Wal-Mart Stores Inc: Dominating Global Retailing

Comprehensive Case Analysis

Arfandy #020204

Munin #200400183

Momrey #200400313

Table of Contents

1. Wal-Mart Short Case Analysis

I. Wal-Mart Mission Statement

II. Strategic Issue

III. Subordinates Issues

IV. Recommendation Strategy

2. SWOT Analysis

I. Strengths

II. Weaknesses

III. Opportunities

IV. Threats

3. External Environmental Analysis

I. General Environmental Analysis

i. Economic

ii. Demographic

iii. Socio-Culture

iv. Global
 v. Technological

vi. Political/Legal

II. Industry Environmental Analysis

4. Competitor Environmental Analysis

I. Direct, Indirect, & Potential Competitors

II. Reaction Competitors to Strategy

5. Financial Analysis

6. Plagiarism Statement

7. References

(1). Short Case Analysis

Wal-Mart Mission Statement

Wal-Mart is the largest retailer in the world, responsible on guarantee customer satisfaction under
one roof by providing a wide array of products at reasonable prices and superior hospitality, effectively
using technology to maintain low cost, enhances suppliers efficiency and relationship, dedicated in
recruiting, rewarding, and retaining employees of good moral standing by providing benefits for
excellent performance, clean environments to work in, and equal opportunity for all individual.

Strategic Issue

The strategy issue with Wal-Mart is their business model that is extreme focus on cost-effective to
increase profit. To achieve this goal, they break the law, cheat their workers, suppliers or treat them
miserably and play local communities (retailers) against each other to extract tax concessions and other
benefits.

Subordinate Issues

1. Wal-Mart unfair treatment in wages and worker rights of all its employees including retirement
benefits, health care, worker insurance, inadequate work environment, etc

2. Gender discrimination lawsuit in history, forced workers to work in an unsafe environment,

3. Boycott from local community to keep out market monopoly by Wal-Mart.

 4. Dissatisfied suppliers due to unreasonable cutting cost, on-time delivery, higher requirement of
efficiency, Scan n Pay method implemented by Wal-Mart puts suppliers as risk-bearer, and monopoly
industry.

5. Wal-Mart easily plays with market price, resulting in dissatisfaction of other distributors and lower
profit margin.

6. Complex strategy within supply chain management as a result of philosophy “different stores for
different folks”.

7. Wal-Mart seems not ready to employ 1.3 million individuals as its pays its employees roughly
$13,861 annually, which is below the federal poverty line of $14,630. This is the major cause of lawsuit
problem that Wal-Mart will be facing in the future.

8. Poor work environment for employees in China and Sri Langka. (Video)

9. Questionable security at parking lot for Wal-Mart customers and employees. (Video)

10. Lack of communication between employees and upper level managers. E.g Managers do not listen
to what employees have to say. (Video)

11. Only people at management level are given little empowerment to make decision.

12. Wal-Mart indirectly encourages rivalry over suppliers to be the best.

Recommendation Strategy

1. At the very least, Wal-Mart should be able to follow labor regulation in each country regarding
employment as such compensation for overtime work, bonuses, promotion, welfare and benefits,
standard wages and salary.

2. Make work place as fun place for employees, convenient work environment to full time employees.

3. Equal opportunity of being promoted for their effort regardless gender and color discrimination.

4. Employee empowerment.

5. Managers should embrace openness to employee’s ideas.

6. Promote flow of information with suppliers and customers.

7. Develop collaborative relationships with suppliers.

8. Build inventory buffers by maintaining stockpile of inexpensive but key components. (In-house
production)
 9. Monitor economies all over the world to spot new supply bases and market.

10. Evaluate needs of ultimate customers, not just immediate customers.

11. Lay down roles, tasks, and responsibilities clearly for suppliers and customers.

12. Equitable share risks, costs, and gains for improvement initiatives.

13. Understand how suppliers work by learn about suppliers business, respect suppliers capabilities.

14. Turns suppliers rivalry into opportunity

15. Conduct joint improvement activities, exchange best practices with suppliers, set up suppliers study
group.

16. Provide benefits for employee’s family member such as discount card for whole family in shopping
at Wal-Mart, health care benefit, field trip to amusement park, sports day activities, etc.

17. Give out sponsorship to local community for educational purposes.

(2). SWOT Analysis

Strengths

1. Ability to maintain a strong market position in the discount retail industry. (Reputational Resource)

2. Strong financial condition as a result of higher borrowing capacity due to reputational factor.
(Financial Resources)

3. Superior supply chain management, strong dealer network. E.g Wal-Mart is willing to teach and
educate their suppliers on the finer point of cost control and efficiency (Human Resources), information
is made fully transparency to suppliers thus eliminating unnecessary cost that do not add value to
customer products (Value Chain), competition among retailers to be the best for Wal-Mart results in
continuous innovation. (Innovation)

4. Cost effective technology and logistic resulting in Wal-Mart has cost advantages and pricing
advantages over competitors. (Management practice)

5. Wide geographic coverage and effectively use of logistic management techniques (Distribution)

6. Wal-Mart use effective control of inventories through information systems such as point-of-sales
data collection methods (Management Information System)

7. Leads industry in information technology to achieve efficiency, e.g Wal-Mart uses cutting edge
technology such as shop-keeping units (SKUs); electronic data interchange (EDI), point of sale scanning
(POS), and pushing towards implementing radio frequency identification (RFID) which could revolution
the retail industry. By using such technologies Wal-Mart can electronically notify suppliers immediately
when inventory is getting low. (R&D & Management Information System)

8. Wal-Mart production skills result in reliable yet affordable Wal-Mart brand products
(Manufacturing)

9. Lower advertising expense since Wal-Mart limits its advertising to 12 or 13 circulars a year; circulars
that reflected the same bare-bones approach that the stores has adopted. But its customer service is
superior because of its courteous and respectable staff. Its merchandising is also innovative and
attractive to consumers. (Marketing & Customer service)

10. Wal-Mart embraces local suppliers and retailers nearby the main building to stock up the selling
products, thus in-store products can be easily replenished at the fastest time since suppliers are located
nearby. (Supply Chain Layout)

11. Management flexibility to learn and incorporate new techniques from retailers during market
penetration as such learning from Asda, a small look-alike Wal-Mart in Germany. (Management)

12. Ability to track the movement of products through the entire value chain. Whether the product is
in shipment, in distribution center inventory, in-store inventory or on the shelf, or at the cash register,
Wal-Mart can track it in real time. Their capability in streamlining supplies among stores and suppliers
has helped them maintain appropriate inventory and track what products sold and what did not.

Weaknesses

1. Overly complex strategy and store layouts due to global philosophy of Wal-Mart that allow different
store for different folks and cost efficiency standard that suppliers must achieve (Operations
Management)

2. No formal mission statement (Organizational Development)

3. Glass ceiling or discrimination against female employees ensure few minority or female in top
management position (Business Ethics)

4. Questionable management. E.g Wal-Mart practices Scan ‘n Pay, meaning that suppliers bear the risk
until products are purchased by customers. Thus, payment to suppliers is made at the point of products
being sold. (Management)

5. Anti-union. (Human Resources)

6. Decline in sales growth, higher turnover rate (Economics)

7. Weak reputation due to various unethical problems such as unfair benefit retirement, health care,
insurance policy, underage labor, illegal immigrants, discrimination, glass ceiling, etc. (Business Ethics)
 8. Keep poor performing employees on hand while greedily recruit employees more than its capacity.
(Human Resource)

9. Unsatisfied employees due to lower salary. (Human Resource)

10. Wal-Mart seems not ready to employ 1.3 million individuals as its pays its employees roughly
$13,861 annually, which is below the federal poverty line of $14,630. (Human Resource)

Opportunities

1. Globalization and open market share

2. Falling trade barriers in foreign countries ease market penetration

3. International expansion to various countries, new geographic areas

4. Serving new market segments

5. Exploiting new technologies to increase efficiency in supply chain

6. Joint venture with local distributors and suppliers

7. Similar shopping pattern worldwide

8. Consumer wants ease of shopping

9. Internet shopping growing such as e-commerce and the online sales

10. Managing growing number of employees in every Wal-Mart expansion

Threats

1. Increased competition against several companies and industries

2. Possibility of cannibalization among Wal-Mart stores due to adaptation philosophy of “different

stores for different folks”.

3. Slow market growth

4. Restrictive trade policies. E.g most under development countries and small towns boycott Wal-Mart
expansion

5. Variety of competition nationally, regionally, and locally.

6. Growing bargaining power of suppliers

 7. Growing bargaining power of customers

8. Entry of new competitors

9. New regulatory requirement

10. Loss of sales to substitutes. E.g. substitute products more easily because of intense competition

(3). External Environmental Analysis

Wal-Mart external environmental analysis fall into three broad subtopics as such general
environmental analysis, industry environmental analysis, and competitor’s environmental analysis
(which also happens to be the requirement for question number 4 of comprehensive case analysis). All
these subtopics will be discussed on the next page.

However, this section will not cover Wal-Mart’ internal environmental analysis which consists of
tangible resources (financial, organizational, physical, and technological), intangible resources (labor,
innovation, reputational), capabilities (distribution, marketing, management, manufacturing, R&D), core
competencies and competitive advantages, and value chain.

General environmental analysis covers the aspects of economic, demographic, socio-culture, global,
and technological that might have impact on Wal-Mart performance and its growth expansion and vice
versa. Meanwhile industry environmental analysis should basically cover Wal-Mart strategy in captivate
market share, strategy to win over customers, its focus on external customers as well as its supply chain,
products, and financial issues with various benchmark retailers (covered in Financial Analysis).

Competitor environmental analysis deals with Wal-Mart’s direct and indirect competitors, as well as
potential competitors.

3. I. General Environment Analysis

a) Economic:

Despite the general weakness in the world economy and the negative response from most of under
developed countries, Wal-Mart had sales growth of 11%, totaled to $6.4 billion. The company's
associates were indeed doing the Wal-Mart cheer in faraway places like Germany, South Korea, China
and United Kingdom.

In three decades, it had grown from its rural Arkansas roots to become the world's largest company,
and quite possibly the most powerful retailer in the world. However, as Wal-Mart keeps entering new
market segments, new competitors are inevitable. Substitute products are no longer having its way to
increase sales profit in their income statement as a result of loss sales to competitors specialized in such
products.

In addition to loss sales in substitute products, new competitors give more optional power to
suppliers and customers. Thus bargaining power of suppliers and customers has become another issue
for Wal-Mart.

b) Demographic:

By 2004, Wal-Mart was the largest employer in private industry worldwide as it counted over 1.3
million associates among its ranks. Roughly 65% of Wal-Mart’s management associates started out as
hourly associates and it hired locally for most of its foreign operations.

However, keeping 1.3 million associates world widely indeed comes with the price that Wal-Mart has
to pay off, especially when they tend to ignore standard labor regulation in host country. Inevitable
labor lawsuits have been issued by its associates due to lower annual salary compare to standard federal
poverty line.

Wal-Mart spends much less on advertising than does their competition. One way they accomplish
this is through the clustering of stores in a relatively small area thus Wal-Mart relies on word-of-mouth
advertising to win over consumers in larger cities. Because their stores tend to be grouped together,
they are able to spread advertising expenses across a single market, minimizing advertising costs.

c) Socio-cultural:

Wal-Mart stores were geared toward the low-income customer segment; headquarters were
reflective of the company's tendency to be tightfisted as they were housed in warehouse style buildings
with minimalist decor.

Frugality was a central tenet at the company, and every associate was expected to fully adopt this
value in all its manifestations. It was also said that the company is homogenizing the marketplace by
letting smaller towns dictate popular culture.

Different cultures by different countries that Wal-Mart enters give difficulties in cultural adaptation.
Because different custom and cultures exist in different places, it creates different customer’s
preferences that might match with company’s culture, thus it impacts upon the service that Wal-Mart
provides, market penetration becomes quite difficult for Wal-Mart such as that of Germany, and
customers lost their interest in the company and that requires Wal-Mart management to be flexible in
order to fit with the situation.
c) Global:

Wal-Mart worked globally under the philosophy: Different store for different folks. Thus business
units in one country are independent and different than in another country. As it grows around the
world, it is important to its success that it exchanges best practices among all the countries where it
operates.

Wal-Mart launched its globalization efforts with an initial foray into Mexico, then to Brazil, as well as
Argentina. It then penetrated Europe with its stores in Germany and in the United Kingdom. Its Asian
strategy composed of China, Korea and Japan.

Falling trade barriers due to globalization favors Wal-Mart expansion through out the world.
However, its philosophy different stores for different folks might give difficulty to Wal-Mart in keeping
this powerful retailer under control, especially when dealing with new culture in its country destination.

d) Technological:

Wal-Mart was a leader in the use of technology to maximize operational efficiency. Very early on, the
company realized the value of proactive investments in technology and deployed a private satellite
network.

Wal-Mart also managed much of its own logistics through a central hub-and-spoke system of
warehouses, distribution centers, tracking shipping, product quality, and in-store display. It was
estimated that the corporate logistics handled over million loads each year.

Wal-Mart’s spending on technological infrastructure will keep increasing as the technology is being
updated annually. Therefore, handling such powerful technology to manage almost every business
operations gives another challenge to Wal-Mart in keeping up with the technology.

With strong capability in basic research and investments in technologies that will allow the firm to
produce highly in-house differential products at lowest cost.

e) Political/Legal:

Politics might indeed give Wal-Mart beneficial addition in such way to increase profits. But in return,
it was said that politicking also made a way within Wal-Mart as women were discriminated by not
allowing them to sit in supervisory and managerial levels.

There are said to be pending lawsuits waiting for Wal-Mart’s notions as the company has allegedly
went against the labor laws in certain countries, causing Wal-Mart million of dollar loss to compensate
labor lawsuits instead of turning it into profit.
3. II. Industry Environment Analysis

Wal-Mart uses cost leadership strategy to captivate market share and maintain their fast retailer’s
growth. By doing so, they buy goods for cheap, sell them for less than what competitors sell, and turn a
profit on volume of sales and turnover.

This strategy turns competitors into partners or drives them away from market share. Wal-Mart is well
known as “Retailer Empire” by using this strategy.

Wal-Mart effectively employed the aid of acquisitions and joint ventures on its quest to become a
globally competitive retailing store. It was proven when Wal-Mart first set foot outside the United States
in 1991 when it acquired a minority interest in a joint venture with a Mexican company Cifra, a retailer
of repute. In such short time, the company set up operations in nine countries over 1,300 stores system-
wide.

Despite of being global empire, Wal-Mart is a willing teacher as well. Considerately, Wal-Mart has
been educating its suppliers on the finer points of cost control and efficiency. But the primary focus of
the company is its external consumers, who they favor better than their suppliers.

They don't allow suppliers to increase their prices because they always wanted consumers to get the
same quality over time in the lowest price possible for the sake of external consumers.

For instance, Wal-Mart in the U.S was individually responsible for selling 35% of all pet food, 24% of
all toothpaste, the largest volume of jewelry, groceries, DVDs, CDs, toys, guns, diapers, sporting goods
and much more. All the products were sold at lower prices than standard market prices.

3. III. (4). Competitors Environment Analysis

Competitor’s environmental analysis will look up Wal-Mart competitors according to Wal-Mart’s

product lines and market expansion.

(A).

Direct competitors

Direct competitors Target, Costco, Tesco, Major, Makro, Carrefour, and Dollar General compete for
market share in discount retailing. Wal-Mart is losing in experience curve handicap since many of these
competitors had moved into international marketplace long before Wal-Mart.

Home Depot and Lowes are fighting for home-renovation materials. Best Buy and Circuit City are
fighting for market share in consumer electronics. These competitors differentiate themselves by
offering specialized products. Thus customers could easily get the products they want right at the shop
instead of searching at Wal-Mart stores that provide almost anything.
 In general merchandise retailing, Wal-Mart’s primary competitors are Target, Major, and Kmart.
Retail superstores such as Makro, Carrefour, Kroger, Metro, Albertson’s, Safeway and Tesco, also
provide retail competition.

In the warehouse segment, Wal-Mart’s Sam’s Club competes harshly with Costco. According to the
financial data provided, Costco has less inventories which means fewer warehouses but greater sales
and revenues.

Wal-Mart competes with others retailers such as Costco, Tesco, Dollar General, and Target in
acquiring suppliers. Since Wal-Mart strategy cost extraction puts local suppliers at disadvantaged, thus
its suppliers would rather sell their products into Wal-Mart direct competitors at the fair price and
benefit.

Wal-Mart is losing sales to Dollar General due to the size of the store that confuses customers. Its
biggest sized stores do not exactly bring more sales, but instead customers are rather shop at Dollar
General because they felt lost when shopping in Wal-Mart but Wal-Mart has superior customers service
over other competitors by encouraging its staff to greet the customers at the front entrance.

Wal-Mart’s reputation has been tainted mostly by lawsuits from its employee’s dissatisfaction. Thus,
Wal-Mart might face difficulty in acquiring labor resources in the near future compare to its
competitors. For society, Wal-Mart is unwelcomed due to monopolistic strategy that might force small
shops to close down and force local suppliers to joint venture with Wal-Mart.

Another Wal-Mart direct competitor derived from its industrial focus. For instances, smaller retailers
such as 7-Eleven stores, nearby traditional restaurants, small industrial clothing such as Factory Outlet,
mechanical equipment such as lubricant oil, tools, spare-parts that are available at small workshops,
traditional markets such as China Town’ night market, and second-hand stores. These indirect
competitors would cause Wal-Mart in losing sales for certain percentage as well as customers. Better
yet, these competitors are more welcomed in society than Wal-Mart is.

Indirect Competitors

Wal-Mart indirect competitor most likely comes from online sales such as eBay, amazon.com,
Yahoo.com, iTunes. These competitors provide business-to-business, business-to-customer, and
customer-to-customer. Their competitive advantages are easy and flexible shopping since customers do
not have to present at the store to select their products, time and speed, tax-free, being able to
purchase at 24/7, cost-effective, more options and comparison.

Potential Competitors
 Wal-Mart’s competitive strengths might drive away most of its potential competitors from
market share. Thus, all its potential competitors might reconsider their decision if they want to compete
with Wal-Mart.

(B).

Wal-Mart competitors would likely to adopt Just in Time inventory system to eliminate unnecessary
costs to keep up with our supply chain strategy. Since Wal-Mart inventory system is taken care by its
suppliers, thus the unnecessary cost is at suppliers’ responsibility. JIT inventory system is the most
appropriate for competitors to keep up with the lower product costs.

In customer service area, competitors could give out discount for large purchases, thus this
would give additional benefits to customers. Superb hospitality is one of Wal-Mart strength to attract
customers. To compete on it, its direct competitors could provide child-care service center to customers
with kids. Indeed, customer feedback is important to understand customer satisfaction.

In supply chain, competitors could make the flow of its information transparent to suppliers as
well. Thus suppliers are agile enough to keep up with the current trends on market. In addition,
empowering its suppliers and employees to make decision would ensure certain advantages to compete
with Wal-Mart.

(5). Financial Analysis

|Ratios |2001 |2002 |2003 |Target |Industry Average

|

|Liquidity: | | | | | |

|Current |.09 |1.0 |0.9 | | |

| Quick |0.16 |0.18 |0.17 | | |

|Leverage: | | | | | |

|Total debt-assets |0.21 |0.22 |0.20 | | |

| Debt-equity |0.5 |0.53 |0.5 | | |

| Interest coverage |10.42 |6.91 |6.47 | | |

|Activity: | | | | | |

|Asset turnover | |2.63 |2.58 |1.54 | |

| Inventory turnover |6.94 |7.75 |8.08 |6.35 | |

| Acct. rec. turnover | | | | | |

|Ave. collection period | | | | | |

|Profitability: | | | | | |

|ROS |3.26 |3.04 |3.29 |3.77 | |

| ROI | |7.99 |8049 |5.78 | |

| ROE | |19.00 |20.44 |17.52 | |

Source: http://walmartstores.com/Media/Investors/AR_2003_Report.pdf

According to the data above, the current ratios of Wal Mart is 0.9 in year 2003 which show the ability
to pay the debt are very poor because current asset is lower than the debt that company borrow. It also
lowers than year 2002. However, Wal Mart can service with acid-test ratio (Quick-ratios) that it has
more than enough to pay back the debt but it is lower .02 to compare with last year.

Base on the leverage data, year 2003 company's assets have been financed by debt 21%. It is lower
than last year 1%. The debt of the Wal Mart is 50% of the total funds, mean that half of the fund is
provided by the creditor. If company decline 10.42% of their earning they will lose the ability to pay the
interest for the annual debt.

Next, asset turnover seems to indicate that the assets that generate sales have declining to compare
with last year, mean each dollar amount that the company invests in assets now can generate sales of
2.63 in 2002 and 2.58 in 2003. This fact is more likely to occur because the company increases the
expense on operating activities, or due to the rising cost of these activities. In addition, inventory
turnover has significantly and rapidly risen up, which a sign is penetrating the fact that the inventory is
sold and replaced faster than before. positive factors that help the company to achieve this perhaps is
because the company has developed a good sales technique, effective customer service, and marketing
strategy that can attract customers and motivate them to buy from the company. However the company
should also take into account the purchasing agent where they should develop purchasing pattern and
strategy which enables them to acquire what is needed on time to avoid back order.

At profitability part measurement, return on sale is not changing much to compare with year 2002
and 2001. Taking into account the operating efficiency, the conclusion can be drawn that the company
has effective management system and is operating very efficiency in term of costs, enabling the
company to increase profit from per dollar sale’s made. Return on asset or return on investment goes up
to compare from year 2002. Moreover, return on equity will be higher from 19% to 20.44% year2002 to
2003, if it did not borrow the funds as a source of financing its project. The investors on the other hand,
will enjoy the benefit from the investment they made to the company as their stock value will rise up.
However, if the lost occur, investor will have to suffer great loss since the loan principle and interest
accrued must always need to be paid out. It is very important then that the company should mix the
capital structure so that it will help reduce the potential loss on investor investment by using its own
money as a part of obtained debt to finance its operating and investing activities.

Plagiarism Statement

I certify that this assignment is my own work and is free from plagiarism. I understand that the
assignment may be checked for plagiarism by electronic or other means. The assignment has not
previously been submitted for assessment in any other course or institution. I have read and understood
Mission College’s academic integrity policy.

(………………………) (………………………) (………………………)

References

http://en.wikipedia.org/wiki/Wal-Mart

http://walmartstores.com/

http://walmartstores.com/Media/Investors/AR_2003_Report.pdf

http://walmartstores.com/FactsNews/

http://www.wal-martchina.com/english/walmart/index.htm