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Wal-Mart: A Case Study

Laura Bowen, Tatyana Budnikova, Ekaterina Mehaffey, and John Paul RobsonThe University of Colorado at Denver BUSN 6620 – Applied Managerial EconomicsProfessor Barbara Pelter November 16, 2009

Overview of Industry

Sam Walton opened the first Wal-Mart discount store in Rogers Arkansas back in 1962, and 47years later, Wal-Mart operates 8,159 units in 15 countries. Wal-Mart is currently the world’s largestretailer and according to the Forbes top 500 businesses lists for 2009, Wal-Mart ranks second in thenation and third in the world (behind Royal Dutch Shell and Exxon Mobil) - with a total annual sales of 405,607 million.¹ Wal-Mart employs over 2.1 million people worldwide, making them one of the largest private employers in both the US and Canada, and the largest private employer in Mexico.² Even in themidst of a recession it’s estimated that Wal-Mart stores’ retail market share has raised markedly³ and theyare seeing sales gains for 2009.

Wal-Mart has a dramatic story of success from its humble beginnings toits transformation into an industry leader; one can only wonder what the future holds for this corporategiant.Wal-Mart officially incorporated in 1969 and began selling shares of stock in 1970. In 1971 theyhad their first 100 percent split at $47, then again the following year for $47.50 (after being listed on the New York stock exchange). Their 11

and most recent 100 percent stock split occurred in 1999 at $95.

One aspect of Wal-Mart’s structure that has given them a competitive edge is their efficiency inlogistics. Beginning in the early 1970’s, Wal-Mart utilized a warehouse distribution strategy facilitating bulk purchasing and streamlined distribution processes enabling them to dramatically minimizedistribution costs. Today Wal-Mart has 147 distribution centers with the average facility serving 75-100stores. Their truck fleet travels about 800 million miles a year and they move over 5.5 billion cases of products. A Wal-Mart distribution center can have up to twelve miles of conveyor belts and about 500-1,000 employees.

Wal-Mart has also been able to gain competitive advantage with their embracement of technology. In 1987, Wal-Mart completed a $24 million investment in a satellite network - the largest

private network at that time. This network included voice and video communication which streamlinedthe company’s communication and facilitated the flow of sales and inventory information to the corporateheadquarters in Bentonville, Arkansas.

During a period of slower growth in the early 21

century, Wal-Mart made substantial technology investments that were successful in gaining more inventory control andimproving company performance.In addition to their technological competitive edge, Wal-Mart continues to make smart strategicdecisions to exploit potential new revenue sources as they continually to expand into new markets. Wal-Mart opened their first Sam’s Wholesale Club in 1983 marking the inception of Wal-Mart’s seconddivision of operations which now consists of over 700 stores. Later, Wal-Mart devised and opened thefirst Wal-Mart Super center in 1988. Wal-Mart Supercenters include the normal discount retail store andmany extras. They include a complete super-market, garden center, pet shop, pharmacy, tire and lubeexpress, optical center, photo processing center, and some additional smaller shops ranging from hair,nail, video, and fast-food outlets. Today there are over 2,700 supercenters in the US. By 1998 theyintroduced the Neighborhood market concept which catapulted them into becoming the largest US foodretailer by 2001.

By 1991, Wal-Mart began its international expansion with the introduction of its first store intoMexico. Two years later they formed Wal-Mart International - their rapidly growing third division.Today, Wal-Mart has a total of 3,859 international locations and operates in Argentina, Brazil, Canada,Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, PuertoRico, the United States and the United Kingdom.

Wal-Mart is now planning on expanding their operations in Brazil and China even further.

Some innovative products and programs Wal-Mart has created have contributed to their popularity and profitability. “Sam’s Choice” marked the launch of the first Wal-Mart brand product in1991 (7), and today Wal-Mart has over 30 different product lines encompassing an astounding variety of