Wal-Mart Stores Inc: Dominating Global Retailing

Comprehensive Case Analysis

Arfandy #020204

Munin #200400183

Momrey #200400313

Table of Contents

1. Wal-Mart Short Case Analysis

I. Wal-Mart Mission Statement

II. Strategic Issue

III. Subordinates Issues

IV. Recommendation Strategy

2. SWOT Analysis

I. Strengths

II. Weaknesses

III. Opportunities

IV. Threats

3. External Environmental Analysis

I. General Environmental Analysis

i. Economic

ii. Demographic

iii. Socio-Culture

iv. Global

v. Technological

vi. Political/Legal

II. Industry Environmental Analysis

4. Competitor Environmental Analysis

I. Direct, Indirect, & Potential Competitors

II. Reaction Competitors to Strategy

5. Financial Analysis

6. Plagiarism Statement

7. References

(1). Short Case Analysis

Wal-Mart Mission Statement

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

Strategic Issue

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

Subordinate Issues

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

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

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

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

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

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

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

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

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

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

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

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

Recommendation Strategy

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

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

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

4. Employee empowerment.

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

6. Promote flow of information with suppliers and customers.

7. Develop collaborative relationships with suppliers.

8. Build inventory buffers by maintaining stockpile of inexpensive but key components. (In-house production)

9. Monitor economies all over the world to spot new supply bases and market.

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

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

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

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

14. Turns suppliers rivalry into opportunity

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

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

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

(2). SWOT Analysis

Strengths

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

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

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

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

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

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

7. Leads industry in information technology to achieve efficiency, e.g Wal-Mart uses cutting edge technology such as shop-keeping units (SKUs); electronic data interchange (EDI), point of sale scanning (POS), and pushing towards implementing radio frequency identification (RFID) which could revolution

the retail industry. By using such technologies Wal-Mart can electronically notify suppliers immediately when inventory is getting low. (R&D & Management Information System)

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

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

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

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

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

Weaknesses

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

2. No formal mission statement (Organizational Development)

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

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

5. Anti-union. (Human Resources)

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

7. Weak reputation due to various unethical problems such as unfair benefit retirement, health care, insurance policy, underage labor, illegal immigrants, discrimination, glass ceiling, etc. (Business Ethics)

8. Keep poor performing employees on hand while greedily recruit employees more than its capacity. (Human Resource)

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

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

Opportunities

1. Globalization and open market share

2. Falling trade barriers in foreign countries ease market penetration

3. International expansion to various countries, new geographic areas

4. Serving new market segments

5. Exploiting new technologies to increase efficiency in supply chain

6. Joint venture with local distributors and suppliers

7. Similar shopping pattern worldwide

8. Consumer wants ease of shopping

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

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

Threats

1. Increased competition against several companies and industries

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

3. Slow market growth

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

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

6. Growing bargaining power of suppliers

7. Growing bargaining power of customers

8. Entry of new competitors

9. New regulatory requirement

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

(3). External Environmental Analysis

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

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

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

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

3. I. General Environment Analysis

a) Economic:

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

In three decades, it had grown from its rural Arkansas roots to become the world's largest company, and quite possibly the most powerful retailer in the world. However, as Wal-Mart keeps entering new market segments, new competitors are inevitable. Substitute products are no longer having its way to

increase sales profit in their income statement as a result of loss sales to competitors specialized in such products.

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

b) Demographic:

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

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

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

c) Socio-cultural:

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

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

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

c) Global:

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

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

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

d) Technological:

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

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

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

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

e) Political/Legal:

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

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

3. II. Industry Environment Analysis

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

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

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

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

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

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

3. III. (4). Competitors Environment Analysis

Competitor’s environmental analysis will look up Wal-Mart competitors according to Wal-Mart’s product lines and market expansion.

(A).

Direct competitors

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

Home Depot and Lowes are fighting for home-renovation materials. Best Buy and Circuit City are fighting for market share in consumer electronics. These competitors differentiate themselves by offering specialized products. Thus customers could easily get the products they want right at the shop instead of searching at Wal-Mart stores that provide almost anything.

In general merchandise retailing, Wal-Mart’s primary competitors are Target, Major, and Kmart. Retail superstores such as Makro, Carrefour, Kroger, Metro, Albertson’s, Safeway and Tesco, also provide retail competition.

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

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

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

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

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

Indirect Competitors

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

Potential Competitors

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

(B).

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

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

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

(5). Financial Analysis

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

|Liquidity: | | | | | |

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

| Quick |0.16 |0.18 |0.17 | | |

|Leverage: | | | | | |

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

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

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

|Activity: | | | | | |

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

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

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

|Ave. collection period | | | | | |

|Profitability: | | | | | |

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

| ROI | |7.99 |8049 |5.78 | |

| ROE | |19.00 |20.44 |17.52 | |

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

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

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

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

At profitability part measurement, return on sale is not changing much to compare with year 2002 and 2001. Taking into account the operating efficiency, the conclusion can be drawn that the company has effective management system and is operating very efficiency in term of costs, enabling the company to increase profit from per dollar sale’s made. Return on asset or return on investment goes up to compare from year 2002. Moreover, return on equity will be higher from 19% to 20.44% year2002 to

2003, if it did not borrow the funds as a source of financing its project. The investors on the other hand, will enjoy the benefit from the investment they made to the company as their stock value will rise up. However, if the lost occur, investor will have to suffer great loss since the loan principle and interest accrued must always need to be paid out. It is very important then that the company should mix the capital structure so that it will help reduce the potential loss on investor investment by using its own money as a part of obtained debt to finance its operating and investing activities.

Plagiarism Statement

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

(………………………) (………………………) (………………………)

References

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

http://walmartstores.com/

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

http://walmartstores.com/FactsNews/

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