Wal-Mart Case.doc

Wal-Mart CaseWal-Mart Stores in 2003: Case AnalysisNicklaus B. SimsMBC 645November 4, 2006Is it ok to love shopping at SAMs Club and Target? According to an unscientific survey amongst a few of my associates, Ive been identified as a traitor by giving money to Wal-Mart or even having anything to do with them, but shopping at SAMSs Club was a smart choice. Several of my associates were unaware that Wal-Mart actually owned SAMs Club and many of them had never patronized a Wal-Mart discount store. After a recent visit to my local Wal-Mart discount store Ive confirmed that I dont value the shopping experience, but they do have a great business model and low prices. Strategic Direction & Business ModelAs of March 2006, Wal-Mart is the largest employer in the world and the second largest company in the world ranked by revenues. Fortune Global 500 2006: Full List, /magazines/fortune/global500/2006/full_list/ The company has proven to be a textbook example in executing a low-cost strategy as a retailer. Wal-Mart executes its “Every Day Low Prices” (EDLP) philosophy through an efficient network of Supercenters, Discount Stores, Neighborhood Markets, SAMs Clubs, W and S (Exhibit 1). Wal-Mart Annual Report 2006, pg 3 The company has benefited from a solid leadership foundation beginning with Sam Walton. Wal-Mart has had only three CEOs since its founding and continues to promote leaders from within the company. A Message from Lee Scott, /GlobalWMStoresWeb/navigate.do?catg=594 (Accessed November 4, 2006) In 1992 “Mr. Sam”, as he is still referenced, created his rules for building business which today still serves as a foundation for Wal-Marts strategic directives. Wal-Marts strategic moves have allowed it to maintain market dominance in the new economy over its competitors. In an effort to manage the some of the external environmental threats, Wal-Mart has made significant gains in store sustainability with a focus on improved social, economic, and environmental practices. Wal-Mart Sustainability, /microsite/walmart_sustainability.html CompetitionThe breadth of Wal-Marts product line and reach has forced competitors to focus on product segments to gain market share. Direct competitors Target and Costco compete for market share in discount retailing; Home Depot and Lowes are fighting for home-renovation materials; and Best Buy and Circuit City are vying for market share in consumer electronics. David B. Yoffie, Wal-Mart, 2005, Harvard Business Press, 9-705-460, April 14, 2005 Although competition is fierce on every front, Wal-Mart had revenues of $315.6 billion as of March 2006, whereas their nearest competitors Home Depot and Target had revenues of $81.5 billion and $52.6 billion respectively (Exhibit 2).Delivering on Every Day Low PricesWal-Mart has created a culture of cost-cutting tactics that are driven throughout every facet of the organization. The companies strategic tactics have included making collect calls to partners, limited associate compensation, passing costs for annual meetings to partners and even management of energy consumption for each discount store from Bentonville. It is evident in the appearance of Wal-Marts 2006 annual report, which was electronically generated by a software application from the 10-K SEC filing, that the company is not concerned about spending money in areas where those resources could be used as savings. The use of information technology has been one of Wal-Marts core capabilities. Since the 1980s, Wal-Mart has used bar coding and electronic data interchange (EDI) tools to efficiently share information with stores and partners. Ibid. In 2005, Wal-Mart began testing next-generation information technology; radio frequency identification (RFID). The usage of RFID promises to reduce shrinkage and other forms of loss of products. Research trails found a 16% reduction in out-of-stock merchandise at Wal-Mart stores equipped with labels using EPC codes. The study also showed that RFID-enabled stores were 63% more effective in replenishing out-of-stock products than control stores not equipped with the technology. Laurie Sullivan, Wal-Mart RFID Trail Shows 16% Reduction In Product Stock-Outs, Information Week, October 14, 2005, /story/showArticle.jhtml?articleID=172301246 Currently, Wal-Mart is aggressively implementing the RFID technology to stores throughout its network of stores. Wal-Marts efficient use of importing products from China has also contributed significantly to providing EDLP. Wal-Mart is able to demand the lowest prices from its partners whether domestically or abroad by leveraging its size and global breadth. Wal-Mart is a large contributor to the enormous trade deficit with China. The increasing trade deficit with China has risen by 140% from 2000 to 2005. Foreign Trade Statistics U.S. Trade Balance with China, /foreign-trade/balance/c5700.html (Accessed October 28, 2006) The largest posted monthly trade deficit in U.S. history was posted just this past August 2006 in the amount of $21,959.0 million dollars. Ibid. Wal-Mart accounts for 2% of the nations gross domestic product. Kris Hudson, Wal-Mart Scales Back Expansion, Spending as Sales Growth Slows, The Wall Street Journal, October 24, 2006, /article/SB116161566418200850.html Wal-Mart, as well as many other companies, have benefited from the low wages and quality of manufacturing from China. Through the usage of strategic sourcing, efficient distribution centers and economies of scope Wal-Mart is capable of consistently delivery on their EDLP cost-cutting strategy. An example of Wal-Marts activities toward cost cutting measures is the recent pledge to reduce packaging sizes. Wal-Mart Pledges Packaging Reduction, /GlobalWMStoresWeb/navigate.do?catg=677 On November 1, 2006, Wal-Mart unveils its “Packaging Scorecard” to suppliers. The packaging scorecard continues Wal-Marts efforts to reduce packaging across its global supply chain by 5% by 2013. Wal-Mart Unveils, “Packaging Scorecard” to Suppliers, /articles/4564.aspx All of these efforts are consistent with the Leverage Capabilities Model through which Wal-Mart has used to keep there prices low and profits high. GrowthWal-Mart has grown into the second largest company in the world, but recent news has suggested that the companies immense size is working against it. Ibid. Since 2002 Wal-Mart has saw their growth rate in sales decrease by 44% (Exhibit 3). During that same time frame Wal-Mart has increased the number of Discount stores, conversions from Discount stores to SuperCenters and also Neighborhood stores (Exhibit 4). Wal-Mart currently operates nearly 4,000 stores in the U.S. and nearly 2,700 abroad (Exhibit 5). On October 23, 2006, Wal-Mart announced plans to decrease its rate of growth of new stores in the United States to focus more on returns. Ibid. Following this announcement, Wal-Mart posted a meager 0.5% increase in sales at established U.S. stores in October, which is the smallest gain since 2000. Kris Hudson, Wal-Mart Posts Softest Same-Store Sales Since 00, The Wall Street Journal, October 30, 2006, /article/SB116203925719006948.html Other retailers, namely Target Corp., are outpacing Wal-Mart in sales growth and did not experience the same stodgy posting for the month. Wal-Mart is showing signs of experiencing problems with new strategies ahead of the 2006 holiday season. Even though Wal-Marts sales growth has slowed, its sales have continued upward (Exhibit 6).International expansion has been a focus for Wal-Mart since the early 1990s. Wal-mart operates stores in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Germany, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico, and the United Kingdom. Wal-Marts international expansion efforts have been generally initiated through joint ventures with a small stake in each deal. Once Wal-Mart has established its presence, it quickly increases stake in the company to gain a majority status. Wal-Mart 2006 Annual Report, pg 12. There are many challenges for Wal-Mart in its international expansion plans which include building brand awareness, enforcing a safe and humane work environment abroad, adapting to local cultural differences, and managing human capital internationally. In addition, Wal-Mart has made an effort to strengthen its presence in the health care and financial services market. Leadership, Culture, DesignSam Walton, the original founder and CEO of Wal-Mart, laid a foundation business management similar to the leadership skills framework. Leadership Skills Framework Wal-Mart has long had a tradition of providing associates with the appropriate tools and resources to build leadership within the organization. Wal-Mart has taken some of the best tactics from other retailers throughout the world and enhanced those ideas to build market share. During the ritual Saturday Morning Meetings, Wal-Mart mimics the Strategic Learning Model by sharing the vision of the company, new strategies, presenting key financial ratios and understanding competitive or environmental risks. Strategic Learning Model Under the direction of Lee Scott, Wal-Marts executive management is leading the way for the company which is aligned with the Management Symmetry Model Dennis J. Gillen, Ph.D., School of Management Syracuse University Wal-Mart is so vast though, that implementing change throughout the organization with an increase in employee turnover has amounted into a large scale issue. Overall, Wal-Mart executives are addressing the many needs of the company through programs geared toward associates, shareholders, partners, society and the environment.PeopleThe culture at Wal-Mart seems to vary by the experiences of each associate. There seems to be a major separation between the professional or executive associates and the store associates whom work at Wal-Mart. In 2003, Forbes named Wal-Mart as the most the most admired company, but the next year Wal-Mart was dropped from the list. Wal-Mart also has been faced with many issues in diversity, ranging from its stance on Gay, Lesbian & Transgender issues to women not being promoted or paid equally. Bloomberg News, Wal-Mart Stores Faces Boycott from Conservative Group, /business/chi-0611040154nov04,0,2879863.story?coll=chi-business-hed (Accessed November 5, 2006), Allison Stevens, Wal-Marts Critics Stage Holiday Protests, WeNews, December 13, 2005, /article.cfm/dyn/aid/2562/context/archive As the largest employer in the world, Wal-Mart will have to continue to defend against the imminent threat of unionization and promote a great working environment.MarketingAmid slowing sales and pressure from Wal-Marts closest direct competitor there has been a shift in strategy to begin focusing on a slightly more affluent target market. Earlier in 2006, Wal-Mart had not used the rollback campaign as they attempted to target new market segments. Suzanne Vranica and Gary McWilliams, “Wal-Mart Hires New Ad Agency To Tailor Pitches”, Wall Street Journal, October 26, 2006, Page B1 Wal-Mart hired a new advertising agency to customize its marketing campaigns to segmented markets instead of the previous mass marketing approach. Wal-Marts attempt to reach out to the more affluent consumer may also discourage loyal customers from shopping at the retailer. Ibid. Wal-Mart also hired executives from Target Corp., DaimlerChrysler and Pepsi Co. Incs Frito-Lay; all of which are noted for their sleek design and marketing success. Ibid. Wal-Marts most recent marketing attempt to boost slowing sales is being targeted at children. On the W website, children are encouraged to create a wishlist of toys and email them to their parents. (Exhibit 8) Many parents are shocked at Wal-Marts online wish list. According to a recent poll, 52% of respondents said Wal-Mart “went too far” with the website. Sarah Schmidt, CanWest News Service, “Parents shocked at Wal-Marts online wish list”, November 6, 2006, /topics/finance/story.html?id=4e0ccf72-2276-4574-b822-c4311b392f50&k=97945 Conclusions/ RecommendationsWal-Mart is making a great move by slowing growth and focusing on directing attention to improving the performance of it stores in the U.S. and abroad. It is a mighty large burden to effectively manage the growth that Wal-Mart has experienced without some degradation human capital and operational efficiencies. Wal-Mart should continue to focus on strengthening its brand in both of U.S. and abroad, while executing many of the positive social and environmental activities. There are many people that have very negative stereotypes with the Wal-Mart brand and a few wrong moves can tarnish the image of the juggernaut. Wal-Mart has taken an aggressive push toward capturing more of the affluent market from the likes of Target Corp. Wal-Marts culture is not consistent with style and design and may prove to hurt the retailer in the end. Wal-Mart would bode better by continuing its efforts at emergent strategies such as financial services and health care. Wal-Mart can not be everything to everyone.Wal-Mart must also focus on its human capital to ensure a strong work force through more leadership training and increased wages. So is Wal-Mart good for America? For some people the answer is yes and for some the answer may be no. The consumers of America and abroad will ultimately determine that as the years unfold.Exhibit 1 Wal-Mart SegmentsWal-Mart Stores, Inc. (Wal-Mart), incorporated in October 1969, operates retail stores in various formats around the world. The Companys retail operations serve customers primarily through three segments: Wal-Mart Stores segment, which includes Supercenters, Discount Stores and Neighborhood Markets, as well as W; SAMS CLUB segment, which includes warehouse membership clubs in the United States, as well as , and International segment. The International segment consists of retail operations in nine countries and Puerto Rico. The Wal-Mart Stores segment is the largest segment of the business, accounting for 67.2% of sales during the fiscal year ended January 31, 2006 (fiscal 2006).At January 31, 2006, Wal-Mart owned an unconsolidated minority interest of approximately 33.3% of Central American Retail Holding Company (CARHCO), a retailer that operates more than 360 supermarkets and other stores in Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. In February 2006, Wal-Mart acquired an additional 17.7% interest in CARHCO, to give it majority ownership of CARHCO. Following the acquisition of majority ownership, CARHCOs name was changed to Wal-Mart Centro America. At January 31, 2006, Wal-Mart operated 1,209 Discount Stores, 1,980 Supercenters, 567 SAMS CLUBs and 100 Neighborhood Markets in the United States. Internationally, at January 31, 2006, the Company operated units in Argentina (11), Brazil (295), Canada (278), Germany (88), Japan (398), Mexico (774), Puerto Rico (54), South Korea (16) and the United Kingdom (315). It also operated 56 stores through joint ventures in China at January 31, 2006.Wal-Mart StoresThis segment consists of three different traditional retail formats, all of which operate in the United States, and Wal-Marts online retail format, W. The traditional retail formats include Supercenters, Discount Stores and Neighborhood Markets. Supercenters average approximately 187,000 square feet in size and offer an assortment of general merchandise and a full-line supermarket. Discount Stores average approximately 102,000 square feet in size and offer an assortment of general merchandise and a limited variety of food products. Neighborhood Markets average approximately 42,000 square feet in size and offer a full-line supermarket and a limited assortment of general merchandise. The Company operates Wal-Mart Discount Stores in all 50 states, Supercenters in 47 states and Neighborhood Markets in 15 states.Wal-Mart Discount Stores and the general merchandise area of Supercenters carry apparel for women, girls, men, boys and infants, domestics, fabrics and notions, stationery and books, shoes, housewares, hardware, electronics, home furnishings, small appliances, automotive accessories, horticulture and accessories, sporting goods, toys, pet food and pet accessories, cameras and supplies, health and beauty aids, pharmaceuticals, jewelry and optical and provide photo processing services. In addition, its stores offer an assortment of grocery merchandise. The grocery assortment in its Supercenters consists of a full line of grocery items, including meat, produce, deli, bakery, dairy, frozen foods and dry grocery. Most of the Discount Stores carry a limited assortment of dry grocery merchandise, while a number of other Discount Stores in some markets carry an assortment of grocery items, including perishable items. Neighborhood Markets are generally organized into departments, such as dry grocery, meat, produce, deli, bakery, dairy, frozen foods, pharmaceuticals, photo processing, health and beauty aids, household chemicals, paper goods, general merchandise and pet supplies.Nationally advertised merchandise represents a significant portion of sales in the Wal-Mart Stores segment. The Company markets lines of merchandise under private-label store brands, including Sams Choice, Great Value, Everstart, Ol Roy, Puritan, Equate, No B