Wal-Mart Stores, Inc.: 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, SAM’S CLUB, and Wal-Mart International. The Wal-Mart Stores unit had 3,289 locations and included the company’s Supercenters, discount stores, and Neighborhood Markets in the U.S., as well as Walmart.com. The SAM’S 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 company’s stock. Contrary to the upward direction of the firm’s sales and profits, the price of Wal-Mart’s 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-Mart’s international growth strategies.  To identify the impact of the founder upon Wal-Mart’s corporate culture.  To consider the impact of Wal-Mart’s corporate culture upon management decision making and actions.  To conduct a stakeholder analysis of Wal-Mart’s task environment.  To understand the impact of social responsibility on financial performance.  To evaluate management’s 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-Mart’s 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 Porter’s industry analysis forces and how each force pertains to Wal-Mart.  What was Sam Walton’s philosophy of management?

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 Power-based programs to establish Wal-Mart as a leader in its channel of distribution. promotion.  Liberal refund and exchange policies were part of a "Satisfaction Guaranteed" program.  Corporate programs like developing new retail formats like SAM’S Clubs and Supercenters.  Market dominance strategy of first opening a distribution center. are a part of the Wal-Mart retail mix:  The development of a human relation/human resource base corporate culture linked to the satisfaction of consumer needs and wants in the marketplace. and then growing by expanding to contiguous areas. competitor." People greeters. management should follow an environmental orientation. store design and atmosphere and servicing the retail customer. Wal-Mart. and Neighborhood Markets.  Inventory control system which links stores with distribution centers and headquarters staff. pricing merchandise. Inc. What is the competitive environment of the retail industry in the 2000s? How is it different from that of the 1990s? Why was Wal-Mart’s management so successful in the 1990s when so many retailers were in financial trouble? Describe Wal-Mart’s growth strategies. Target has successfully followed a differentiation competitive strategy to place itself one step above Wal-Mart in terms of quality. What factors should a firm consider in the development of its marketing strategy?  A marketing strategy can be defined as selecting and analyzing a target market (the group of people whom the organizations wants to reach) and creating and maintaining an appropriate marketing mix (product.  Offering a wide variety of general merchandise to the customer in 36 different departments with specialty centers at some locations. DISCUSSION QUESTIONS AND ANSWERS Identify and evaluate the marketing strategies that Wal-Mart pursued to maintain its growth and marketing leadership position. Saturday morning meetings.Wal-Mart Stores.S. and price) that will satisfy those people. employees as "associates. Evaluate Wal-Mart’s record of social responsibility and how social responsibility can interact with financial performance. warm colors.  Market segmentation/target market positioning strategy of operating a discount store in small communities. A danger of this approach could be a blurring of Wal-Mart’s low price image and increasing pressure on the company’s low cost position. In the development of an appropriate retail mix. distribution. promotion. 2 . paper sacks. location. the merchandise buying and handling process.: Under Attack         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. this mix is often interpreted to mean financial planning. 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 company’s business practices. the master of the low cost competitive strategy. offering name-brand merchandise at "everyday low prices" and offering friendly service. and profit-sharing programs are part of this plan. dominating a market area with Wal-Mart stores. which would allow it to adapt to external forces in the environment. ANALYSIS OF THE COMPETITIVE ENVIRONMENT By 2006. Discuss the role of market segmentation in Wal-Mart’s strategic management." training programs. was faced with only one other strong U.  Developing a competitive differential advantage by being able to "strike a delicate balance needed to convince [Wal-Mart] prices were low without making people feel that its stores were too cheap. Target. which can be considered market-based.  The following programs or strategies. The team spirit. wide aisles were considered part of this strategy. Wal-Mart’s management was attempting to imitate Target’s success in higher margin discretionary goods by improving its image. This is a good role play exercise. To continue its growth in sales.  Programs to emphasize contemporary social issues like the Buy American Program and Green Marketing. Divide the class into two main groups: Those that support WalMart’s business practices and those that dislike its business practices. stock ownership. In retailing.

Lawsuits alleging discrimination against women and underage workers operating dangerous machinery.S. Should small businesses deserve a protected monopoly position in their local area? How is this good for society? When small local businesses can’t compete on the open market. 2006 Business Week (p. Nevertheless. 112). Wal-Mart is no different from Toyota when it arrived in the U. 20% of sales from outside U. The net effect was the “Wal-Mart Effect.Wal-Mart Stores. no other retailer offered so many good products for so little. added to the firm’s public relations’ problem. Then. For example. This was not a conspiracy. the authors propose a rebuttal to Wal-Mart’s many critics. and world measured by sales. 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. According to the Welch’s: “Decades later. They admit that Wal-Mart’s business model is threatening to its rivals and its purchasing power frightening to suppliers. especially in small towns. Slowing comparative store sales growth and falling stock price are red flags that growth may be slowing. in the 1970s. Even now. In an article “What’s Right about Wal-Mart” by Jack and Suzy Welch in the May 1.S. just the free market at work. Inc. 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. The authors also admitted that Wal-Mart has meant the end for many local stores. Its low prices.100 stores worldwide. In this regard. like the family farm.S. More than 6. wide selection. discount store chain and company in both U. raising standards and requiring companies that had lost their edge to reinvent themselves and start making better cars for a lot less. among other examples. employees rarely had life insurance or health benefits and certainly did not receive much in training or large salaries. receive subsidies from the government to protect a valued life style? The Welch’s point out that yesteryear’s local business owners rarely shared the wealth with their employees. In this way. they argue that this doesn’t make Wal-Mart bad – just a big target for critics who refuse to concede how much the company improves lives. Jack and Suzy Welch conclude by stating that there will be casualties of Wal-Mart’s success: competitors that go broke and jobs lost. Wal-Mart is no worse than its competitors – It is just a bigger target. they argue that the company has not been found to act unethically or unfair – just tough. Record 2006 sales and earnings. It appeared that the company had become a lightning rod for any and all criticism against big business. as now. but its stores tended to drive local “mom and pop” stores out of business. most people accept that Toyota simply had a better way of doing business. It also was accused of upsetting the status quo.” According to the Welch’s. Wal-Mart has been increasingly criticized for the very management practices that had made it so successful. Implied from case) 3 . Its value proposition to consumers was a wake-up call to the auto industry. the company did more to hold down household expenses than any social or governmental program. The arguments against Wal-Mart in favor of small business suggest some underlying issues. however. They argue. Wal-Mart’s almost legendary hard stance with suppliers was being portrayed as an abuse of power. and courteous service generated high sales and profits. should they.: Under Attack 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. Although the Welch’s do agree that Wal-Mart’s market share gives it enormous leverage with suppliers.” SAMPLE STRATEGIC AUDIT CURRENT SITUATION Performance  Wal-Mart is largest retailer. 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. STRATEGY Current Mission (Not stated.

 To be the very best in the business.  Increasing fuel prices: Consumers shop for good value.”  Maintain highest standards of honesty.  Economies of scale in supply chain management.  Increasing concern with foreign sweatshops of suppliers. Inc.  Increasing restrictions on immigrants. horizontal growth strategy through new store openings.S. pleasant and friendly shopping experience.  “Satisfaction Guaranteed” refund and exchange policy.  Joint venture possibilities in many countries. Implied from case)  To provide customers with what they want.  To provide customers a clean.  New retailing formats to fit new market segments. and company in the U. morality. opening new distribution centers.  U. expansion to urban locations.  To develop and maintain team spirit with its associates.  Urban U. and business ethics  People first HRM policy.S. Current Strategies  International horizontal growth strategy via acquisition.  Many retail stores declared bankruptcy.  Consumers switch toward a one-stop shopping center for convenience.  “Everyday low prices.S. when they want it. EXTERNAL ENVIRONMENT Societal Environment Opportunities  International expansion by retailers. remodeling existing stores. Loyalty expected. locations and older suburban shopping malls. jobs by buying American.Wal-Mart Stores. Task Environment Opportunities  Kmart & Sears managements distracted by merger.  Increasing hostility toward big box stores in favor of local businesses.  To continue as largest retailer.S. Current Policies  To sell products that are environmentally friendly (green marketing policy). and with value.  Low cost competitive strategy.  Deal only with top officials of suppliers to ensure price and quality.: Under Attack  To be the number one retailer by providing the customer selection and quality for value given.  Continual search to reduce costs.  Environmental (green) issues increasing in importance.  Marketing strategy of market development.  Consumers may choose to boycott retailers who outsource to foreign countries.  Concentric diversification strategy into new retailing formats in multiple markets. discount chain. Current Objectives (Not stated. 4 .  To pursue growth while maintaining growth in sales and profits.  To be the largest retailer outside the U.S.  Lack of action by government on health care system. Threats  Higher oil prices may increase inflation and reduce economic growth globally.  Outsourcing raises concern to save U.

0 billion in 1996). Finance Strengths  Increasing sales easily supports debt.  Decentralized international store management Corporate Culture  “The Wal-Mart Way” is intense and highly integrated. Not a good fit with new urban locations and other countries’ cultures.”  Strong emphasis on customer.  Market development strategy saturates markets.  Stock price falling.  Return on assets declining. Corporate Structure  U.  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.S.  Factory outlets in U.: Under Attack  South American & Asian countries where not currently located. Employees expected to be loyal.  Constant emphasis on cost reduction and customer service.  Environmentally sound products and American-made products stressed heavily.  Wal-Mart well known for “Everyday low prices. INTERNAL ENVIRONMENT A.  HRM a high priority. centralized strategy choice at the corporate level.7 billion in 2006 from $2.  Return on equity above 20% since 2002.  Specialized stores that achieve merchandise dominance in product categories.Wal-Mart Stores.  States requiring firms to increase employee benefits.  Long-term obligations for leases are high ($3. 5 . Weaknesses  Lower sales of discretionary items compared to Target. Threats  Target’s success with differentiation strategy could provide scale economies needed to cut prices.  Discount retailing reaching industry maturity.  Earning per share at record high levels.  Slippage of customer ratings of courtesy & friendliness. Stores are located around a major hub warehouse.  Based on Middle-American conservative small town values.  Value = Quantity x Price.  Asset turnover (sales/total assets) in continuous decline since 2001.  Core competence of company.  Long term debt increasing to finance acquisitions. that offer drastic price reductions. Weaknesses  Comparative store sales growth falling since 1999.  Over 40 years of record sales and profits. Marketing Strengths Large-scale ad campaigns. recognized by consumers.S.  Cultural values based on founder’s values.  Decentralized operational decision making at the stores. Inc.

Wal-Mart Stores. Information Systems Strengths  Most sophisticated inventory control system in U. Internal growth is U. Already being implemented by top management.  Poor employee benefit package creates resentment. Operations Strengths  Maintains excellent service with discount prices.  Not unionized. Weaknesses  Drop in customer rating of staff is a red flag for potential people problems. retailing .A distinctive competency.  Corporate policy dedicated to improve employee involvement and expertise through seminars & training. Very successful in Canada. stores achieves economies of scale necessary for low cost competitive advantage.S..g. Inc. Pro: Creates a larger market share and even more economies of scale. and growth by acquisitions in other countries.  Special awards for employee performance.S.  Strategically located distribution centers are a distinctive competency.: Under Attack Research and Development  Wal-Mart pays close attention to societal trends and supply chain technology.  Customer ratings of staff friendliness & courtesy dropped 20% since 1999 – now below industry average. Mexico. Con: 6 . and South America.S.  Computer links between stores and general offices ensure accurate and timely merchandise replenishment. Loyal employees.  Employees encouraged to ask questions and offer suggestions. e.  Management monitors demographics & preferences of consumers.  Poor history of integrating staff of acquired foreign store chains into Wal-Mart.  Lack of economies of scale in many international locations due to low market share.  Large number & size of U.  Excellent up-to-date computerized inventory system. Weaknesses  Not as sophisticated in acquired stores in other countries.  Acquired foreign stores tend to be too small with limited parking. Weaknesses  Slowing of comparative store sales growth indicates stores may need upgrading or are being located too close to each other.  Anti-union stance may antagonize employees & customers – especially in other countries. new Chicago store. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY Maintain Current Strategy (Horizontal Growth): Enter new countries and saturate existing countries with more stores in diverse formats.  Tremendous research of competitors and their strategies in order to learn from their mistakes.  Poor history of promoting women & minorities into management led to law suits. Human Resource Management Strengths  Wall-Mart jobs highly desired.

Con: Giving up potential sales growth. called “Wal-Mart UpTown. Sears Holdings.. Additional range of goods could increase economies of scale for both firms. Most U. One option is a department store chain like May Company with an up-scale image and higher quality goods. A second option is a specialty (category killer) retailer like Toys R Us. Change objective from sales growth to profit growth. consumer-orientated operations.Wal-Mart Stores. and world.: Under Attack Requires higher debt load. IMPLEMENTATION  Focus future growth on North America (U.S. high cost retail outlet. Internal development would take time. A third option would be to create through internal development a new type of store in the U. sustainable growth. Inc.S. Pro: Will obtain good locations in shopping malls and downtown areas. EVALUATION AND CONTROL  Wal-Mart already is a leader in the industry for control and timeliness. Established global competitors like Carrefour make easy entry difficult. retail chain with an upscale image or develop internally an upscale set of stores (Wal-Mart Uptown) to expand into U. U.S. expansion has already picked “low hanging fruit” and forces company into hostile and more costly locations in U.S. Change international strategy to one of internal growth in existing countries. Purchase a U. doubtful if Wal-Mart’s culture would mesh well with a high quality.S.  Wal-Mart should either acquire another U. metropolitan areas and compete directly with Target. Pro: Not expensive.S. Wal-Mart should slow its international expansion outside North America. stores only in highly desirable locations with support from local communities. U.S. programs. and procedures for managing a more upscale set of stores. Based on European experience. & Mexico)  Wal-Mart management should form a task force to examine the idea of operating a more upscale chain of discount stores that to use for expansion into urban and suburban locations – especially in shopping malls  Management needs to consider both the internal development of a “Wal-Mart Uptown” chain of stores or the purchase of an existing department store chain  Expansion into more foreign countries should be put on hold until the International business unit is able to build each country’s sales and market share  The set of stores in each country should be examined for growth potential  Follow the GE policy of getting rid of any set of stores that don’t have the potential of becoming first or second in market share  Low performing European stores should be kept only they can gain supply chain economies across the European Union  Develop policies. Stability: Slow Sustainable Growth Maintain current operations and slow. Add new countries only when contiguous with existing stores and when can add to economies of scale. Con: Expensive. retail chain that does not directly compete or only competes in one area with Wal-Mart stores. Sales continue to increase even without new stores. Growth Through Concentric Diversification (adding a related product/market): Slow international growth and focus on growth in North America.S. 7 . Poor success rate in Europe and Asia thus far. Not clear if Wal-Mart can financially acquire or manage another company’s large chain. Emphasize growth in comparative store sales. Place new U. Canada. competitors are struggling and would not pose a serious threat.” This store would be a more upscale Wal-Mart and would be designed to fit into urban areas and suburban shopping malls. Recommended Strategy  The company is having difficulty with its current acquisitions in Europe and Asia and needs to get its house in order before expanding into other countries.S. market share could be absorbed by Target. or smaller competitors. International growth may be pre-empted by global competitors who create high entry barriers. Already have excellent experience in largescale.S.

Inc.: Under Attack    The company needs to focus more on increasing net income over sales growth.Wal-Mart Stores. Develop measures that are appropriate for a higher margin chain of stores Set market share targets for each set of international stores 8 .