FINANCIAL ANALYSIS PROJECT

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CONTENTS

INTRODUCTION 4
VISION STATEMENT 5
MISSION and OBJECTIVES 5

COMPANY SUMMARY 6
OWNERSHIP 6
ORGANIZATIONAL STRUCTURE 7
HISTORY OF WAL-MART 8
INDUSTRY ANALYSIS 9
MARKETING ANALYSIS 10
MARKET SEGMENT 11
MARKET SHARE 13
DOMESTIC COMPETITORS 14

INTERNATIONAL COMPETITORS 15

CURRENT PRODUCTS 16
PRODUCTS 16
BCG MATRIX 17
STRATEGY AND IMPLEMENTATION SUMMARY 19
COMPETITIVE EDGE20
MARKETING AND SALES STRATEGY 21
COST STRATEGY 21
CAPITAL STRUCTURE STRATEGY 21

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FINANCIAL ANALYSIS 22
GENERAL OVERVIEW 22
OPERATING EXPENSES AND NET SALES 22
OPERATING INCOME 23
FREE CASH FLOW 23
ACCOUNTING ASSUMPTIONS AND METHODS 23
INVENTORIES 23
DEPRECIATION AND AMORTIZATION 24
GENERAL STRENGHTS 24
ACCOUNTING ASSUMPTION AND METHODS 25
EVOLUTION AND CAUSE FOR THE CHANGES 26
KEY FINANCIAL RATIOS 27
LIQUIDITY RATIOS 28
PROFITABILITY RATIOS 28
DEBT RATIOS 29
OPERATING PERFORMANCE RATIOS 30
ANALYSYS OF RISK31
FX AND INTEREST RISK 32
SOLVENCY RISK 33
COMPETITORS ANALYSIS 34
SWOT ANALYSIS 37
RECOMMENDATIONS 38
BIBLIOGRAPHY 39

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INTRODUCTION
Walmart Stores, Inc. (WMT) is an American public corporation that runs a chain of large
discount department stores and a chain of warehouse stores. Walmart operates more than
8,692 retail units across three business segments of retail stores worldwide that offer a wide
array of general merchandise including groceries, apparel, electronics, and small
appliances. In addition, the company is the world's largest retailer and grocery chain by
sales and just over half of the company's sales comes from grocery items. Over 54% of the
company's stores are located in the United States, with the majority of international stores
located in Central and South America and China.
The company focuses on offering the lowest prices across its business segments, which
together earned $408 billion in revenue in 2010, a 1% increase from sales in
2009. Walmart's largest business segment is its namesake Walmart stores. Because of its
mammoth size and buying power, Walmart can buy its products at rock-bottom prices,
exchanging high purchase volumes for low cost while passing the savings onto its
customers. Many suppliers give in to Walmart's pressure because they depend on
the discount retailer for a majority of their sales.
Due to Walmart's low prices, consumers gravitate to Walmart stores during economic
downturns. As a result, the company's comparable store sales increased by 3.5% during
the worst toughest year. However, as the global economy emerges from recession, stands
to lose a lot as consumers opt to buy higher quality and more expensive items. In 2010, the
company's US comparable store sales fell by 0.8%.

VISION STATEMENT
“Saving people money so they can live better”- this is a vision statement of the largest
retailer in the world. Walmart always tries to suggest low prices and high quality products to
its customers. It has slogan “always low prices-always”. The founder of Walmart stated
this vision and still the company follows it. Walmart believes that main factor in customers’
decision making is low price; it mostly determines people’s choice. In a word their vision is
to provide good quality products and service for reasonable price to the customers while
remaining the market leader and striving daily to be the most admired company.
 “The secret of successful retailing is to give your customers what they want, and
really, if you think about it from your point of view as a customer, you want
everything as:
 A wide assortiment of good quality merchandise; the lowest possible
prices
 Guaranteed satisfaction with what you buy; friendly, knowledgeable
service
 Convenient hours; free parking; a pleasant shopping experience”
-Sam Walton (1918-1992)
OUR VISION IS TO PROVIDE GOOD QUALITY AND SERVICES TO OUR CUSTOMERS WHILE
REMAINING THE MARKET LEADER AND STRIVING DAILY TO BE THE MOST ADMIRED COMPANY

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 OBJECTIVES AND MISSIONS
 They don’t have a formal mission statement
 They are interested in the customers’ needs
 The culture consists of
 Respect for the individuals
 Service to our customers
 Strive for excellence
 If they did have a formal mission statement it would be:
“To provide quality products at everyday low prices and with extended Customer
service...always”
“In everything we do, we’re driven by a common mission: to improve the quality of life for
everyday people around the world”.
They know that price matters to the customers, whether they live in the United States,
the United Kingdom, Argentina or Japan. That's why they offer the best quality
merchandise at the lowest prices in all the stores, from school supplies, to household items
and top quality groceries. Their mission is to respect for the individual and to strive for
excellence. With their innovative technologies they strive to have merchandise ranging
from food, music and etc on hand every day. Walmart tries to have best, to be best and to
provide quality and assurance to their customers. The fact that Walmart is so successful
company is value of its employees; they are the biggest assets for the company.
Walmart also looks at savings that go beyond the prices in the stores. Their first mission is
to provide good and services for the buyers at low prices. For example, they are working
with the suppliers to introduce more energy efficient products that can save customers
money for years to come. And because every Walmart store or Sam's Club is designed to
reflect the local community, the customers know they will find the lowest prices around on
the products that match their lifestyle. Saving money is a mean to helping the customers
live better. By offering the best possible prices on the products the customers need, they
can help them afford something a little extra.Whether it's a grandmother who can buy her
grandchildren a special gift because she saved money on her prescriptions, or a young
family saving money to buy their first home, they see their mission come to life every day.
Walmart also sees opportunities to help people live better beyond the walls of the stores
and Sam's Club locations. That’s why it supports causes that are important to the
communities, like education, and why they are working hard to do their part in protecting
the planet and conserving the natural resources for generations to come.
By working closely with the communities and suppliers, Walmart can reach beyond just the
customers to help improve the lives of people around the globe. Saving people money so
they can live better is at the heart of everything they do, and these are just a few examples
of the many ways they bring that mission to the community each and every day. Simply
put, helping people live better is more than something they do -- it’s who they are.

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OWNERSHIP
Walmart is a public company and its stocks are traded Walton Jim C 0.2
on stock exchange markets. It has 11,000m stock 8%
authorized and 3,780m outstanding. The owners of the Scott H Lee JR 0.2
company change time by time. Nowadays the major direct %
holders are: Walton S 0.7
Other shareholders are some institutions and mutual Robson %
funds. Duke Michael T 0.1
7%

ORGANIZATIONAL STRUCTURE
Glass David D 0.1
6%

Wal-Mart was constructed into a three product divisional structure. The successful world
retailer’s business categories include Wal-Mart Stores (U.S.), Sam's Club (U.S.), and
International stores. The International segment yields about 20% of the company’s overall
business income and is responsible for several different types of restaurants and stores
including Wal-Mart and Sam's Club in 13 countries. This divisional structure and approach
works to Wal-Mart's advantage because each division is open to focus its efforts on
specific goals such as product, service, or customers. Narrowing the focus really allows the
company to perform more effectively because they are allowed to pinpoint specific areas
needing change and adjust appropriately.

24.70%
11.50%
Sam's club

Walmart U.S.

International

63.80%

The basic responsibility of the members of the Executive Committee is to exercise their
business judgment to act in what they reasonably believe to be in the best interests of the
Company and its shareholders. In discharging that obligation, members should be entitled
to rely on the honesty and integrity of the Company’s senior executives and its outside
advisors and auditors, to the fullest extent permitted by law.

The Executive Committee shall have the authority to exercise all powers and authority of
the Board, including without limitation the powers and authority enumerated in the By-laws
of the Company, excepting:
 The review and approval or disapproval of transactions covered by the Company’s
Transaction Review Policy; and
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 Committee structure

Compensation, Strategic
Global
Audit Nominating and Executive Planning and
Compensation
Committee Governance Committee Finance
Committee
Committee Committee

Independent Directors
Aida M. Alvarez Member

James W. Breyer - Presiding Director Chairperson

M. Michele Burns Member

James I. Cash, Jr. -Financial Expert Member

Roger C. Corbett Member

Douglas N. Daft Member

Steven S Reinemund Member

Arne M. Sorenson -Financial Expert Member

Christopher J. Williams -Financial Expert Chairperson Member

Linda S. Wolf Chairperson

Inside Directors
Michael T. Duke Member Member

Gregory B. Penner Member

H. Lee Scott, Jr. Chairperson Chairperson Member

Jim C. Walton Member

S. Robson Walton -Chairman of the Board Member Member

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 HISTORY
Walmart was founded in 1962, with the opening of the first Walmart discount store in
Rogers, Ark. The company incorporated as Wal-Mart Stores, Inc., on Oct. 31, 1969. The
company's shares began trading on OTC markets in 1970 and were listed on the New York
Stock Exchange two years later.
The company grew to 276 stores in 11 states by the end of the decade. In 1983, the
company opened its first Sam’s Club membership warehouse and in 1988 opened the first
supercenter -- now the company’s dominant format -- featuring a complete grocery in
addition to general merchandise. Walmart became an international company in 1991 when
it opened its first Sam's Club near Mexico City.
The birth of discount retailing
Most people think discount retailing began in 1962 – the year that Kmart, Target, and
Walmart first opened. But actually, the chain of variety stores Sam Walton owned during
the 1950s faced stiff competition from many regional discount stores.
1962 – Walmart begins
Before opening Walmart, Sam traveled the country studying everything he could about
discount retailing. He became convinced American consumers wanted a new type of store.
Trusting his vision, Sam and his wife Helen put up 95 percent of the money for the first
Walmart store in Rogers, Ark.
1972 – Walmart goes public
Discounters such as Kmart quickly expanded in the 1960s, while Sam only had enough
money to build 15 Walmart stores. In 1972, Walmart stock was offered for the first time on
the New York Stock Exchange. With this infusion of capital, our company grew to 276
stores in 11 states by the end of the decade.
The 1980s – Walmart comes of age
In 1983, the first Sam’s Club members-warehouse store opened. The first Supercenter
opened in 1988, featuring a complete grocery, and 36 departments of general
merchandise. By 1989, there were 1,402 Walmart stores and 123 Sam’s Club locations.
Employment had increased tenfold. Sales had grown from $1 billion in 1980, to $26 billion.
The 21st century – one of the most successful retailers in the world
Today, 8,692 stores and club locations in 15 countries employ 2.1 million associates,
serving more than 176 million customers a year. Our history is a perfect example of how to
manage growth without losing sight of your values. Our most basic value has always been,
and always will be, customer service.
Sam’s secret — give your customers what they want
In his autobiography, Sam said, "… if you think about it from the point of view of the
customer, you want everything: a wide assortment of quality merchandise; the lowest
possible prices; guaranteed satisfaction; friendly, knowledgeable service; convenient hours;
and a pleasant shopping experience. You love it when a store exceeds your expectations,
and you hate it when a store inconveniences you, gives you a hard time, or pretends you're
invisible."
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INDUSTRY ANALYSIS
Retail is the second-largest industry in the United States both in number of establishments
and number of employees. The U.S. retail industry generates $3.8 trillion in retail sales
annually ($4.2 trillion if food service sales are included), approximately $11,993 per capita.
The retail sector is also one of the largest worldwide.

Retail trade accounts for about 12.4% of all business establishments in the United States.
Single-store businesses account for over 95% of all U.S. retailers, but generate less than
50% of all retail store sales. Gross margin typically runs between 31 and 33% of sales for
the industry but varies widely by segment.
Average industry revenue growth rate in
2010 was -0.8%.

Walmart is very selective in their choices

of suppliers. Walmart forms partnerships
with individual entrepreneurs. Suppliers
are asked to keep up with demand and to
provide a continuum of quality products.
Walmart has the standards for
suppliers, if they don’t satisfy the
requirements no chance to become the
supplier. All suppliers must have competitive prices, financial stability, proven success in
the marketplace, and offer excellent products in order to receive contracts with Walmart.
Being the largest retailer in the country, many local suppliers can only play by Walmart's
rules in order to get a piece of the pie. Walmart imported over 15 billion dollars worth of
goods. The suppliers to Walmart and other discounters have almost no power. Walmart is
notorious for pressuring suppliers to cut their margins lower and lower, and often receives
criticism for this practice. Unfortunately, there is no way around this given the consumer
demand for quality goods at low prices. And while a supplier might sell half of its volume
through Walmart, this brand probably makes up less than 5% of Walmart’s sales. Also
Walmart can easily switch to new suppliers and it reduces bargaining power of suppliers.
Relentlessly cutting costs all the time, wholesalers deal directly with suppliers and hold all
the power. Walmart does deal with some large suppliers like Proctor & Gamble, Coca-Cola
who has more bargaining power than small suppliers.

As we know Walmart has millions of buyers, there are at least 200 million customers per
week. Walmart has great power over his consumers because each buyer has little portion
of his sales. Walmart does not sell unique products, we can say that its goods are
homogenous to all other retailers, but it maintains the customers by offering low prices.

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Walmart always emphasize on his low price level and this way increases loyalty of the
buyers, they believe that nowhere can buy cheaper than in its stores.

It's imperative that Walmart does not only look at what its direct competitors are doing, but
what other types of products people could buy instead. Walmart offers always low
prices and cozy environment. There are a lot of competitors which fulfill similar need to
buyers, but there are not many substitutes that offer convenience and low pricing. The
customer has the choice of going to many specialty stores to get their desired products but
is not going to find Walmart’s low pricing. Online shopping proves another alternative
because it is so different and the customer can gain price advantages because the
company does not necessarily have to have a brick and mortar store, passing the savings
onto the consumer. Substitutes are available but Walmart tends to build in locations where
they eat up small competitors. We can say that substitute level is medium because it
depends on where you live and what type of Walmart stores are closer to you.

The Grocery/Discount retailer industry’s

threat of new entrants is very low. New
firms would be faced with the task of
beating the prices of giant merchandiser
immediate upon entry. Given the
economies of scale, brand recognition,
service, and variety of product offerings
that Walmart, Target, and others
continue to improve on each day, this
seems very unlikely. In addition, existing
firms could afford to temporarily drop
prices even lower in order to force a new
competitor out of the market. Barriers to
entry in retail industry are high because
it is hard to form a large organization that will be competitive at the same size as Walmart
with such low prices. This industry has high barriers because it is too expensive for new
firms to enter and to be competitive.

The biggest threat in the retailer industry is competition. In particular, the main players are
Walmart, Carrefour, Sears Holdings and Target. These firms also face competition from
wholesalers such as BJ’s and Costco. Walmart, as the industry leader, has adopted a
cost leadership strategy. In the past, most firms have not been able to match Walmart’s
everyday low prices. The problem is that Walmart’s barrier to entry (economies of scale)
and strength (supply-chain management) can be easily replicated with sufficient resources.
By definition, discount retailers are competing to see who can offer the lowest prices. This
places a heavy burden on all firms to maintain a profit margin as they do so. Walmart has 6
times more revenue ($408,214m) than his strongest competitor Target ($65,357m). Target
has well positioned itself in the market by developing strong customer base, positive

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marketing, credit card business and exclusive product lines. Target pays attention to and
chooses its distribution and retailing very carefully. The company focuses on "consistency
of experience" and makes it stores and products easily accessible for the customers. The
company has identical stores while differentiating it from Walmart. One of the strongest
features about Target is that the consumer enjoys being there. Their store is always
clean and the way it is set up is so aesthetically pleasing it's as if each shelf were
specifically shelved just for you. Target is continuously working to make its distribution
channels stronger and makes its offerings accessible for existing as well as potential
customers. Target as a company has several weak areas to work on and develop. These
include its strategies about pricing, dealing with their two other divisions, strategic
operations, supply chain. One of them is that they do not have as many stores as their
competitor Walmart. Even with Target's great advertising, it makes it difficult for the
consumers to shop here when there aren't that any around. Another weakness with Target
is that although their prices are low, they just aren't as low as Walmart's prices. AS a matter
of fact, compared to Walmart's prices, Target may even seem expensive. Another problem
with Target is that they keep a low overhead of items, so they run out of items very often.
Target also focuses a lot on self service so it can be difficult to find what you are looking for
sometimes. One great opportunity for target would be to start a club card kind of like what
grocery stores do. This way people would shop more to get more points on their cards and
would not worry so much about the high prices. This would take away from the fact that it is
more expensive than Walmart. But still Walmart is a company that threats target, despite
the fact that they are the number one retailer in the world; they also have very low prices.
And nowadays during the crisis period the low prices are the most important
competitive advantage.

Walmart has a compelling competitive advantage, especially in its pricing strategy that
pulls shoppers from greater distances, past other chains, to its stores. Walmart is the price
leader among discounters. A low-price position is the number one consumer choice
determinant. Quality and value are the other intangibles that also trigger consumer
response. Walmart is the undisputed leader in this area. One of the keys success factors is
the strong supply chain management, by which it keeps low prices. Walmart pushed the
retail industry to establish the universal bar code, which forced manufacturers to adopt
common labeling. The bar allowed retailers to generate all kinds of information - creating a
subtle shift of power from manufacturers to retailers. Walmart became especially good at
exploiting the information behind the bar code and is considered a pioneer in developing
sophisticated technology to track its inventory and cut the fat out of its supply chain.

Great number of stores plays great role in success of Walmart.

Walmart always tries to reduce cost of each store, the company has been criticized for the
relatively meager wages and health care plans that it offers to rank-and-file employees.
Often they are expected to pinch pennies wherever they can, even on things like the
heating and cooling of the stores. Also one more Key Success Factors are that “low price”
image is backed by strong marketing strategy.

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MARKETING ANALYSIS
The customer is always number one
Every day, everywhere Walmart does business, the customer always comes first. They take pride in
serving the 200 million people in the U.S. who shop their stores each week striving to exceed their
expectations so they can save money and live better.

Serving customers – one neighborhood at a time

Walmart is committed to always enhancing the shopping experience of their diverse customers by
looking through the lens of the communities in which they serve. They use comprehensive data
to better understand the various needs of consumer base, and the Store of the Community
approach drives decisions in key areas of the business, including store layout, design and
communication.

By offering the right product, at the right place, at the right price, and at the right time, Walmart
remains relevant to its customers and meet the demands of the diverse communities it serves.

The greatest measure of Walmart’s success is how well we please the customer, ‘our boss.’
Let’s all support hands-on hospitality and have customers leave 100 percent satisfied every
day.

- Sam Walton

MARKETING
Walmart’s marketing group keeps the message simple and remembers their mission: to save
people money and help them live better.

The marketing department at Walmart connects with the American consumer on an unprecedented
scale. "Save Money. Live Better,” they communicate with more than 200 million customers who
shop their stores every week. And they operate on a world-class level while adhering to the values
and culture of respect on which their company was founded.

Walmart people have expertise in a diverse range of advertising and marketing specialties, from
brand strategy to creative services. They bring unique customer insights to life through a wide
range of seasons, categories and brands.

By offering the best possible prices on the products the customers need, they can help
them afford something a little extra. Whether it's a grandmother who can buy her

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grandchildren a special gift because she saved money on her prescriptions or a young
family saving money to buy their first home.

MARKET SEGMENT
Walmart serves customers and members more than 200
million times per week at more than 8,692 retail units
under 55 different banners in 15 countries.

Age Gender Disposable Consumption Buying

income frequency Decision
 Baby  Male  Low  Daily  Price
 Boys  Female  Moderate  Weekly  Quality
 Girls  Abundant  Quarterly  Service
 Teenager  Monthly  convenience
 College/  On-demand
university student
 Recent graduates
 25-35
 Generation X
 Generation Y

Walmart’s segment is “comprehensive”, as it appears that their customer is everyone from baby to
Generation X and Generation Y, all of them male as well as female, with low and moderate income.

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MARKET SHARE
Due to Wal-Mart's low prices, consumers gravitate to Wal-Mart stores during economic downturns.
As a result, the company's comparable store sales increased by 3.5% during the worst toughest
year. However, as the global economy emerges from recession, stands to lose a lot as consumers
opt to buy higher quality and more expensive items.

Over 54% of the company's stores are located in the United States, with the majority of
international stores located in Central and South America and China. The company focuses on
offering the lowest prices across its business segments, which together earned $408 billion in
revenue in 2010, a 1% increase from sales in 2009. Wal-Mart's largest business segment is its
namesake Wal-Mart stores, which accounted for 63.8% of the company's revenue in 2010. The
company also earns revenue through its Sam's Club and international business segments which
accounted for 11.5% and 24.7% of the company's 2010 net revenue each.

Wal-Mart's marketplace clout is hard to overstate. In household staples such as toothpaste,

shampoo, and paper towels, the company commands about 30% of the U.S. market, and analysts
predict that its share of many such goods could hit 50% before decade's end. Wal-Mart also is
Hollywood's biggest outlet, accounting for 15% to 20% of all sales of CDs, videos, and DVDs. The
mega-retailer did not add magazines to its mix until the mid-1990s, but it now makes 15% of all
single-copy sales in the U.S. In books, too, Wal-Mart has quickly become a force.

Tesco, which operates superstores similar to Wal-Mart's, is Britain's largest retailer. Scott's call for
government intervention was prompted by figures released last week showing that Tesco now
captures 31 percent of UK grocery sales, up from 28 percent last year. Meanwhile, Wal-Mart's
share of the British food market (through its Asda subsidiary) has fallen from 27 to 17 percent.
Wal-Mart has about one-third of the U.S. market for numerous household staples, such as
toothpaste, diapers, and shampoo. According to industry analysts at Retail Forward, Wal-Mart is
on track to control 35 percent of the U.S. grocery market within the next few years.

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DOMESTIC COMPETITORS
Target is Wal-Mart's most direct competitor, offering a range of general merchandise in a
similar store format (standard Targets, with limited food offerings, compare to Wal-Mart's
discount stores, and Supertargets compare directly to supercenters). Target’s major
competitive advantage over Wal-Mart lies in its customer base: the average household
income for Target customers is about $50,000 a year, whereas the average yearly income
for a Wal-Mart customer is only $35,000. Finally, because of its focus on low prices, Wal-
Mart has found it difficult to promote higher-quality items or private labels that come in at a
higher price point; meanwhile, Target has had success with its quality-at-value-prices
strategy among higher-income demographics, where price is not the only influence on
sales. This higher-income customer base gives Target more stability than Wal-Mart,
particularly as energy costs rise and the real estate market slows.

Kmart, as the third discount retailer of the "Big Three", has seen steadily declining sales
since 2000, losing considerable market share to both Wal-Mart and Target.

Other Retailers As a large-scale retailer, Wal-Mart competes with a wide variety of

other, specialized retailers, such as Safeway in groceries, Best Buy (BBY) in consumer
electronics, and department stores such as Macy’s in apparel and home decor. Wal-Mart’s
focus on price differentiation means that these companies, while competing in overall
market share, are not necessarily competing for the same type of customer; however, in
more volatile or price-sensitive markets, such as consumer electronics, discounters like
Wal-Mart are able to leverage their pricing advantage and apply increasing pressure on
other retailers.

INTERNATIONAL COMPETITORS
Wal-Mart's major international competitors are Britain's Tesco, France's Carrefour, and
Germany's Metro. Each of these companies has a competing presence in China, the UK, and
Japan, with Wal-Mart contending with at least one of them in many of its other markets.

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PRODUCTS
1 Apparel, Shoes & Accessories

2 Auto & Tires

3 Baby
4 Best Sellers Books

5 Christmas Shop
6 Craft & Party Supply
7 Electronics
8 Furniture
9 Grocery

10 Health & Beauty

11 Home Office

12 Jewelry
13 Movies

14 Outdoor Living
15 Pets
16 Pharmacy

17 Photo Center

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 18 Sports & Fitness

19 Tires
20 Toys

21 Video Games

BCG MATRIX
Stars Question Marks

Wal-mart Supermarkets Neighborhood Markets

Cash Cows Dogs

Sam’s Club
International Segment

Walmart Supercenters
Walmart Supercenters were developed in 1988 to meet the growing demand for
convenient, one-stop family shopping featuring our famous Every Day Low Prices.
There are 2,882 Supercenters nationwide, and most are open 24 hours. Supercenters
average 185,000 square feet and employ about 350
or more associates.
Supercenter groceries feature:
 Bakery goods

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  Meat and dairy products
 Fresh produce
 Dry goods and staples
 Beverages
 Deli foods
 Frozen foods
 Canned and packaged goods
 Condiments and spices
 Household supplies

Sam's Club
The first Sam’s Club opened its doors in Midwest City, Oklahoma, in 1983. Today, Sam’s
Club operates 608 locations nationwide. Typical clubs are about 132,000 square feet and
employ about 175 associates. We also have more than 100 international Sam’s Clubs in
Brazil, China, Mexico and Puerto Rico.
 Membership only, cash and carry operations

 Financial service card program (discovery Card) available at all clubs

 Annual membership has additional benefits like automotive service contracts,

roadside assistance, home improvements, auto brokering and pharmacy discounts.

Walmart Neighborhood Markets

Neighborhood Markets offer a quick and convenient shopping experience for customers who
need groceries, pharmaceuticals, and general merchandise all at our famous Every Day Low
Prices.
First opened in 1998, there are now 181 Neighborhood Markets, each employing about 95
associates. A typical store is about 42,000 square feet.
Neighborhood Markets feature a wide variety of products, including:
 Fresh produce
 Meat and Dairy products
 Frozen foods
 Dry goods and staples
 Health and beauty aids
 Stationery and paper goods
 Drive-through pharmacy
 Deli foods
 Bakery items
 Canned and packaged goods
 Condiments and spices
 Pet supplies
 Household supplies
 One-hour photo center
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 International Wal-mart focused on Global Positioning
Wal-mart expended so that customers everywhere would associate its name with low cost, best
value, greatest selection of quality merchandise and highest standards of customer service.

In 1991, Walmart became an international company when we opened a Sam's Club near Mexico
City. Just two years later, Walmart International was created.

We’ve created stores with different styles and formats to fit in with local customer needs, desires,
and customs. More than 75 percent of our international stores operate under a different banner
than Walmart. But, whether we’re Pali in Costa Rica, Todo Dia in Brazil, or Despensa Familiar in
Central America, all of our stores share a common goal: Save people money, so they can live
better.

Today, Walmart International is a fast-growing part of Walmart's overall operations, with 4,292
stores and more than 700,000 associates in 15 countries outside the continental U.S.

STRATEGY AND IMPLEMENTATION SUMMERY

COMPETITIVE EDGE
As much as we would believe that productivity improvements brought to us by
technological innovations will transform into corporate profitability, historically that has not
been the case. Wal-Mart has changed the retail landscape by installing the most (at the
time) revolutionary inventory management and distribution systems, passing the
cost savings to the consumer, and driving less efficient competitors out of business.
Also Walmart created the best supply chain in the industry. However, Wal-Mart-like
technology is available off the shelf to any retailer aspiring to coexist in today's competitive
landscape. Even companies like Dollar General, with stores the size of several Wal-Mart
bathrooms put together, wrote sizable checks and installed perpetual inventory and
automatic reordering systems.

MARKETING AND SALES STRATEGY

Wal-Mart’s marketing strategies are based upon a set of two main objectives that have
guided the firm through their growth years. The customer is featured in the first objective;
“Customers would be provided what they want, when they want it, all at a value”.
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Team spirit was emphasized in the second objective, “Treating each other as we would
hope to be treated acknowledging our total dependency on our associate – partners to
sustain our success”. The customer objective includes giving the customer what they want
at a reasonable value. Wal-Mart has launched successful marketing strategies that
considered factors like social and environmental causes. Walmart is a company famous for
its adaptive and dynamic marketing strategy. Without a wise marketing campaign, Walmart
would not have achieved spectacular growth that made the largest company in the US. We
will analyze this strategy using four P's of marketing.
The cornerstone of Walmart's strategy has been its low prices. The company continues
to undercut its competitor's sales by offering comparable merchandise at lower cost. Its
slogan is ”always low prices-always”. Walmart is truly present all over the globe. Today
even remote nations like China have their Walmart stores. In the US, Walmart stores are all
over the place, covering the nation with a dense network. Many of them are located out of
town so that consumers have to allocate some time driving there, but this inconvenience is
offset by the pleasure of one-stop shopping and low prices. At the time, the retailer is
reaching into global markets with stores in Brazil, Canada, Germany, South Korea, Mexico,
Puerto Rico, the United Kingdom and China (Knowledge Wharton.
Although Walmart prices are already an attraction, the company also takes effort to
entice consumers with promotion. Right now, for instance, on its website it advertises 97
cent shipping on selected items and offers consumers an opportunity to donate to
Salvation Army.
When Walmart enters a foreign country it makes necessary modifications such as
merchandise offerings. However, Walmart did not change three main ingredients Brand
names, every day low price strategy and high ethical standards.

COST STRATEGY
Wal-Mart has achieved almost legendary status for its low-priced goods. The company
aggressively maintains efficient distribution systems, lower labor costs, and firm-level
economies that give it leverage with suppliers. Combined with managerial innovations and
the big-box format, which leads to in-store scale economies, these advantages help Wal-
Mart cut costs and passes savings on to consumers. Labor productivity was 44% higher in
Wal-Mart stores than in other general merchandise retail stores in 1987. In 1999, Wal-Mart
still maintained labor productivity 41% greater than competitors. The company's price
advantage extends to groceries, particularly in the large footprint format. Summarized the
evidence on scale economies in grocery sales, arguing that larger stores enjoy cost
economies, have more room for high-margin items and may be more attractive to some
consumers. A study by found that the price of a market basket of grocery items at Wal-
Mart supercenters was between 17 and 29% lower than prices at major supermarket
chains in the same urban area. Moreover, grocery chains competing in the same market
will normally be forced to lower their prices in response.

With Wal-Mart’s single purpose to bring the lowest prices to customers, Wal-Mart has turn
to China. China's south was always famous for business savvy; that talent was enhanced

20
almost from the day in 1980 when five "special economic zones" were formed, most
famously Guangdong, which boasted the first "joint venture" firms.

China's relentless improvement of infrastructure, and endless cheap labor, explains why
Wal-Mart has relied its goods on the country. It's a complex market and certainly the
opportunities are overwhelming.

One of the strengths of the strategy of Wal-Mart in resorting to China in its goods is
because with China, manufacturing of the goods are of low prices because of labor
expenses are low in which in return would cause low prices of products. Reducing labor
expense is the main cause of savings and in trimming the prices of the products. According
to, more than 10 percent of what China ships to the U.S. end up on Wal-Mart's shelves.
With Wal-Mart’ strategy of outsourcing in China, the company has saved money. Low cost-
country outsourcing is a strategy that enables innovation. However, China lifted its
restrictions on where Wal-Mart and other foreign businesses to open stores. Wal-Mart's
stores are "in their infancy in China

Walmart always shared these savings with customers by charging them lower prices, thus
giving them the maximum value for their money. Walton's pricing strategy led to increased
loyalty from price-conscious rural customers. It helped the company to generate more
profits due to larger volumes.

CAPITAL STRUCTURE STRATEGY

2010 2009 2008
Total Liabilities 99,650,000 97,747,000 98,906,000
Long term debt 49,008,000 50,026,000 51,721,000
Long term debt + SE 119,757,000 115,311,000 116,329,000
Capital structure (debt %) 40.92% 43.38% 44.46%

In company’s capital structure, there is a balance in company’s financing with debt, as it

appears to be stable. But the company’s strategy is to reduce debt portion in capital
structure. In 2009, long term debt to total capitalization ratio decreased from 43.38% to
40.92%.

21
FINANCIAL ANALYSIS
GENERAL OVERVIEW
Operating Expenses and Net sales
In 2010, operating expenses increased by 2.7% from 2009, while net sales increased by
1%. Operating expense grew at faster rate because of higher health benefit costs,
restructuring charges and higher advertising expenses. In 2009 operating expenses
increased 9.3% compared to 2008 and sales increased by 7.3% only. Higher increase in
operating expenses was caused by higher utility costs, legal matters, higher health benefit
cost and increased corporate expenses.

Net sales in 2010 increased due to increased customer traffic, continued global expansion
activities, offset by a $9.8 billion unfavorable currency exchange rate impact in international
segment and price deflation in certain merchandise categories in Walmart U.S. segment .
Net sales in 2009 increased due to global store expansion activities, offset by a $2.3 billion
unfavorable exchange rate impact.

Year Operating expenses change

2010 2.7%
2009 9.3%

Fiscal Years Ended January 31, 2010 2009 2008 2007 2006
Net sales 40504 40108 37382 34475 30894
6 7 1 9 5
Net sales increase (%) 1 7.3 8.4 11.6 9.8
Comparable store sales in the United -0.8 3.5 1.6 2 3.4
States (%)

22
Operating income
In 2010 operating income increased by 5.1% from 2009, while net sales increased by 1%.
In 2009 operating income increased by 3.9%, while net sales increased by 7.3%

Year Operating Income Change

2010 $23,950 5.1%
2009 22,798 3.9%

Higher change in operating income in 2010 relative to lower change in sales was due to
improved operating results and inventory management. The reason of increase the sales
may be several. 2010 year is post crisis period and people still try to save money. In fiscal
2010, Walmart added more than 500 units, all from organic growth. Walmart Canada
continues to increase sales through its supercentre expansion program.

Free cash flow

Walmart generated positive free cash flow of $14.1 billion, $11.6 billion and $5.7 billion for
the year ended January 31 in 2010, 2009, and 2008, respectively. The increase in free
cash flow is a result of improved operating results and inventory management.

Year 2010 2009 2008

Net Cash provided $26,249 $23,147 $20,642
by operating
activities
Payments for $(12,184) $(11,499) $(14,937)
property and
equipment
Free cash flow $14,065 $11,648 $5,705

ACCOUNTING ASSUMPTIONS AND METHODS

Walmart uses GAAP standards for preparing financial statements. Its fiscal year ends at
Jan. 31. The Consolidated Financial Statements include the accounts of Wal-Mart Stores,
Inc. and its subsidiaries. Intercompany transactions have been eliminated in consolidation.
Investments in which the company has a 20% to 50% voting interest and where the
company exercises significant influence over the investee are accounted for using the
equity method. These investments are immaterial to our company.
23
INVENTORIES

The company values inventories at the lower of cost or market as determined primarily by
the retail method of accounting, using the last-in, first-out (“LIFO ”) method for substantially
all of the Walmart U.S. segment’s merchandise inventories. Sam’s Club merchandise and
merchandise in our distribution warehouses are valued based on the weighted-average
cost using the LIFO method. Inventories of International operations are primarily valued by
the retail method of accounting,using the first-in, first-out (“FIFO ”) method. At January 31,
2010 and 2009, our inventories valued at LIFO approximate those inventories as if they
were valued at FIFO.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization for financial statement purposes are provided on the
straight-line method over the estimated useful lives of the various assets.

EVOLUTION AND REASONS OF CHANGES (STRENGTHS

AND WEAKNESSES OF WLM’S FINANCIAL STATEMENTS)
GENERAL STRENGTH
Walmart is notorious for pressuring suppliers to cut their margins lower. Walmart has a
compelling competitive advantage, especially in its pricing strategy that pulls shoppers from
greater distances, past other chains, to its stores. Walmart is the price leader among
discounters. A low-price position is the number one consumer choice determinant.
Quality and value are the other intangibles that also trigger consumer response. Walmart is
the undisputed leader in this area. One of the key success factors is the strong supply
chain management, by which it keeps low prices.
Labor productivity was 44% higher in Wal-Mart stores than in other general merchandise
retail stores in 1987. In 1999, Wal-Mart still maintained labor productivity 41% greater than
competitors. The company's price advantage extends to groceries, particularly in the large
footprint format. Summarized the evidence on scale economies in grocery sales, arguing
that larger stores enjoy cost economies, have more room for high-margin items and may
be more attractive to some consumers. A study by found that the price of a market basket
24
of grocery items at Wal-Mart supercenters was between 17 and 29% lower than prices at
major supermarket chains in the same urban area. Moreover, grocery chains competing in
the same market will normally be forced to lower their prices in response.

The return on equity numbers show average ROE of 20% over the 10 year period. Wal
Mart is successfully using debt. Total debt is 41% of capital. Management has used this
debt effectively to increase their returns.

Equity growth rate has been steady. The 9 year average is 15.10%, the 5 year average is
13.37%, the 3 year average is 13.34% and last year’s growth rate was 16.76%. All in all,
pretty consistent equity growth. Earnings per share growth rate have been on the decline
over the 10 year period. The 9 year average is 15.10%, the 5 year average is 14.23%, the
3 year average is 12.40%, and last year’s EPS growth rate was 9.02%. As you can see, a
slow and steady decline.

WalMart has had a stellar dividend growth rate over these 10 years. The 9 year average is
19.91%, the 5 year average is 21.48%, the 3 year average is an even better 22.22%. But
the ride ends there, and the last 2 years have had growth rates of 7.95% and 14.74%
respectively. Still respectable. But this makes sense when you look at the fundamentals.

Years average Equity growth rate EPS rate Dividend growth rate
9 15.10% 15.10% 19.91%
5 13.37% 14.23% 21.48%
3 13.34% 12.40% 22.22%
Last Year 16.76% 9.02% 14.74%

The interesting part is Wal Mart’s low dividend payout ratio. The ratio is currently 29.00%.
That is quite normal for a steady dividend payer. That means that Wal Mart has lots of
room to increase their dividends in the future. As the growth slows down, that payout ratio
will start to increase and keep our dividends growing at a healthy pace.

 Walmart has stable sales growth during the past years, its total revenue growth rate
is always more than industry average. But in 2010 the sales has been grown only by
1%. This may be caused that 2010 is post crisis period and people still save money,
and another reason may be that Walmart’s revenues reach such a huge number that
it is impossible to increase with great percents. Gross profit margin during last 5
years is always around 24%, a positive sign of new 500 stores opening featuring
great sales and discounted items to attract customers, and the company managed
to improve its operating margin from 5.68% to 5.91%. Net income of the company
increased during the last two years respectively 4.9% and 6.97%. In 2010 net
income increased faster than net sales, the reason is that sales growth rate reduced
to 1%. Walmart pays dividend every year and average dividend payout ratio is 28%.
In 2009 the dividend growth rate was 7,95% but this year Walmart increased

25
 dividend by 14.74%. The reason may be that Walmart’s wants to maintain good
reputation in spite of his sales growth rate reduced.

 Operating cash flow of Walmart is increasing for the last three years, it means that
company performs well its basic activities; investing cash flows are negative,
because Walmart has expansion strategy and still opens new stores in different
countries.

 Walmart asset turnover (2.37) is bigger than average industry (2.3). It means that
Walmart effectively uses assets to generate sales, thus more profitable is the
company. In 2010 the asset turnover ratio decreased from 2.45 to 2.37, the reason
is that Walmart’s assets increased faster than its sales. Assets from 2009 increased
by 4.45%, while sales growth rate was 1%. Increasing in assets may generate
positive results in the future.

 Company’s dividend payout ratio is 25% on average, that means that Walmart tries
to keep this ratio law because in case of decreasing growth rate of the company,
they could give higher dividends to keep investors satisfied and give them constant
EPS.

 In 2010 ROA (8.4%) of Walmart is greater than industry average (8.2).

ROA indicates how profitable the company is relative to total assets. Walmart is
growing company and huge portion of free cash flow generated from operating
activities is spent to finance acquisition of property. It means that company’s fixed
asset’s account significantly increases every year but due to Walmart’s
management’s strategy they successfully use their assets to generate income. So
percentage increase is sales is much higher than asset’s percentage increase that’s
why company’s ROA tends to increase.

 Walmart’s inventory is 19% of total assets, in 2010 and 21% in 2009. Such inventory
proportion is very low, because retailers average portion of inventory is 40%-45%.
Walmart is often criticized for having too many stores. Every time when it faces
increasing demand instead of adding inventory in the existing store they open new
one, that’s why Walmart have such a low inventory to total asset ratio.
 In 2010 account receivable of Walmart increased by 6.1% while the net sales
increased by 1%. It generally means Walmart isn't doing an ideal job collecting the
money it is owed. This could potentially be a sign of trouble because the company
may be offering looser credit terms to increase its sales, but it may have difficulty
ultimately collecting the cash it's owed. The Account of property plant and equipment
increases every year. Walmart tries to penetrate into new markets and opens new
stores. In 2010 Walmart opened 500 new stores in different countries. The biggest

26
 portion of current assets is inventory; it is not surprising because Walmart is a
merchandiser and not a manufacturer.

RATIO ANALYSIS
To analyze Walmart’s ratios we’ll divide them into following sections: liquidity, profitability,
debt , operating performance and cash flow indicators.

Note: calculations of the ratios are shown in the attached excel file

 Liquidity Ratio
 Current ratio
 Quick ratio

Year 2008 2009 2010

Current Ratio 0.8 0.88 0.87
Quick Ratio 0.21 0.26 0.27
Wal-Mart has low liquidity ratios as evident by the attached excel sheet. Walmart may have
short-term solvency risk, it can’t cover current liabilities. The reason is that current assets
are only 19% of total Assets.Walmart has working capital deficit due to an efficient use of
cash in funding operations and in providing returns to shareholders.
The low quick ratio is due to the fact that as a retail store, Wal-Mart has to maintain high
inventory levels which mean that most of its funds is tied in inventory. This, however is not
a bad sign since Wal-Mart enjoys a normal inventory turnover ratio which means that the
company is effectively managing its inventory.

27
 Quick Ratio Current Ratio
0.30 0.9
0.88
0.25
0.86
0.20
0.84
0.15 0.82
0.10 0.8
0.05 0.78
0.00 0.76
2008 2009 2010 2008 2009 2010

 Profitability Ratio
 ROA
 ROE
 P/E
 EPS
 dividend payout ratio

Year 2008 2009 2010

Return on Assets 7.90% 8.20% 8.40%
ROE 20.33 20.72% 20.26%
%
PE ratio 16,21 13,86 14,66
EPS 3,13 3,4 3,71
dividend payout ratio 27.30 26.95% 29.00%
%
Wal-Mart’s Net Profit Margin as well as the Return on Equity ratios are within the industry
average; and since both ratios measure the company’s profitability, then the company is profitable
which is evidenced by the high P/E ratios for both years. Since the P/E ratio measures investors’
expectations about the firm, then Wal-Mart is a good investment.
Company’s dividend payout ratio is lower than company can afford. Walmart tries to keep
this ratio law because in case of decreasing growth rate of the company, they could give
higher dividends to keep investors satisfied and give them constant EPS.

28
 ROE Return on Assets
20.80% 8.60%
20.60% 8.40%
8.20%
20.40%
8.00%
20.20% 7.80%
20.00% 7.60%
2008 2009 2010 2008 2009 2010

dividend payout ratio

30.00%
28.00%
26.00%
24.00%
2008 2009 2010

 Debt Ratios
 Debt Equity Ratio
 Debt ratio

Year 2008 2009 2010

Debt/Common Equity 0.63 0.65 0.87
Ratio
Debt/Common Equity 0.63 0.65 0.87
Ratio
The company’s Long-term Debt to Equity is lower than the industry average which shows
that the company relies more on equity financing rather than debt financing, compared to
competitors. This is a good indication because the company’s borrowing needs are mostly
short term to manage working capital, this means that the company does not need to rely
on long-term debt to finance its operations. Maintaining this ratio at such level is a
389831273.docx conservative policy so that the company’s solvency (ability to meet long-
term obligations) does not get affected.

29
 Debt/Common Equity Ratio
1.00
0.80
0.60
0.40
0.20
0.00
2008 2009 2010

 Operating Performance Ratio

 Asset turnover
 Inventory turnover
 Receivables turnover
 Average collection period

Year 2008 2009 2010

Inventory Turnover 8.25 8.90 9.00
Asset Turnover 2.37 2.45 2.30
Average collection 3.13 3.39 3.58
period
Receivables Turnover 115.13 106.12 100.65

30
 Average collection period Fixed asset turnover
5.00
3.80
3.60 4.50
3.40
3.20 4.00
3.00 3.50
2.80
2008 2009 2010
2008 2009 2010

The Gross Profit Margin is 24.2%, and 24.8% for 2009, and 2010, respectively, while the
Net Profit Margin is 3.4%, and 3.34%, for 2010, and 2009, respectively. This means that
the Operating Expenses for Wal-Mart are very high, but this is normal for the retail
industry. Stores such as Wal-Mart depend on huge sales volume and lower net profit
margins.

ANALYSIS OF RISK

Interest rate and FX risk

Wal-Mart depends heavily on China for manufacturing its merchandise as it purchases
billions of dollars worth of merchandise every year. However, as a result of its dependency
on Chinese manufacturing, Wal-Mart is vulnerable to fluctuations in the value of the dollar
compared to the Chinese Yuan. So Wal-mart faces high FX risk.
To minimize FX risk The company hedges its interest rate and exchange-rate exposure
using
swaps of various kinds. Given that the company buys items from one country in one
currency and sells them later in another country for a different currency, hedging against
exchange-rate changes is very important to avoid losses on such transactions.

31
Wal-Mart uses derivative financial instruments for hedging and non-trading purposes to
manage its exposure to interest and foreign exchange rates. Use of derivative financial
instruments in hedging
programs subjects the Company to certain risks, such as market and credit risks. Market
risk represents the possibility that the value of the derivative instrument will change. In a
hedging relationship, the change in the value of the derivative is offset to a great extent by
the change in the value of the underlying hedged item. Credit risk related to derivatives
represents the possibility that the counterparty will not fulfill the terms of the contract.

Solvency risk

Solvency ratios also known as long-term debt ratios measure a company's ability to meet
long-term obligations.
To analyze Wal-Mart’s solvency risk we’ll discuss three solvency ratios: debt to equity ratio,
debt to capital ratio, interest coverage ratio.
Debt-to-equity ratio Wal-Mart Stores Inc.'s debt-to-equity ratio improved from 2008 to 2009
and from 2009 to 2010.
Debt-to-capital ratio Wal-Mart Stores Inc.'s debt-to-capital ratio improved from 2008 to 2009
and from 2009 to 2010.
Interest coverage ratio Wal-Mart Stores Inc.'s interest coverage ratio deteriorated from
2008 to 2009 but then improved from 2009 to 2010 exceeding 2008 level.

The company’s Long-term Debt to Equity is much lower than the industry average which
shows that the company relies more on equity financing rather than debt financing. This is
a good indication because the company’s borrowing needs are mostly short term to
manage working capital, this means that the company does not need to rely on long-term
debt to finance its operations. Maintaining this ratio at such a lower level is a
389831273.docx conservative policy so that the company’s solvency (ability to meet long-
term obligations) does not get affected.

32
COMPETITOR ANALYSIS
Target Corporation (Target) is a large format general merchandise and food discount stores
operator in the US. The company operates through two store formats including Target and
SuperTarget stores. The company offers everyday essentials and fashionable
merchandise. The company offers general merchandise at a discount through 1,591 stores
in US states. The company's SuperTarget stores' product portfolio consists of bakery, deli,
meat and produce sections along with general merchandise.

Target as American company uses GAAP standards for preparing financial statement, it
uses straight line depreciation. Target uses lower cost of market as determined by the retail
method of accounting. Inventories of international operations are primerly valued by the
retail method of accounting using first in first out method.

Target has positive working capital compared to Walmart. The reason of this change is that
Walmart’s current assets are 28% of total assets, when Target’s total assets’ 40% is current
assets. Interest coverage ratio of walmart (12.74) is twice better then Targets (6.4). As we
know Target uses more debt for financing than Walmart, so it has greater interest expense.

SWOT ANALYSIS OF WAL-MART

STRENGTHS
 Largest employer in the United States
 Second largest net sales in the world
 Strong image
 Customer oriented company
 2,100,000 employees
 Aggressive growth strategy.
 7437Stores all over the world
 Remarkable logistics system
 Own distribution center for their online
orders.
 Sensitive to environmental issues
OPPORTUNITIES
 Expand stores and merchandise to attract
more customers.
 Increase musical products(instruments,
and these can be high profit items)
33
WEAKNESSES
 No formal mission statement
 Old fashioned store policies
 Few women and minorities in top
management
 poverty-level wages and horrible
health care benefits
 Decreased employee morale
 Small market share in Europe
 Bad location of their stores.
 Poor presentation and marketing
of products on the floor.
 Problems with their flexibility.
THREATS
 Small towns do not want entry of
Wal-Mart
 Accused to be “bad for the
country”
  Diversify their store types
 Improve health care and other benefits to
employees.
 opportunity for growth in developing
countries and Asian markets
 Internet shopping growing
 Elderly population growing
 International expansion difficult
to attain
 Weak brand-name recognition
 The economy has a slight effect
on Wal-Mart’s customers
 Regulation of Wal-Mart
pharmacies
 Increased competition
 These stores are able to open in
smaller areas where there are not enough
customers to support Wal-Mart.
 lack direct sales force

STRENGTHS
Wal-Mart has an abundance of strengths which is obvious due to its incredible success.
Wal-Mart is the largest employer in the United States and the company is one of the few
places left for people to get a decent job without a college education. Wal-Mart also has
the second largest net sales in the world. This incredible number of sales is due to Wal-
Mart’s aggressive growth strategy.
One of Wal-Mart’s competitive advantages is their remarkable logistics system. They are
able to ship merchandise from any of their numerous distribution centers in order to provide
the cheapest and most efficient route. They even have their own distribution center for
their online orders. The invention of sharing sales data with suppliers through computer
programs has allowed Wal-Mart to consistently keep their shelves stocked with popular
items. Technology in general is an unbelievable strength that Wal-Mart is able to invest in
to improve their company. Having a website has allowed for increased sales all over the
world.
Even though Wal-Mart has been criticized for their low wages, they are actually doing a lot
of good for lower income people. Since Wal-Mart has become the nation’s largest food
retailer, people from all income levels are shopping there for their necessity items. They
have even been working on a more upscale appearance of their stores to attract these
customers. The service that Wal-Mart offers to its customers is a great advantage as well.
They have a strong image that it is a friendly and helpful place to shop where people
are always willing to make your experience a good one. The added incentives are the
constant price rollback, as well as the store-within-a-store. A great deal of Wal-Mart’s
success can be attributed to the fact that the company was based on identifying,
knowing, and understanding what exactly customers want from a retailer.
A few final strengths are linked to the public criticisms that Wal-Mart has been facing. They
are paying particular close attention to environmental issues and have “vowed to
increase use of renewable energy, reduce waste and carry environmentally sensitive
products… Wal-Mart has also recently been pushing for a higher minimum wage.

WEAKNESSES
34
Wal-Mart has weaknesses that affect not only their image, but the lives of other people.
Because of Wal-Mart’s low prices and well-known name, they have been able to capture
the sales of an unbelievable number of consumers, and have therefore made it extremely
difficult for small retailers to survive. Most small shops have been forced to close due to
lack of sales. Some people refuse to shop at Wal-Mart because of these issues. This
poor image that Wal-Mart has in some people’s eyes has taken a fall on its stock price as
well.
Many environmentalists are concerned with the large scale buildings that are not
sensitive to the environment. These buildings also cause a problem of traffic pollution and
congestion which can damage small communities. Many employees of Wal-Mart receive
only poverty-level wages and horrible health care benefits. Wal-Mart has been accused of
discriminating poverty-level wages and horrible health care benefits against female
employees and violating child labor laws. Because of these criticisms, employee
morale has been decreased as well.
Wal-Mart sometimes has a disadvantage in the location of their stores. Although Wal-Mart
has grown and expanded a great deal into the international market, they still do not have a
large part of the European market. They are only present in the UK and their
competitors are gaining in the other their stores too close together. Instead of increasing
the volume of products per store, they open another one. A lack of products, as well as a
decrease in the quality of them, may be attributed to loss of sales. They have also been
said to have poor presentation and marketing of products on the floor.
Price deflation is a serious dilemma that Wal-Mart and many discount stores are facing as
well. They often buy too much of one product and then have to put it on sale or clearance
in order to turnover the merchandise. Wal-Mart has a tendency to overstock and
therefore reduce gross margins when they sell products for reduced prices.
Wal-Mart has a weakness in that they promise unrealistic earnings, and then do not meet
their expectations. This causes their stock to constantly waiver.
Wal-Mart can have problems with their flexibility. “Since Wal-Mart sells products across
many sectors, such as clothing, food, or stationary, it may not have the flexibility of some of
its more focused competitors. Wal-Mart may have too much merchandise and not be able
to focus in on sectors that need to be improved. They also might not have the available
information, resources and know-how to make any changes.

OPPORTUNITIES
Since Wal-Mart is the largest retailer in the United States, it has a very good opportunity to
become the largest retailer in the world. They do not always carry a diverse selection of
products, so they could expand stores and merchandise to attract more customers. An
area that could be increased is their musical products.
Along the same lines, Wal-Mart could diversify their store types. They have been
successful with implementing Neighborhood Markets, and have even tried a mall store
recently. By focusing on a specific target market in a specific area, Wal-Mart could be the
number one retailer for everyone. They already have the available resources to try new

35
store types in new segments. It is also a logical step to increase and expand their current
SuperCenters, which are expected to increase sales dramatically in the future.
Another great opportunity is to improve on the areas which they have been criticized. Wal-
Mart has already announced a new health care plan which would increase benefits to
employees, they have said that they will pay especially close attention to their overseas
suppliers and their labor practices. Wal-Mart has the opportunity to work on improving the
environment. They have such a large image that any programs they support have the
ability to produce tremendous results. By working on solutions to these concerns they
can help improve their image and increase their market share.
Wal-Mart is such a major player in the retail industry that its decisions can have an effect
on the global economy, the environment and society. They have the ability to slightly
decrease the price of inflation because of their low prices. Also, due to their low
prices, there is an increase in wages in developing countries.
Continued international expansion is a huge strategic opportunity for Wal-Mart. There is
actually more opportunity for growth in developing countries and Asian markets than there
is in the United States. Other growth opportunities include the Internet and improved supply
chain management.

THREATS
In order to keep prices low, Wal-Mart has had to cut costs in other areas. This includes
squeezing suppliers to offering their products at much lower prices. This has driven
competitors to do the same, which is causing profits to plunge downward drastically. A
threat to Wal-Mart’s image is the fact that for the few years after they open up a new store,
the wages of that county fall by three to five percent. The deep discount that is offered at
Dollar stores competes greatly with Wal-Mart.
The economy has a slight effect on Wal-Mart’s customers. They have an advantage
because they do offer cheap products that appeal to people in the time of a recession.
Wal-Mart must work very hard to compete in times of uncertainty. Another threat that Wal-
Mart faces is brand-name recognition. Although they carry and have increased their
assortment of name brand products, most consumers searching for name brand products
will not look at Wal-Mart to find them
It will be difficult for them to gain a good part of the market share of hard-line products
such as home improvements. These areas have greater competition and Wal-Mart does
not have a clear cost advantage. The international market is predicted to have excellent
long-term growth success, but these earnings may not be seen in the near future. Also,
Wal-Mart has huge expansion plans that are very public. If these stores do not open on
time, or are subject to delays and build issues, then analysts’ predictions will not be met
and share price may suffer. On the contrary, if Wal-Mart successfully meets all of its
deadlines, investors may still be hesitant to invest in their company. Also, two of Wal-
Mart’s main product lines, apparel and food, are very slow growth sectors, and Wal-Mart’s

36
dominating position in the industry may make investors believe there is little room for the
company to grow.
The shopping experience some customers have at their store is also a threat to Wal-Mart.
Customers are often complaining about the long checkout lines and the insufficient quality
of the products that are offered. Once this idea is spread throughout a community, it is
difficult to change the public’s opinion.

RECOMMENDATION
WAL-MART STRATEGIC RECOMMENDATION
Wal-Mart should further strengthen it position of cost leader by increasing their steak in the
warehouse club business through placing its warehouses in rural areas, and using
developed technological software for achieve cost leadership.

Warehouse clubs have already been praised as next most profitable retail format since
discounting because warehouse clubs have prices 20% below conventional supermarkets.
They carry only top selling items and sell them in less than a month, before the payment is
due. Warehouses have less overhead costs, and less labor since they do not require many
associates, which should lower Wal-Mart’s sales and administrative expenses.

Wal-Mart should attempt to grow its Sam’s Club base as quickly as possible. The company
will face many competitors, such as Price Club and Costco, who will pose a potential threat
to its future. The best way to deter that threat is to obtain the first-mover advantage by build
as many locations as possible in the shortest period of time. Since the warehouse club is

37
an emergent industry, Wal-Mart should obtain a strategic valuable asset, such as location if
it follows this cost-advantage strategy.

At first, Wal-Mart should avoid large metropolitan locations. It should concentrate on

locating clubs in markets whose population is between 100,000 and 200,000 people
(example Cedar Rapids, IA, approx 176,000, Sioux City, SD, approx 190,000, Topeka, KS,
approx 165,000). This is much less than the markets sought by Price Club and other
competitors, which look for populations of 250,000 to 350,000 people. Locating the clubs in
the areas with small population or rural areas has its cost advantages. The real estate
costs in these smaller markets is less than in metropolitan markets. This factor will enable
Sam’s Club to expand more quickly. This is the same strategy that brought Wal-Mart into
the leadership role in the discount supermarket business.

To complete the successful expansion Sam’s Club should obtain Wal-Mart’s technological
leadership in the
areas of logistics and inventory management. Instead of buying merchandise
independently from Wal-Mart, Sam’s Club should integrate its purchasing with Wal-Mart
and use Wal-Mart’s hub-and-spoke logistic systems for its advantages.

In conclusion, Wal-Mart would further gain cost leadership advantage placing its Sam’s
Club warehouses in rural areas, which are not yet discovered as a mean of cost leadership
by their competitors. Therefore
Wal-Mart will have first-mover advantage in those locations the value of which has not
been realized yet.

Operating Recommendation
Wal-Mart has been extremely successful in the past, and has a very promising future
ahead of them. Unfortunately, there is always a negative side to success. For Wal-Mart,
they are faced with opposition from people who are concerned with the “little guy.” The fact
that Wal-Mart has the ability and resources to be such a major competitor in the retail
industry scares some people. Small stores in small communities, as well as employees,
target Wal-Mart because they know it is a large company with the resources to defend
itself.
In order to improve its image in the eyes of these people, Wal-Mart may want to
address these issues head on. Wal-Mart has already taken giant strides to be seen as a
more environmentally friendly organization, as we`ll as to increase the benefits of its
employees. They should continue this approach, possibly even more publicly than other
retailers in the industry. Wal-Mart could even start a campaign to help the “little guy.”
Since they have such a global impact, any issue they raise will undeniably get a great deal
of attention. In a campaign of this sort, Wal-Mart could focus on promoting the other small
specialty stores in their community. They could help advertise for local shops that do not
sell competing products, but complimentary ones. Instead of taking sales away from
themselves, Wal-Mart could change their image to one of a company that cares about the
community.

HR recommendation

38
Wal-Mart must improve its HR practices in the areas outlined above. By making more of an
effort to take better care of its employees, the company could stand to save millions in legal
fees, and costs associated with recruitment and training. Admittedly, the barrage of bad
press about Wal-Mart’s practices (Rathke, 2005) have not driven consumers away, it
seems no one has found a way to beat “low prices”. This is not a substantial reason to
continue current behavior. This paper applauds the initiatives Wal-Mart has introduced to
revolutionize its image and reputation and encourages even more radical programs and
changes.

Financial recommendation

Wal-Mart represents a good investment because although the company’s return on equity
is within the industry average, Wal-Mart seems to be a less risky investment, this is
supported by a lower Beta coefficient of 0.05 i, and the high Price Earnings ratios as well as
the company’s expected growth rate (10.10%) are an indication of the company’s strength.
Investors have faith in the company’s management and operations which is reflected in the
Price Earnings ratio. Expected growth rate is easily achievable by a company such as Wal-
Mart and this is evidenced by the percentage change in Earnings per share from 2008to
2009 (8%) and 2009 to 2010 ( 9%) .
After analyzing financial statement of Walmart, we can recommend to increase intventory
account, this would make Walmart’s financial statement look better because at this moment
Work in capital is negative, what means that company cant meet it’s current liabilities.

39
i

Bibliography

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