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Wal-Mart Stores, Inc.: Under Attack
Wal-Mart Stores, Inc.: Under Attack
: Under Attack
Save Money. Live Better
Everyday low prices
SOME KEY POINTS
Wal-Mart Stores, Inc. was not only the largest retail organization by sales volume in the U.S. in 2006, but also the
largest company in the world. As of January 31, 2006, Wal-Mart Stores, Inc. was structured into three business
units, Wal-Mart Stores USA, SAMS CLUB, and Wal-Mart International. The Wal-Mart Stores unit had 3,289
locations and included the companys Supercenters, discount stores, and Neighborhood Markets in the U.S., as well
as Walmart.com. The SAMS CLUB unit had 567 locations and included the warehouse membership clubs in the
U.S. plus samsclub.com. Wal-Mart International had 2,285 locations in 10 countries. Sales and profits for the year
ending January 31, 2006 were a record high $312.4 billion and $11.2 billion, respectively.
Of special concern to management was the behavior of the companys stock. Contrary to the upward direction of
the firms sales and profits, the price of Wal-Marts stock had fallen from $56.98 in January, 2002 to $46.11 in
January, 2006 and to $45.06 in March, 2006. Even though the board of directors had both repurchased stock and
continually raised dividends, the stock had failed to respond.
The case ends with CEO Lee Scott seeking an expansion program to grow both sales and profits, both at home and
abroad. The company also needed a strong program to pre-empt its social critics, instead of always being on the
defensive. Scott realized that Wal-Mart could not allow itself to emphasize social over business objectives.
CASE OBJECTIVES
To discuss the growth and competitive strategies that made Wal-Mart the largest company by sales in the U.S.
To analyze Wal-Marts international growth strategies.
To identify the impact of the founder upon Wal-Marts corporate culture.
To consider the impact of Wal-Marts corporate culture upon management decision making and actions.
To conduct a stakeholder analysis of Wal-Marts task environment.
To understand the impact of social responsibility on financial performance.
To evaluate managements response to increasing stakeholder criticism.
To discuss if and how Wal-Mart can sustain its growth strategies and competitive advantage.
To discuss the interaction of corporate with country culture.
To identify Wal-Marts core and distinctive competencies.
To demonstrate the importance of marketing strategy in an established retail organization faced with a dynamic
environment.
THINGS TO THINK ABOUT
On a 5-point scale which retail store offers: (1) lowest price, (2) best quality for the price, (3) best designed
stores, (4) best customer service, and (5) best selection of merchandise. (e.g. Kmart, Sears, Wal-Mart, Target,
J.C. Penney, local chain, etc.)
Think about the importance of marketing strategy in an established retail organization, which was faced with a
dynamic environment, had record sales and profit growth, benefited from entrepreneurial leadership, and had a
unique expansion strategy.
An organization in an accelerated development stage refines its merchandising and operating methods to sustain
its growth.
KEY QUESTIONS
What are the strengths and weaknesses of Wal-Mart?
What are the opportunities and threats facing Wal-Mart?
What are the strategic factors facing Wal-Mart?
Does Wal-Mart have any core competencies? If yes, what are they?
Does Wal-Mart have a distinctive competency? If yes, what is it?
Discuss the role of international expansion for Wal-Mart as a growth strategy.
Discuss Porters industry analysis forces and how each force pertains to Wal-Mart.
What was Sam Waltons philosophy of management?
How important is corporate culture in this company? In what ways does it help the company and in what ways
does it hurt the company?
Explain why you feel that Wal-Mart was so successful in the retailing industry in the 1980s and 1990s.
What is the competitive environment of the retail industry in the 2000s? How is it different from that of the
1990s?
Why was Wal-Marts management so successful in the 1990s when so many retailers were in financial trouble?
Describe Wal-Marts growth strategies. Will these strategies still be effective in the twenty-first century? Does
Wal-Mart face any limits to growth?
Why is Wal-Mart facing so much criticism from its stakeholders? This could be a good question to role play by
breaking the class into different stakeholder groups and having them present arguments for and against the
companys business practices.
Evaluate Wal-Marts record of social responsibility and how social responsibility can interact with financial
performance. This is a good role play exercise. Divide the class into two main groups: Those that support WalMarts business practices and those that dislike its business practices.
Discuss the role of market segmentation in Wal-Marts strategic management.
Is it fair to condemn Wal-Mart as a predator destroying local business and failing to offer a living wage and
benefits?
As pointed out early in the case, Wal-Mart has been increasingly criticized for the very management practices that
had made it so successful. Its low prices, wide selection, and courteous service generated high sales and profits, but
its stores tended to drive local mom and pop stores out of business, especially in small towns. The United Food
and Commercial Workers union contended that the only reason the company could offer such low prices was that
Wal-Mart underpaid its workers and offered them substandard benefits. Wal-Marts almost legendary hard stance
with suppliers was being portrayed as an abuse of power. Lawsuits alleging discrimination against women and
underage workers operating dangerous machinery, among other examples, added to the firms public relations
problem. It appeared that the company had become a lightning rod for any and all criticism against big business.
In an article Whats Right about Wal-Mart by Jack and Suzy Welch in the May 1, 2006 Business Week (p. 112), the
authors propose a rebuttal to Wal-Marts many critics. They admit that Wal-Marts business model is threatening to
its rivals and its purchasing power frightening to suppliers. Nevertheless, they argue that this doesnt make WalMart bad just a big target for critics who refuse to concede how much the company improves lives. For example,
no other retailer offered so many good products for so little. The net effect was the Wal-Mart Effect. According to
the Welchs, the company did more to hold down household expenses than any social or governmental program.
The authors also admitted that Wal-Mart has meant the end for many local stores. They argue, however, that this
was caused by local customers choosing to shop at Wal-Mart because low prices meant more to their quality of life
than a wave and a smile at the local higher-priced store. This was not a conspiracy, just the free market at work.
The arguments against Wal-Mart in favor of small business suggest some underlying issues. Should small
businesses deserve a protected monopoly position in their local area? How is this good for society? When small
local businesses cant compete on the open market, should they, like the family farm, receive subsidies from the
government to protect a valued life style?
The Welchs point out that yesteryears local business owners rarely shared the wealth with their employees. Then,
as now, employees rarely had life insurance or health benefits and certainly did not receive much in training or large
salaries. Even now, how many waiters and waitresses at local restaurants earn more than the minimum wage and
have health benefits? Retailing is notorious for being low paid and having poor benefits. In this regard, Wal-Mart is
no worse than its competitors It is just a bigger target.
Although the Welchs do agree that Wal-Marts market share gives it enormous leverage with suppliers, they argue
that the company has not been found to act unethically or unfair just tough. Jack and Suzy Welch conclude by
stating that there will be casualties of Wal-Marts success: competitors that go broke and jobs lost. In this way, WalMart is no different from Toyota when it arrived in the U.S. in the 1970s. It also was accused of upsetting the status
quo. According to the Welchs: Decades later, most people accept that Toyota simply had a better way of doing
business. Its value proposition to consumers was a wake-up call to the auto industry, raising standards and requiring
companies that had lost their edge to reinvent themselves and start making better cars for a lot less.
SAMPLE STRATEGIC AUDIT
CURRENT SITUATION
Performance
Wal-Mart is largest retailer, discount store chain and company in both U.S. and world measured by sales.
Record 2006 sales and earnings. More than 6,100 stores worldwide. 20% of sales from outside U.S. Slowing
comparative store sales growth and falling stock price are red flags that growth may be slowing.
STRATEGY
Current Mission (Not stated; Implied from case)
To be the number one retailer by providing the customer selection and quality for value given.
Threats
Targets success with differentiation strategy could provide scale economies needed to cut prices.
Factory outlets in U.S. that offer drastic price reductions.
Specialized stores that achieve merchandise dominance in product categories.
Discount retailing reaching industry maturity.
States requiring firms to increase employee benefits.
Slippage of customer ratings of courtesy & friendliness.
INTERNAL ENVIRONMENT
A. Corporate Structure
U.S. Stores are located around a major hub warehouse.
Decentralized operational decision making at the stores; centralized strategy choice at the corporate level.
Decentralized international store management
Corporate Culture
The Wal-Mart Way is intense and highly integrated.
Based on Middle-American conservative small town values.
HRM a high priority. Employees expected to be loyal.
Cultural values based on founders values. Not a good fit with new urban locations and other countries
cultures.
Constant emphasis on cost reduction and customer service.
Marketing
Strengths
Large-scale ad campaigns.
Environmentally sound products and American-made products stressed heavily.
Wal-Mart well known for Everyday low prices.
Strong emphasis on customer.
Market development strategy saturates markets.
Value = Quantity x Price, recognized by consumers.
Core competence of company.
Weaknesses
Lower sales of discretionary items compared to Target.
Low price image restricts opportunity to upgrade offerings and obtain larger margins.
Lack of Wal-Mart identity and image in other countries leads to low market share.
Finance
Strengths
Increasing sales easily supports debt.
Over 40 years of record sales and profits.
Earning per share at record high levels.
Return on equity above 20% since 2002.
Weaknesses
Comparative store sales growth falling since 1999.
Asset turnover (sales/total assets) in continuous decline since 2001.
Long-term obligations for leases are high ($3.7 billion in 2006 from $2.0 billion in 1996).
Return on assets declining.
Stock price falling.
Long term debt increasing to finance acquisitions.