Table of ContentsExecutive SummaryIntroductionDeterminants of DemandConsumer PreferenceOperations and Production CostsCorporate Ownership and GovernanceMarket StructurePricing StrategiesRisk ManagementExecutive SummaryWal-Mart has held power as the leading retailer with reputation for crushing its competitors under its lowest price level in decades. In the past, when Wal-Mart came to a town, local businesses would close their doors and disappear shortly after, unable to compete with big box stores. However, with the rise of the internet and e-commerce, this steadfast retail giant is now struggling to stay relevant. In this new era of social media and instant gratification, Wal-Mart is working to reduce its dead weight, revamp its technology, look like a morally conscious company, and stay true to its mission of providing customers low prices every day. Say no to plagiarism. Get a Custom Essay on “Why Violent Video Games Should Not Be Banned”?Get the original essayIntroductionWal-Mart Incorporated is a retail company listed 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 neighborhood markets. Founded by Sam Walton in 1950 in Bentonville, Arkansas, it now operates in 28 countries and has 11,700 stores. Wal-Mart Inc. sells items such as groceries, appliances, home goods, furniture, clothing, and more. Along with these products, they also offer photo lab, pharmacy, financial services, automotive repair and maintenance, and wireless phone services to their approximately 270 customers. million weekly customers. The cornerstone of Wal-Mart's business model is providing customers with everyday low prices by working directly with manufacturers. Eliminating markups and providing products that are affordable to purchase allows Wal-Mart to attract cost-conscious and price-savvy shoppers. Their customer base is primarily 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 because of the sheer volume it sells, making it an optimal example of economies of scale. By maintaining low operating costs, Wal-Mart can manage low margins and not only remain profitable due to the large quantities sold, but it also gives the company a high level of negotiating power with suppliers. Although Wal-Mart is focused on providing its customers with high value at a lowest/lowest cost alternative, it also strives to remain a highly competitive, employee- and community-conscious retailer. satisfaction of its customers. Determinants of Demand Although Wal-Mart has a smaller proportion of consumers who have higher incomes, the theory that Wal-Mart's products are also inversely affected by the income of its consumers is widespread. Some researchers say Wal-Mart offers more affordable substitutes than other high-end retail stores, meaning that as incomes increase, demand decreases. This appears to have been particularly evident during the Great Recession of 2008 to 2012, when consumer purchasing power declined significantly, although Wal-Mart remained, in some way oron the other, profitable. In the study “Everyday Low Prices – A Blessing in Disguise for Wal-Mart During the Recession”, Dr. Ravindra P. Saxena and Arpana Sharma (2011) stated the following: In 2008, when the recession was in At its peak, Wal-Mart Mart was one of the most popular stocks on Wall Street. In times of recession, when most retailers are struggling to survive; Wal-Mart is growing year after year. It appears that Wal-Mart is insulated from economic pressures and appears to be benefiting from this recession. Wal-Mart's advantage during the recession is not only their low prices but also the good value they offer to their customers by proving their saying "save money, live better". As the recession began in 2008, Assistant Professor Dr. EmekBasker of the University of Missouri used Wal-Mart's quarterly revenue data from 1997 to 2006 to determine the elasticity of demand. She concluded that Wal-Mart's price elasticity of demand was -3 with an income elasticity of demand of approximately -0.72. This means that if “personal income decreased by 2%, each Wal-Mart store’s revenue would increase by an average of 1.44%.” However, more compelling opposing data was presented by University of South Dakota economics professor Dr. Mandie Weinandt in 2016. Weinandt explains that by extending the data range from 1997 to 2010, to include US recession data, Wal-Mart is not as "recession-proof" as Basker describes it. She calculates a positive income elasticity equal to 0.919 and concludes that Wal-Mart products are normal goods. This means that if revenue increases by 2%, revenue will also increase by 1.84%. “Wal-Mart's strategy is very beneficial during a recession because the negative impact on revenue is relatively less. The downside is that Wal-Mart's revenue won't benefit as much from economic booms. Ultimately, the primary determinant of demand for Wal-Mart products is price. Consumer Preference Wal-Mart has built its reputation on its low prices; At its peak, competitors in the form of small local businesses or other large retailers struggled to compete 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 still is a strong competitor, with a place among shoppers' most popular retailers. However, with the increased availability of retail e-commerce, shoppers now not only have Wal-Mart to choose from as a profitable 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, purchasing decision, and post-purchase activities. The first two stages involve searching for more information about the product, while the purchase decision stage concerns consumer purchasing behavior. With free and easy 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 cheapest price. Shoppers can now easily scan a barcode and compare prices from their phone. However, despite these comparisons, Wal-Mart uses different methods to increase value in mindconsumers, one of them being consolidation. Although Wal-Mart does not offer BOGOF sales, they accept manufacturing coupons and occasionally lower the price of complementary products to increase demand for both. Another method to follow is to change the formatting of the price displayed to consumers; Wal-Mart displays the item's current discounted price as well as the item's original higher price. This formatting positively affects the consumer's willingness to purchase and reminds them of the benefits of shopping at Wal-Mart. Creating a sense of added value for the customer is an effective strategy for increasing sales, however, it is not always effective to prevent consumers from shopping elsewhere. Operations and Production Costs To ensure that each Wal-Mart store can handle the 270 million weekly customers, Wal-Mart employs 2.2 million associates worldwide, 1.5 million in the United States. In addition to employees, Wal-Mart uses several different technologies to track inventory, sales, returns, and distribution made by customers and staff. The $16 billion spent on automation and online and mobile accessibility through these technologies aims to improve the employee and buyer experience. “The Wal-Mart brand is at the center of a new ecosystem that integrates shopping, services, health and wellness, as well as first-party and marketplace electronic communications,” wrote Oliver Chen, a financial analyst to investors at Walmart. “WMT seizes the opportunity to transform through innovation and the use of unique store, grocery and human resources assets. We think new directions seem achievable and beatable.” To offset this cost, Wal-Mart holds many of its operations overseas, with manufacturing sites that extend beyond the United States and into several 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.” Even though they're not where they want to be, they're dedicated 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 and benefits, transportation, energy, utility costs, and more. Its fixed cost of $105.31 billion includes rental of Wal-Mart properties, advertising costs, insurance, etc. Since Mart's fixed costs are high, in the short run it would not change any production decisions, it would only affect production decisions in the long run. Additionally, although Wal-Mart's variable costs are high, due to 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 where the marginal revenue curve intersects the marginal cost curve, the point where Wal-Mart's profits are maximized, or on that point, then in the short run , Wal-Mart should continue production. Although Wal-Mart demonstrates great economies of scale, they also demonstrate 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 a good or service through the same organization rather than separately. Additionally, with the addition of a learning curve, a graphical representation of the effect oflearning about productivity, the average total cost would decrease. Through learning by doing, the average cost of producing goods for a firm operating under economies of scale would decrease while production would increase. The more units a worker produces, the less time it will take to produce the same unit, which adds to Wal-Mart's efficiency. Corporate Ownership and Governance Although senior management and countless employees have worked to make Wal-Mart Inc. not only prosperous, but successful, not all aspects of Wal-Mart can be morally or ethically sustainable. . On several occasions, throughout its existence, shareholders have benefited from its status as a publicly traded company. If Wal-Mart was privately owned by a sole proprietor or in partnership with a member of 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 over that period. 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 had settled a $160 million lawsuit in which Wal-Mart "made false and misleading statements in securities matters and Securities Commission filings regarding allegations of corruption at a pension fund. As a corporation, shareholders' liability is limited, as Wal-Mart is its own entity. This means that the burden of paying legal fees and necessary settlements falls on the company. Costs associated with being a publicly traded company can include the cost of labor to generate financial data, audit fees, accounting oversight committees, to ensure the company complies with Securities Exchange Act of 1934. This results in a loss of autonomy and control over business creation. certain decisions, as the owner of the organization. Under pressure from stakeholders to focus on short-term results, the company may suffer by ignoring long-term success and profitability. With too many opinions at stake, there is a calculated risk that Wal-Mart will 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 for consumers' attention. Wal-Mart's business model is difficult for even the most experienced company to compete with. As an emerging or existing business, it would be difficult to participate in this competition due to several barriers to entry. In an oligopolistic market structure, dominant companies use tactics such as price cutting to compete with smaller or less established companies. This drives small businesses out of the market and eliminates any incentive to compete. Although this structure generates high profits for Wal-Mart, managers must also keep a constant eye on other companies' prices to ensure that their prices remain competitive. Depending on the actions of other companies, Wal-Mart may increase or decrease its production, prices, advertising, etc. All these decisions made by Wal-Mart can affect profits, costs and market position. In the market, Wal-Mart is doing relatively well compared to its competitors in terms of profits. While almost three times higher, at $9.86 billion in 2018, Wal-Mart's accounting profit has been in steady decline since 2014,.