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Case 22 WAL-MART STORES, INC.

(1998): RAPID GROWTH IN THE 1990s


I. CASE ABSTRACT Wal-Mart Stores, Inc., in 1998, with corporate headquarters in Bentonville, Arkansas, was not only the nations largest discount department store chain but also had surpassed Sears, Roebuck & Company as the largest retail organization in sales volume in the United States. The firm operated stores under a variety of names and retail formats including: Wal-Mart, discount department stores; SAMS Clubs, wholesale and retail membership warehouses; and Supercenters, large combination general merchandise and grocery stores. In the international division, it operated stores in Canada, Mexico, Argentina, Brazil, Germany and China. The McLane Company, a support division with over 36,000 customers, was the nations largest distributor of food and merchandise to convenience stores and selected Wal-Marts, SAMS Clubs, and Supercenters. On January 31, 1998, Wal-Mart operated 2,421 Wal-Mart stores, 483 SAMS Club stores, and 502 Supercenters, which totaled 3,406 stores. A major concern was Wal-Marts spectacular growth and the dominance of the firm in the market. The firm was perceived to be in the accelerated development or growth stage of the institutional life cycle in which sales are increasing rapidly, profits are high, new stores are being opened, existing stores are being refurbished, the product line is being reevaluated, service offerings are being upgraded, automation is being introduced to store operation, and better management controls are being developed. What makes this situation unique is that the discount department store industry was perceived as being at maturity. The industry faced increased competition, leveling of sales, moderate profits by surviving firms, over-stored markets, and more complex operations problems than previously. Another concern: what of Wal-Mart without Sam Walton? A new president and chief executive officer was in place. Management claimed: "Theres no transition to make because the principles and the basic values [Sam Walton] used in founding this company were so sound and so universally accepted." Senior management felt that the firm could continue to maintain its blistering growth pace by "outmaneuvering the competition with innovative retailing concepts." Reality was somewhat different, however. Sales were no longer increasing each year in the 20% to 30% range as in the 1980s and early 1990s. In Fiscal Year (FY) 1996 to FY 1997, sales increased only 12.4%. Sales for FY 1990 were $32,601,000,000 and increased to $117,958,000,000. The increase was $85,357,000,000 (or 261.8%). The stores were 3,406 (almost double) and 1,721 for FY 1997 and FY 1990, respectively. The growth as a percentage slowed because base sales were so large. In FY 1997, Kmart had sales of $32,183,000 and sales of $32,070,000 in FY 1990. Kmart sales decreased by <$113,000,000> while Wal-Mart sales increased by $85,357,000,000 for the eight FYs (19901997). _______________ Copyright 1999 by Thomas L. Wheelen and J. David Hunger. Reprinted by our permission only for the 7th Editions of (1) Strategic Management and Business Policy and (2) Cases in Strategic Management.

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Case 22 Wal-Mart Stores, Inc. (1998) Decision Date: 1998 1997 FY Sales: 1997 FY Net Income: $117,958,000,000 $3,526,000,000

(1995 Fiscal Year [FY] was from February 1, 1995 to January 31, 1996) II. CASE ISSUES AND SUBJECTS Retailing/Discount Department Store Industry Industry Analysis Executive Succession Corporate Culture Competitive Strategy Strategy Formulation Mission and Objectives Marketing Strategies Environmental Scanning Human Resources Strategy Executive Leadership Evaluation and Control Strategic Groups Growth Strategies Distinctive Competencies Nations Largest Retailer and Largest Discount Store Chain Impact of Founder New Strategic Management Team Competitive Advantage Target Markets Market Segmentation "Green" Marketing Mature Industry Stages of Development Strategy Implementation Organizational Life Cycle Concentration vs. Diversification

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III. STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS (see Figure 1.5 on pages 20 and 21) Strategy Evaluation & Strategy Formulation Implementation Control
Review MBO & Mission 5B Performance Corporate Governance Strategic Alternatives 6 Strategic Factors 5A Strategic Posture External Factors 3

1A

1B

Internal Factors 4

O O O O O O O = Emphasized in Case

O X = Covered in Case

IV. CASE OBJECTIVES 1. To discuss Wal-Marts successful growth strategies and performance over the past decade. To discuss Wal-Marts entry into new retailing formats (superstores, SAMS Club). Can these new retailing formats be as successful as the companys discount store format? To discuss the concept of "green" marketing and its impact on customers and suppliers. How does "green" marketing relate to social responsibility? To discuss the phrase, "The Wal-Mart Way" and how it relates to Wal-Marts strategic management. To discuss Sam Waltons philosophy and its impact upon corporate culture and daily company activities. To discuss how long this culture will continue after his death. 6. To review how Wal-Mart succeeded in its objective to become the nations number one retailer. To discuss what strategies Wal-Mart has in place to achieve this objective, and/or to suggest some new strategies to achieve this objective. To discuss how Wal-Mart can sustain its growth strategies while maintaining its financial position. To evaluate how successful Wal-Marts strategic management has been in a maturing industry with intense competition. To evaluate Wal-Marts marketing strategies.

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11. The case author provided the following six teaching objectives: To show how the marketing concept is interpreted and applied in retailing and how and why an organization becomes marketing orientated.

To show what role leadership plays in establishing direction in a given corporate culture. To emphasize the need to identify market segments and then to design an appropriate retailing mix to meet consumer needs and wants of an identified target market. To dramatize the importance of developing a marketing strategy which will allow the firm to survive and grow in a dynamic external environment. To discuss the static versus dynamic nature of the external multidimensional environment. To do financial analysis of a high-yield organization.

V. SUGGESTED CLASSROOM APPROACHES TO THE CASE 1. We provide you with two mass merchandising (discount chain stores) and one department store retailer. The mass merchandising (discount chain store) retailing cases are: Case 21 - Kmart Corporation (1998) Case 22 - Wal-Mart Stores, Inc. (1998) The department store retailing case is: Case 23 - Nordstrom, Inc., 1998 Each of the three cases is a complete, stand-alone strategic management case. 2. If you assign both the Wal-Mart and Kmart cases, we suggest that you assign the Wal-Mart case first since it includes more information about the issues facing the discount store industry. This is an excellent case that can be used any time in the course. The students are all familiar with discount stores. We suggest placing this case toward the middle of your course. We would suggest that you require the students to do library research on retailing - issues and changes. This industry research helps frame the environment for this case. The case still works very effectively without this research. The research just enhances the students learning experience. 5. This case works very well as a written individual case analysis or exam. This is an excellent case for a team presentation. We have asked students in our classes to state 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)

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best selection of merchandise. We will normally list five companies such as Kmart, Sears, Wal-Mart, Target, and a couple of local chains. We are trying to determine the quality image of each firm. We have been surprised by the very negative image that Kmart has with students. 8. The case author provided the following teaching suggestions: This case can be used to demonstrate 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. The case can show how an organization in an accelerated development stage refines its merchandising and operating methods to sustain its growth. Class discussion could begin by discussing the implementation of the marketing concept in retailing. The topic can be introduced by inviting students to suggest the need for corporate mission, purpose, goals, and objectives to be the basis of developing marketing/retailing strategies to allow the firm to grow in a multi-dimensional changing external environment. Supplementary discussion could focus on the need to define a target market and to develop an appropriate retailing mix which would create long-run competitive advantage for the organization. Students can be asked to speculate on who shops in some of the stores in their market area using demographic, geographic, psychographic, and behavioristic variables. SUGGESTION FOR DAILY CLASS PARTICIPATION We have found it is difficult to get quality daily participation from our students. We suggest the following: 1. Have the class members prepare--individually or as a team--(a) EFAS, IFAS, and SFAS or (b) just a SFAS for the assigned case. *We have 1 or 2 individual students of a team bring their EFAS, IFAS, and SFAS or just their SFAS on a transparency. We have found in this 75-minute class that SFAS alone as a transparency works most effectively. 2. We compare the students work with that of the team or individual students making the presentation to the class. *We also discuss how the WEIGHTS and RATING were developed and the Weighted Score for the case under discussion. 3. We ask each student at the beginning of the class to write down his/her Total Weighted Score for the case under discussion and pass it in. *You can use the results to call on students, whose scores seem to be out of line with the case. **It allows for a discussion of the Total Weighted Score as his/her overall evaluation of how the management of the company is managing the companys internal and external environment.

***We ask the students whether they would buy stock in this company. Then the Total Weighted Score seems to have real meaning.

VI. DISCUSSION QUESTIONS 1. 2. 3. 4. they? 5. it? 6. Discuss Porters industry analysis forces and how each force pertains to Wal-Mart. 8. What was the late Sam Waltons philosophy of management? Can his philosophy of management be sustained by his successors? Does Wal-Mart have a distinctive competency? If 'yes,' what is 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

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What role will telecommunications (Internet, shopping on TV) have in the retail industry? Explain why you feel that Wal-Mart was so successful in the retailing industry in the 1980s and 1990s. What is the competitive environment of the retail industry in the 1990s? Is it different from that of the 1980s? What will it be in the twenty-first century? Why was Wal-Marts management so successful in the 1990s when so many retailers were in financial trouble? Describe Wal-Marts growth strategies. still be effective in the future? What is your image of a Wal-Mart store? from your image of Kmart or Sears stores? Will these strategies

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How does it differ

14. Describe Wal-Marts human resources management strategies. 15. Discuss the role of market segmentation in Wal-Marts strategic management. (Please be specific.) Discuss the role of "green" marketing in Wal-Marts social responsibility strategy. Do you feel a company should support such environmental issues? Would your opinion change if it cost the company profits to support such endeavors? The case author provided five additional discussion questions and answers. See Section VII - Case Authors Teaching Note - Discussion Questions and Answers.

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VII. CASE AUTHORS TEACHING NOTE by James W. Camerius* A. CASE OVERVIEW - This was presented earlier in Section I Case Abstract.

B. TEACHING OBJECTIVES - This was presented earlier in Section IV Case Objectives. The last 5 objectives (11-15) were provided by the case author. C. TEACHING SUGGESTIONS - This was presented earlier in Section V - Suggested Classroom Approaches To The Case.

*Reprinted by permission of the author.

D.FINANCIAL PERFORMANCE - Data is available in the case to dramatize the performance measures of (1) Asset Turnover (asset management), (2) Profit Margin (margin management), and (3) Financial Leverage (debt management). Data in the case can also be used to measure the liquidity of the organization. The Strategic Profit Model, as shown with normative ratios in Exhibit TN 1, is a useful vehicle for analyzing the financial performance of firms of this type. Figures are considered normative for in-store retailing. Exhibit TN 1: Strategic Profit Model with Normative Ratios After Taxes

Net Profit x Net Sales = Net Profit x Total Assets = Net Profit Net Sales Total Assets Total Assets Net Worth Net Worth 3-5% Profit Margin 3-4 X Asset Turnover 8-10% Return on Assets 1.5 - 2.5 X Financial Leverage 15-20% Return on Net Worth

E. ANALYSIS OF THE COMPETITIVE ENVIRONMENT - Industry analysts had labeled the 1980s as an era of economic uncertainty for retailers. There were mergers, acquisitions by domestic and foreign firms, failures and discontinued operations. Servicing of debt became a major issue. Many of the largest retail organizations either suffered sales declines or posted marginal sales gains. The United States had entered a major recession in the business cycle. Students can be asked how this turbulent external environment affects retailing activity in the marketplace. The following issues could be discussed in analyzing strategic groups: (1) Intra industry competition; Wal-Mart compared to other discount department stores like Kmart, Target, Shopko, or Ames; (2) Inter industry competition; Wal-Mart compared to department stores like Macys Dillards, Dayton-Hudson, or any of the Federated Department Stores, Inc.s divisions; (3) Cross industry competition; Wal-Mart compared with specialty retailers like The Gap, Tandy and Sound Warehouse. Students could be asked to contribute their own experiences and also be invited to discuss how, on a direct and indirect basis,

Wal-Mart competes with retail firms operating supermarkets, department specialty stores, and other mass merchandise organizations like Toys R Us as "category killers" which so dominate a merchandise line in a single category at such good prices that the competition is destroyed.

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DISCUSSION QUESTIONS AND ANSWERS Identify and evaluate the marketing strategies that Wal-Mart pursued to maintain its growth and marketing leadership position. 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, distribution, promotion, and price) that will satisfy those people. In retailing, this mix is often interpreted to mean financial planning, location, the merchandise buying and handling process, pricing merchandise, promotion, store design and atmosphere and servicing the retail customer. In the development of an appropriate retail mix, management should follow an environmental orientation which would allow it to adapt to external forces in the environment. The following programs or strategies which can be considered market-based are a part of the Wal-Mart retail mix: (1) The development of a human relation/human resource base corporate culture linked to the satisfaction of consumer needs and wants in the marketplace. The team spirit, employees as "associates," training programs, Saturday morning meetings, stock ownership, and profit-sharing programs are part of this plan. (2) Market segmentation/target market positioning strategy of operating a discount store in small communities, offering name-brand merchandise at "everyday low prices" and offering friendly service. Market dominance strategy of first opening a distribution center, dominating a market area with Wal-Mart stores, and then growing by expanding to contiguous areas. Offering a wide variety of general merchandise to the customer in 36 different departments with specialty centers at some locations.

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(5) Developing a competitive differential advantage by being able to "strike a delicate balance needed to convince [people that Wal-Mart] prices were low without making people feel that its stores were too cheap." People greeters, paper sacks, warm colors, and wide aisles were considered part of this strategy. (6) Liberal refund and exchange policies as part of a "Satisfaction Guaranteed" program. Corporate programs such as developing new retail formats like SAMS Clubs and Supercenters.

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Programs to emphasize contemporary social issues like the Buy American Program and Green Marketing. Power-based programs to establish Wal-Mart as a leader in its channel of distribution.

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(10) Inventory control system which links stores with distribution center and the staff at corporate headquarters. 2. Discuss the importance of changes in the external environment to an organization like Wal-Mart. The external environment of retailing organizations is traditionally thought of in terms of political, legal, regulatory, societal, economic, competitive, and technological influences. These influences surround buyers in the marketplace and the retailing strategist as the retailing mix is developed. The retailing mix is typically thought of as controllable. The environment is usually perceived by management as uncontrollable and constantly changing. Change must be accepted by management as it is in the legacy of Sam Walton. A number of changes had taken place in the external environment of Wal-Mart. The country was in an economic recession in the early 1990s. Despite the fact that the company continued to grow in terms of sales volume, profitability, and physical size, the discount department store industry was perceived to be in the maturity stage of the institutional life cycle. In terms of market served, the Wal-Mart focus was on small towns and cities. One question that might be explored is the acceptability of the firm in other market areas like suburban and inner city. An industry analyst had questioned, "Will WalMart take over the world?" The price-sensitive shopper seemed to be everywhere. Wal-Mart continued to expand in contiguous trading areas and into larger urban areas such as Dallas and Phoenix. Wal-Mart senior management should develop a model which incorporates the components of strategic planning: (1) a statement of purpose or mission for the firm; (2) specific goals and objectives for Wal-Mart and its divisions; and (3) specific retail strategies that will enable the firm to reach its objectives and fulfill its mission.

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What conclusion can be drawn from a review of Wal-Marts financial performance from 1986 to 1997? From this review, what can you conclude about the financial future of the firm? The Strategic Profit Model (SPM) shown earlier in Exhibit TN 1 is a useful vehicle for analyzing the financial performance of retail firms like Wal-Mart. It dramatizes the performance imperative in retailing, a defensible return on net worth. Strategic Profit Model ratios for Wal-Mart Stores, Inc., for the years 1986-1997 are reviewed in Exhibit TN 2. In a financial profile of leading retailers developed in the Distribution Research Program at the University of Oklahoma, strategic profit model ratios for discount department stores

revealed the following results in a recent study: Profit Margin, 2.6%; Asset Turnover, 2.5%; Return On Assets, 6.5%; Leverage, 2.6%; and Return On Net Worth, 16.8%. The high-performance measures in retailing show that Wal-Mart Stores is a high-performance retailer with return on net worth significantly greater than the industry average and other normative figures. A review of the SPM financial analysis suggests that return on assets is above industry averages. Sales have also grown significantly greater than industry averages. Sales which increase at a decreasing rate are characteristic of the maturity stage of the retail institutional life cycle.

Exhibit TN 2: Wal-Mart Stores, Inc. Selected Strategic Profit Model Ratios: 1997-1986
Fiscal Year Profit Margin Asset Turnover Return On Assets Financial Leverage Return On Net Worth

Year 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986

(%) 02.9 02.9 02.9 03.2 03.4 03.6 04.0 04.0 04.0 03.9 03.8 03.9 x x x x x x x x x x x x

(x) 2.60 2.65 2.49 2.51 2.55 2.70 2.86 3.15 3.25 3.11 2.94 2.72 = = = = = = = = = = = =

(%) 08.5 07.9 07.3 08.1 08.8 09.7 11.3 13.1 13.2 12.2 11.1 10.5 x x x x x x x x x x x x

(x) 2.45 2.31 2.54 2.58 2.46 2.35 2.12 2.07 2.11 2.27 2.40 2.42

(%) = 19.8 = 19.2 = 18.6 = 21.0 = 21.7 = 22.7 = 24.1 = 27.1 = 27.8 = 27.8 = 26.7 = 25.6

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Speculate on how much impact the absence of Samuel Walton will have on the forward momentum of the organization. What steps have been or should be taken by management to continue Mr. Sams formula for success?

The case points out that much of the forward momentum of WalMart had come from the entrepreneurial spirit of Samuel Moore Walton. Mr. Sam was the Chairman of the Board of Directors and corporate representative. David Glass, as the new President and Chief Executive Officer, suggests when approached on the departure of Mr. Sam: "Theres no transition to make because this company is so sound and so universally accepted. As for the future, theres more opportunity ahead of us than behind us." A number of programs might be introduced to perpetuate the enthusiastic and exciting leadership that Mr. Sam brought to the organization: 1) Capture his philosophy in any way possible: on film, in books, in articles, in a painting to hang in every store; 2) Introduce leadership programs which would emphasize continuing the Mr. Sam philosophy in the company; 3) Develop Mr. Sam as a symbol or idea as opposed to an individual; 4) Perpetuate in the firm all the ideas that Mr. Sam stood for, like his homespun humor, life style, or morality. 5) Continue to encourage the human reactions and human resource, bottom-up style of management in the firm. In this question the instructor may wish to introduce the concept of organizational culture by discussing or assigning library research on other corporate leaders like Henry Ford. F.W. Woolworth, Marshall Field, Richard W. Sears, and more recently Eugene Ferkauf at E.J. Korvette discount stores, Mary Kay Ash at Mary Kay Cosmetics, and Richard M. Devos and Jay Van Andel of Amway. Harry Cunningham was credited as providing much leadership in the growth stage of Kmart. 5. What evidence is there to suggest that the marketing concept was understood and applied to Wal-Mart? According to the marketing concept, a firm should try to provide products and services that satisfy customers needs through a coordinated set of activities that also allows the organization to achieve its goals. Evidence of an appreciation and application of the marketing concept is found in annual reports of the firm and in management comments and actions. The 1990 Annual Report of Wal-Mart Stores, Inc. suggested that corporate and marketing strategies in the 1990s would be based upon a set of two main objectives which had guided the firm through its growth years in the decade of the 1980s. The customer was featured in the first objective, "Customers would be provided what they want, when they want it, and at value." The second objective emphasized the team spirit, "Treating each other as we would hope to be treated . . . dependency on our Associate Partners to sustain our success." The objective was to grow to a truly nationwide retailer in sales and earnings.

At another point in the case, it was noted that stores were expected to "provide the customer with a clean, pleasant and friendly shopping experience." Some have suggested that it was many of the little things that set Wal-Mart apart from the competition and made it an example of the application of the marketing concept. The "people greeter", wide aisles, employee vests for recognition, warm interior decor and exterior colors, and the use of brown paper sacks rather than plastic were considered examples of the "customer first" attitude. Since customer satisfaction is the major aim of the marketing concept, the "Satisfaction Guaranteed Refund and Exchange Program" could be interpreted as also part of the application of the marketing concept. The comments made by Glass also reflect the concept: "Well be fine as long as we never lose our responsiveness to the consumer."

VIII. STUDENT STRATEGIC AUDIT / STUDENT PAPER I. CURRENT SITUATION A. Performance: Wal-Mart is the largest retailer and discount store chain in the United States. Its combination of low prices and excellent customer satisfaction continue to lead the way and insure growth. Rapid growth occurred in the 1990s in sales, profits, and stores. Net Sales Income (amounts in millions) $117,958 104,859 94,749 $3,526 3,056 2,740 Number of Stores

FY

1997 1996 1995

3,406 3,054

B. Strategic Posture: Mission: The mission can be implied from the case - to be the number-one retailer by providing the customer selection and quality for value given. Objectives: 1. To provide customers with what they want, when they want it, and with value. To develop and maintain team spirit with its employees. To remain the number-one retailer and discount chain. To pursue growth while maintaining growth in sales and profits. Profits will not be sacrificed for growth. To be the very best in our business.

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To have the store provide the customer with a clean, pleasant, and friendly shopping experience.

Strategies: 1. They include new store openings, expansion to more states, upgrading and remodeling of existing stores, and opening of new distribution centers. All these concepts point toward concentration through horizontal growth for Wal-Mart. To the extent that new product mixes are being offered in new store formats, it could be concentric diversification.

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Policies: 1. To sell products that are environmentally friendly (green marketing policy). To offer satisfaction guaranteed or refund or exchange policy. To provide quality, value, selection and low price. To do things "the Wal-Mart Way." To use HRM policies to win employees to the corporate culture.

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II. CORPORATE GOVERNANCE A. Board of Directors: Fourteen members. Four internal members: S. Robson Walton, Chairman David D. Glass, CEO, President Donald G. Soderquist, Vice-Chairman and COO Paul R. Carter, Executive Vice President of Wal-Mart Realty Ten outside members No cited stock ownership Partnership management B. Top Management: Once again, David Glass is the only person mentioned under top management. He is hard-driving and most likely the best candidate to succeed Sam Walton. It appears that management is very active and that they actively regulate the company, but they subscribe to a broad approach that involves everyone while creating the desired results.

III. EXTERNAL ENVIRONMENT (EFAS see EXHIBIT 1) A. Societal Environment Opportunities International expansion by retailers. One-stop shopping center for convenience. Consumers desire for value for dollars spent. Growing trend to buy American. Green merchandise entering the system.

Threats Slow growth that might hurt overall sales. The trend of foreign investors to buy U.S. retail stores. B. Task Environment Opportunities Many of the retail stores have declared bankruptcy and created a larger consumer base. Some states have not been marketed in (currently 35 out of 50 states have Wal-Marts). Excellent distribution centers provide an advantage over other corporations. The industry is becoming smaller and Wal-Mart remains the leader in size. Threats New retail formats including superstores and warehouse retailing. Factory outlets that offer drastic price reductions. Specialized stores that have achieved merchandise dominance in their product categories. Possibility of industry maturity. IV. INTERNAL ENVIRONMENT (IFAS see EXHIBIT 2)

A. Corporate Environment Stage III corporation. Stores are located around a major warehouse (about 6 hours away). Decentralized operational decision making occurs at the stores; centralized strategy choice is made at the corporate level. B. Corporate Culture A fast-growing company, Wal-Mart relies heavily on its employees for company success. HRM is a high priority at Wal-Mart. Each employee contributes to the Wal-Mart store and community. Quality and customer satisfaction are priorities.

C. Corporate Resources 1. Marketing - Strengths: Large-scale ad campaigns. Environmentally sound products and U.S.-made products (this follows current U.S. societal trends). Brand names. Idea that the customer matters. Sales of $307 per square foot (1996) vs. $192 for Kmart. International expansion and growth of SAMS Club and Supercenters. Weaknesses - None that can be seen.

2. Finance - Strengths: Increasing sales that can easily contend with the amount of debt being used. Long-term debt is low for this industry. Thirty-five years of record sales and profits. Ninety-nine quarters of growth in sales and profits before the first decline in profits, but the whole year up. FY 1997 2.9% 8.5% 2.60 FY 1996 2.9% 7.9% 2.65 FY 1995 2.9% 7.3% 2.49

Net Profit Return on Assets Asset Turnover

Weaknesses: Long-term obligations for leases are much too high. Current assets appears to be low for such a large corporation. 3. Research and Development - It was not mentioned. However, it can be implied that Wal-Mart pays close attention to societal trends and consumer preferences. There is tremendous research of competitors and their strategies in order to learn from their mistakes. Wal-mart keeps a close check on demographics of its consumers. Operations - Strengths: Excellent service with discount prices. Excellent up-to-date computer system for everyday operations and inventory control. Policy of dealing only with top officials of producers to ensure price and quality. FY 1997 - 2,421 Wal-Mart stores, 483 SAMS Clubs, 502 Supercenters, for a total of 3,406 stores. Weaknesses: - None. 5. Human Resource Management - Strengths: Corporate policy dedicated to improving employee involvement and expertise. Seminars and training programs to ensure quality in employee performance. Special awards for employee performance. Employees (associates) encouraged to ask management questions and offer suggestions. Weaknesses: May create an atmosphere where employees think they have all the answers or can do anything they desire. 6. Information Systems - Strengths: Most sophisticated inventory control system in retailing. Helps Wal-Mart react faster to trends. Computer links between stores and general offices ensure accurate and timely merchandise replenishment. Weaknesses:

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Sometimes it takes longer for the clerk to run the item over the scanner ten times than it would to just type the amount in the register.

V. ANALYSIS OF STRATEGIC FACTORS

(SFAS see EXHIBIT 3)

VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY A. Strategic Alternatives 1. Pro: Maintain Current Strategy (Horizontal Growth) Create a larger market share. Already being implemented by top management. Target states and countries currently not serviced. Also, add new store formats as existing stores saturate their markets. Requires more debt load.

Con:

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Growth Through Concentric Diversification. food store chain. Pro:

Purchase a

Already have excellent experience in large-scale, consumer-orientated operations. Does not react heavily to business cycles. Expensive. Not clear whether Wal-Mart can financially acquire a chain.

Con:

3. Pro:

No Growth.

Maintain current operations.

Not expensive. Sales continue to increase even without new stores. Most competitors are struggling and would not pose a serious threat. Not expanding to markets that are easily accessible. Possibly let market share be absorbed by smaller competitors and then not able to retrieve it.

Con:

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Recommended Strategy Continuing with the current strategy of horizontal growth is the best alternative for Wal-Mart. The industry is experiencing hard times and yet Wal-Mart is staying well ahead of any competition. In order to ensure future success and to meet the corporations objective, Wal-Mart must keep on growing.

VII. IMPLEMENTATION The implementation process has already been started by Wal-Mart. Top management has created a special team to study the targeted areas and the trends that apply to those consumers. Continuing with complete and timely reports on sales, they can further generate excellent revenues in new states.

VIII. EVALUATION AND CONTROL Wal-Mart already is a leader in the industry for control and timeliness. All it has to do is continue with periodic management evaluations and rely on its computer-generated data.

IX. EFAS, IFAS and SFAS EXHIBITS

EFAS (External Factor Analysis Summary)


WEIGHTED SCORE 1.00 1.00 .60 .20 .60 .60 .40

Exhibit 1

EXTERNAL STRATEGIC FACTORS Opportunities: Intense competition Societal trend toward excellent marketing research Industry trend toward large-scale retailing and new store formats Societal trend toward environmental products and American-made products International expansion Threats: Industry maturity Slow growth economy

WEIGHT .20 .20 .15 .05 .15 .15 .10

RATING 5 5 4 4 4 4 4

TOTAL SCORES

1.00

4.40

IX. IFAS, EFAS and SFAS EXHIBITS

IFAS (Internal Factor Analysis Summary)


INTERNAL STRATEGIC FACTORS Strengths: Marketing - strong name recognition of programs and marketing research (low price with high quality) Managed Growth - (Strategic Management) Distribution/Information/Inventory control systems Largest retail and department store (in sales) HRM policies / Corporate culture Excellent management teams and operations International expansion Weaknesses: Loss of Sam Walton TOTAL SCORES WEIGHT .20 RATING 4 WEIGHTED SCORE .80

Exhibit 2

.10 .15 .10 .15 .10 .10 .10 1.00

5 5 5 5 4 4 4

.50 .75 .50 .75 .40 .40 .40

IX. SFAS, EFAS and IFAS EXHIBITS

SFAS (Strategic Factor Analysis Summary)


WEIGHTED SCORE .75 .40 .20 .40 .75 .20 .50 .50 .40 .40

Exhibit 3

KEY STRATEGIC FACTORS Intense competition New store formats Largest retail and department store Excellent management team Managed Growth Marketing - Strong name recognition Distribution/Information/Inventory control system HRM policies / Corporate culture International expansion Maturing industry TOTAL SCORES

WEIGHT .15 .10 .05 .10 .15 .05 .10 .10 .10 .10 1.00

RATING 5 4 4 4 5 4 5 5 4 4