourages its managers to buy local produce in proximity to its distribution centers even if the local produce costs more than what can be purchased much farther away (Bustillo & Kesmodel, 2011). Purchasing from local farmers may cost Wal-Mart more money but doing so helps put money back into the local economy. Wal-Mart is very involved in the communities it serves. A third stakeholder in the company is the customers. Customers’ needs are met by Wal-Mart by providing the products they want at affordable prices. Sam Walton’s belief in saving people money so they can live better still carries on today (“Sam Walton,” 2012, para. 8).
Not only are the prices low but Wal-Mart also attempts to make the shopping experience a positive one by hiring greeters to welcome customers to the store and using a yellow smiley face to help bring attention to discounted items. Associates can use the electronic inventory system to help customers locate the items they need. If that store is out of stock on the item, the associate can direct the customer to a nearby store that has it or can tell the customer when the item is expected to arrive on the delivery truck (“How Did Wal-Mart,” 2006). The customer is important to the business, and Wal-Mart has devised many ways to meet customers’ needs.
After performing a SWOT analysis on Wal-Mart, an argument can be made that the company would be worthy to invest in. The size and persuasion the company possesses are traits that will not soon go away. The internal weaknesses of the company like its inability to offer high-end and luxury items or its inability to specialize are outweighed by the stranglehold the company has on everything else. External forces are always at work that can either help bolster Wal-Mart’s ability to do business or at other times slow it down, but the number of stores continues to increase. The company enjoys profits in the billions and has moved further into the global market. By keeping its stakeholders in mind, Wal-Mart should continue to strive.
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