Case 22 WAL-MART STORES, INC.

(1998): RAPID GROWTH IN THE 1990s

I. CASE A STRACT Wal-Mart Stores, Inc., in 1998, with corporate headquarters in Bentonville, Arkansas, was not onl the nation!s lar"est discount depart#ent store chain $ut also had surpassed Sears, %oe$uck & 'o#pan as the lar"est retail or"ani(ation in sales volu#e in the )nited States. *he +ir# operated stores under a variet o+ na#es and retail +or#ats includin", WalMart, discount depart#ent stores- SAM!S 'lu$s, wholesale and retail #e#$ership warehousesand Supercenters, lar"e co#$ination "eneral #erchandise and "rocer stores. In the international division, it operated stores in 'anada, Me.ico, Ar"entina, Bra(il, /er#an and 'hina. *he Mc0ane 'o#pan , a support division with over 12,333 custo#ers, was the nation!s lar"est distri$utor o+ +ood and #erchandise to convenience stores and selected Wal-Marts, SAM!S 'lu$s, and Supercenters. 4n 5anuar 11, 1998, Wal-Mart operated 6,761 Wal-Mart stores, 781 SAM!S 'lu$ stores, and 836 Supercenters, which totaled 1,732 stores. A #a9or concern was Wal-Mart!s spectacular "rowth and the do#inance o+ the +ir# in the #arket. *he +ir# was perceived to $e in the accelerated develop#ent or "rowth sta"e o+ the institutional li+e c cle in which sales are increasin" rapidl , pro+its are hi"h, new stores are $ein" opened, e.istin" stores are $ein" re+ur$ished, the product line is $ein" reevaluated, service o++erin"s are $ein" up"raded, auto#ation is $ein" introduced to store operation, and $etter #ana"e#ent controls are $ein" developed. What #akes this situation unique is that the discount depart#ent store industr was perceived as $ein" at #aturit . *he industr +aced increased co#petition, levelin" o+ sales, #oderate pro+its $ survivin" +ir#s, over-stored #arkets, and #ore co#ple. operations pro$le#s than previousl . Another concern, what o+ Wal-Mart without Sa# Walton: A new president and chie+ e.ecutive o++icer was in place. Mana"e#ent clai#ed, ;*here!s no transition to #ake $ecause the principles and the $asic values <Sa# Walton= used in +oundin" this co#pan were so sound and so universall accepted.; Senior #ana"e#ent +elt that the +ir# could continue to #aintain its $listerin" "rowth pace $ ;out#aneuverin" the co#petition with innovative retailin" concepts.; %ealit was so#ewhat di++erent, however. Sales were no lon"er increasin" each ear in the 63> to 13> ran"e as in the 1983s and earl 1993s. In ?iscal @ear A?@B 1992 to ?@ 199C, sales increased onl 16.7>. Sales +or ?@ 1993 were D16,231,333,333 and increased to D11C,988,333,333. *he increase was D88,18C,333,333 Aor 621.8>B. *he 66-1

stores were 1,732 Aal#ost dou$leB and 1,C61 +or ?@ 199C and ?@ 1993, respectivel . *he "rowth as a percenta"e slowed $ecause $ase sales were so lar"e. In ?@ 199C, E#art had sales o+ D16,181,333 and sales o+ D16,3C3,333 in ?@ 1993. E#art sales decreased $ FD111,333,333G while Wal-Mart sales increased $ D88,18C,333,333 +or the ei"ht ?@s A1993199CB. 'op ri"ht H 1999 $ *ho#as 0. Wheelen and 5. Iavid Jun"er. %eprinted $ our per#ission onl +or the Cth Kditions o+ A1B Strategic Management and Business Policy and A6B Cases in Strategic Management. De!"s"#$ Da%e: 1998 199& '( Sa)es: *11&,9+8,000,000

66-6

Case 22 Wal-Mart Stores, Inc. (1998 199& '( Ne% I$!#,e: *-,+2.,000,000

(199! "iscal #ear $"#% &as 'rom "e(ruary 1, 199! to )anuary *1, 199+ B II. CASE ISS/ES AND S/ 0ECTS Re%a")"$12D"s!#3$% De4a5%,e$% S%#5e I$63s%57 Industr Anal sis K.ecutive Succession 'orporate 'ulture 'o#petitive Strate" Strate" ?or#ulation Mission and 4$9ectives Marketin" Strate"ies Knviron#ental Scannin" Ju#an %esources Strate" K.ecutive 0eadership Kvaluation and 'ontrol Strate"ic /roups /rowth Strate"ies Iistinctive 'o#petencies Lation!s 0ar"est %etailer and 0ar"est Iiscount Store 'hain I#pact o+ ?ounder Lew Strate"ic Mana"e#ent *ea# 'o#petitive Advanta"e *ar"et Markets Market Se"#entation ;/reen; Marketin" Mature Industr Sta"es o+ Ievelop#ent Strate" I#ple#entation 4r"ani(ational 0i+e ' cle 'oncentration vs. Iiversi+ication

66-1

III. STEPS CO8ERED IN STRATEGIC DECISION-MA9ING PROCESS

Str egy orm ati at F ul on
Ext ern al Fa cto rs $ Int er nal Fa cto rs %

Pe rfo rm an ce " !

Str ate gic Po stu re " B

Co rp or ate Go ver #

Str ate gic Fa cto rs & !

Re vie w MB & & B

Str ate gic !lt ern ati '

Strate gy Implementati

Evaluation & Contr

Asee "igure 1.! on ,ages 2- and 21

4 M K#phasi(ed in 'ase I8. CASE O 0ECTI8ES 1. 6.

N M 'overed in 'ase

*o discuss Wal-Mart!s success+ul "rowth strate"ies and per+or#ance over the past decade. *o discuss Wal-Mart!s entr into new retailin" +or#ats Asuperstores, SAM!S 'lu$B. 'an these new retailin" +or#ats $e as success+ul as the co#pan !s discount store +or#at: *o discuss the concept o+ ;"reen; #arketin" and its i#pact on custo#ers and suppliers. Jow does ;"reen; #arketin" relate to social responsi$ilit : *o discuss the phrase, ;*he Wal-Mart Wa ; and how it relates to Wal-Mart!s strate"ic #ana"e#ent. *o discuss Sa# Walton!s philosoph and its i#pact upon corporate culture and dail co#pan activities. *o discuss how lon" this culture will continue a+ter his death.

1.

7. 8.

2. C.

*o review how Wal-Mart succeeded in its o$9ective to $eco#e the nation!s nu#$er one retailer. *o discuss what strate"ies Wal-Mart has in place to achieve this o$9ective, andOor to su""est so#e new strate"ies to achieve this o$9ective. *o discuss how Wal-Mart can sustain its "rowth strate"ies while #aintainin" its +inancial position. *o evaluate how success+ul Wal-Mart!s strate"ic #ana"e#ent has $een in a #aturin" industr with intense co#petition. *o evaluate Wal-Mart!s #arketin" strate"ies. T:e !ase a3%:#5 45#;"6e6 %:e <#))#="$1 s"> %ea!:"$1

8. 9. 13. 11.

#?@e!%";es: *o show how the #arketin" concept is interpreted and applied in retailin" and how and wh an or"ani(ation $eco#es #arketin" orientated.

*o show what role leadership pla s in esta$lishin" direction in a "iven corporate culture. *o e#phasi(e the need to identi+ #arket se"#ents and then to desi"n an appropriate retailin" #i. to #eet consu#er needs and wants o+ an identi+ied tar"et #arket. *o dra#ati(e the i#portance o+ developin" a #arketin" strate" which will allow the +ir# to survive and "row in a d na#ic e.ternal environ#ent. *o discuss the static versus d na#ic nature o+ the e.ternal #ultidi#ensional environ#ent. *o do +inancial anal sis o+ a hi"h- ield or"ani(ation. 8. S/GGESTED CLASSROOM APPROACHES TO THE CASE 1. We provide ou with two #ass #erchandisin" Adiscount chain storesB and one depart#ent store retailer. *he #ass #erchandisin" Adiscount chain storeB retailin" cases are, Case 21 - E#art 'orporation A1998B Case 22 - Wal-Mart Stores, Inc. A1998B *he depart#ent store retailin" case is, Case 2- - Lordstro#, Inc., 1998 Kach o+ the three cases is a co#plete, stand-alone strate"ic #ana"e#ent case. 6. I+ ou assi"n $oth the Wal-Mart and E#art cases, we su""est that ou assi"n the Wal-Mart case +irst since it includes #ore in+or#ation a$out the issues +acin" the discount store industr . *his is an e.cellent case that can $e used an ti#e in the course. *he students are all +a#iliar with discount stores. We su""est placin" this case toward the #iddle o+ our course. We would su""est that ou require the students to do li$rar research on retailin" - issues and chan"es. *his industr research helps +ra#e the environ#ent +or this case. *he

1.

7.

*he case still works ver e++ectivel without this research. research 9ust enhances the students! learnin" e.perience. 8. 2. C. *his case works ver anal sis or e.a#. well as a written individual case

*his is an e.cellent case +or a tea# presentation. We have asked students in our classes to state on a 8-point scale which retail store o++ers 1B lowest price, 6B $est qualit +or the price, 1B $est desi"ned stores, 7B $est custo#er service, and 8B $est selection o+ #erchandise. We will nor#all list +ive co#panies

such as E#art, Sears, Wal-Mart, *ar"et, and a couple o+ local chains. We are tr in" to deter#ine the qualit i#a"e o+ each +ir#. We have $een surprised $ with students. the ver ne"ative i#a"e that E#art has

8. T:e !ase a3%:#5 45#;"6e6 %:e <#))#="$1 %ea!:"$1 s311es%"#$s: *his case can $e used to de#onstrate the i#portance o+ #arketin" strate" in an esta$lished retail or"ani(ation which was +aced with a d na#ic environ#ent, had record sales and pro+it "rowth, $ene+ited +ro# entrepreneurial leadership, and had a unique e.pansion strate" . *he case can show how an or"ani(ation in an accelerated develop#ent sta"e re+ines its #erchandisin" and operatin" #ethods to sustain its "rowth. 'lass discussion could $e"in $ discussin" the i#ple#entation o+ the #arketin" concept in retailin". *he topic can $e introduced $ invitin" students to su""est the need +or corporate #ission, purpose, "oals, and o$9ectives to $e the $asis o+ developin" #arketin"Oretailin" strate"ies to allow the +ir# to "row in a #ulti-di#ensional chan"in" e.ternal environ#ent. Supple#entar discussion could +ocus on the need to de+ine a tar"et #arket and to develop an appropriate retailin" #i. which would create lon"-run co#petitive advanta"e +or the or"ani(ation. Students can $e asked to speculate on who shops in so#e o+ the stores in their #arket area usin" de#o"raphic, "eo"raphic, ps cho"raphic, and $ehavioristic varia$les. SUGGESTION FOR DAILY CLASS PARTICIPATION We have +ound it is di++icult to "et qualit dail +ro# our students. We s311es% %:e <#))#="$1: participation

1. Jave the class #e#$ers prepare-- indi.idually or as a team--AaB E'AS, I'AS , and S'AS or A$B @3s% a S'AS +or the assi"ned case. PWe have 1 or 6 individual students o+ a tea# $rin" their K?AS, I?AS, and S?AS or 9ust their S?AS on a transparenc . We have +ound in this C8-#inute class that S?AS alone as a transparenc works #ost e++ectivel . 6. We co#pare the student!s work with that o+ the tea# or individual students #akin" the presentation to the class. PWe also discuss how the WEIGHTS and RATING were developed and the Wei"hted Score +or the case under discussion. 1. We ask each student at the $e"innin" o+ the class to write down hisOher T#%a) We"1:%e6 S!#5e +or the case under discussion and pass it in. P@ou can use the results to call on students, whose scores see# to $e out o+ line with the case. PPIt allows +or a discussion o+ the T#%a) We"1:%e6 S!#5e as hisOher overall evaluation o+ how the #ana"e#ent o+ the co#pan is #ana"in" the co#pan !s internal and e.ternal environ#ent. PPPWe ask the students whether the would $u stock in this co#pan . *hen the T#%a) We"1:%e6 S!#5e see#s to have real #eanin".

8I. DISC/SSION A/ESTIONS 1. 6. 1. 7. 8. 2. C. the : it: What are the s%5e$1%:s and =eaB$esses o+ Wal-Mart: What are the #44#5%3$"%"es and %:5ea%s +acin" Wal-Mart: What are the s%5a%e1"! <a!%#5s +acin" Wal-Mart: Ioes Wal-Mart have an !#5e !#,4e%e$!"es: I+ Q es,Q what are

Ioes Wal-Mart have a 6"s%"$!%";e !#,4e%e$!7: I+ Q es,Q what is anal sis +orces and how each +orce o+ #ana"e#ent: his successors:

Iiscuss Rorter!s industr pertains to Wal-Mart.

What was the late Sa# Walton!s philosoph 'an his philosoph

o+ #ana"e#ent $e sustained $

8. 9. 13.

What role will teleco##unications AInternet, shoppin" on *SB have in the retail industr : K.plain wh retailin" industr ou +eel that Wal-Mart was so success+ul in the in the 1983s and 1993s.

What is the co#petitive environ#ent o+ the retail industr in the 1993s: Is it di++erent +ro# that o+ the 1983s: What will it $e in the twent -+irst centur : Wh was Wal-Mart!s #ana"e#ent so success+ul in the 1993s when so #an retailers were in +inancial trou$le: Iescri$e Wal-Mart!s "rowth strate"ies. still $e e++ective in the +uture: +ro# What is our i#a"e o+ a Wal-Mart store: our i#a"e o+ E#art or Sears! stores: Will these strate"ies Jow does it di++er

11. 16. 11.

17. Iescri$e Wal-Mart!s hu#an resources #ana"e#ent strate"ies. 18. 12. Iiscuss the role o+ #arket se"#entation in Wal-Mart!s strate"ic #ana"e#ent. ARlease $e speci+ic.B Iiscuss the role o+ ;"reen; #arketin" in Wal-Mart!s social responsi$ilit strate" . Io ou +eel a co#pan should support such environ#ental issues: Would our opinion chan"e i+ it cost the co#pan pro+its to support such endeavors: 1C. /0e case aut0or ,ro.ided five additional discussion 1uestions and ans&ers. See Se!%"#$ 8II - Case A3%:#5Cs Tea!:"$1 N#%e - D"s!3ss"#$ A3es%"#$s a$6 A$s=e5s. 5a#es W. 'a#eriusP

8II. CASE A/THORCS TEACHING NOTE $ A.

CASE O8ER8IEW - *his was presented earlier in Se!%"#$ I Case A?s%5a!%.

. TEACHING O 0ECTI8ES - *his was presented earlier in Se!%"#$ I8 Case O?@e!%";es. *he last 8 o$9ectives A11-18B were provided $ the case author. C. 8 - S311es%e6 TEACHING C)ass5##, S/GGESTIONS - *his was A445#a!:es T# presented T:e Case . earlier in Se!%"#$

P%eprinted $

per#ission o+ the author.

D.'INANCIAL PER'ORMANCE - Iata is availa$le in the case to dra#ati(e the per+or#ance #easures o+ A1B Asset *urnover Aasset #ana"e#entB, A6B Rro+it Mar"in A#ar"in #ana"e#entB, and A1B ?inancial 0evera"e Ade$t #ana"e#entB. Iata in the case can also $e used to #easure the liquidit o+ the or"ani(ation. *he Strate"ic Rro+it Model, as shown with nor#ative ratios in K.hi$it *L 1, is a use+ul vehicle +or anal (in" the +inancial per+or#ance o+ +ir#s o+ this t pe. ?i"ures are considered nor#ative +or in-store retailin". E>:"?"% TN 1: S%5a%e1"! P5#<"% M#6e) ="%: N#5,a%";e Ra%"#s A<%e5 Ta>es

*et Profit x *et Sales + *et Profit x ,otal !ssets + *et Profit *et Sales ,otal !ssets ,otal !ssets *et -ort. *et -ort. Profit Margin $/&0 $/% 1 !sset ,urnover )/"20 Return on !ssets "3& / #3& 1 Financial 4everage "&/#20 Return *et on -ort.

E. ANAL(SIS O' THE COMPETITI8E EN8IRONMENT - Industr anal sts had la$eled the 1983s as an era o+ econo#ic uncertaint +or retailers. *here were #er"ers, acquisitions $ do#estic and +orei"n +ir#s, +ailures and discontinued operations. Servicin" o+ de$t $eca#e a #a9or issue. Man o+ the lar"est retail or"ani(ations either su++ered sales declines or posted #ar"inal sales "ains. *he )nited States had entered a #a9or recession in the $usiness c cle. Students can $e asked how this tur$ulent e.ternal environ#ent a++ects retailin" activit in the #arketplace. *he +ollowin" issues could $e discussed in anal (in" strate"ic "roups, A1B Intra industr co#petition- Wal-Mart co#pared to other discount depart#ent stores like E#art, *ar"et, Shopko, or A#es- A6B Inter industr co#petition- Wal-Mart co#pared to depart#ent stores like Mac !s Iillard!s, Ia ton-Judson, or an o+ the ?ederated Iepart#ent Stores, Inc.!s divisions- A1B 'ross industr co#petition- Wal-Mart co#pared with specialt retailers like *he /ap, *and and Sound Warehouse. Students could $e asked to contri$ute their own e.periences and also $e invited to discuss how, on a direct and indirect $asis, Wal-Mart co#petes with retail +ir#s operatin" super#arkets, depart#ent specialt stores, and other #ass #erchandise or"ani(ations like *o s T%! )s as ;cate"or killers; which so do#inate a #erchandise line in a sin"le cate"or at such "ood prices that the co#petition is destro ed. '. DISC/SSION A/ESTIONS AND ANSWERS

1.

I6e$%"<7 a$6 e;a)3a%e %:e ,a5Be%"$1 s%5a%e1"es %:a% Wa)-Ma5% 435s3e6 %# ,a"$%a"$ "%s 15#=%: a$6 ,a5Be%"$1 )ea6e5s:"4 4#s"%"#$. W:a% <a!%#5s s:#3)6 a <"5, !#$s"6e5 "$ %:e 6e;e)#4,e$% #< "%s ,a5Be%"$1 s%5a%e17D A #arketin" strate" can $e de+ined as selectin" and anal (in" a tar"et #arket Athe "roup o+ people who# the or"ani(ations wants to reachB and creatin" and #aintainin" an appropriate #arketin" #i. Aproduct, distri$ution, pro#otion, and priceB that will satis+ those people. In retailin", this #i. is o+ten interpreted to #ean +inancial plannin", location, the #erchandise $u in" and handlin" process, pricin" #erchandise, pro#otion, store desi"n and at#osphere and servicin" the retail custo#er. In the develop#ent o+ an appropriate retail #i., #ana"e#ent should +ollow an environ#ental orientation which would allow it to adapt to e.ternal +orces in the environ#ent. *he +ollowin" pro"ra#s or strate"ies which can $e considered #arket-$ased are a part o+ the Wal-Mart retail #i., A1B *he develop#ent o+ a hu#an relationOhu#an resource $ase corporate culture linked to the satis+action o+ consu#er needs and wants in the #arketplace. *he tea# spirit, e#plo ees as ;associates,; trainin" pro"ra#s, Saturda #ornin" #eetin"s, stock ownership, and pro+it-sharin" pro"ra#s are part o+ this plan. A6B Market se"#entationOtar"et #arket positionin" strate" o+ operatin" a discount store in s#all co##unities, o++erin" na#e-$rand #erchandise at ;ever da low prices; and o++erin" +riendl service. Market do#inance strate" o+ +irst openin" a distri$ution center, do#inatin" a #arket area with Wal-Mart stores, and then "rowin" $ e.pandin" to conti"uous areas. 4++erin" a wide variet o+ "eneral #erchandise to the custo#er in 12 di++erent depart#ents with specialt centers at so#e locations.

A1B

A7B

A8B Ievelopin" a co#petitive di++erential advanta"e $ $ein" a$le to ;strike a delicate $alance needed to convince <people that Wal-Mart= prices were low without #akin" people +eel that its stores were too cheap.; Reople "reeters, paper sacks, war# colors, and wide aisles were considered part o+ this strate" . A2B ACB A8B A9B 0i$eral re+und and e.chan"e policies as part o+ a ;Satis+action /uaranteed; pro"ra#. 'orporate pro"ra#s such as developin" new retail +or#ats like SAM!S 'lu$s and Supercenters. Rro"ra#s to e#phasi(e conte#porar social issues like the Bu A#erican Rro"ra# and /reen Marketin". Rower-$ased pro"ra#s to esta$lish Wal-Mart as a leader in its channel o+ distri$ution.

A13B Inventor control s ste# which links stores with distri$ution center and the sta++ at corporate headquarters. 2. D"s!3ss %:e ",4#5%a$!e #< !:a$1es "$ %:e e>%e5$a) e$;"5#$,e$% %# a$ #51a$"Ea%"#$ )"Be Wa)-Ma5%.

*he e.ternal environ#ent o+ retailin" or"ani(ations is traditionall thou"ht o+ in ter#s o+ political, le"al, re"ulator , societal, econo#ic, co#petitive, and technolo"ical in+luences. *hese in+luences surround $u ers in the #arketplace and the retailin" strate"ist as the retailin" #i. is developed. *he retailin" #i. is t picall thou"ht o+ as controlla$le. *he environ#ent is usuall perceived $ #ana"e#ent as uncontrolla$le and constantl chan"in". 'han"e #ust $e accepted $ #ana"e#ent as it is in the le"ac o+ Sa# Walton. A nu#$er o+ chan"es had taken place in the e.ternal environ#ent o+ Wal-Mart. *he countr was in an econo#ic recession in the earl 1993s. Iespite the +act that the co#pan continued to "row in ter#s o+ sales volu#e, pro+ita$ilit , and ph sical si(e, the discount depart#ent store industr was perceived to $e in the #aturit sta"e o+ the institutional li+e c cle. In ter#s o+ #arket served, the Wal-Mart +ocus was on s#all towns and cities. 4ne question that #i"ht $e e.plored is the accepta$ilit o+ the +ir# in other #arket areas like su$ur$an and inner cit . An industr anal st had questioned, ;Will WalMart take over the world:; *he price-sensitive shopper see#ed to $e ever where. Wal-Mart continued to e.pand in conti"uous tradin" areas and into lar"er ur$an areas such as Iallas and Rhoeni.. Wal-Mart senior #ana"e#ent should develop a #odel which incorporates the co#ponents o+ strate"ic plannin", A1B a state#ent o+ purpose or #ission +or the +ir#- A6B speci+ic "oals and o$9ectives +or Wal-Mart and its divisions- and A1B speci+ic retail strate"ies that will ena$le the +ir# to reach its o$9ectives and +ul+ill its #ission. -. W:a% !#$!)3s"#$ !a$ ?e 65a=$ <5#, a 5e;"e= #< Wa)-Ma5%Cs <"$a$!"a) 4e5<#5,a$!e <5#, 198. %# 199&D '5#, %:"s 5e;"e=, =:a% !a$ 7#3 !#$!)36e a?#3% %:e <"$a$!"a) <3%35e #< %:e <"5,D *he Strate"ic Rro+it Model ASRMB shown earlier in K.hi$it *L 1 is a use+ul vehicle +or anal (in" the +inancial per+or#ance o+ retail +ir#s like Wal-Mart. It dra#ati(es the per+or#ance i#perative in retailin", a de+ensi$le return on net worth. Strate"ic Rro+it Model ratios +or Wal-Mart Stores, Inc., +or the ears 1982-199C are reviewed in K.hi$it *L 6. In a +inancial pro+ile o+ leadin" retailers developed in the Iistri$ution %esearch Rro"ra# at the )niversit o+ 4klaho#a, strate"ic pro+it #odel ratios +or discount depart#ent stores revealed the +ollowin" results in a recent stud , Rro+it Mar"in, 6.2>- Asset *urnover, 6.8>- %eturn 4n Assets, 2.8>- 0evera"e, 6.2>- and %eturn 4n Let Worth, 12.8>. *he hi"h-per+or#ance #easures in retailin" show that Wal-Mart Stores is a hi"h-per+or#ance retailer with return on net worth si"ni+icantl "reater than the industr avera"e and other nor#ative +i"ures. A review o+ the SRM +inancial anal sis su""ests that return on assets is a$ove industr avera"es. Sales have also "rown si"ni+icantl "reater than industr avera"es. Sales which increase at a decreasin" rate are characteristic o+ the #aturit sta"e o+ the retail institutional li+e c cle.

E>:"?"% TN 2: Wa)-Ma5% S%#5es, I$!. Se)e!%e6 S%5a%e1"! P5#<"% M#6e) Ra%"#s: 199&-198.
Fiscal Year Profit Margin Asset Turnover Return On Assets Financia Leverage l Return Net On Worth

@ear 199C 1992 1998 1997 1991 1996 1991 1993 1989 1988 198C 1982

A>B 36. 9 36. 9 36. 9 31. 6 31. 7 31. 2 37. 3 37. 3 37. 3 31. 9 31. 8 31. 9 . . . . . . . . . . . .

A.B 6.2 3 6.2 8 6.7 9 6.8 1 6.8 8 6.C 3 6.8 2 1.1 8 1.6 8 1.1 1 6.9 7 6.C 6 M M M M M M M M M M M M

A> B 38. 8 3C. 9 3C. 1 38. 1 38. 8 39. C 11. 1 11. 1 11. 6 16. 6 11. 1 13. 8

A.B . . . . . . . . . . . . 6.7 8 6.1 1 6.8 7 6.8 8 6.7 2 6.1 8 6.1 6 6.3 C 6.1 1 6.6 C 6.7 3 6.7 6 M M M M M M M M M M M M

A> B 19 .8 19 .6 18 .2 61 .3 61 .C 66 .C 67 .1 6C .1 6C .8 6C .8 62 .C 68 .2

F.

S4e!3)a%e #$ :#= ,3!: ",4a!% %:e a?se$!e #< Sa,3e) Wa)%#$ =")) :a;e #$ %:e <#5=a56 ,#,e$%3, #< %:e #51a$"Ea%"#$. W:a% s%e4s :a;e ?ee$ #5 s:#3)6 ?e %aBe$ ?7 ,a$a1e,e$% %# !#$%"$3e M5. Sa,Cs <#5,3)a <#5 s3!!essD *he case points out that #uch o+ the +orward #o#entu# o+ WalMart had co#e +ro# the entrepreneurial spirit o+ Sa#uel Moore Walton. Mr. Sa# was the 'hair#an o+ the Board o+ Iirectors and corporate representative. Iavid /lass, as the new Rresident and 'hie+ K.ecutive 4++icer, su""ests when approached on the departure o+ Mr. Sa#, ;*here!s no transition to #ake $ecause this co#pan is so sound and so universall accepted. As +or the +uture, there!s #ore opportunit ahead o+ us than $ehind us.; A nu#$er o+ pro"ra#s #i"ht $e introduced to perpetuate the enthusiastic and e.citin" leadership that Mr. Sa# $rou"ht to the or"ani(ation,

1B 'apture his philosoph in an wa possi$le, on +il#, in $ooks, in articles, in a paintin" to han" in ever store6B Introduce leadership pro"ra#s which would e#phasi(e continuin" the Mr. Sa# philosoph in the co#pan 1B Ievelop Mr. Sa# as a s #$ol or idea as opposed to an individual7B Rerpetuate in the +ir# all the ideas that Mr. Sa# stood +or, like his ho#espun hu#or, li+e st le, or #oralit . 8B 'ontinue to encoura"e the hu#an reactions and hu#an resource, $otto#-up st le o+ #ana"e#ent in the +ir#. In this question the instructor #a wish to introduce the concept o+ or"ani(ational culture $ discussin" or assi"nin" li$rar research on other corporate leaders like Jenr ?ord. ?.W. Woolworth, Marshall ?ield, %ichard W. Sears, and #ore recentl Ku"ene ?erkau+ at K.5. Eorvette discount stores, Mar Ea Ash at Mar Ea 'os#etics, and %ichard M. Ievos and 5a San Andel o+ A#wa . Jarr 'unnin"ha# was credited as providin" #uch leadership in the "rowth sta"e o+ E#art. +. W:a% e;"6e$!e "s %:e5e %# s311es% %:a% %:e ,a5Be%"$1 !#$!e4% =as 3$6e5s%##6 a$6 a44)"e6 %# Wa)-Ma5%D Accordin" to the #arketin" concept, a +ir# should tr to provide products and services that satis+ custo#ers! needs throu"h a coordinated set o+ activities that also allows the or"ani(ation to achieve its "oals. Kvidence o+ an appreciation and application o+ the #arketin" concept is +ound in annual reports o+ the +ir# and in #ana"e#ent co##ents and actions. *he 1993 Annual %eport o+ Wal-Mart Stores, Inc. su""ested that corporate and #arketin" strate"ies in the 1993s would $e $ased upon a set o+ two #ain o$9ectives which had "uided the +ir# throu"h its "rowth ears in the decade o+ the 1983s. *he custo#er was +eatured in the +irst o$9ective, ;'usto#ers would $e provided what the want, when the want it, and at value.; *he second o$9ective e#phasi(ed the tea# spirit, ;*reatin" each other as we would hope to $e treated . . . dependenc on our Associate Rartners to sustain our success.; *he o$9ective was to "row to a trul nationwide retailer in sales and earnin"s. At another point in the case, it was noted that stores were e.pected to ;provide the custo#er with a clean, pleasant and +riendl shoppin" e.perience.; So#e have su""ested that it was #an o+ the little thin"s that set Wal-Mart apart +ro# the co#petition and #ade it an e.a#ple o+ the application o+ the #arketin" concept. *he ;people "reeter;, wide aisles, e#plo ee vests +or reco"nition, war# interior decor and e.terior colors, and the use o+ $rown paper sacks rather than plastic were considered e.a#ples o+ the ;custo#er +irst; attitude. Since custo#er satis+action is the #a9or ai# o+ the #arketin" concept, the ;Satis+action /uaranteed %e+und and K.chan"e Rro"ra#; could $e interpreted as also part o+ the application o+ the #arketin" concept. *he co##ents #ade $ /lass also re+lect the concept, ;We!ll $e +ine as lon" as we never lose our responsiveness to the consu#er.;

8III. ST/DENT STRATEGIC A/DIT O S*)IKL* RARK% I. C/RRENT SIT/ATION A. Pe5<#5,a$!e: Wal-Mart is the lar"est retailer and discount store chain in the )nited States. Its co#$ination o+ low prices and e.cellent custo#er satis+action continue to lead the wa and insure "rowth. %apid "rowth occurred in the 1993s in sales, pro+its, and stores. ?@ Let Sales Inco#e Aa#ounts in #illionsB D11C,988 137,889 97,C79 D1,862 1,3 6,C 82 73 Lu#$er o+ Stores

199C 1992 1998

1,7 1,3 32 87

. S%5a%e1"! P#s%35e: M"ss"#$: *he #ission can $e i#plied +ro# the case - to $e the nu#$er-one retailer $ providin" the custo#er selection and qualit +or value "iven. O?@e!%";es: 1. 6. 1. 7. 8. 8. *o provide custo#ers with what the want it, and with value. want, when the

*o develop and #aintain tea# spirit with its e#plo ees. *o re#ain the nu#$er-one retailer and discount chain. *o pursue "rowth while #aintainin" "rowth in sales and pro+its. Rro+its will not $e sacri+iced +or "rowth. *o $e the ver $est in our $usiness.

*o have the store provide the custo#er with a clean, pleasant, and +riendl shoppin" e.perience.

S%5a%e1"es: 1. *he include new store openin"s, e.pansion to #ore states, up"radin" and re#odelin" o+ e.istin" stores, and openin" o+ new distri$ution centers. All these concepts point toward concentration throu"h hori(ontal "rowth +or Wal-Mart. *o the e.tent that new product #i.es are $ein" o++ered in new store +or#ats, it could $e concentric diversi+ication.

6.

P#)"!"es: 1. *o sell products that are environ#entall A"reen #arketin" polic B. +riendl

6. 1. 7. 8.

*o o++er satis+action "uaranteed or re+und or e.chan"e polic . *o provide qualit , value, selection and low price. *o do thin"s ;the Wal-Mart Wa .; *o use J%M policies to win e#plo ees to the corporate culture.

II. CORPORATE GO8ERNANCE A. #a56 #< D"5e!%#5s , ?ourteen #e#$ers. ?our internal #e#$ers, S. %o$son Walton, 'hair#an Iavid I. /lass, 'K4, Rresident Ionald /. Soderquist, Sice-'hair#an and '44 Raul %. 'arter, K.ecutive Sice Rresident o+ Wal-Mart %ealt *en outside #e#$ers Lo cited stock ownership Rartnership #ana"e#ent . T#4 Ma$a1e,e$%, 4nce a"ain, Iavid /lass is the onl person #entioned under top #ana"e#ent. Je is hard-drivin" and #ost likel the $est candidate to succeed Sa# Walton. It appears that #ana"e#ent is ver active and that the activel re"ulate the co#pan , $ut the su$scri$e to a $road approach that involves ever one while creatin" the desired results.

III. EGTERNAL EN8IRONMENT (EFAS see EGHI IT 1) A. S#!"e%a) E$;"5#$,e$% O44#5%3$"%"es International e.pansion $ retailers. 4ne-stop shoppin" center +or convenience. 'onsu#ers! desire +or value +or dollars spent. /rowin" trend to U$u A#erican.V /reen #erchandise enterin" the s ste#. T:5ea%s Slow "rowth that #i"ht hurt overall sales. *he trend o+ +orei"n investors to $u ).S. retail stores. . TasB E$;"5#$,e$% O44#5%3$"%"es Man o+ the retail stores have declared $ankruptc and created a lar"er consu#er $ase. So#e states have not $een #arketed in Acurrentl 18 out o+ 83 states have Wal-MartsB. K.cellent distri$ution centers provide an advanta"e over other corporations. *he industr is $eco#in" s#aller and Wal-Mart re#ains the leader in si(e. T:5ea%s

Lew retail +or#ats includin" superstores and warehouse retailin". ?actor outlets that o++er drastic price reductions. Speciali(ed stores that have achieved #erchandise do#inance in their product cate"ories. Rossi$ilit o+ industr #aturit . I8. INTERNAL EN8IRONMENT (IFAS see EGHI IT 2)

A. C#54#5a%e E$;"5#$,e$% Sta"e III corporation. Stores are located around a #a9or warehouse Aa$out 2 hours awa B. Iecentrali(ed operational decision #akin" occurs at the stores- centrali(ed strate" choice is #ade at the corporate level. . C#54#5a%e C3)%35e A +ast-"rowin" co#pan , Wal-Mart relies heavil on its e#plo ees +or co#pan success. J%M is a hi"h priorit at Wal-Mart. Kach e#plo ee contri$utes to the Wal-Mart store and co##unit . Wualit and custo#er satis+action are priorities.

C. C#54#5a%e Res#35!es 1. Ma5Be%"$1 - S%5e$1%:s: 0ar"e-scale ad ca#pai"ns. Knviron#entall sound products and ).S.-#ade products Athis +ollows current ).S. societal trendsB. Brand na#es. Idea that the custo#er #atters. Sales o+ D13C per square +oot A1992B vs. D196 +or E#art. International e.pansion and "rowth o+ SAM!S 'lu$ and Supercenters. WeaB$esses - Lone that can $e seen. 2. '"$a$!e - S%5e$1%:s: Increasin" sales that can easil contend with the a#ount o+ de$t $ein" used. 0on"-ter# de$t is low +or this industr . *hirt -+ive ears o+ record sales and pro+its. Linet -nine quarters o+ "rowth in sales and pro+its $e+ore the +irst decline in pro+its, $ut the whole ear up. Let Rro+it %eturn on Assets Asset *urnover '( 199& 6.9> 8.8> 6.23 '( 199. 6.9> C.9> 6.28 '( 6. 199+ 9> C. 6. 1> 79

WeaB$esses: 0on"-ter# o$li"ations +or leases are #uch too hi"h.

'urrent assets appears to $e low +or such a lar"e corporation. -. Resea5!: a$6 De;e)#4,e$% - It was not #entioned. Jowever, it can $e i#plied that Wal-Mart pa s close attention to societal trends and consu#er pre+erences. *here is tre#endous research o+ co#petitors and their strate"ies in order to learn +ro# their #istakes. Wal-#art keeps a close check on de#o"raphics o+ its consu#ers. F. O4e5a%"#$s - S%5e$1%:s: K.cellent service with discount prices. K.cellent up-to-date co#puter s ste# +or ever da operations and inventor control. Rolic o+ dealin" onl with top o++icials o+ producers to ensure price and qualit . ?@ 199C - 6,761 Wal-Mart stores, 781 SAM!S 'lu$s, 836 Supercenters, +or a total o+ 1,732 stores. WeaB$esses: - Lone. +. H3,a$ Res#35!e Ma$a1e,e$% - S%5e$1%:s: 'orporate polic dedicated to i#provin" e#plo ee involve#ent and e.pertise. Se#inars and trainin" pro"ra#s to ensure qualit in e#plo ee per+or#ance. Special awards +or e#plo ee per+or#ance. K#plo ees AUassociatesVB encoura"ed to ask #ana"e#ent questions and o++er su""estions. WeaB$esses: Ma create an at#osphere where e#plo ees think the all the answers or can do an thin" the desire. .. have

I$<#5,a%"#$ S7s%e,s - S%5e$1%:s: Most sophisticated inventor control s ste# in retailin". Jelps Wal-Mart react +aster to trends. 'o#puter links $etween stores and "eneral o++ices ensure accurate and ti#el #erchandise replenish#ent. WeaB$esses: So#eti#es it takes lon"er +or the clerk to run the ite# over the scanner ten ti#es than it would to 9ust t pe the a#ount in the re"ister.

8. ANAL(SIS O' STRATEGIC 'ACTORS

(SFAS see EGHI IT -)

8I. STRATEGIC ALTERNATI8ES AND RECOMMENDED STRATEG( A. S%5a%e1"! A)%e5$a%";es 1. P5#: Ma"$%a"$ C355e$% S%5a%e17 (H#5"E#$%a) G5#=%:) 'reate a lar"er #arket share. Alread $ein" i#ple#ented $ top #ana"e#ent. *ar"et states and

countries currentl not serviced. Also, add new store +or#ats as e.istin" stores saturate their #arkets. C#$: 2. %equires #ore de$t load. P35!:ase a

G5#=%: T:5#31: C#$!e$%5"! D";e5s"<"!a%"#$. <##6 s%#5e !:a"$. P5#:

Alread have e.cellent e.perience in lar"e-scale, consu#er-orientated operations. Ioes not react heavil to $usiness c cles. K.pensive. Lot clear whether Wal-Mart can +inanciall acquire a chain. N# G5#=%:. Ma"$%a"$ !355e$% #4e5a%"#$s.

C#$:

-. P5#:

Lot e.pensive. Sales continue to increase even without new stores. Most co#petitors are stru""lin" and would not pose a serious threat. Lot e.pandin" to #arkets that are easil accessi$le. Rossi$l let #arket share $e a$sor$ed $ s#aller co#petitors and then not a$le to retrieve it.

C#$:

Re!#,,e$6e6 S%5a%e17 'ontinuin" with the current strate" o+ hori(ontal "rowth is the $est alternative +or Wal-Mart. *he industr is e.periencin" hard ti#es and et Wal-Mart is sta in" well ahead o+ an co#petition. In order to ensure +uture success and to #eet the corporation!s o$9ective, Wal-Mart #ust keep on "rowin".

8II. IMPLEMENTATION *he i#ple#entation process has alread $een started $ Wal-Mart. *op #ana"e#ent has created a special tea# to stud the tar"eted areas and the trends that appl to those consu#ers. 'ontinuin" with co#plete and ti#el reports on sales, the can +urther "enerate e.cellent revenues in new states. 8III. E8AL/ATION AND CONTROL Wal-Mart alread is a leader in the industr +or control and ti#eliness. All it has to do is continue with periodic #ana"e#ent evaluations and rel on its co#puter-"enerated data.

IG. EFAS, I'AS a$6 S'AS EGHI ITS

Ex.i5it "
EF!S 6External Factor !nalysis Summary7
E1,ER*!4 S,R!,EGIC F!C, RS Opportunities: Intense competition Societal tren: towar: excellent mar;eting researc. In:ustry tren: towar: large/scale retailing an: new store formats Societal tren: towar: environmental pro:ucts an: !merican/ma:e pro:ucts International expansion Threats: In:ustry maturity Slow growt. economy -EIG8, 3 # 3 # 2 3 " & 3 2 & 3 " 3 " 3 " TOTAL SCORES R!,I*G & & % % % % % -EIG8, E9 "322 "322 3'2 3#2 3'2 3'2 3%2

1.00

4.40

IG. IFAS, E'AS a$6 S'AS EGHI ITS

Ex.i5it #
IF!S 6Internal Factor !nalysis Summary7
I*,ER*!4 S,R!,EGIC F!C, RS Strengths< Mar;eting / strong name recognition of programs an: mar;eting researc. 6low price wit. .ig. =uality7 Manage: Growt. / 6Strategic Management7 9istri5ution>Information>Inventory control systems 4argest retail an: :epartment store 6in sales7 8RM policies > Corporate culture Excellent management teams an: operations International expansion Weaknesses: 4oss of Sam -alton TOTAL SCORES -EIG8, 3 # 3 " 3 " & 3 " 3 " 3 " 3 " 3 " 1.00 R!,I*G % -EIG8, E9 3 ) 3 & 3 ( & 3 & 3 ( 3 % 3 % 3 % 4.50

& & & & % % %

IG. SFAS, E'AS a$6 I'AS EGHI ITS

SF!S 6Strategic Factor !nalysis Summary7

-EIG8, E9 3 ( 3 % 3 # 3 % 3 ( 3 # 3 & 2 3 & 3 % 3 % 4.50

Ex.i5it $

?E@ S,R!,EGIC F!C, RS Intense competition *ew store formats 4argest retail an: :epartment store Excellent management team Manage: Growt. Mar;eting / Strong name recognition 9istri5ution>Information>Inventory control system 8RM policies > Corporate culture International expansion Maturing in:ustry TOTAL SCORES

-EIG8, 3 " 3 " 3 2 3 " 3 " 3 2 3 " 2 3 " 3 " 3 " 1. 00

R!,I* G & % % % & % & & % %