Strategic Failure: How Walmart’s UK Invasion Fizzled Out

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Strategic Failure: How Walmart’s UK Invasion Fizzled Out

Introduction

On October 5th, 2020, Financial Times (FT) published an article called ‘How Walmart’s UK invasion fizzled out’ (Eley A. G., 2020). This publication reported that Walmart unveiled a £6.8 deal to sell ASDA to private equity group TDR Capital and two Lancashire entrepreneurs, Mohsin and Zuber Issa. The article also states that ‘Walmart failed to accomplish its initial ambitions and goals when entering European markets’ (Eley A. G., 2020). Although ASDA was not precisely a failure with a share of about 14.5% of the UK’s food sector, it struggled to upstage Tesco and has instead jostled with Sainsbury’s for the number-two position. Various factors contributed to this occurring; however, the failure involved is largely to its strategic management.

This essay aims to discuss the possible reasons for Walmart’s strategy failure in the UK and what could have been possibly done to avoid this. (Write at the end)

Company Background

Walmart is an American international retail corporation that runs large discount supermarkets, grocery stores, and warehouses; known for being the most extensive company globally by revenue and opened for the first time by Sam Walton at 44 in 1962 at Bentonville, Arkansas (Walmart, 2020). It began in its first year with $700,000 and by 1974 went up to $5.4 million. The company was rising when other firms were dealing with inflation and recession. Walmart became the youngest US retailer in 1980 to reach 1 billion in net profits. Wal-Mart continued to grow more throughout the 1980s, forcing some competitors to shut down several of their area shops. The business has diversified by opening up member shops like the Sam’s Club, smaller traditional convenience stores called Neighbourhood Markets, and eventually supercentres with a large variety of consumer products. And in 1991, Wal-Mart became the biggest store in the country.

Walmart became partners with onlineretailerjet.com with the two companies merging forces to save customers even more money and time. A subsidiary of jet.com (hey needle.com) is also covered in this merger Walmart. More than 1.2 million Sam’s club and Walmart associates get a pay raise as part of the company’s two year 2.7 billion dollars investment in its people. Also Walmart and china’s largest e-commerce company jd.com formed a strategic alliance to provide consumers across China better comprising online and offline retail. Developing economies with rising middle classes carry grater interest, in china Walmart has reached about 400 physical stores and a joint venture with jd.com one of its largest e-commerce companies. The company has also spent billions of dollars in India which dominates the online retail powerhouse Flipkart. The company pledges to become the most trusted retailer by going on specific goals by 2025, all centred on sustainability, empowering its associates and enhancing people’s lives around the world. Walmart indeed is a great and successful company carrying and helping customers, employees and business people worldwide. For the purpose of this essay is important to know this facts in order to understand why and how such a successful Walmart company failed in the United Kingdom.

Asda

The United Kingdom was once the great hope of Walmart since it had a developed retail culture. Precisely, in June of 1999, Walmart acquired ASDA for £6.7 billion. Walmart chose to retain the brand ASDA because British customers were already familiar with it. For Wal-Mart, this acquisition was because the U.S.A retailer realised that the British business had core features to ensure organizational survival, such as its above-average shop size, company culture, and a powerful clothing brand close to those seen in the U.S.A. (Steve Burt, 2001).

According to the FT article, Walmart’s arrival in Britain alarmed local rivals while causing European supermarket stocks to lose over $4 billion in market value. However, the article points out that despite its impact on other organizations at the time of its arrival, Walmart had not yet achieved its initial objectives. Figure 1 shows that although the Asda acquisition was not a total failure, the organisation failed to become the market leader in the UK and upstage in the leadership competition with Tesco but instead faced Sainsbury’s for number two position Asda has now been acquired by the private equity group TDR Capital with a deal of £6.8 million in which Walmart will have a minority equity stake. (Eley A. G., 2020)

Strategy

According to Gerry Johnson, strategy is the long term direction of an organization (Johnson, 2017). In other words, a strategy is the pattern or plan that combines the main priorities, objectives and action sequences in a company into a coherent whole where a well-developed strategy fuels the growth of a company and allocates its assets to a specific and viable role depending on its relative internal expertise and deficiencies. The annual report of Walmart mentions that one of its goals is to expand internationally while incorporating EDLP (Everyday low rates) as the company’s corporate strategy (Walton, 2020). In other terms, Walmart pursues a cost leadership market approach created to a large degree by the economies of scale derived by the organisation. The organisation has been able to do so by building a complex strategic system with strong IT investment; an effective logistics system by the proximity of retail stores with RFID (Radio Frequency Identification) technology; and by becoming a non-union employer (Greenhouse, 2015). In 1999 Asda seemed to be a good option for Walmart as the low cost strategy was aimed at low and middle income families, and also offered considerable non-food business, including the George brand of affordable clothing. After 2003 Walmart, now with over 1,200 international shops, had sales growth of over 18.9%, the company had been able to successfully implement its U.S. strategy after acquiring Asda. They have applied their supply chain management technology and have been able to give consumers 7 percent cheaper costs than rivals. While their shops were much smaller than Walmart’s vast ‘supercentres’ in the United States, they were significantly larger than those of their UK rivals. However, Asda has faded compared to Walmart’s operations in more aggressive markets, such as China and India (Eley A. G., 2020).

Walmart’s specific Failure in the UK

In order to understand the reasons for Walmart’s failure in the UK, it is essential to mention the concept of strategic failure. The strategic management phase requires at least three responsibilities for the management: identifying, conducting and reviewing the applicable strategy. An organisation can witness failure for many reason but the most common cause is related to inappropriate strategy execution, which is why implementation is sometimes described as a weaknesses of strategic management. Unfortunately, most company’s strategic attempts have struggled during this critical period, and companies nowadays are losing substantial capital investment.

Based on the FT article, Walmart Company had already experienced failure in other countries, of which the most notorious failure was in Germany. In 2006 Walmart came out of Germany after struggling with Aldi and Lidl and battling with labour unions. Germany was perhaps the greatest example of Walmart failing and crashing (Eley A. G., 2020). However, the same strategic mistakes can be identified from this failure in the United Kingdom; Walmart did not grasp the local market; the company applied the model which was working in the United States without taking the time to analyse and consider possible side effects they might have if that strategy did not work. The UK is different, it has a variety of innovative markets available to all its inhabitants for over a decade now where competition is evident, offering shopping and delivery online.

Another reason of failure can be found in latest media reports which acknowledge Walmart’s history of job challenges (Hotten, 2019). Employees are part of the company’s success and also recognised as a stakeholder. They have limited influence in the company’s decision making but can have a significant impact to the business directly. Walmart was considered to have ethics concerns which can be a result of their business strategy. The organisation has selected the cost leadership approach that has proven effective in focusing cost and achieving competitive edge in its business. The idea that Walmart is pressured to generate profit rather than to concentrate on its workers has culminated in several concerns and the ethics problems confronting the business. As a result Walmart’s Profits in the UK-based stores suddenly suffer a decline from 2016 to 2018 as shown in the FT article which can be appreciated in figure 2 (Eley A. G., 2020). But if Walmart had to shift the corporate strategy from cost leadership to decreased negative feedback and better turnover rates, it would radically change its basis for itself and eventually go out of business.