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Wal-Mart Strategic Audit 1

Wal-Mart Strategic Audit

Jessica Kauten, Siveicea Love-Guarganious,

William Montague, Scott Randall,

Marchelle Robinson, and Judith Rosado

Strategic Management 479

Columbia College

Alexander Furla

May 8, 2011


Wal-Mart Executive Summary

Wal-Mart was founded in 1962 by a man named Samuel Moore Walton. He was

considered “one of the most influential retailers of the century” (Wheelen & Hunger, 740). Sam

Walton started his retail career in management in 1940 with J.C. Penney Co. His training and

hard work at J.C. Penney Co. led him to his great Wal-Mart idea. He decided that small town

populations would welcome, and make profitable, large discount shopping stores. When Sam

Walton created Wal-Mart in 1962, he declared that three policy goals would define his business:

“respect for the individual, service to customers, and striving for excellence”

(Walmartstores.com).

Wal-Mart stores “sold nationally advertised, well-known-brand merchandise at low

prices in austere surroundings” (Wheelen & Hunger, 738). The 1970’s marked significant

growth for Wal-Mart with its first Wal-Mart Distribution Center as well as the Wal-Mart Home

Office. By the end of 1979, there were 276 Wal-Mart stores in 11 states and in 1991, the firm

had 1,573 stores in 35 states to include the international market. Wal-Mart sales growth

continued into the 1980s. Wal-Mart was divided into three business segments: Wal-Mart stores,

Sam’s Clubs, and the International Division.

In 1983 the company opened its first three Sam's Wholesale Clubs and began its

expansion into bigger city markets. Wal-Mart Supercenters were large combination stores that

included a full-line grocery center, a general merchandise discount store, banks and some even

offered a food court of restaurants. Wal-Mart’s international expansion accelerated

management’s plans for expansion and notoriety. In 2000, Fortune magazine named it as one of

the “100 Best Places to Work” and in 2002, “Wal-Mart officially became the world’s largest

company based on its $245 billion in sales” (Wheelen & Hunger, 731).


Wal-Mart’s winning strategy in the United States was based on selling brand products at

low cost while still offering the customer a quality product. Wal-Mart is in the business of

selling everything customers need in their everyday lives. This includes the consumer goods

listed above as well as food-service items. Wal-Mart took pride in its domestic strategies and

programs that were based on a set of two priorities: 1) “Customers would be provided with what

they want, when they want it, all at a value”. 2) “Treating each other as we would hope to be

treated, acknowledging our total dependency on our Associate-partners to sustain our success”

(Wheelen & Hunger, 747).

In the year ending January 31, 2006, Wal-Mart’s financials reflected the following:

(all dollar amounts are in millions)

Total revenue - $315, 654

Net income - $11,231

Total assets - $138,187

Total liabilities - $48,826

Total shareholder’s equity - $53,171. According to the 2006 consolidated balance sheets

total liabilities and shareholders equity equaled $138,187 not just totals shareholders’

equity as previously shown.


Wal-Mart Strategic Audit

I. Current Situation

A. Current Performance

Wal-Mart (WM) is divided into three business segments: Wal-Mart Stores, Sam's Club, and

the International Division. In 2002, “WM officially became the world’s largest company

based on its $245 billion in sales” (Wheelen and Hunger 19-1). As of January 31, 2006, the

company had over 6,100 stores worldwide, bought products from 70 countries, and 20% of

its business was generated outside of the United States (Wheelen and Hunger 19-2).

1. 2006 fiscal year sales of $312.4 billion, a 9.5% year over year increase.

2. $11.2 billion net income, up 9.4% to $2.68 per share.

3. Stock price of $46.11, down from $56.98 on January 31, 2002. (Likely due to better

competition and future expected growth slowdown.)

B. Strategic Position

1. Mission

Wal-Mart Stores, Inc. is a global retailer committed to improving the standard of living

for our customers throughout the world (Annual Report 2006).

2. Objectives

Comparative store sales is a measure which indicates the performance of our existing

stores by measuring the growth in sales for such stores for a particular period over the

corresponding period in the prior year.

Operating income growth greater than net sales growth has long been a measure of

success for us.


Inventory growth at a rate less than that of net sales is a key measure of our

efficiency.

With an asset base as large as ours, we are focused on continuing to make certain our

assets are productive. It is important for us to sustain our return on assets (Annual

Report 2006).

3. Policies

We earn the trust of our customers every day by providing a broad assortment of

quality merchandise and services at everyday low prices (“EDLP”) while fostering a

culture that rewards and embraces mutual respect, integrity and diversity. Putting Our

Customers First.

EDLP is our pricing philosophy under which we price items at a low price every day

so that our customers trust that our prices will not change erratically under frequent

promotional activity.

Our focus for SAM’S CLUB is to provide exceptional value on brand-name

merchandise at “members only” prices for both business and personal use.

Internationally, we operate with similar philosophies (Annual Report 2006).

4. Strategies

We have developed several initiatives to help mitigate this pressure and to grow

comparable store sales through becoming more relevant to the customer by creating a

better store shopping experience, continual improvement in product assortment and

an aggressive store upgrade program to be instituted over the next 18 months.


Our expansion programs consist of opening new units, converting discount stores to

supercenters, relocations that result in more square footage, as well as expansions of

existing stores.

Sam’s Club - We believe that a greater focus on providing a quality in-club

experience for our members will improve overall sales, including sales in these

categories.

International – A shift in the mix of products sold toward general merchandise

categories which carry a higher margin (Annual Report 2006).

II. Strategic Managers

A. Board of Directors

Thirteen members, four affiliated with the company, nine independent, three women, two

African Americans, two Hispanic Americans.

Chairman of the Board, S. Robson Walton (son of founder.)

B. Top Management

Eduardo Castro-Wright Executive Vice President, President and Chief Executive Officer,

Wal-Mart Stores Division U.S.

M. Susan Chambers Executive Vice President, People Division

Patricia A. Curran Executive Vice President, Store Operations, Wal-Mart Stores Division

U.S.

Douglas J. Degn Executive Vice President, Food, Consumables, and Hardlines, Wal-Mart

Stores Division U.S.

Linda M. Dillman Executive Vice President, Risk Management and Benefits

Administration


Johnnie Dobbs Executive Vice President, Logistics and Supply Chain

Michael T. Duke Vice Chairman, Responsible for Wal-Mart International

Joseph J. Fitzsimmons Senior Vice President, Treasurer

John E. Fleming Executive Vice President, Chief Marketing Officer, Wal-Mart Stores

Division U.S.

Rollin L. Ford Executive Vice President and Chief Information Officer

David D. Glass Chairman of the Executive Committee of the Board of Directors

Mark D. Goodman Executive Vice President, Marketing, Membership and E-commerce,

SAM’S CLUB

Craig R. Herkert Executive Vice President, President and Chief Executive Officer, The

Americas, Wal-Mart International

Charles M. Holley, Jr. Senior Vice President, Finance

Thomas D. Hyde Executive Vice President and Corporate Secretary

Lawrence V. Jackson Executive Vice President, President and Chief Executive Officer,

Global Procurement

Gregory L. Johnston Executive Vice President, Club Operations, SAM’S CLUB

C. Douglas McMillon Executive Vice President, President and Chief Executive Officer,

SAM’S CLUB

John B. Menzer Vice Chairman, Responsible for U.S.

Thomas M. Schoewe Executive Vice President and Chief Financial Officer

H. Lee Scott, Jr. President and Chief Executive Officer

Gregory E. Spragg Executive Vice President, Merchandising and Replenishment, SAM’S

CLUB


S. Robson Walton Chairman of the Board of Directors

Claire A. Watts Executive Vice President, Product Development, Apparel and Home

Merchandising, Wal-Mart Stores Division U.S.

Eric S. Zorn Executive Vice President, Wal-Mart Realty (Annual Report 2006).

III. EXTERNAL ENVIRONMENT: OPPORTUNITIES AND THREAT

(SWOT)

A. Natural Environment

Raw materials availability.(O)

Land availability. (O)

Electricity usage. (T)

Oil and Gas usage. (T)

Water scarcity. (T)

Hazardous waste storage, transportation and disposal. (T?)

B. Societal Economy

1. Economic

Interest rate increases may signal end of economic expansion (T).

Economic deterioration may mean more frugal shopping habits. (O)

Increasing commodity costs. (T)

Increasing transportation costs. (T)

Currency fluctuations. (T)

Slowing national economy (T)

2. Technology

Increased usage of RFID for inventory management. (O)


Internet presence allows for customer options. (O)

Information technology increasingly important. (O)

3. Political-Legal

Regional trade pacts are making free trade available between countries. (O)

Differing laws between countries may evoke compliance issues. (T)

Potential unionization of workforce. (T)

The Company is involved in a number of legal proceedings. In accordance with

Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies,”

the Company has made accruals with respect to these matters, where appropriate,

which are reflected in the Company’s consolidated financial statements (Annual

Report 2006). (T)

The Company is a defendant in numerous cases containing class action allegations in

which the plaintiffs have brought claims under the Fair Labor Standards Act

(“FLSA”), corresponding state statutes, or other laws (Annual Report 2006). (T)

4. Sociocultural

Aging U.S. demographics. (O)

Slowing U.S. population growth. (T)

Wal-Mart seen as a reason for closing of mom and pop stores. (T)

International cultural differences. (T)

Green environmental movement. (O)

C. Task Environment

United States market saturation. (T)

Expansion into Europe, China, South America, Canada, and Mexico. (O)


Rivalry High. Target, Sears, K-Mart (T)

Chance of new entrants low. (O)

Purchasing power high. (O)

Substitute power high. (T)

Government regulations power medium. (T)

IV. Internal Environment

A. Corporate Structure

Three business units, Wal-Mart Stores USA, Sam’s Club, and Wal-Mart International

(Wheelen and Hunger 19-12). (S)

o Wal-Mart Stores unit had 3,289 locations and included the company’s

supercenters, discount stores, Neighborhood Markets in the US, and

walmart.com.

o Sam’s Club unit had 567 locations and included the warehouse membership

clubs in the US plus samsclub.com.

o Wal-Mart International had 2,285 locations in 10 countries. The International

total was increased in February 2006 by purchasing a majority control of

CARHCO with 360 locations in five Central American countries (Wheelen

and Hunger 19-12).

B. Corporate Culture

In-depth employee involvement in company affairs. (S)

Trained employees to be merchants by being responsible for the performance of their

own departments. (S)

Reflection of the founder’s values. (S)


Conservative values create some problems when expanding to larger cities. (W)

Non-Union stance is viewed unfavorably is some areas. (W)

Offered $8.5 million worth of grants from its “Safe Neighborhood Heroes” program

to recognize emergency professionals. (S)

Donated $3 million in supplies when Hurricane Katrina devastated America’s Gulf

Coast. (S)

C. Corporate Resources

1. Marketing

Advertising costs are expensed as incurred and were $1.6 billion in 2006. Advertising

costs consist primarily of print and television advertisements (Annual Report 2006).

Buy American campaign. (S)

Green marketing offers the option of buying products which were better for

environment. (S)

Offers quality brand names at lower-than-competitive prices (Wheelen and Hunger

19-19). (S)

Introduced a “Value Plan” benefits plan to its employees at premiums ranging from

$11 to $65 a month. (S)

2. Finance

$312.6 billion in annual sales. (S)

$11.2 billion net income. (S)

$2.68 earnings per share. (S)

8.9% return on assets. (S)


11.4% increase in sales and operating income for the international business (Wheelen

and Hunger 19-24). (S)

3. R&D

More involved with the development side. (W)

Focusing on expansion and development of already established business model. (W)

4. Operations

Wal-Mart USA. We are intent on driving comparative store sales by being relevant to

our broad customer base and by improving our cost structure and inventory flow to

strengthen return on investment. (S)

Sam’s Club. We remain committed to serving the needs of our members – where

pennies matter – by leveraging productivity improvements and lowering expenses, so

that we can provide the products and services they want at the lowest prices in the

industry. (S)

Wal-Mart International. Our approach to ensuring continued profitable growth

includes three dimensions – new markets with multiple formats, new store growth in

existing markets and increasing sales at existing stores (Annual Report 2006). (S)

5. Human Resources

Employees are called associates. (S)

Employee stock ownership and profit-sharing program. (S)

Decentralized approach to retail management development. (S)

Utilizes the Total Quality Management approach. (S)

Discourages unionization (Wheelen and Hunger 19-23). (W)


6. Information Systems

Leader in RFID technology. (S)

Good internet presence. (S)

Utilizes satellite communications, data centers, and handheld devices. (S)

V. Analysis of Strategic Factors

A. Situational Analysis

1. Strengths

International brand name.

Financial position.

Market leadership.

2. Weaknesses

Market saturation.

Public opinion.

Adjustment to cultural differences after entering a foreign market.

Supplier alienation.

Past employee discrimination.

Employee health benefits.

International supplier employee violations.

3. Opportunities

International expansion.

Environmental leadership.

Worker’s rights leadership.


Community involvement.

Social initiatives.

4. Threats

Strong U.S. competition.

Changing demographics.

Economic uncertainty.

Current litigation.

Employee unionization.

B. Review of Current Mission and Objectives

.

.

VI. Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives

.

B. Recommended Strategy

.

o .

VII. Implementation

Management needs to be open to change regarding clashes with “grass-roots”

movements that push to keep new construction of Wal-Mart stores in rural America.

While many residents welcome a new Wal-Mart, there will always be opposition and


by developing ways to appease those that oppose the giant retailer, they will be more

welcome to the neighborhood.

Wal-Mart has been steadily reaching into every corner of the earth, but not always

with successful results. Upper management is making the assumption that every

culture will welcome box stores and the American culture that Wal-Mart is known

for. As has been proven time and again, this is not always true. There need to be

committees established that can perform thorough research before just barging onto

foreign land.

Several lawsuits have been filed regarding the treatment of employees. Wal-Mart

needs to get involved with developing a way to ensure employees are getting the right

benefits that is equal to the retail industry’s average worker.

VII. Evaluation and Control

. . .


EFAS (External Factor Analysis Summary)

Key Internal Factors Weight Rating Weighted Scores

Comments

OpportunitiesInternational expansionEnvironmental leadershipWorker’s rights leadershipCommunity involvementSocial initiatives

ThreatsStrong U.S. competitionChanging demographicsEconomic uncertaintyCurrent litigationEmployee unionization

Total Scores 1.0

IFAS (Internal Factor Analysis Summary)

Key Internal Factors Weight Rating Weighted Scores

Comments

StrengthsInternational brand nameFinancial positionMarket LeadershipWeaknessMarket saturationPublic opinionAdjustment to cultural differencesSupplier alienationPast employee discriminationEmployee health benefitsInternational supplier employee violationTotal Scores 1.0


SFAS (Strategic Factor Analysis Summary)

Key Strategic Factors Weight Rating Weighted Score

Duration S I L

Comments

X X X X X X

X X X X X X X X X X X X X X

TOTAL SCORES 1.00 2.95


Works Cited

Wheelen, Thomas L., and J. David Hunger. Strategic Management and Business Policy:

Achieving Sustainability. Upper Saddle River: Prentice, 2010. Print.

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