Wal-Mart Case Study Case Issues:

Wal-Mart CASE STUDY

CASE ISSUES:

CI#1: CONSUMER SAFETY

The Wal-Mart Stores have been severely criticized for their intense desire to present customers with the cheapest products on the market and in order to do this, they tend to neglect the quality and safety of the merchandize.

CI#2: IMPACT on LOCAL COMMUNITIES

Communities generally object to the opening of a Wal-Mart store in their region. Citizens fear the impact the store will have on their lives and the environment, while local entrepreneurs fear the possibility of going out of business.

CI#3: EMPLOYEE TURNOVER large majority of Wal-Mart employees is dissatisfied with the wages they register and the benefits, including health care, they get and the conditions they work in. This generates massive personnel fluctuations.

CURRENT SITUATION

Wal-Mart embodies the ultimate epitome of business success. The company is the largest retailer in the United States, with a market share of approximately 20%. They operate in a total of 2,701 stores spread across all American states and other 13 countries. Fiscal year 2006 brought about strong financial highlights, such as net sales worth of $312.4 billion or net income of $11.2 billion. (Wal-Mart Annual Report for 2006)

A. CURRENT PERFORMANCE

The end of the fiscal year 2006 was marked by a 44.9% increase in free cash flow which reached the total value of $4,498 million as compared to $3,105 million in 2005. Wal-Mart has also registered high performances due to a 9.5% increase in net sales and a 9.4% increase in net incomes. (Parmelee, 2007)

In the previous year, Wal-Mart continued their territorial expansion by adding five more countries to their portfolio. They increased expenditures, mainly employees' wages and conducted intensive marketing studies to identify and satisfy customers' needs.

B. STRATEGIC POSTURE

1. Strengthen and maintain leading position in the United States and become leader on the international market

2. Continue territorial expansion to other countries and further increase revenues

3. Use and promote environment-friendly procedures and sustain community development (CI#2)

4. Respect all employees (CI#3)

5. Satisfy all customers (CI#1)

MISSION

The Wal-Mart mission includes the following:

Provide sustainable, healthy and value-oriented products to meet customers' needs." (CI#1) (Wal-Mart Annual Report for 2006)

Give ordinary folk the chance to buy the same thing as rich people" (1994-2007, Center for Business Planning)

Save people money so they can live better" (Website of Wal-Mart Stores, 2007)

As a company committed to environmental responsibility, Wal-Mart desires to be a leader in building and operating retail facilities that minimize the usage of energy and natural resources" (CI#2) (Website of Wal-Mart Stores, 2007)

Our mission is to enhance and integrate our supplier diversity programs into all of our procurement practices and to be an advocate for minority- and women-owned businesses." (Website of Wal-Mart Stores, 2007)

The mission of the Global Ethics Office is to promote and facilitate an effective global ethics program. Global Ethical principles are designed to assist our associates and suppliers with making the right decision and doing the right thing." (Website of Wal-Mart Stores, 2007)

Focusing on the environment is the key to our mission to improve the quality of life for people around the world." (CI#2, CI#1) (Website of Wal-Mart Stores, 2007)

OBJECTIVES

Increase the number of Wal-Mart stores across the globe

Increase customer satisfaction and safety (CI#1)

Reduce employee turnover and the adherent costs of replacing the personnel (CI#3)

Support the development of communities by creating additional jobs, by presenting locals with a wide selection of cheap products and through the involvement in charitable events (CI#2)

STRATEGIES

1. Offer customers cheap and high quality products:

Improve the quality of the sold products (CI#1)

Improve the logistics processes

Import products from countries with comparative advantages at low prices and resell them on the United States and other foreign countries' market

2. Territorial expansion:

Open at least 305 new stores, relocate other stores in more commercial areas and expand the already successful stores located in welcoming communities

Open at least 30 new Sam's Clubs - this strategy not only sustains Wal-Mart territorial expansion, but it also sustains the development of small local businesses which can now get their supplies at lower prices from Sam's Clubs (CI#2)

3. Sustain the development of communities by: (CI#2)

Creating new job opportunities

Paying increased taxes to the local budget

Getting involved in charitable events and sustaining environment-friendly procedures

4. Human resource: (CI#3)

Wal-Mart is basically interested in reducing personnel expanses

They generally employ part time workers which do not get full benefits

Wal-Mart discourages over time

The stores offer specialized trainings to all employees

POLICIES

Pricing policies:

Every day low price

Rollback: reduces the Every day low price even more

Special buy

Return Policy:

Basically all purchased items can be replaced or refunded within 90 days since the purchase date, provided that the customer still possesses the receipt

Exceptions are: computer components and computer accessories (45 days); camcorders and digital cameras (30 days); computers and postpaid mobile phones (15 days). (Return Policy, Wal-Mart Stores Website)

3. Diversity Policies:

Wal-Mart values the diversity of their employees, or associates, and to prove this, the corporation got "engaged with a number of leadership groups, including:" (2006 Accomplishments, Wal-Mart Stores Website)

African-American groups

Asian and Pacific Islander groups

Women's organizations

Hispanic's organizations

Native American Markets

Seniors' organizations

Gay, Lesbian, Bisexual and Transgender groups

Groups for people with disabilities

Supplier diversity organizations.

II. CORPORATE GOVERNANCE

A. BOARD of DIRECTORS

Wal-Mart's Board of Directors is composed from the following fifteen members, as revealed by the Wal-Mart Stores website:

1. Aida M. Alvarez (since 2006)

Former member of the Clinton Cabinet and former administrator of the U.S. Small Business Administration

Founding Director of the Office of Federal Housing Enterprise

Chair of the Latino Community Foundation, director of the UnionBanCal and member of the Deloitte and Touche LLP.

2. James W. Breyer (since 2001)

Managing partner of Accel Partners and director of RealNetworks Inc. And Marvel Entertainment Inc.

3. M. Michele Burns (since 2003)

Chairman and CEO of Mercer LLC; director of Cisco Systems Inc.

4. James Cash JR. (since 2006)

Ph.D, retired professor of Business Administration at Harvard,

Director of the Chubb Corporation, General Electric Company, Phase Forward Inc., ITM Software Corp and Microsoft Corporation

5. Roger C. Corbett (since 2006)

Director of the Reserve Bank of Australia, Fairfax Limited

Retired CEO and Group Managing Director of Woolworths Limited

6. Douglas N. Daft (since 2005)

Director of the McGraw-Hill Companies Inc.

Retired Chairman and CEO of the Coca-Cola Company

7. David D. Glass (since 1997)

Former President and CEO of Wal-Mart Stores Inc.

8. Roland a. Hernandez (since 1998)

Director of Lehman Brothers Holdings Inc., MGM Mirage, the Ryland Group Inc. And Vail Resorts Inc.

9. Allen I. Questrom (since June 2007)

Member of the Board of Directors of Burt's Bees Inc., Sotheby's Holdings Inc.

Retired Chairman and CEO of J.C. Penney Company

10. H. Lee Scot Jr. (since 1999)

President and CEO of Wal-Mart Stores Inc.

11. Jack C. Shewmaker (since 1997)

President of J-COM and retired Vice Chairman of Wal-Mart Stores Inc.

12. Jim C. Walton (since 2005)

Chairman of the Board and CEO of Arvest Bank Group Inc.

Chairman of the Board of Community Publishers Inc.

13. S. Robson Walton (since 1978)

Current Chairman of the Board at Wal-Mart Stores

14. Christopher J. Williams (since 2004)

Director of Harrah's Entertainment Inc.

Chairman and CEO of the Williams Capital Group L.P. And Williams Capital Management L.L.C.

15. Linda S. Wolf (since 2005)

Former Chairman of the board and CEO of Leo Burnett Worldwide, Inc., a division of Publicis Groupe S.A.

B. TOP Management

Wal-Mart's top management is assured by the following senior executives, as presented by the Wal-Mart Website:

Eduardo Castro Wright - Executive Vice President and Chief Executive Officer, Wal-Mart Stores Division

M. Susan Chambers -Executive Vice President of People Division

Patricia a. Curran - Executive Vice President, People, Wal-Mart Stores Division

Leslie a. Dach - Executive Vice President, Corporate Affairs and Government Relations

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

Michael T. Duke - Vice Chairman, International Division

Johnnie C. Dobbs - Executive Vice President, Logistics and Supply Chain

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

Rollin L. Ford - Executive Vice President, Chief Information Officer

Craig R. Herkert - Executive Vice President and Chief Executive Officer, the Americas, International Division

Charles M. Holley Jr. - Executive Vice President, Finance and Treasurer

Thomas D. Hyde - Executive Vice President and Corporate Secretary

Gregory L. Johnston - Executive Vice President, Club Operations, Sam's Club

Thomas a. Mars - Executive Vice President and General Counsel

C. Douglas McMillion - Executive Vice President and Chief Executive Officer, Sam's Club

John B. Menzer - Vice Chairman, Chief Administrative Officer

Stephen Quinn - Executive Vice President, Chief Marketing Officer

Thomas M. Schoewe - Executive Vice President and Chief Financial Officer

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

William S. Simon - Executive Vice President, Chief Operating Officer, Wal-Mart Stores Division

Gregory E. Spragg - Executive Vice President, Merchandising and Replenishment, Sam's Club

S. Robson Walton - Chairman of the Board of Directors of Wal-Mart Stores, Inc.

Stephen P. Whaley - Senior Vice President and Controller

Eric S. Zorn - Executive Vice President and President, Wal-Mart Realty

III. INTERNAL ENVIRONMENT: STRENGHTS and WEAKNESSES

A. CORPORATE STRUCTURE

Wal-Mart's retail division is formed from four major subsidiaries: Wal-Mart Discount Stores, Wal-Mart Supercenters, Wal-Mart Neighborhood Markets and Sam's Clubs. (Wal-Mart Facts, 2007)

Wal-Mart Discount Stores more than 1,000 in U.S. alone average surface per store of 107,000 square feet; 225 associates and 120,000 items sold

Wal-Mart Supercenters are generally open 24 hours a day and sell wide array of products, including grocery, clothing and any other general merchandise more than 2,300 stores, internationally spread average surface of 187,000 square feet; 350 or more associates and 42,000 different products

Wal-Mart Neighborhood Markets grocery, pharmaceuticals and general merchandise more than 120 neighborhood markets, generally present on markets with supercenters average surface of 42,000 square feet; 95 employees and approximately 29,000 items sold

Sam's Clubs offer general merchandise in large quantities and at value prices; they are generally targeted by small businesses employs and average of 160 up to 170 associates and offers about 5,500 different items

Wal-Mart has opened subsidiaries in all 50 American states and in 13 additional foreign countries: Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the United Kingdom.

B. CORPORATE CULTURE

The corporate culture of Wal-Mart is one of the biggest contributing factors that make it one of the world's most admired companies. From the three basic beliefs to the sundown rule, we respect our customers, associates and suppliers and strive to treat them as we ourselves want to be treated. In building and nurturing these relationships, as well as serving the communities where we live, we've helped build a better business - one committed to excellence." (Website of Wal-Mart Stores, 2007)

1. The Wal-Mart culture is based on high standards of ethics, morality and integrity.

2. A new feature promoted by the company includes the usage of environment friendly procedures and packaging

3. Wal-Mart treats all employees, partners and customers with the utmost respect

4. Wal-Mart values diversity and encourages innovation

C. CORPORATE RESOURCES

1. Marketing a. Product

Wide array of products

Everything from grocery and apparel to general merchandise

Both organic and non-organic products b. Promotion

Strong advertisements and promotions realized by the Wal-Mart marketing department with the aid of specialized firms

Advertisements aired on all media channels, including television advertisements, radio announcements, internet ads, street banners, flyers and interviews in newspapers and journals

Focus on the low prices c. Price

Low prices generally due to cheap imports

The cheap products pose significant threats on local businesses (CI#2) d. Place

International coverage as Wal-Mart is present in all American States and another 13 countries

Available for online purchases at http://www.walmart.com/

2. Research and Development

Since Wal-Mart is simply a retailer, they do not feel the need for product innovation and improvement, therefore the R&D budgets are rather limited

3. Operations and Logistics

Basically include the import of low cost products, transport, storage, inventory and selling of the items

No major difficulties are encountered as the corporation employs strict procedures that insure a smooth ongoing of the operations highly efficient logistics system that allows the conglomerate to collect and then transport products to numerous destinations

The high efficiency of Wal-Mart's operations and logistics represents the key to their ability to maintaining low retail prices

4. Human Resource Management

Almost 2 million employees in 2007

Wal-Mart employees work an average of 34 hours per week; they are discouraged to work overtime and are presented with training programs

Sales associates is the most common position within Wal-Mart

Employees are generally dissatisfied with the wages, lower than in other companies, and the benefits, which generates an increased turnover (CI#3)

5. Information Systems

Skilled and qualified technicians to maintain and update the information system and databases

Offer the backbone for online purchases and assistance

The Information System Division is focused on three beliefs and five commitments

Beliefs: "Respect for Individual; Service to our Customers and Strive for Excellence"

Commitments: "Know the Business; Build it Right; Show the Value; Count on Us and Teach Up" (Information Systems Divisions, Wal-Mart Stores Website)

6. Financial Data and Analysis

Financial highlights for 2006, 2005 and 2004:

Net Sales $312,427 $285,222 $256,329

Cost of Sales $240,391 $219,793 $198,747

Net Income $11,231 $10,267

Diluted Earnings per Share

Long-Term Debt $26,429 $20,087 $17,102

Return on Assets

Return on Shareholders' Equity

Note: The data are presented in million of dollars and have been retrieved from the Wal-Mart Annual Report for 2006

7. Wal-Mart Ratios

Ratios

Value for fiscal year 2006

Valuation Ratios

P/E Ratio

Price to Sale

Price to Book

Dividend Yield

Profitability Ratios

Gross Margin

Operating Margin

Pre-tax Margin

Net Profit Margin

Effective Tax Rate

Management Effectiveness

Return on Assets

Return on Investment

Return on Equity

Efficiency Ratios

Receivable Turnover

Inventory Turnover

Asset Turnover

Data retrieved from Reuters Website in November 2007

1. Valuation Ratios - are identified in order to ease the comparison of the price of a company stock with other stocks on the market

1.1 Price to Earnings (P/E) Ratio = Price per Share / Earnings per Share

Wal-Mart's P/E Ratio is a bit higher than the industry's (14.71>14.55), meaning that the investors are paying more for each unit of income and are expecting increased growth in comparison to other companies in the industry. (Investopedia, 2007)

1.2 Price to Sales Ratio = Share Price / Revenue per Share

The Wal-Mart price to sales ratios is almost identical with the industry's P/S Ratio, meaning that the value of the WMT stocks is extremely well balanced with other traded companies in the industry.

1.3 Price to Book = Stock Price / (Total Assets - Intangible Assets and Liabilities)

Wal-Mart's price to book ratio is a bit higher than the industry's ratio (2.93 > 2.66). This could reveal a slight over evaluation of the WLM stocks.

2. Dividend Yield = Annual Dividends per Share / Price per Share

The 1.93% value of the dividend yield reveals that investors get 0.0193 dollars in return for each dollar they have invested in Wal-Mart. The dividend yield is a bit higher than the industry's (1.79%), meaning that Wal-Mart is a rather profitable investment.

3. Profitability Ratios

They reveal the performance achieved by Wal-Mart in terms of realized profits

All of the five ratios are lower that the industry's average ratios. This means that Wal-Mart realizes lower profits than other companies activating in the same industry. 4. Management Effectiveness Ratios

The Management Effectiveness Ratios "compare financial measures from company financial statements to evaluate management performance." (O'Reilly, 2007)

Wal-Mart's ROI, ROA and ROE are higher that the industry's ratios, meaning that the company possess qualified, capable and skilled management.

5. Efficiency Ratios

Measure how well the company can manage their resources and assets and simultaneously maximize profits

All three Receivable turnover, Inventory turnover and Asset turnover are higher than the industry's.

IV. EXTERNAL ENVIRONMENT: OPPORTUNITIES and THREATS

A. SOCIETAL ENVIRONMENT

1. Economic

The weakening of the U.S. dollar in comparison to the strengthening of the European Union currency, the EURO

Strong position on the United States market as opposed to fierce competition on the European Market (METRO or Carrefour). For instance, the Wal-Mart store in Germany was closed as it did not deliver the expected results on a highly competitive market

2. Technology

http://www.walmart.com/is a highly efficient website with a user-friendly interface, which aids customers in their shopping process and enlarges Wal-Mart's customer reaching

Technological developments have been registered in the logistics sector as to sustain the international success

3. Political-legal

Wal-Mart has been involved in several judiciary law suits based on their procedures

Among the most outstanding criticizers of Wal-Mart's are: employee unions (CI#3), environment organizations and local entrepreneurs (CI#2)

4. Socio-cultural

Customers are attracted by the low prices promoted by Wal-Mart, but they criticize the quality of the products on sale (CI#1)

The retailer has been blamed for importing products from countries that do not implement strict health and quality regulations and also for having mislabeled some items as organic when in fact they were non-organic

B. TASK ENVIRONMENT

1. Threat of new entrants - Low

It takes years and it is quite difficult to achieve such a development level as to be able to compete with Wal-Mart. Therefore, however new entrants do pose some risks, the level is rather limited.

2. Bargaining power of buyers - Medium

Customers praise Wal-Mart for the low prices they promote. However, they do criticize the sometimes inappropriate quality of the products. Therefore, they pose the threat of boycotting the retailer. Wal-Mart would have superior arguments to defend their operations, but the boycotting might have medium impacts upon the company.

3. Treat of substitute products - Low

Wal-Mart sells a wide array of products, everything from grocery to apparel. It would be rather difficult for the society to develop substitute products for all categories of general merchandise. And even if they did develop substitute products, they would most likely be available at significantly higher prices and would therefore pose a low threat on Wal-Mart.

4. Bargaining power of suppliers - High

Wal-Mart heavily relies on the partnerships with their purveyors. Were the suppliers to change their contractual terms and quality of their services and products, Wal-Mart would suffer greatly. In order to reduce their dependence upon the purveyors, Wal-Mart promotes a rather diverse selection of suppliers.

5. Rivalry among competing firms - High

Wal-Mart is the largest retailer in the United States with a market share of approximately 20%. Their main competitors include Kmart, ShopKo or Target. The retailer is faced with the fiercest competition on the European market, where the fight for supremacy takes place between METRO, Carrefour and Tesco.

V. ANALYSIS of STRATEGIC FACTORS

SWOT ANALYSIS

Strengths

1. Leading position on the U.S. market and international recognition

2. Strong financial highlights

3. Skilled and qualified management and marketing teams

4. Commitment to communities' development (CI#2)

5. Involvement in charitable and other social events

6. The creation of additional jobs

7. Cheap products that attract numerous customers

8. 20% market share

9. Highly efficient logistics system which supports international operations

Weaknesses

1. Poor human resource management, including low wages and limited benefits for employees, which generate increased personnel turnover (CI#3)

2. Involvement in law suits with environment organizations and labor unions

3. The reputation of putting local entrepreneurs out of business (CI#2)

4. The reported poor quality of some products (CI#1)

Opportunities

1. Increased demand for cheap products

2. Increased demand for organic products, items sold by Wal-Mart

3. Increased demand for one-stop stores where customers can purchase any type of merchandise

4. The need for economic development and reduction of the unemployment rate in local communities

Threats

1. Increased environmental concerns which force Wal-Mart to adapt and generate additional costs

2. Resistance from communities and local entrepreneurs (CI#2)

3. The weakening of the U.S. currency

4. Fierce competition on the market, especially on the European market

TOWS ANALYSIS

S-O

The need for economic growth and Wal-Mart's capability of creating additional jobs represents a means of sustaining communities' development (S4, S6, O4, CI#2)

Wal-Mart's capability to deliver organic products, one-stop stores and cheap products is a means of satisfying the communities' needs (S4, S7, O1, O2, O3, CI#2)