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Custom «Reasons to Invest in the Walmart Corporation» Sample Essay

Custom «Reasons to Invest in the Walmart Corporation» Sample Essay

Modern investments have become a very complex business science. The global economic crisis has significantly decreased the investment rates of certain business spheres making investors as cautious as ever. Nonetheless, there is a list of companies that are always appealing in terms for investing in them. The Walmart Corporation is one of those companies as it is the largest retailer and employer in the United States of America. The unique strategy implemented by Sam Walton, the founder of Wal-Mart Stores Inc., has created a revolutionary business strategy for the discount retail stores. The strategic approach performed by Walmart stimulated it to occupy the first place in the Fortune 500 list of the America’s largest corporations in 2013. Presently, the company still continues to hold its positions in the retail market. Therefore, investing in Walmart has an outstanding potential in terms of economic and financial perspectives. The given paper analyzes the primary reasons of investing in Walmart by studying the company’s three major economic advantages over its competitors: aggressive marketing approach, innovation-oriented direction of development, and annual growth of the company’s net income.

I. Overall Assessment of the Walmart Corporation

Wal-Mart Stores Inc. was established in 1962 by Sam Walton; presently, it is the largest retail network functioning all over the globe. The company stimulates its development in the following market segments: supermarkets, hypermarkets, small stores, retail websites; they offer an impressively wide range of consumer goods: from food and clothing to furniture and consumer electronics (Rumelt 27). Moreover, Walmart is the leading firearms dealer for the civilian population in the US. Its SAM'S Club division includes a network of warehouses and stores in the country. International divisions include various types of chain restaurants and stores in fourteen countries in South America, Europe, and Asia. . In total, Wal-Mart owns more than 7,000 retail facilities around the world (Roberts and Berg 23). The company succeeds to occupy the leading positions both in the ranking of international companies with the largest amount of revenue and in the ranking of the most innovative companies. In addition, the top management of Wal-Mart has repeatedly stressed the importance of the e-commerce market for the company in the near future to enlarge its Internet retail network. The Corporation pays great attention to charity and environmental protection; simultaneously, it is often criticized for creating an extremely intense competition on the displacement of small shops along with manifesting excessive pressure on the suppliers with the goal of obtaining a price discount. Walmart provides outstanding employment practices in every single one of its more than 2.2 million associates (“Walmart 2014 Annual Report”).

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A. Assessment of the Financial Reasons to Invest in Walmart

The reported financial results of the third quarter of 2014 present the information regarding the 2.3 billion dollar increase in the company’s net sales. This feature implies a 3.4 percent increase to approximately 70 billion dollars. In addition, the end of 2014 revealed a 2.8 percent increase in consolidates net sales as its total number reached 118.1 billion dollars (“Walmart Reports FY 15 Q3”). As for its international net sales, the company managed to present a 1.7 percent increase resulting in a 33.7 billion dollar turnover. Moreover, Walmart’s e-commerce sales around the globe revealed a shocking 21 percent increase on a constant currency basis (“Walmart Reports FY 15 Q3”). The company’s annual income is one of the first indicators for considering the company in terms of long-term investments. Walmart’s annual income presents positive dynamics making the Corporation a very promising field of investment. The 2013 and 2014 Annual Reports indicate that the company has received a record profit despite the global economic crisis. As mentioned above, the latest quarterly data proves the company’s stability and the quarterly figures for the last year reveal an excellent performance. The company’s gross profit, showing the difference between the total revenue and prime cost of the already sold goods, also manifests the positive active dynamics (“Walmart Annual Report 2014”). The company is rapidly growing; it is highly competitive in the retail market. Finally, according to the information presented on October 31, 2014, Walmart’s net tangible assets have reached the number of almost 208 million dollars, as compared to 204 million dollars stated in the 2014 Annual Report (“Stock Information”). The analysis of stock price growth presented in Table 1 allows making a confident conclusion in terms of the reasonability of investing in Wal-Mart Stores Inc.

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Table 1

The progressive price growth of the Walmart stocks in the last five years (“Stock Information”).

Year Price of stock (WMT) on NYSE Growth (%)
January 4, 2010 53.33 -
January 4, 2011 54.08 1.40%
January 4, 2012 59 9.09%
January 4, 2013 68.63 16.32%
January 3, 2014 76.73 11.08%
January 5, 2015 85.65 11.06%

The forenamed data allows adding Walmart to the list of the best candidates for long-terms investments because of the positive growth rate of its stocks. According to the presented numbers, Walmart is not only a company in the list of candidates for investments but also its objective leader; its financial indicators speak for themselves. The analysis of Walmart stock prices for the period of 2010-2015 emphasizes the annual stock price growth reaching its maximum in January 2013, with a 16.32 % increase but manifesting an increase not less than 9% from 2012 to 2015 years (“Stock Information”). Moreover, for the last two years, the company has managed to maintain the same stock price growth rate, which allows assuming that it is high time to invest in Wal-Mart Stores Inc. If combined with its commitment to e-commerce and global expansion plans, it may result to be one of the two primarily investment opportunities along with Alibaba Holding Group, the Chinese e-commerce retail giant.

B. SWOT Analysis of the Walmart Corporation

The second vital factor that should be taken into consideration after the financial performance of the company is its SWOT analysis. Walmart’s SWOT analysis identifies the key elements affecting the company's business patterns. An extensive SWOT analysis of Wal-Mart Stores Inc. is the first step on the way of discovering Walmart as a company that is worth investing. Walmart is a widely-known brand whose popularity significantly simplifies the choice of its end-consumer. In addition, its popularity increases the consumer’s trust and allows Walmart product to get into the consumer basket of the brands, from which the consumer chooses. Moreover, Walmart offers recognizable branded products for the lowest possible price. Low prices are the major economic benefits for clients as they allow attracting price-sensitive customers who consequently form the largest portion of the customer loyalty group (Rumelt 30). The company successfully offers a wide range of products combined with a convenient location of the stores to ensure the consumers purchasing activity. One of the major weaknesses of Walmart is the low rate of its geographical expansion. Its international representation is not as strong as of the other trade networks. Nonetheless, Walmart does have serious expansion perspectives and is directly aimed at the development of its e-commerce patterns. It is one of the best ways to increase the sales in those areas where the company does not have any stores (Roberts and Berg 67). This step would ensure the company’s expansion into the new major markets where the company is not present at the moment. Walmart’s major threats are often associated with the possible aggressive growth of other competing trading networks; nonetheless, such companies do not appear in one day. If Wal-Mart Stores Inc. successfully realizes its e-commerce expansion plan, it has the potential of becoming the world’s top retailer. The preliminary SWOT analysis of Walmart has reached the results indicated in the table below.

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Table 2

Wal-Mart Stores Inc. SWOT analysis.

Wal-Mart Stores Inc. SWOT analysis

Strengths

  • Popularity of the brand
  • Low prices
  • Customer loyalty
  • Wide range of products (all major brands)
  • Convenient store location
  • Focus on innovations

 

Weaknesses

· Low international geographic expansion

· Low quality of some products

 

Opportunities

  • Development of the e-commerce patterns
  • Globalization
  • Increase of the product assortment
  • Using advertising for the international expansion

Threats

  • Development of other major trading networks
  • Increased prices offered by the suppliers
  • High level of competition
  • Political and social barriers to entering certain world markets (e.g. Russia).

II. Three Major Reasons to Invest in the Walmart Corporation

A. The Development of the E-Commerce Patterns and Aggressive Marketing Strategy

Walmart is known to be the largest and the most popular retail brand in the world. Its founder, Sam Walton, always strived to open the stores not in the center of the city but in the suburbs. His strategy proved to be efficient as the development of the city consequently made Walmart’s locations very convenient for a wide range of customers. Therefore, the first reason to invest in Walmart is directly on the surface of its unique market strategy along with the rapid growth of the online market trade patterns. In other words, Walmart, being the first company that opened a discount store in a small town, instantly obtained a set of the following advantages: low real estate prices, low advertising rates, and low staff turnover along with the status of the largest store in town. The listed advantages greatly contribute to the increase of Walmart’s overall business value and, therefore, make it attractive in terms of investment. Besides, the company has become an integral part of the community life due to the creation of a developed infrastructure around its stores, sponsorship activity, and high employment rates (Roberts and Berg 79). Evidently, in order to obtain the possibility to offer low prices and simultaneously to keep its position in relation to competitors, the company was forced to create a totally unique market strategy that would ensure the positive dynamics of its development and stimulate the interest of the investors (Rumelt 45). Walmart’s executive branch has made the choice to innovate in three primary spheres: aggressive strategy of conquering small cities and towns, implementation of innovations in the order and delivery systems, along with the innovative internal system of communication. The first sphere of aggressive market penetration achieved the goal of saving on the scale of the company’s activity. In addition, Walmart’s particular interest in e-commerce has put it on the path of its greatest potential as this sphere is one of the most promising international trading platforms. Owing to the aforementioned order and delivery experience, Wal-Mart Stores Inc. has the potential to beat the world’s number one e-commerce retail leader Alibaba Group Holding.

B. Innovative-Oriented Approach

A company with innovation as a priority is considered a successful platform for the investments. Walmart indeed is a company, which reveals a tendency of presenting commitment to innovation; therefore, it is a company with farsighted investment perspectives. Besides, the aggressive market penetration achieved by means of efficient geographic location, the company has improved its system of orders and delivery. The company created several distribution centers that integrated the system of delivery on a geographic basis. The order of goods to stores belonging to one geographical region is performed in a centralized manner; then the goods are delivered to a particular distribution center, where they are sorted and loaded for the delivery to a particular Walmart store (Rumelt 27). Such system allows the company to cut the logistics expenses, as well as maintain the rapid delivery rates. As for the internal system of communication, Walmart’s commitment to innovation is revealed in the introduction of the electronic system of monitoring the sales updates of every single store. The latter allows the company to control their assets in a more efficient manner. Centralized procurement and automated system of information flow helped Walmart establish mutually beneficial relationships with the major manufacturers such as Procter & Gamble, Eastman Kodak, and Gitano, which initially dictated their terms to retailers (Roberts and Berg 11). Therefore, the Walmart Corporation has created a complex, highly integrated combination of processes and operations that is almost impossible to cope or be duplicated. Correspondingly, all the investment of the competitors in the IT development of their companies remains useless in terms of duplicating Walmart’s success.

III. Recommendations

  1. Investing in Walmart will improve its international and Internet expansion and, therefore, stimulate the generation of a greater profit for its shareholders.
  2. As Walmart is expected to continue undertaking the efforts to expand its positions to Canada and Europe, investing in particular aspects related to the forenamed markets should be considered.
  3. Walmart’s relation to e-commerce allows creating an Internet retail empire similar to the Chinese Alibaba Group Holding.
  4. Walmart’s commitment to innovations in terms of its both internal and external development and its desire to invest in the informational technologies indeed make one of the companies of the retail future ensuring high return for its investors.
  5. The positive dynamics of Walmart’s stock price growth allows placing it on the top of the candidates’ list for the long-term investments in the United States of America.

The report recommends investing into Wal-Mart Stores Inc. due to the following factors obtained from the analysis of the company’s performance: SWOT results, growth of income statements and stock prices, development in the sphere of aggressive marketing, e-commerce, and sphere of technological innovations. The combination of the listed factors makes Walmart very appealing for the investments. Wal-Mart Stores Inc. is one of the most promising existing business corporations, investing into which is a must-do for retail experts. The company realizes the importance to be innovation-oriented and choosing e-commerce as the major trading sphere of the nearest future plans of the corporation. The popularity of the brand, customer loyalty, and low prices altogether have ensured the financial success of Walmart on the U.S. market; they reflect Walmart’s potential in terms of the global international expansion.

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