WalMart Overcoming the Entry Barriers in the European Retail Industry

Table of Contents 1. OVERVIEW 4 1. Introduction 4 1. Healthy Choices Dominates 4 1. Quality VS Price 5 2. Business Environment 15 7. Technological Advancements 15 8. COMPANY SITUATION 16 8. Problem Identification 16 8. Effect of Problem on Profit Margins 16 8. This segment of customers is mainly interested in convenience, low product prices and quality1. Keeping up with these novice market dynamics has been the biggest challenge facing many companies in various industries. Healthy Choices Dominates The concept of health living has significantly affected especially the firms in the foodstuff industries. Many consumers are more focused on consuming inorganic-free foods and are now careful on the kind of food products they buy and the reputation of the retailer. Wal-Mart has been experiencing the pressure to provide quality and GMO-free products to attract and retain the new millennial segment of the customers.

In today’s diverse and dynamic retail market, Wal-Mart is experiencing challenges in exploring and penetrating the European market which could move it to maintain a favorable market share. BACKGROUND As the retail industry continue to evolve, many companies such as Wal-Mart and Amazon. com are also evolving to adapt to the dynamics of the industry. The key players in the industry have implemented strategies which focus on increasing the market share and competitive advantage. One outstanding strategy is increasing the product portfolio to meet the diverse needs of various customers. The rapid growth of Wal-Mart could not only be attributed to the low costs which attracted more customers but also having employees who were committed to give customers a fulfilling experience.

Values and Mission Wal-Mart’s mission of saving money and living better emphasize on a business strategy which focus on using price as a selling point to attract new potential customers. Sam Walton shared this unique mission which has never been heard in the industry with the business associates. This mission became the cornerstone of Wal-Mart’s greatness in the retail industry. Under Walton’s leadership, the company’s business operations expanded beyond the borders of US which made it a multinational corporation. Currently, Wal-Mart is predominantly broken down into three segments namely Wal-Mart US, Sam’s Club and Wal-Mart International. Statistics, however, indicate that most of the company’s revenues are generated by Wal-Mart US. While the firm’s global net sales increased to approximately 481.

billion US dollars in 2017, a whopping 60% of the sales were generated by the US segment alone8. The implication here is that the business has not successfully taken the foreign markets. market share for total turnover from retailing in 20149. Supermarkets were identified as the main channel of distribution for grocery retailers in the country. The highest price levels for food stuffs and non-alcoholic drinks is attributed to high average levels of income in Austria as well as the willingness by the Austrian customers to spend highly on consumer goods. German Retail Industry The second European country with the highest market concentration for grocery retailing business is Germany. The Germany retailing firms are mainly four and are said to have asymmetric oligopoly with more than 10% market share in the European region.

Since Germany’s distribution channel is dominated by discounters compared to Austria, this explains why the country’s profit margin is lower for grocery retailing than Austria. The value of sales for German discounters has been declining in the recent years. German Market and Retail The retail industry in German is characterized by fierce competition resulting from the increase in the number of discount supermarket chains. Consequently, the profitability of the grocery retail sector is significantly low. It is estimated that the profit margins is between 0. More than 10,000 retail stores in German filed for bankruptcy in 200212. Thus, the competitive landscape in the retail market proved challenging for Wal-Mart to breakthrough. Wal-Mart German Strategy Wal-Mart had the initial plan of transplanting its business model into the German retail industry and hence when it moved to the country, it not only worked on refurbishing and improving the appearance of stores but also on maintaining the price leadership through cost leadership.

The move could transform the supply chain systems and incorporate newer ones, centralize distribution and improve the quality of customer services. These adjustments triggered a fierce price war in German and cerate ripples in the country’s retail industry. It has been argued that Walmart’s business model aims at attracting customers by offering low product prices and keep them shop and enjoy discounts at their convenience14. The retailer believes that most customers within America and across the world are obsessed with low prices and without attaching a reasonable discount, many of them are not likely to shop. This strategy is also serving as a gimmick to attract more millennial customers are even more addicted to low product prices and cant shop unless a big discount of up to 70% is attached to a product.

Walmart has attempted to transplant the strategy in virtually all its new market in which some worked and in others it failed. Many experts have argued that if Walmart has to achieve massive growth even in markets where it has failed before, the multinational company has to adopt other strategies other than its business model. Moreover, many number of competitors increased pressure to their vendors to reduce the cost of supply in an attempt to reduce shelve prices. There are a host of factors which made it extremely difficult for Walmart to defeat the Germany competitors in the retail industry. They range from high operating costs to undeveloped supply chain relationship to small stores and lower margins. Additionally, the Germany customers were price sensitive and loyal to Germany retail chains.

With these harsh market conditions, Walmart was compelled to reduce its stores which lead to achieving a margin of less than 1% in the Germany retail market15. Technological Advancements In the modern world, technological advancement has transformed the global business landscape and made the world a global village where information on virtually everything is shared. The advancement in technology has equally affected the global retail industry and how operations are carried out. This being the information age, the speed with which information such as quality and price of products as well as availability of substitutes to other consumer products is extremely high. The internet and the increased use of social media has profound implications in the field of marketing. More and more retailers are embracing the use of social media platforms to intensify their product promotion and reach more potential customers.

In 2016, the company’s earnings were $13. billion as compared to $16. billion in 201519. This trend implies that the operating income dropped in two consecutive years. The operating efficiency has been dwindling with Walmart’s return on investment—a key measure of an organization’s operating efficiency—slipping from 15. Business Model Evaluation: Quantifying W almart's Sources of Advantage.  Strategic Entrepreneurship Journal 9, no. Fernie, John, Barbara Hahn, Ulrike Gerhard, Elke Pioch, and Stephen J. Arnold. The impact of Wal‐Mart's entry into the German and UK grocery markets. Kinkel, Steffen. Trends in production relocation and backshoring activities: changing patterns in the course of the global economic crisis.  International Journal of Operations & Production Management 32, no. Luce, Stephanie. Global retail report.  Central European Business Review 5, no.

Teece, David J. Business models, business strategy and innovation.  Long range planning 43, no. Vance, Sandra Stringer. com Appendix 2: Market share of the leading retailers in the German grocery industry Source: Statista. com.