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STRATEGI MANAGEMENT
EXCUTIVE SUMMARY
This report involves analysis of Wal-Mart Stores, and how it has changed over
the years. In the following report, a brief introduction and a brief background
will be given for the company and the report will then go on to take into
account various matrixes that will help us identify which strategies need to
be
adopted
by
Wal-Mart
Stores.Furthermore,the
vision
and
mission
statement for the company has also been identified; in addition, the
objectives and strategies have also been put forward. Moreover, as
mentioned already, matrixes such as external factor evaluation matrix,
internal factor evaluation matrix, competitive profile matrix, SWOTmatrix,
Page | 2
BCG matrix, IE matrix, SPACE matrix and the Grand Strategy matrix have all
been identified. Finally, the report will express alternate strategies for WalMart Stores and evaluate in order to find out which strategy is suitable for
Wal-Mart Stores in order to be effective and success in the future.
1.0 INTRODUCTION
Wal-Mart Stores, Inc is an American public corporation that runs a chain of large discount
department stores and a chain of warehouse stores. In 2009 and 2010 it was the world's largest
public corporation by revenue, according to the Forbes Global. The company was founded by
Sam Walton in 1962, incorporated on October 31, 1969, and publicly traded on the New York
Stock Exchange in 1972. Wal-Mart, headquartered in Bentonville, Arkansas, is the largest
majority private employer and the largest grocery retailer in the United States. In 2009, it
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generated 51% of its US$258 billion sales in the U.S. from grocery business. It also owns and
operates the Sam's Club retail warehouses in North America. Wal-Mart has 8500 stores in 15
countries, with 55 different names.
The company operates under its own name in the United States, including the 50 states. It also
operates under its own name in Puerto Rico. Wal-Mart operates in Mexico as Walmex, in the
United Kingdom as Asda and Japan as Seiyu,. It has wholly-owned operations in Argentina,
Brazil, and Canada. Wal-Mart's investments outside North America have had mixed results: its
operations in the United Kingdom, South America and China are highly successful, while it was
forced to pull out of Germany and South Korea when ventures there were unsuccessful.
1.1 BACKGROUND
No word better describes Wal-Mart than growth. In 1945, Sam Walton opened his first Ben
Franklin franchise in Newport, Arkansas. Living in rural Bentonville, Arkansas, at the time,
Walton, his wife Helen, and his brother Bud operated the nations most successful Ben Franklin
franchises. We were a small chain, said Walton of his 16 store operation. Things were running
so smoothly that we even had time for our families. What more could a man want? A great deal
as it turned out.
Sam and Bud Walton could see that the variety store was gradually dying because supermarkets
and discounters were developing. Far from being secure, Walton knew that he was under siege
and decided to counter attack. He first tried to convince the people in top management of Ben
Franklin to enter discounting. After their refusal, Sam Walton made a quick trip around the
country in search of ideas. He then began opening his own discount stores in small Arkansas
towns like Bentonville and Rogers.
The company opened its first discount department stores (Wal-Mart) in November 1962. The
early stores had bare tile floors and pipe racks. Wal-Mart did not begin to revamp its image
significantly until the mid- 1970s, and growth in the early years was slow. However, once the
company went public in 1970s, sales began to increase rapidly. When it initially went public, 100
shares of Wal-Mart stock would have cost $1,650. Now, those 100 shares are worth over
$6million.
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Such retailers as Target, Venture, and Kmart provided the examples that Wal-Mart sought to
emulate in its growth. The old Wal-Mart store colors, dark and white (too harsh), were dumped
in favor of a three- tone combination of light beige, soft blue, and burnt orange. Carpeting, which
had long been discarded on apparel sales floors, was put back. New racks were put into use that
displayed the entire garment instead of only an outer edge.
Sam Walton died in 1992. Bud Walton died in 1995. Wal-Marts 1995 annual report was
dedicated to Bud. Sam Walton once said about Bud, Of course, my number-one retail partner
has been my brother, Bud. Buds wise counsel and guidance kept us from many a mistake. Often,
Bud would advice taking a different direction or may be changing the timing. I soon learned to
listen to him because he has exceptional judgment and a great deal of common sense.
In 2000, H. Lee Scott was named president and CEO of Wal-Mart. In February 2009, Mike Duke
became the new president and CEO when Scott retired from the position. According to duke,
our company is so well positioned for todays difficult economy and tomorrows changing
world. We have an exceptionally strong management team, able to execute our strategy, perform
every single day, and deliver results.
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Wal-Mart does not officially have a mission statement according to the case study but nowadays
they officially published this mission statement.
We save people money so they can live better.
1.6 COMPETITORS
Wal-Mart's primary competition includes department stores like Kmart, and Target
Corporation. Competitor of Wal-Mart's Sam's Club division is Costco Wholesale.
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Kmart became known for its "Blue Light Specials." They occurred at surprise moments when a
store worker would light up a mobile police light and offer a discount in a specific department of
the store. At the height of Kmart's popularity, the phrase "attention Kmart shoppers" also entered
into the American pop psyche, appearing in films and other media such as Troop Beverly Hills,
Six Days Seven Nights, Rain Man, Beetle juice, and Dawn of the Dead.
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Kmart's world headquarters was located in Troy, Michigan, but since the purchase of Sears, has
been relocated to Hoffman Estates, Illinois. Kmart also exists in Australia and New Zealand (see
Kmart Australia), although it now has no relation to the American stores except in name, after
U.S. equity in the Australian business was purchased in the late 1970s.
1.6.3 Costco Wholesale
Costco Wholesale Corporation is a membership-only warehouse club that provides a
wide selection of merchandise. As of July 2012, it is the second largest retailer in the United
States, the seventh largest retailer in the world and the largest membership warehouse club chain
in the United States.
Costco is headquartered in Issaquah, Washington, United States] and was founded in 1976 in San
Diego,CAwith its first warehouse in Seattle. Today Costco has a total of 626 locations in the
UK (23), Australia (3), Canada (85), Mexico (33), Taiwan (9), South Korea (9), Japan (15), and
the United States(449).
Key
Formula
Current assets /
2008
48020/ 58478
2009
48949/ 55390
current liabilities
= 0.82
= 0.88
From the above calculation we can conclude that the company capability for
every $ 1 of current liability, the company ability $ 0.82 of its current assets
which means the company is recommended to increase its current ratio in
the fiscal year 2008 . However, in year 2009 the above calculation indicated
that the company capability for every $ 1 of current liability, the company
ability $ 0.88 of its current assets which means the company is
recommended to increase its current ratio.
Ratio
Quick Ratio
Formula
Current assets
-inventory /
current liabilities
2008
48020-35159/
58478
= 0.22
2009
48949-34511/
55390
= 0.26
Based on the above table, the quick ratio in 2008 implies that the company
might have overstocking problem because the quick ratio is less than one
and also less than the current ratio. Whereas, in 2009, there is a slightly
difference between quick ratio of the company in 2008 and 2009. Meaning
that, the company might have overstocking problem because the quick ratio
is less than one and also less than the current ratio.
2.2 LEVERAGE RATIOS
Leverage ratios measure the extent to which a firm has been financed
by debt. Such as debt-to total-assets ratio, debt-to-equity ratio, long-term
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Formula
Total debt / Total
Assets Ratio
assets
2008
29799+ 3603/
163514
= 0.20
2009
31349+ 3200/
163429
= 0.21
The above ratio for the year 2008 and the year 2009 indicates that the
company is confidence to gain the trust from its creditors because the debt
ratio is low.
Ratio
Debt-to-Equity
Formula
Ratio
stockholders
2008
29799+ 3603/
64608
= 0.52
2009
31349+ 3200/
65285
= 0.53
Regarding to the above the table it is clear to said that the company uses
less borrowing as the source of financing.
Formula
Long-term Debt /
in Equity Ratio
Total
2008
29799/ 64608
= 0.46
2009
31349 / 65285
= 0.48
stockholders
Equity
The above ratio stated that the company relies on its stockholders equity
rather than long term debt. In this sense the company prefer to ignoring to
take long term debt when its stockholders fulfills its needs meaning that the
company use its own sources of financing in the efficient way.
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Ratio
Time-interest-
Formula
Profits before
earned
interest and
2008
20159 / 1794
2009
20898 / 1900
= 11.23
= 11
taxes ( PBIT)/
Total interest
charges
Based in the above calculation of the time interest earned it can be said that
Wal-Mart have good ability to fulfills interest obligations. Because the time
interest earned measure the firms ability to cover its interest charges out of
its operating profits. Based on this concept the higher the ratio the higher is
the firms ability to fulfill interest obligations.
Ratio
Time-interest-
Formula
Profits
earned
interest
taxes
Total
2008
before
20159 / 1794
and
2009
20898 / 1900
= 11.23
= 11
PBIT)/
interest
charges
Formula
2008
Sales / Inventory 374307 / 35159
2009
401244 / 34511
turnover
of finished goods
= 11.63
= 10.65
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The above ratio determines that (360/11.63) takes around 31 days to turn its
stock into sales. In other words there is a slightly improvement in regards of
inventory turnover than 2008. This ratio determines that (360/10.65) takes
around 34 days to turn its stock into sales.
Ratio
Fixed
Turnover
Formula
Assets Sales
/
2008
Fixed 374307 / 93725
Assets
2009
401 244 / 92856
= 3.99
= 4.32
The above ratio indicates that the utilization of the companys fixed assets is
approximately 4 times of its sales. The above ratio indicates that the
utilization of the companys fixed assets is more than 4 times of its sales.
Ratio
Total
Turnover
Formula
Assets Sales
/
Total
2008
374307 / 163514
2009
401244 / 163429
= 2.29
= 2.46
Assets
The above figure determines that the company total assets turnover is more
than 2 of utilization of its total assets. The company is recommended to
increase its total assets turnover. This figure determines that the company
total assets turnover is more than 2 of utilization of its total assets. The
company is recommended to increase its total assets turnover.
Ratio
Accounts
Formula
Annual
receivable
Sales / Accounts
Turnover
Receivable
credit
2008
374307 / 3642
= 102.78
2009
401244 / 3905
= 102.75
On the above table, the company account receivable turnover is 102, which
express that the company is recommended to reduce this ratio and improve
it to collect its debts from its customers from shorter time rather than collect
its debts from its customer on 102 days.
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Ratio
Average
Formula
Accounts
2008
3642 /
collection period
2009
374307/ 3905 /
days
3.6 365
401244/
days
3.6
days
days
Based on the above table , we can say that the company has a very good
average collection period which is only around 3.6 days only and it is highly
efficient that the Wal-Mart stores collect its money from its account
receivable or its customers in a short time of period which means that the
company absolutely doing well.
2.4 PROFATIBILITY RATIOS
Profitability ratios measure managements overall effectiveness as shown by
the returns generated on sales and investment. Profitability ratios include the
following:
Formula
2008
Sales- cost of
374307- 286350 /
goods sold / Sales 374307
= 0.23 100=23
%
2009
401244- 306158 /
401244
= 0.24 100=24
%
From the above illustration we can conclude that the ratio of the gross profit
margin in 2009 indicated that how much the company has gained for every $
1 sale made. From this ratio the company shows the efficiency of the
company in controlling its costs of goods sold. A Wal-Mart store is a profitable
company.
Ratio
Operating profit
margin
Formula
Earnings before
interest and
2008
21952 / 374307
= 0.034 x
2009
13400 / 401244
= 0.033
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taxes ( EBIT)
/Sales
100=3.4 %
x100=3.3 %
Regarding to the above table Wal-Mart stores have gotten a very low
operating profit margin because the industry average for operating profit
margin suppose to be 17% . From the above calculation it is clear the gap is
big between the average industry and Wal-Mart stores. So that, Wal-Mart is
recommended to increase its operating profit margin. Since the operating
profit margin is derived after deducting all cost and expenses perhaps the
company has to look which kind of expenses can be eliminated.
Ratio
Price earnings
ratio
Formula
Market price per
share / earnings
per share
2008
0.10 / 1.61
= 0.06
2009
0.10 / 1.70
= 0.06
Based on the above mentioned, the price earnings ratio is the tool that used
on the financial ratio that show how much investors are willing to pay the
companys shares. This ratio measures the confidence in the firms future
prospective. Based on the above ratio for Wal-Mart
executives years 2008 and 2009 the company price earnings ratio cannot
motivate the investors to buy Wal-Mart shares because the earning is very
low and it does not show the confidence of the investors.
2.5
GROWTH RATIOS
Growth ratios measure the firms ability to maintain its economic position in
the growth of economy and industry. Growth ratio involves the following
functions: Sales, Net income, Earnings per share and Dividends per share.
Ratio
Sales
Formula
Annual
percentage
growth in total
sales
2008
374307- 344759 /
344759
= 0.086x100=
8.6%
2009
401244- 374
307 / 374307
= 0.072
x100=7.2%
Page | 14
The above table expresses the growth in total sales for Wal-Mart Company in
two consecutive years. However in 2009 Wal-Mart has slightly little bit
difference than 2009. On the overall the company has gotten a good sales
ratio in the both years. As well as, the company has to improve its ratio in
the next coming years.
Ratio
Net income
Formula
Annual
percentage
growth
2008
12731-11284 /
11284
= 0.04 x100 =
4%
2009
13400- 12731 /
12731
=
0.05x100%=5%
The above net income ratio is measuring the firms growth rate in profits. In
regards of net income for Wal-Mart Company, the figures above indicted that
the company got a good net income in the two consecutive years.
Ratio
Earnings per
share
Formula
Annual
percentage
growth in EPS
2008
1.61 1.43 / 1.43
= 0.13
2009
1.70- 1.61 / 1.61
= 0.06
The above Earnings per share is one of the most widely ratios concerning
common stock. As we can see from the above figure there was a decreasing
for the earning per share for Wal-Mart stores which implies that Wal-Mart
should look what is the reason for the earning per share to be decreased in
2009 and the company have to improve its earnings per share because a
higher value indicates a higher profits per share . Since Wal-Mart company is
profit oriented so it must concerned about this aspect.
Page | 15
3. The company avoids spending money on consultants and marketing experts.(page 246.
Paragraph 2, line 3 and 4)
4. Sam's clubs were never designed to sell merchandise categories, but rather items. (Page
241, paragraph 3, line 1 and 2).
Weight
Strength
Wal-Mart focuses on low cost, best value,
Rating
Weighted Score
0.20
0.80
0.09
0.27
0.15
0.60
0.10
0.30
has
one
satellite
the
worlds
communication
Page | 17
Weaknesses
Wal-Mart does not have a formal mission
0.07
0.14
0.16
0.16
0.13
0.13
0.10
0.20
2.60
After conducted the calculation for the internal analysis, the total weighted score is 2.60 which
means the company has good internal strength and weakness because it is above the ideal value.
4.0EXTERNAL FACTOR EVALUATION MATRIX (EFE)
EFE matrix is a strategic-management tool often used for assessment of current business
conditions. The EFE matrix is a good tool to visualize and prioritize the opportunities and threats
that a business is facing.
Opportunity:
Page | 18
Page | 19
Weight
Rating
Weighted Score
Opportunity
Wal-Marts community involvement year
after year is phenomenal. According to the
0.22
0.88
0.21
0.84
0.17
0.51
in
America.
(Page
305,
Page | 20
0.18
0.54
0.13
0.26
Total
0.09
0.09
3.12
According to the above analysis we can conclude that the company is very good because the total
weight score is higher than 2.50. The total score is 3.12 that mean the company can overcome its
threats and can come across its opportunities.
Page | 21
Critical success
factors
Financial position
Price competitiveness
Advertisement
Global expansion
Total
Weight
0.30
0.25
0.20
0.25
Rati
ng
3
4
3
3
1.00
score
0.90
1.00
0.60
0.75
Costco
Wholesale2
Ratin Score
g
2
0.60
3
0.75
2
0.40
2
0.50
3.25
Target4
Rating
Score
3
4
3
1
0.90
1.00
0.60
0.25
2.25
2.75
1http://en.wikipedia.org/wiki/Costco
2http://www.managementparadise.com/forums/marketing-management/209222marketing-strategy-costco.html
3http://media.corporate-ir.net/media_files/irol/65/65828/AP_Hi.pdf
4http://en.wikipedia.org/wiki/Target_Corporation
Page | 22
The competitive profile matrix for Wal-Mart Stores classifies the companys
top competitors such as Costco Wholesale and Target. Companies are then
evaluated on the basis of significant success factors. And the success factors
are weighed from (0.0, not important to 1.0 very important) and the ratings
pass on to the strengths and weaknesses by 4being the major strength, to
1 for major weaknesses. According to the CPM table Wal-Mart Stores is the
highest top performer with value of 3.25. Meanwhile, Target Corporation is
the second top performer with value of 2.75 and Costco is third performer
with value of 2.25.
Page | 23
STRENGTHS
WEAKNESSES
represent
customer service.
Wal-M
supercenters.
3). Wal-Mart has one the worlds
spending
money
experts.
4. Sam's clubs were ne
distribution.
4). Wal-Marts sales rose from $374.3
designed
to
merchandise
categor
SO STRATEGIES
Wal-Marts
WO STRATEGIES
1).
Spending
competitiveness.
more
money
to
gain
strat
in America.
Wal-Mart maintains
THREATS
ST STRATEGIES
Nationally
WT STRATEGIES
and 1). Increase salary both nationally and 1). Create formal mission statem
internationally,
has been faced with the order to prevent united food and
United
Food
Commercial
W1, T3)
(Market Penetration)
(S3, T1)
(Horizontal Integration)
(W4, T2)
(Market penetration)
with
366,000
employees.
Most recent comparisons
show that while the Sams
club division of Wal-Mart
brought in over $44billion
in net sales while Costco
finished the year at just
over $72 billion.
Page | 25
1.
2.
3.
4.
Liquidity
operating income
Inventory turnover ratio
Working capital
+1
+5
1.
2.
3.
4.
Competitive pressure
Barriers to entry into market
Ease of exit from market
Technological changes
+2
Total
+11
2.75
Average
1.
2.
3.
4.
-1
-3
-3
-2
Total
-9
Average
-2.25
Market share
product Quality
Technological Skill
Customer loyalty
-2
-3
-1
-4
Total
1.
2.
3.
4.
Growth Potential
Profit potential
Financial Stability
Ease of entry into market
Total
-10
Average
-2.5
+6
+5
+6
+7
+24
Average
+6
Calculation:
X = IP+CP = 6 + (-2.5) = 3.5
Y= FP+CP= 2.75 + (-2.5) = 0.5
FP
Page | 26
CONSERVATIVE
+7
AGGRESSIVE
+6
+5
+4
+3
(3.5, 0.5)
+2
+1
-8 CP
-7 -6 -5 -4 -3 -2 -1
+ 1 +2 +3 +4 +5 +6 +7 +8 +9
IP
-1
-2
-3
-4
-5
-6
DEFENSIVE-7
COMPETITIVE
-8
SP
According to the above graph we can see that the company have aggressive
stretagy which contains backward, forward, horizental integration, market
penetration, market development, product development and diversification
(related/ unrelated).
9.0 BOSTON CONSULTING GROUP (BSG) MATRIX
The BCG matrix, invented by the Boston Consulting Group, is a tool that
allows to classify and evaluate the products and services of a business. It is
Page | 27
company
among those which make profits, those who ensure growth, those which
constitute the future of
matrix is divided into four types of circumstances and they are the stars,
cash, cows, dogs and questions marks.
Company
Wal-Mart
Costco
Target
Sales in 2009
401,244
69,889
65,357
Sales in 2008
374,307
70,977
64,948
= 65,357
Market share
= 65,357/401,244
= 0.16
Company
Sales
in Sales
in Calculation
Average
2009
2008
Wal-Mart
401,244
374,307
401,244
Costco
69,889
70,977
374,307/374,307=
69,889 70977/70977
(1.5%)
Target
65,357
64,948
=
65,357-64,948/ 64,948
0.63
Growth
-
Rate
7.2%
=
Total
6.33
Page | 28
High
Medum
Low
1
0.16
0.50
0.0
High
Industry
Growth
STARS
+20
QUESTION MARK
2.11
Meduim
CASH COWS
DOGS
Low
- 20
In the above BCG Matrix express the relative market share and the industry
growth rate of Wal-Mart. The relative market share of Wal-Mart is 0.16%
while the industry growth rate of 2.11% and the position lies in the first cell
question mark which represents the strategies of market penetration,
market development, product developmet and divestiture. Last but not least,
the company has low relative market share but high industry growth rate.
Page | 29
Average
2.0 to 2.99
3.0
2.0
Weak
1.0to 1.99
1.0 2.60
II
IV
Grow and
build
III EFE TOTAL
WEIGHTED
SCORE
3.0
V1
2.0
VII
VIII
IX
1.0
Page | 30
3.1
As mentioned in the above diagram, the total IFE weighted score of 2.60falls
in X axis and the Total EFE weighted score of 3.12 falls in the Y axis.
According to the IE matrix below, Wal-Mart stores falls in the second cell and
so as they should follow the strategy of grow and build. This strategy
containsbackward, forward, horizental integration, market penetration,
market development, product development
11.0 GRAND STRATEGY MATRIX
The grand strategy is a useful tool for creating different and alternative
strategies for an organization. Grand matrix has four quadrants; each
quadrant contains different sets of strategies and the entire firms along with
their respective divisions must fall in one of the quadrant. This matrix has
two dimentions competitive position and market growth. The following
daigram is walmarts grand strategy matrix.
Quadrant IIQuadrant I
RAPID MARKET
GROWTH
Quadrant IIIQuadrant IV
STRONG
COMPETIT
IVE
Page | 31
SLOW MARKET
GROWTH
According to the Grand Strategy Matrix, the position of Wal-Mart Stores lies
in the first quadrant which reveals that the company has a strong
competitive position among the competitive market and very rapid market
growth as the annual growth in sales exceeds above 5%.Furthermore, the
strategies recommended are market development, market penetration,
product development, forward integration, backward integration, horizontal
integration, and related diversification.
and
more
to
money
marketing
market share.
experts in order
to increase net
(Market Penetration)
sales.(product
development)
Strengths
Weight
AS
TAS
AS
TAS
0.20
0.80
0.60
0.09
0.18
0.27
Page | 33
0.15
--
---
--
--
0.10
0.40
0.30
0.07
0.21
0.07
0.16
----
-----
-----
-----
0.13
0.52
0.39
0.10
0.20
0.40
0.44
0.22
consultants
and
marketing experts.
4. Sam's
TOTAL
1.00
Opportunities
1. Wal-Marts
community
0.22
corporate
cash
contributor in America.
2. Wal-Mart maintains a strategic
0.21
0.42
0.63
0.17
0.51
0.34
0.18
-------
-------
--------
-------
0.13
0.52
0.39
0.09
0.18
0.27
3. Wal-Mart
is
in
the
retail
United
Food
and
a fierce competitor of
Wal-Mart and is ranked
second among discount
retailers with sales of
nearly $65 billion with
366,000 employees
Most recent comparisons show
that while the Sams club
division of Wal-Mart brought
Page | 35
1.00
4.38
3.88
According to the above table, the total attractive score of QSPM of Wal-Mart stores, the first
strategy, Maintain lowcost leadership and spend more money to marketing
experts in order to increase net sales.(product development) express that
4.38. whese as the second strategy which is Addmerchandise category in the stores
to compete effectively with Target in order to increase market share. (Market Penetration) have
3.88 total attractive score. So we can conclude that the first strategy has been chosen as the best
strategy for Wal-Mart Stores to overcome its problems and succeed in the industry.
CONCLUSION
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