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Wal-Mart Strategic Audit




Wal-Mart Strategic Audit OVERVIEW1 Wal-Mart was founded in 1962 by a man named Samuel Moore Walton. He was considered one of the most influential retailers of the century (Wheelen & Hunger, 740). Sam Walton started his retail career in management in 1940 with J.C. Penney Co. His training and hard work at J.C. Penney Co. led him to his great Wal-Mart idea. He decided that small town populations would welcome, and make profitable, large discount shopping stores. When Sam Walton created Wal-Mart in 1962, he declared that three policy goals would define his business: respect for the individual, service to customers, and striving for excellence Wal-Mart stores sold nationally advertised, well-known-brand merchandise at low prices in austere surroundings (Wheelen & Hunger, 738). The 1970s marked significant growth for Wal-Mart with its first Wal-Mart Distribution Center as well as the Wal-Mart Home Office. By the end of 1979, there were 276 Wal-Mart stores in 11 states and in 1991, the firm had 1,573 stores in 35 states to include the international market. Wal-Mart sales growth continued into the 1980s. Wal-Mart was divided into three business segments: Wal-Mart stores, Sams Clubs, and the International Division. In 1983 the company opened its first three Sam's Wholesale Clubs and began its expansion into bigger city markets. Wal-Mart Supercenters were large combination stores that included a full-line grocery center, a general merchandise discount store, banks and some even offered a food court of restaurants. Wal-Marts international expansion accelerated managements plans for expansion and notoriety. In 2000, Fortune magazine named it as one of the 100 Best Places to Work and in 2002, Wal-Mart officially became the worlds largest company based on its $245 billion in sales Wal-Marts winning strategy in the United States was based on selling brand products at low cost while still offering the customer a quality product. Wal-Mart is in the business of selling everything customers need in their everyday lives. This includes the consumer goods listed above as well as food-service items. Wal-Mart took pride in its domestic strategies and programs that were based on a set of two priorities: 1) Customers would be provided with what they want, when they want it, all at a value. 2) Treating each other as we would hope to be treated, acknowledging our total dependency on our Associate-partners to sustain our success In the year ending January 31, 2006, Wal-Marts financials reflected the following: (all dollar amounts are in millions) Total revenue - $315, 654 Net income - $11,231 Total assets - $138,187 Total liabilities - $48,826 Total shareholders equity - $53,171. According to the 2006 consolidated balance sheets total liabilities and shareholders equity equaled $138,187 not just totals shareholders equity as previously shown.

Wheelen, Thomas L., and J. David Hunger. Strategic Management and Business Policy. Upper Saddle River: Prentice, 2010. Print.

Wal-Mart Strategic Audit I. CURRENT SITUATION A. Current Performance Wal-Mart is divided into three business segments: Wal-Mart Stores, Sam's Club, and the International Division. In 2002, WM officially became the worlds largest company based on its $245 billion in sales. As of January 31, 2006, the company had over 6,100 stores worldwide, bought products from 70 countries, and 20% of its business was generated outside of the United States. In its 2006 fiscal year sales, it yields $312.4 billion, a 9.5% year over year increase which resulted to a $11.2 billion net income, up 9.4% to $2.68 per share. The stock price is $46.11, down from $56.98 on January 31, 2002. These results are due to better competition and future expected growth slowdown. B. Strategic Posture 1. Mission Wal-Mart Stores, Inc. is a global retailer committed to improving the standard of living for our customers throughout the world (Annual Report 2006). Wal-Marts advertised mission statement and its advertising slogan are the same: We save people money so they can live better. In addition to this mission statement, the company looks to its founder, Sam Walton for a company purpose: If we work together, well lower the cost of living for everyone...well give the world an opportunity to see what its like to save and have a better life. 2. Objectives Comparative store sales is a measure which indicates the performance of our existing stores by measuring the growth in sales for such stores for a particular period over the corresponding period in the prior year. Operating income growth greater than net sales growth has long been a measure of success for us. Inventory growth at a rate less than that of net sales is a key measure of our efficiency. With an asset base as large as ours, we are focused on continuing to make certain our assets are productive. It is important for us to sustain our return on assets (Annual Report 2006).

3. Strategies We have developed several initiatives to help mitigate this pressure and to grow comparable store sales through becoming more relevant to the customer by creating a better store shopping experience, continual improvement in product assortment and an aggressive store upgrade program to be instituted over the next 18 months.

Wal-Mart Strategic Audit Our expansion programs consist of opening new units, converting discount stores to supercenters, relocations that result in more square footage, as well as expansions of existing stores. Sams Club - We believe that a greater focus on providing a quality in-club experience for our members will improve overall sales, including sales in these categories. International A shift in the mix of products sold toward general merchandise categories which carry a higher margin (Annual Report 2006).

4. Policies We earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices (EDLP) while fostering a culture that rewards and embraces mutual respect, integrity and diversity. Putting Our Customers First. EDLP is our pricing philosophy under which we price items at a low price every day so that our customers trust that our prices will not change erratically under frequent promotional activity. Our focus for SAMS CLUB is to provide exceptional value on brand-name merchandise at members only prices for both business and personal use. Internationally, we operate with similar philosophies (Annual Report 2006).

Wal-Mart Strategic Audit II. CORPORATE GOVERNANCE A. Board of Directors The Board is composed of 13 members, four are affiliated with the company, nine are independent, three women, two African Americans, two Hispanic Americans. The Chairman of the Board is S. Robson Walton, son of the founder. B. Top Management Eduardo Castro-Wright Executive Vice President, President and Chief Executive Officer, Wal-Mart Stores Division U.S. M. Susan Chambers Executive Vice President, People Division Patricia A. Curran Executive Vice President, Store Operations, Wal-Mart Stores Division U.S. Douglas J. Degn Executive Vice President, Food, Consumables, and Hardlines, Wal-Mart Stores Division U.S. Linda M. Dillman Executive Vice President, Risk Management and Benefits Administration Johnnie Dobbs Executive Vice President, Logistics and Supply Chain Michael T. Duke Vice Chairman, Responsible for Wal-Mart International Joseph J. Fitzsimmons Senior Vice President, Treasurer John E. Fleming Executive Vice President, Chief Marketing Officer, Wal-Mart Stores Division U.S. Rollin L. Ford Executive Vice President and Chief Information Officer David D. Glass Chairman of the Executive Committee of the Board of Directors Mark D. Goodman Executive Vice President, Marketing, Membership and E-commerce, SAMS CLUB Craig R. Herkert Executive Vice President, President and Chief Executive Officer, The Americas, Wal-Mart International Charles M. Holley, Jr. Senior Vice President, Finance Thomas D. Hyde Executive Vice President and Corporate Secretary Lawrence V. Jackson Executive Vice President, President and Chief Executive Officer, Global Procurement Gregory L. Johnston Executive Vice President, Club Operations, SAMS CLUB C. Douglas McMillon Executive Vice President, President and Chief Executive Officer, SAMS CLUB John B. Menzer Vice Chairman, Responsible for U.S. Thomas M. Schoewe Executive Vice President and Chief Financial Officer H. Lee Scott, Jr. President and Chief Executive Officer Gregory E. Spragg Executive Vice President, Merchandising and Replenishment, SAMS CLUB S. Robson Walton Chairman of the Board of Directors Claire A. Watts Executive Vice President, Product Development, Apparel and Home Merchandising, Wal-Mart Stores Division U.S. Eric S. Zorn Executive Vice President, Wal-Mart Realty (Annual Report 2006).

Wal-Mart Strategic Audit III. EXTERNAL ENVIRONMENT: OPPORTUNITIES AND THREAT (SWOT) A. Natural Environment Raw materials availability.(O) Land availability. (O) Electricity usage. (T) Oil and Gas usage. (T) Water scarcity. (T) Hazardous waste storage, transportation and disposal. (T?)

B. Societal Economy 1. Economic Interest rate increases may signal end of economic expansion (T). Economic deterioration may mean more frugal shopping habits. (O) Increasing commodity costs. (T) Increasing transportation costs. (T) Currency fluctuations. (T) Slowing national economy (T) 2. Technology Increased usage of RFID for inventory management. (O) Internet presence allows for customer options. (O) Information technology increasingly important. (O) 3. Political-Legal Regional trade pacts are making free trade available between countries. (O) Differing laws between countries may evoke compliance issues. (T) Potential unionization of workforce. (T) The Company is involved in a number of legal proceedings. In accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, the Company has made accruals with respect to these matters, where appropriate, which are reflected in the Companys consolidated financial statements (Annual Report 2006). (T) The Company is a defendant in numerous cases containing class action allegations in which the plaintiffs have brought claims under the Fair Labor Standards Act (FLSA), corresponding state statutes, or other laws (Annual Report 2006). (T) 4. Sociocultural Aging U.S. demographics. (O) Slowing U.S. population growth. (T) Wal-Mart seen as a reason for closing of mom and pop stores. (T) International cultural differences. (T) Green environmental movement. (O) C. Task Environment United States market saturation. (T) Expansion into Europe, China, South America, Canada, and Mexico. (O) Rivalry High. Target, Sears, K-Mart (T) Chance of new entrants low. (O) Purchasing power high. (O) Substitute power high. (T) Government regulations power medium. (T)

Wal-Mart Strategic Audit IV. INTERNAL ENVIRONMENT A. Corporate Structure Wal-Mart Stores, Inc. was structured into three business units, namely: Wal-Mart Stores USA, Sams Club, and Wal-Mart International. Wal-Mart Stores unit had 3,289 locations and included the companys supercenters, discount stores, Neighborhood Markets in the US, and Sams Club unit had 567 locations and included the warehouse membership clubs in the US plus Wal-Mart International had 2,285 locations in 10 countries. The International total was increased in February 2006 by purchasing a majority control of CARHCO with 360 locations in five Central American countries. The organizational structure outlines the responsibilities and duties of the top leaders. Individual store managers were given considerable decision-making authority in relation to product range, product positioning within stores, and pricing. This differed from most other discount chains where decisions over pricing and merchandising were made either at head office or at regional offices. Decentralized decision-making power was also apparent within stores, where the managers of individual departments (for example, toys, health and beauty, consumer electronics) were expected to develop and implement their own ideas for increasing sales and reducing costs. Purchasing is centralized. All dealing with U.S. suppliers takes place at WalMarts Bentonville headquarters. Organizational structure may be defined as the system of relations that subsist among a variety of positions and position holders. Formal structure is a blueprint of relations that has been knowingly deliberated and put into action. It includes a formal chain of command of power as well as policies and procedures and other premeditated attempts to control conduct.2 Wal-Marts organizational structure consists of a divisional structure. A divisional structure has three different categories in which are product structure, market structure, and geographic structure. Wal-Mart falls under market structure. This is where groups function by types of customers so that each division contains the functions it needs to service a specific segment of the market (p.514, George, Jones). For example Wal-Mart offers vision, pharmacy, haircuts, grocery, crafts, clothes, electronics, house wares and etc. Comparing Wal-Mart and K Mart as retail companies, both of companies have different strategy to reach competitive advantages. Base on study, the types of competition between WalMart and K mart is Monopoly competition. Wal-Mart provides the customer with low price and products differentiation, whereas, K mart does not only focus on cost leadership but also in product differentiation. They provide products with different quality and brand compare to competitor. For Organization Structure, Wal-Mart is better than K mart, Wal-Mart has good reorganization system and also has good quality to maintain organization structure.3 We have found that both Wal-Mart and K-mart has developed their resources to improve their value, their competitive advantages and promote their brands as well. By resources improvement, they have gained the competition among competitors. When doing this, they can increase the capability of manufacturing and supplying products to market. Internal analysis helps both Wal-Mart and K-mart to increase their competitive advantages and extend their
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Wal-Mart Strategic Audit market share in order to improve their business performance. Regarding business level strategy both of them (Wal-Mart and K-Mart). Actually they have similarity business level strategy but Wal-Mart more specific in Cost leadership. Wal-Mart has more acquisition and merger than K Mart, Wal-Mart was doing acquisition to open new market share, get more profit. But for K Mart only make acquisition with Sears. B. Corporate Culture As Wal-Mart continues to grow into new areas, their success will always be attributed to their culture. Whether customers walk into a Wal-Mart store in their home town or one across the country while on vacation, they can always be assured of getting low prices and that genuine customer service they expect. Theyll feel at home in any department of any storethats their culture. Sam Waltons Three Basic Beliefs4 Sam Walton built Wal-Mart on the revolutionary philosophies of excellence in the workplace, customer service and always having the lowest prices. We have always stayed true to the Three Basic Beliefs Mr. Sam established in 1962: Respect the Individual Our people make the difference is not a meaningless sloganits a reality at Wal-Mart. We are a group of dedicated, hardworking, ordinary people who have teamed together to accomplish extraordinary things. We have very different backgrounds, different colors and different beliefs, but we do believe that every individual deserves to be treated with respect and dignity. (Don Soderquist, Senior Vice Chairman, Wal-Mart Stores, Inc.) Service to Our Customers We want our customers to trust in our pricing philosophy and to always be able to find the lowest prices with the best possible service. Were nothing without our customers. Wal-Marts culture has always stressed the importance of Customer Service. Our Associate base across the country is as diverse as the communities in which we have Wal-Mart stores. This allows us to provide the Customer Service expected from each individual customer that walks into our stores. (Tom Coughlin, President and Chief Executive Officer, Wal-Mart Stores division.) Strive for Excellence New ideas and goals make us reach further than ever before. We try to find new and innovative ways to push our boundaries and constantly improve. Sam was never satisfied that prices were as low as they needed to be or that our products quality was as high as they deservedhe believed in the concept of striving for excellence before it became a fashionable concept. (Lee Scott, President and CEO.)

Wal-Mart Strategic Audit Sams Rules for Building a Business People often ask, What is Wal-Marts secret to success? In response to this ever-present question, in his 1992 book Made in America, Sam Walton compiled a list of ten key factors that unlock the mystery. These factors are known as Sams Rules for Building a Business. Rule 1. Commit to your business. Rule 2. Share your profits with all your Associates, and treat them as partners. Rule 3. Motivate your partners. Money and ownership alone arent enough. Rule 4. Communicate everything you possibly can to your partners. Rule 5. Appreciate everything your Associates do for the business. Rule 6. Celebrate your successes. Find some humor in your failures. Rule 7. Listen to everyone in your company. And figure out ways to get them talking. Rule 8. Exceed your customers expectations. Rule 9. Control your expenses better than your competition. Rule 10. Swim upstream. Go the other way. Ignore the conventional wisdom. In order to fulfil its mission, Wal-Mart has developed some unique policies, principles, rules, processes and procedures, the sum total of which form Wal-Mart Stores corporate culture5: Open Door Policy Managers' doors are open to employees at all levels Sundown Rule Answering employee, customer, and supplier questions on the same day the questions are received. Grass Roots Process Capturing suggestions and ideas from the sales floor and front lines 3 Basic Beliefs & Values - Respect for the Individual, Service to our Customers, Striving for Excellence 10-Foot Rule Making eye contact, greeting, and offering help to customers who come within 10 feet. Servant Leadership Leaders are in service to their team Wal-Mart Cheer An actual structured chant that was created by founder Sam Walton to lift morale every morning. Sustainability Goals6 Environmental sustainability has become an essential ingredient to doing business responsibly and successfully. As the world's largest retailer, their actions have the potential to save our customers money and help ensure a better world for generations to come. We've set three sustainability goals: To be supplied 100% by renewable energy To create zero waste. To sell products that sustain people and the environment. Cultural Emphasis In many ways, Wal-Marts corporate culture was a reflection of the values of its founder, Sam Walton, in its emphasis on everyday low prices, corporate growth, concern for people and loyalty to the company. The companys cultural roots have been considered by some to be both a key strength and a serious weakness. But the strong emphasis on Wal-Mart values offended some employees with different backgrounds.
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Wal-Mart Strategic Audit C. Corporate Resources 1. Marketing Wal-Mart had been founded on Sam Waltons belief that: There is only one boss: the customer. For Wal-Mart, the essence of customer service was low prices. Hence, Wal-Marts marketing strategy was built upon its slogan Everyday Low Prices: Wal -Marts customer appeal was as a price leader across its entire product range, all the timeit did not engage in promotional price cutting. The centrality of Everyday Low Prices to Wal-Marts relationship with its customers had important implications for its marketing activities. Wal-Mart was able to rely on word-of-mouth communication of its merits and was able to spend comparatively little on advertising and other forms of promotion. Advertising typically involved one home-delivered advertisement circular per month by each store and some television advertising. As a result, Wal-Marts advertising/sales ratio during the past three financial years was 0.55% most of its rivals had advertising/sales ratios of between 1.5% and 3.0%. Nevertheless, with an advertising budget of over $2 billion, Wal-Mart was among the worlds biggest advertisers. Beyond its emphasis on serving customers by providing unbeatable value-for-money, the values that Wal-Mart projected were traditional American virtues of hard work, thrift, individualism, opportunity, and community. This identification with core American values was buttressed by a strong emphasis on patriotism and national causes. However, as Wal-Mart increasingly became a target for politicians and pressure groups, former CEO Lee Scott initiated a major shift in the image that Wal-Mart projected to the world. In 2004, Wal-Mart issued its first annual report on ethical sourcing where it published results of its audit of suppliers adherence to its code of conduct. In November 2005, Scott committed Wal-Mart to a program of environmental sustainability and set ambitious targets for renewable energy, the elimination of waste and a shift in product mix towards environmentally friendly products. Two years later, Wal-Mart published the first of its annual sustainability reports. Commitment to social and environmental responsibility can be seen as part of a wider effort by Wal-Mart to broaden its consumer appeal and counter the attempts by activist groups to characterize Wal-Mart as a heartless corporate giant whose success was built upon exploitation and oppression. Wal-Mart broadened its customer base to include more upper income consumers and expanded its geographical base into the more politically liberal parts of the U.S. (for example, the west coast and New England) and beyond U.S. borders, so building an appeal that extended beyond everyday low prices. In 2008, Wal-Mart launched a company-wide image makeover that involved a new corporate logo and a redesign of its stores. The new logo replaced upper-case characters by lower-case, eliminated the star-hyphen (Wal*Mart), and added a sunburst design. According to branding consultant, Marty Neumeier: The new sunburst looks organic. My sense is they are trying to say, were an eco-aware company, Tobias Frere-Jones, a professor of typography, observed that lower case letters tend to be interpreted as more casual and approachable. The new logo coincided with a program of store redesign that included wider aisles, improved lighting, and lower shelves.


Wal-Mart Strategic Audit 2. Finance7 In the midst of tough competition of these large companies, you might have wondered what makes a company a successful in their chosen field of the industry and what makes other companies go down on the deep abyss of failure. Success and failure of companies cannot be attributed to a sense of luck. In the world of commercialism, it seems that luck has no room in it, but it is a financial strategy that can make and unmake a company. Financial Strategy is being employed by each company in order for its company to successfully place itself on top of the competition. Success of a company can be traced on how it had carefully planned and executed their business strategy. Financial analyst had been making intensified research in order to come out with a financial strategy that can be suited to that particular company. Without a sound investment strategy, company can go astray as it tries to compete with their competitors. Hence, the success behind the battle in the world of commercialism is a financial strategy. A company needs to be armed with a financial strategy before it can go out in the field and compete. The worlds largest retailer is Wal-Mart had also armed itself with a financial strategy in order to ensure that it will continuously wave the flag of supremacy in the sector of retail business in almost 27 countries. Financial Strategy at Wal-Mart is now having its focus on existing market. Top executives of the company believe that merger and acquisition should be based on existing market. This strategy will mean that Wal-Mart will first focus on those countries of which they are already in operation rather than to venture on a different region. Their attention is not to expand fair market but to concentrate on their existing market. Financial Strategy at Wal-Mart will give priority on the area of which they are already in, although, there are still new areas of which Wal-Mart could venture, but the company believes that it will focus first on the area that it had its operation. But the company is still open to different areas when an opportunity will present itself. As to the strategy of merger and acquisition of existing market, Wal-Mart has an eye in acquiring assets in Japan such as the Japanese retailer Aeon Co. Wal-Mart had been open on the idea of acquiring an asset in Japan. This is considered as part of Financial Strategy at Wal-Mart. Wal-Mart is driven by the mission, and that is to save people money and to help people live better lives. This could be the driving force behind the Financial Strategy at Wal-Mart, and that is for the company to fully concentrate on their existing market. This will ensure that what they will give to their consumers their full attention that can mean that consumers will get products that are low in prices and geared to improve their lives. By having a focus on the areas of which they are already in operation will give an assurance that Wal-Mart will give to their customers the value of their money.

5. Human Resource Management Wal-Marts human-resource practices in 2009 were based upon Sam Waltons beliefs about relations between the company and its employees and between employees and customers. All employeesfrom executive-level personnel to checkout clerkswere known as associates.


Wal-Mart Strategic Audit Wal-Marts relations with its associates were to be founded on respect, high expectations, close communication and clear incentives. Wal-Marts employees received relatively low paythe median rates for hourly paid retail workers in 2009 was between $8.46 and $12 an hour. However, these rates were, on average, slightly above those paid in the retail trade generally. Employee benefits included a company health plan that covered 94% of Wal-Mart employees and a retirement scheme, which covered all employees with a year or more of service. A key feature of Wal-Marts compensation system was its profit incentives, which extended to hourly employees. A stock purchase plan was also available to employees. Wal-Mart retirees included a large number of millionairesnot all of whom were managers: in 1989, the first millionaire hourly associate retired from the company. Wal-Mart resisted the unionization of its employees in the belief that union membership created a barrier between the management and the employees in furthering the success of the company and its members. Despite strenuous efforts by unions to recruit Wal-Mart employees, union penetration remained low. Between 2000 and 2008, the United Food and Commercial Workers union together with AFL-CIO fought a concerted campaign to recruit Wal-Mart workers, but to little effect. Associates enjoyed a high degree of autonomy and received continuous communication about their companys performance and about store operations. Every aspect of company operations and strategy was seen as depending on the close collaboration of managers and shopfloor employees. To control shrinkage (theft), the company instituted a system whereby a stores cost savings from reduced shrinkage were shared between the company and the stores employees. Wal-Marts shrinkage was estimated to be just above 1%, versus an industry average of 2%. Wal-Marts approach to employee involvement made heavy use of orchestrated demonstration of enthusiasm and commitment. The central feature of Wal-Mart meetings from corporate to store level was the Wal-Mart Cheerdevised by Sam Walton after a visit to Korea. The call and response ritual (Give me a W! Give me an A!) included the Wal Mart squiggly, which involved employees shaking their backsides in unison. Fortune suggested that the Wal-Mart Cheers mixture of homespun and corporate themes provided an apt metaphor for what it called the Wal-Mart paradox: The paradox is that Wal-Mart stands for both Main Street values and the efficiencies of the huge corporation, aw-shucks hokeyness and terabytes of minute-by-minute sales data, fried-chicken luncheons at the Waltons Arkansas home and the demands of Wall Street. Critics of Wal-Mart call the homespun stuff a fraud, a calculated strategy to put a human face on a relentlessly profit-minded corporation. What is paradoxical and suspect to people outside Wal-Mart, however, is perfectly normal to the people who work there. It reflects a deal that Sam Walton, Wal-Marts founder, made with the people who worked for him. The deal was a lot more than just a matter of the occasional visit from Mr. Sam. Wal-Mart demonstrated its concern for workers in many ways that were small but specific: time-and-a-half for work on Sundays, an open-door policy that let workers bring concerns to managers at any level, the real chance of promotion (about 70% of store managers started as hourly associates).27

Wal-Mart Strategic Audit The paradox of Wal-Marts human resource practices continues. The enthusiasm it generates among employees supports a level of involvement and empowerment that is unique among large retail organizations. At the same time, the intense pressure for cost reduction and sales growth frequently results in cases of employee abuse. Wal-Mart suffered reversals in class action lawsuits by current and former employees. In a series of adverse court decisions, WalMart was forced to compensate current and former employees for unpaid overtime work, for failure to ensure that workers received legally mandated rest breaks, and for systematically discriminating against women in pay and promotion. 6. Information Technology Wal-Mart was a pioneer in applying information and communications technology to support decision making and promote efficiency and customer responsiveness. During the 1970s, WalMart was among the first retailers to use computers for inventory control, to initiate EDI with its vendors, and to introduce bar code scanning for point-of-sale and inventory control. To link stores and cash register sales with supply chain management and inventory control, Wal-Mart invested $24 million in its own satellite in 1984. By 1990, Wal-Marts satellite system was the largest two-way, fully integrated private satellite network in the world, providing two-way interactive voice and video capability, data transmission for inventory control, credit card authorization, and enhanced EDI. During the 1990s Wal-Mart was pioneering the use of data-mining for retail merchandising: At Wal-Mart, information technology gives us that knowledge in the most direct way: by collecting and analyzing our own internal information on exactly what any given shopping cart contains. The popular term is data-mining, and Wal-Mart has been doing it since about 1990. The result, by now, is an enormous database of purchasing information that enables us to place the right item in the right store at the right price. Our computer system receives 8.4 million updates every minute on the items that customers take homeand the relationship between the items in each basket. Data analysis allows Wal-Mart to forecast, replenish, and merchandise on a product-byproduct, store-by-store level. For example, with years of sales data and information on weather, school schedules and other pertinent variables, Wal-Mart can predict daily sales of Gatorade at a specific store and automatically adjust store deliveries accordingly. Point-of-sale data analysis also assisted in planning store layout: There are some obvious purchasing patterns among the register receipts of families with infants and small children. Well-thought-out product placement not only simplifies the shopping trip for these customerswith baby aisles that include infant clothes and childrens medicine alongside diapers, baby food and formulabut at the same time places higher-margin products among the staplesCustomers who buy suitcases are likely to be looking for other items they might need for travelling toosuch as travel alarms and irons, which now, logically enough, can be found displayed alongside luggage at many Wal-Mart stores. The common thread is simple: We are here to serve the customer; and customers tend to buy from us when we make it easy for them. That sounds like a simple idea. But first you must understand the customers needs. And thats where information comes in. The role of IT was most important in linking and integrating the whole of Wal-Marts value chain:


Wal-Mart Strategic Audit Wal-Marts web of information systems extends far beyond the walls of any one store. Starting from the basic information compiled at the checkout stand, at the shelves, and gathered by associates equipped with hand-held computer monitors, Wal-Mart works to manage its supplies and inventories not only in the stores, but all the way back to the original source. WalMart has given suppliers access to some of our systems, which enables them to know exactly what is selling, and to plan their production accordingly. This not only helps us keep inventories under control, but also helps the supplier deliver the lowest-cost product to the customer. With sales and in-stock information transmitted between Wal-Mart and our supplier-partners in seconds over the internet, buyers and suppliers are privy to the same facts and negotiate based on a shared understandingsaving a significant amount of time and energy over more traditional, low-tech systems. Our buyer benefits from the suppliers product knowledge, while the supplier benefits from Wal-Marts experience in the market. Combine these information systems with our logistics our hub-and-spoke system in which distribution centers are placed within a days truck run of the storesand all the pieces fall into place for the ability to respond to the needs of our customers, before they are even in the store. In todays retailing world, speed is a crucial compet itive advantage. And when it comes to turning information into improved merchandising and service to the customer, Wal-Mart is out in front and gaining speed. In the words of Randy Mott, Senior Vice President and Chief Information Officer, The surest way to predict the future is to invent it.

A. Corporate Resources 1. Marketing Advertising costs are expensed as incurred and were $1.6 billion in 2006. Advertising costs consist primarily of print and television advertisements (Annual Report 2006). Buy American campaign. (S) Green marketing offers the option of buying products which were better for environment. (S)


Wal-Mart Strategic Audit 2. 3. 4. Offers quality brand names at lower-than-competitive prices (Wheelen and Hunger 19-19). (S) Introduced a Value Plan benefits plan to its employees at premiums ranging from $11 to $65 a month. (S) Finance $312.6 billion in annual sales. (S) $11.2 billion net income. (S) $2.68 earnings per share. (S) 8.9% return on assets. (S) 11.4% increase in sales and operating income for the international business (Wheelen and Hunger 19-24). (S) R&D More involved with the development side. (W) Focusing on expansion and development of already established business model. (W) Operations Wal-Mart USA. We are intent on driving comparative store sales by being relevant to our broad customer base and by improving our cost structure and inventory flow to strengthen return on investment. (S) Sams Club. We remain committed to serving the needs of our members where pennies matter by leveraging productivity improvements and lowering expenses, so that we can provide the products and services they want at the lowest prices in the industry. (S) Wal-Mart International. Our approach to ensuring continued profitable growth includes three dimensions new markets with multiple formats, new store growth in existing markets and increasing sales at existing stores (Annual Report 2006). (S) Human Resources Employees are called associates. (S) Employee stock ownership and profit-sharing program. (S) Decentralized approach to retail management development. (S) Utilizes the Total Quality Management approach. (S) Discourages unionization (Wheelen and Hunger 19-23). (W) Information Systems Leader in RFID technology. (S) Good internet presence. (S) Utilizes satellite communications, data centers, and handheld devices. (S)

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V. ANALYSIS OF STRATEGIC FACTORS A. Situational Analysis 1. Strengths International brand name. Financial position. Market leadership. 2. Weaknesses Market saturation. Public opinion. Adjustment to cultural differences after entering a foreign market.

Wal-Mart Strategic Audit 3. 4. Supplier alienation. Past employee discrimination. Employee health benefits. International supplier employee violations. Opportunities International expansion. Environmental leadership. Workers rights leadership. Community involvement. Social initiatives. Threats Strong U.S. competition. Changing demographics. Economic uncertainty. Current litigation. Employee unionization.

B. Review of Current Mission and Objectives . . VI. Strategic Alternatives and Recommended Strategy A. Strategic Alternatives . B. Recommended Strategy . 12. PORTER ANALYSIS LOWBargaining power of Suppliers: Forging relationships with suppliers is essential to Wal-Marts business. Without timely inventory deliveries, Wal-Mart could not maintain its full shelves and would lose customers. For this reason, the company engages in contractual agreements with its suppliers. This arrangement is beneficial for both parties, as the supplier makes sure it will have constant access toretailers with large market share. This way, suppliers have a guaranteed buyer for the supplies and can arrange specific prices. Wal-Mart benefits by guaranteeing the cost of their merchandise and the timely deliveries, which will ultimately benefit consumers. Consumers will receive lower prices and an assortment of products. 13. PORTER ANALYSIS LOWBargaining power of Buyers:

Wal-Mart Strategic Audit Consumers today are searching for the best deals possible. They are waiting for discounts and sales to bulk up on products. Discount retailers like WalMart are creating huge supercenter stores because they want their stores to become a one-stop trip. This was most beneficial in 2007 as the high oil prices led consumers to shop less frequently to save gas. Instead of traveling from store to store in search for a variety of products, consumers can find them all in one location. Customers know what they want and how far they are willing to search for the item. Retailers must maintain high inventory levels to retain customers and their market share. 14. PORTER ANALYSIS LOW Being that the retail industry is aThreats of New Entrants: highly saturated market, new entrants would face difficulty succeeding in this industry. In fact, it is highly difficult for discount retailers to penetrate other markets as Wal-Mart tried to enter Germany and South Korea. The company was unsuccessful and had to pull out because of its unprofitability 15. PORTER ANALYSIS MEDIUM Substitute products are products that can be used asTHREAT OF SUBSTITUTE replacements for other products to satisfy the same necessity. Wal-Mart benefits from this idea as discounters have lower prices than department stores and consumers go for higher quality product with the lowest prices. Macys and PRODUCTS: Wal-Mart may both sell apparel and bedding products but there is a major price difference between the two. When consumers are trying to save, they will substitute pricier Macys items with lower priced Wal-Mart items. In making substitutions, consumers may have to forgot certain features such as the quality of the product, brand or even the service the store provides. Wal-Mart is working on providing the best customer service possible but as a high17

Wal-Mart Strategic Audit traffic store, it is generally impossible to provide one-on-one service. 16. PORTER ANALYSIS HIGH The retail business is a highly competitive industry. Wal-Mart faces a number of competitors in all segments of their business. After being the first in the industry to build the first supercenter, Kmart and Target built supercenters as well. Discount stores were generally thought of as shopping centers for lowincome consumers but this idea has changed. AsRivalry: retailers expanded their product lines, they included products for different customer incomes. Target, in particular, has generally been thought of as an upscale discount store as the company tends to target medium income consumers but their prices are usually higher than Wal-Marts. 17. Customers loyalty High Brand value Good inventory control SystemS Good reputation on Quality and low price Emphasis in Human Resource management and development Much of the same merchandise Low reaction to changes in market Insistence on doing things the Wal-mart wayW Low current ratio Low market research in foreign countries Strategic Alliances and merger Increase Demand Technological developmentsO New retail formats Customers concern about environment Cultural differences in new markets Countries economic problems Local regulationsT Antitrust issues Intense competitive conditions 18. IFE - MATRIX 19. EFE - MATRIX 20. THE INTERNALEXTERNAL MATRIX 21. SPACE MATRIX Internal Strategic Position External Strategic Position FINANCIAL (FS) ENVIRONMENTAL (ES) +6 best, +1 worst -1 Best, -6 Worst (+6) Net Sales (-1) TechnologyY(+3) Current Ratio (-2) Demand Increase (+6) Revenues (-5) Barriers to entry (+5) Net

Wal-Mart Strategic Audit Income (-6) Competitive pressure (+6) Comparative store sales Increase (-3) Antitrust Issues Avg. = 5.2 Avg. = -3.4 COMPETITIVE (CA) INDUSTRY (IS) -1 best, -6 worst +6 best, +1 worst (-1) Costumers loyalty (+5) Growth potentialX Brand value (-1) (+5) Profit potential (-2) Product Quality (+5) Developments in technology (-1) Human resource management (+6) Consolidation (-1) Inventory Control System (+2) Easy to entry Avg. = -1.2 Avg. = 4.6 Y= 5.2 + (-3.4) = 1.8 X= -1.2 + (4.6) = 3.4 22. FINANCIAL RATIOS 23. SUMARY SPACETOWS IFE-EFE MATRIXInvest on marketing and publicity The Internal External Matrix Wal-Mart should pursue an Increase the satisfaction to get shows that Wal-Mart is a strong aggressive strategy. The mouth advertisement company in the retail industry company needs to use its and the analysis recommended strengths and opportunities to Sell innovative merchandise that Wal-Mart should pursue increase their sales, keep their Improve investment on research the strategy of grow and build brand value and get a and development in foreign to reach the gold of increase successful penetration in markets sales and profits. foreign markets. 24. ALTERNATIVE 1Increase the investment on research and development tounderstand the foreign markets before enter to them. PROS CONS Reduce the effect of the High cost of R & D cultural differences Increase sales and profits Perfect penetration in new markets 25. ALTERNATIVE 2Increase the satisfaction of customers and give tothem more benefits like promotions and gift tomaintain the loyalty and increase the mouthadvertising. PROS CONS Increase sales and profits High cost of investment Costumers loyalty High cost of R & D Increase the mouth advertising. Increase brand value Increase top of mind on consumers

Wal-Mart Strategic Audit

26. ALTERNATIVE 3Make alliances with successful companies that haveexperiences on the new markets and do the things ontheir successful way in that market. PROS CONS Avoid the reject of potential High investment customers to the brand Risk of merger Increase sales on foreign markets Lose a little of the Wal-Mart Way Learn new retail models Increase the brand value Increase sales and profits 27. RECOMENDATION Lee Scott, new Wal-Marts CEO should pursue the third alternative to keep Wal-Mart as the worlds biggest retailer and keep increasing sales and profits into the future. It means that Lee Scott should look for successful companies around the world that can bring benefits and which workings philosophy resembles Wal-Mart philosophy. This alternative has several cons but its pros are better and reach the gold. Wal-Mart has to keep growing and increase their investment on marketing to raise its top of mind and keep it above the competitors. o . VII. Implementation Management needs to be open to change regarding clashes with grass-roots movements that push to keep new construction of Wal-Mart stores in rural America. While many residents welcome a new Wal-Mart, there will always be opposition and by developing ways to appease those that oppose the giant retailer, they will be more welcome to the neighborhood. Wal-Mart has been steadily reaching into every corner of the earth, but not always with successful results. Upper management is making the assumption that every culture will welcome box stores and the American culture that Wal-Mart is known for. As has been proven time and again, this is not always true. There need to be committees established that can perform thorough research before just barging onto foreign land. Several lawsuits have been filed regarding the treatment of employees. Wal-Mart needs to get involved with developing a way to ensure employees are getting the right benefits that is equal to the retail industrys average worker. VII. Evaluation and Control . .

Wal-Mart Strategic Audit .


Wal-Mart Strategic Audit EFAS (External Factor Analysis Summary) Key Internal Factors Weight Rating Weighted Scores Comments

Opportunities International expansion Environmental leadership Workers rights leadership Community involvement Social initiatives Threats Strong U.S. competition Changing demographics Economic uncertainty Current litigation Employee unionization Total Scores 1.0

IFAS (Internal Factor Analysis Summary) Key Internal Factors Weight Rating Weighted Scores Comments

Strengths International brand name Financial position Market Leadership Weakness Market saturation Public opinion Adjustment to cultural differences Supplier alienation Past employee discrimination Employee health benefits International supplier employee violation Total Scores 1.0


Wal-Mart Strategic Audit

SFAS (Strategic Factor Analysis Summary) Key Strategic Factors Weight Rating Weighted Score Duration S I X X X X X X X X X X X X X Comments L X X X X X X X





Wal-Mart Strategic Audit Works Cited

Wheelen, Thomas L., and J. David Hunger. Strategic Management and Business Policy: Achieving Sustainability. Upper Saddle River: Prentice, 2010. Print.

I. CURRENT SITUATION A. Current Performance Management uses a number of metrics to assess the Companys performance including: 5 Comparable store sales is a measure which indicates the performance of our existing stores by measuring the growth in sales for such stores for a particular period over the corresponding period in the prior year. Our Wal-Mart Stores segments comparable store sales were 1.9% for fiscal 2007 versus 3.0% for fiscal 2006. Our Sams Club segments comparable club sales were 2.5% in fiscal 2007 versus 5.0% in fiscal 2006, including the impact of fuel sales. Operating income growth greater than net sales growth has long been a measure of success for us. For fiscal 2007, our operating income increased by 9.5% when compared to fiscal 2006, while net sales increased by 11.7% over the same period. Our Wal-Mart Stores and Sams Club segments met this target; however, the International segment did not due to the impact of the newly acquired and consolidated entities. Inventory growth at a rate less than that of net sales is a key measure of our efficiency. Total inventories at January 31, 2007, were up 5.6% over levels at January 31, 2006, and net sales were up 11.7% when comparing fiscal 2007 with fiscal 2006. With an asset base as large as ours, we are focused on continuing to make certain our assets are productive. It is important for us to sustain our return on assets. Return on assets is defined as income from continuing operations before minority interest divided by average total assets from

comparable store sales, operating income growth greater than net sales growth, inventory growth less than net sales growth and return on average assets.

Wal-Mart Strategic Audit continuing operations. Return on assets for fiscal 2007, 2006 and 2005 was 8.8%, 9.3% and 9.8%, respectively. Return on assets in fiscal 2007 and 2006 was impacted by acquisition and consolidation of entities with lower asset returns. This excerpt taken from the WMT 10-K filed Mar 29, 2006. Company Performance Measures Management uses a number of metrics to assess the Companys performance. The following are the more frequently used metrics: Comparative store sales is a measure which indicates the performance of our existing stores by measuring the growth in sales for such stores for a particular period over the corresponding period in the prior year. Our Wal-Mart Stores segments comparative store sales were 3.0% for fiscal 2006 versus 2.9% for fiscal 2005. Our SAMS CLUB segments comparative club sales were 5.0% in fiscal 2006 versus 5.8% in fiscal 2005. Operating income growth greater than net sales growth has long been a measure of success for us. For fiscal 2006, our operating income increased by 8.4% when compared to fiscal 2005, while net sales increased by 9.5% over the same period. Our SAMS CLUB segment met this target; however, the Wal-Mart Stores segment fell short of the target, while the International segment grew operating income at the same rate as net sales. Inventory growth at a rate less than that of net sales is a key measure of our efficiency. However, our increased purchases of imported merchandise and recent acquisition activity impact this measure. Total inventories at January 31, 2006, were up 8.2% over levels at January 31, 2005, and net sales were up 9.5% when comparing fiscal 2006 with fiscal 2005. Approximately 150 basis points of the fiscal 2006 increase in inventory was from increased levels of imported merchandise, which carries a longer lead time, and an additional 170 basis points was from the consolidation of The Seiyu, Ltd. and the purchase of Sonae Distribuo Brasil S.A. With an asset base as large as ours, we are focused on continuing to make certain our assets are productive. It is important for us to sustain our return on assets. Return on assets is defined as income from continuing operations before minority interest divided by average total assets. Return on assets for fiscal 2006, 2005 and 2004 was 8.9%, 9.3% and 9.2%, respectively. Return on assets in fiscal 2006 was impacted by acquisition activity in the fourth quarter. This excerpt taken from the WMT 10-K filed Mar 31, 2005. Company Performance Measures Management uses a number of metrics to assess its performance. The following are the more frequently discussed metrics: Comparative store sales is a measure which indicates whether our existing stores continue to gain market share by measuring the growth in sales for such stores for a particular period over the corresponding period in the prior year. Our Wal-Mart Stores

Wal-Mart Strategic Audit segments comparative store sales were 2.9% for fiscal 2005 versus 3.9% for fiscal 2004. The lower comparative store sales growth in fiscal 2005 is generally reflective of the softer economy in fiscal 2005, including the impact of higher fuel and utility costs on our customers. Our SAMS CLUB segments comparative club sales were 5.8% in fiscal 2005 compared to 5.3% in fiscal 2004. The more favorable growth in fiscal 2005 resulted from our continued focus on the business member. Operating income growth greater than net sales growth has long been a measure of success for us. For fiscal 2005 our operating income increased by 13.8% when compared to fiscal 2004, while net sales increased by 11.3% over the same period. Both International and SAMS CLUB segments met this target; however, the Wal-Mart Stores segment fell slightly short. Inventory growth at a rate less than half of sales growth is a key measure of our efficiency. Total inventories at January 31, 2005, were up 10.7% over levels at January 31, 2004, and sales were up 11.3% when comparing fiscal 2005 with fiscal 2004. This ratio was affected in fiscal 2005 by sales which were weaker than anticipated, as well as by increased levels of imported merchandise, which carries a longer lead time. With an asset base as large as ours, we are focused on continuing to make certain our assets are productive. It is important for us to sustain our return on assets at its current level. Return on assets is defined as income from continuing operations before minority interest divided by average total assets. Return on assets for fiscal 2005, 2004 and 2003 was 9.3%, 9.2 % and 9.2%, respectively.