Walmart Pestel Analysis

The largest retailer in the United States is also the top brand in the list of Fortune 500 brands. Walmart has experienced enormous growth over the past several years driven by its focus on product quality, customer experience, innovation and not to forget its everyday lower prices. Its competitive pricing or price leadership strategy has made it the undisputed leader in the US physical retail industry.

Walmart has a strong presence in the United States and also operates in 19 countries outside the US. The company has more than 5,300 stores operating across the US in 2023 and more than 10,500 around the globe. As the largest market of Walmart, the United States accounted for around 83% of the total net revenue of the company in fiscal 2023.

Walmart is also experiencing strengthening sales along its ecommerce channels. The retail brand serves millions across the globe daily and has become the favorite of the US based shoppers.

As a leading retail brand, the company deals with several challenges in the US and international markets.

In this Pestel analysis of Walmart, we will analyze the macroeconomic factors and their impact on its business operations and growth rate. These factors present both opportunities and challenges for Walmart. However, they are strategically important since managing their impact is mostly outside the firm’s control but their negative impact can be managed to an extent with the help of some strategic measures.

Political:

Political factors have a strong impact on businesses and their operations in various markets. The impact of these political factors on business operations and profitability also differs from market to market due to the difference in political environments of these markets. Political stability promotes economic growth and is generally good for businesses whereas instability in the political environment hinders economic growth and hurts business activity.

Walmart operates in the United States and 19 other overseas markets. The company’s operations are affected by the political environment of these markets. Government policies related to the retail sector, as well as tax structures in the various markets, the openness of a market to foreign direct investment among other factors affect business operations of retailers like Walmart significantly. Import and export laws as well as government regulations related to retail sales also affect operations and profitability.

The US market has proved to be highly profitable for Walmart. It is the largest market of Walmart accounting for more than 80% of its net revenue in fiscal 2023. However, government policies related to the operation of retail brands are significantly better in the US compared to several other markets. It is why several leading retail brands of the world are based in the United States. However, there are several critical regulatory areas where Walmart needs to remain cautious to avoid regulatory action including anticompetitive practices. One of the leading hindrances to expanding internationally is also the regulatory environment of the various markets. Entry into several markets including China requires local partnerships. There are several other regulatory barriers in the eastern markets including a very high level of red tape which can hurt business profitability.

Economic:

Economic factors can have a solid impact on business growth and their impact can be particularly intense on the retail industry. Changes in the economic environment globally or fluctuations in specific markets can affect the level of business activity there and the profitability of retail brands. Declining economic activity generally results in higher unemployment, lower consumer confidence and lower spending on several nonessential products. This can result in a high decline in sales for retailers like Walmart.

As a result companies like Walmart need to consider how the economic changes can affect their business and formulate their strategies accordingly. They need to anticipate the economic conditions in their leading markets and work accordingly on their sales strategy.

The pandemic had led to reduced economic activity and lower sales worldwide. Due to a decline in employment during the period, people stopped spending on non essential items which resulted in reduced sales.

However, a key factor that has helped Walmart manage the impact of economic factors is its pricing strategy. Its lower pricing strategy draws customers from across the US in very large numbers. It has also strengthened its ecommerce channels and now derives a significant part of its sales from online sales channels.

These factors have helped it reduce the threat from economic declines. However, higher economic activity is still good for retail businesses since higher income also means higher spending by consumers.

Social:

Social factors have also acquired special significance in terms of retail business. It is because social and demographic changes can affect sales and profitability. These factors also have a special relevance in terms of marketing. Businesses like Walmart need to remain aware of these changes and form their sales and operation strategies accordingly. A large part of the customer base of Walmart is from the millennial generation. The millennials are a tech savvy generation. Consumer behavior among the millennials varies from the other generations and so do their preferences and expectations in terms of customer service. Walmart is increasingly focusing on digitization and personalization to offer its customers a more personalized customer experience.

Other types of social changes are also important for retailers like Walmart. The move towards the use of digital technology among consumers across various societies has accelerated since the pandemic. Walmart is also investing heavily in ecommerce channels as more and more people are buying from digital channels since the pandemic.

Society and culture are crucial in terms of marketing and sales. It is why companies like Walmart also invest in social responsibility to build a socially responsible image. A good social image drives higher popularity and sales. Moreover, cultural sensibility is important for Walmart to market its brand in the US as well as the other markets where it operates.

Technological:

Technology is now playing a central role in driving growth and higher operational efficiency in the retail industry worldwide. Not just in the US but also in the other parts of the world, the use of digital channels for marketing and sales in the retail industry has increased a lot. While technology is revolutionizing nearly every industry sector, in the retail industry it has emerged as a significant game changer.

Walmart has been investing in technological innovation for the past several years and it is a key reason that compared to the other retailers, it is seeing a lot more success from its ecommerce business. Its ecommerce sales have increased at a very fast rate. However, the impact of technology is not limited just to sales but technology is playing an increasingly critical role in terms of marketing and other operational areas like supply chain and logistics management.

Walmart has built strong technological capabilities that are driving higher supply chain efficiency for the company. It has helped the company manage its distribution system with higher efficiency and make its supply chain more agile. The company is also using data and analytics for managing distribution across its thousands of stores in the US and other corners of the world. It has enabled the company to better cater to changing demand patterns across the various markets.

Walmart has maintained an omnichannel presence which has helped it attract more customers and in recent years, the company has also experienced significant sales growth. Technology is also playing a key role in helping Walmart manage better customer experience and maximize customer satisfaction. Since its acquisition of Flipkart, the company has come a long way in terms of technological advancement. It is spending a significant sum each year on technological innovation.

Environmental:

Environmental safety and sustainable operations have become critical for large scale businesses including the leading retailers like Walmart. Apart from its store operations, Walmart is also investing in making its supply chain and logistics operations more sustainable. Sustainable sourcing is a key focus area for Walmart. The company has developed a framework for socially and environmentally responsible sourcing.

In recent years, the company has adopted several effective measures to reduce its carbon footprint in its own as well as supplier operations. It is planning to continuously reduce its carbon footprint over the next several years and engage in more sustainable practices. By 2040, the company plans to achieve net zero emissions in its global operations.

Other areas where the retail giant has made significant progress in terms of being environment friendly include waste management and recycling. The company is continuously working towards eliminating operational waste and plans to achieve zero operational waste in the United States, Canada, and Mexico by 2025 by addressing secondary packaging, assets, food waste, auto waste, and other items. Walmart is also working on minimizing food waste in its value chain and increasing product circularity1.

Being sustainable has become important for Walmart not just because the government has formed laws in this area, but also because people across various geographies are now more aware of the environmental impact of businesses. They want to shop from sustainable businesses and support businesses that are more environment friendly. Being more sustainable will help Walmart improve its image also.

Legal:

Walmart operates in a complex legal environment where it is critical for the retail giant to remain compliant to various laws and regulations. Since the company is also operating in several overseas markets, the legal framework of those geographies also has a significant impact on its business operations. There are several labor laws related to discrimination and harassment that are of special significance for large employers like Walmart. Other areas where the company has to deal with diverse laws include product safety and sourcing. Recently, Walmart has faced a legal challenge related to the workers with disabilities act2.

While legal issues can hurt a firm financially, they can also affect the social image of Walmart whether it is related to customers, its workforce or any other significant area of operation. Walmart has to prove that it is a responsible employer that does not encourage harassment or discrimination. While the company claims to strictly discourage discrimination at the workplace, such cases keep cropping up from time to time. However, the company has developed a compliance framework to deal with such issues and also provides its associates the required training for remaining compliant throughout its global operations.