Wal Mart Over the Last Several Years,

Wal Mart

Over the last several years, Wal Mart has been a story that is focused on continuing successes and challenges. This is because the company was impacted by issues such as employee rights, costs and fierce competition. Yet, at the same time, they were able to experience continuing increases in their bottom line results. This is despite the fact that consumer spending has remained stagnant in the aftermath of the recession. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

To fully understand what is happening requires examining Wal Mart's most recent financial information. This will be accomplished by analyzing the company, its financial condition, profitability trends, cash position, inventory chain, internal controls, the risks to outside events, potential vulnerabilities and predicting where the firm will be five years from now. Together, these factors will highlight the challenges and opportunities that are available.

Create an executive summary of Wal-Mart that discusses the company, industry, products and services, and competitive advantages in the marketplace.

Wal Mart is the third largest publically traded corporation in the world. It is also the largest private employer with the firm hiring 2 million staff members around the globe. Founded in 1962, the company has always been family owned (with the Walton's controlling 48% of the common stock). There are 10 thousand stores in 125 different countries. They operate under a variety of different names to include: Wal Mart, Sam's Club, Walmex, Asda, Seiyu and Best Price. This has helped to propel the company's earnings to $15.8 billion. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

The industry is highly competitive. This is because other discount retailers are looking to take market share from Wal Mart to include: Target, Costco, BJs Wholesale and dollar stores. At the same time, traditional retailers have been offering products that are competitively priced to Wal Mart. The combination of these factors means that the marketplace is highly competitive and could change based upon shifts in consumer tastes. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

There are a number of different products that Wal Mart sells to include; groceries, house ware, hardware, sports equipment, toys, electronics, clothing and thousands of other merchandise. They are also offering discounts on prescription / generic drug, banking, optometry and automotive services. The combination of these factors is designed to address the customer's every need by providing them with the goods and services they demand at the lowest prices. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

The biggest advantage Wal Mart has is they are the largest retailer in the world. This means that they have perfected logistics and their ability to keep costs low. These factors are helping the company to identify a need and quickly fill it. As the marketplace is continually changing, this has assisted executives in adjusting with shifting tastes. In many ways, this is one of the factors that are keeping the company competitive (regardless of external transformations). ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Evaluate the financial condition of Wal-Mart and its ability to achieve the strategic objectives as discussed in the annual report.

Wal Mart has the ability to easily meet and achieve a variety of objectives. In the past year, the company has been focusing on increasing revenues by at least 4%. In 2012, they were able to exceed these numbers and provide a higher than expected return of 5.9%. ("50 Years of Helping Customers to Save Money and Live Better," 2012) Moreover, they have been focused on keeping their cost structure as low as possible. During the last year, they have started a program to invest $2 billion in areas that will decrease expenses and improve productivity. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

The primary regions where the firm has been growing the most is in the 125 countries they operate internationally. Two of the largest markets are in China and Brazil. ("50 Years of Helping Customers to Save Money and Live Better," 2012) These areas are experiencing an increase in middle class families. To take advantage of new opportunities, the firm has opened a variety of locations throughout these countries. This is illustrating how the company is financially strong with $443 billion in annual sales worldwide. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

As a result, the firm is quickly moving ahead to achieve a variety of objectives to include: developing employees, increasing productivity, winning in global e-commerce, emphasizing a customer focused culture and concentrating on social / environmental practices that will benefit communities. The financial, human and technological resources are providing executives with the ability to achieve reach different goals. This is a key factor that has allowed Wal Mart to adapt with the changing marketplace. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Commenting about these activities is the CEO (Michael Duke) who said, "There is no doubt Wal Mart is the best-positioned global retailer. We believe that we have all the pieces in place to build on our success and deliver value for our customers and shareholders again this year. We continue to strengthen our next generation Wal Mart efforts, investing in people, technology, innovation and infrastructure. It is rooted in our culture to stay out in front of change. The world moves more quickly each day, and we aim to be at the forefront of bringing about change in retail, both in our stores and through e-commerce." This is illustrating how Wal Mart has the resources and personnel to exceed their overall objectives. The combination of these factors is what has helped to make the company so successful over the long-term. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Analyze Wal-Mart's profitability trends and recommend strategies for management to improve or capitalize on these trends.

Wal Mart is one of the strongest firms from a financial standpoint. This is because the company has diversified their earnings between: the U.S. discount retail division, internationally and on the wholesale level (i.e. Sam's Club). (Roberts, 2012) Evidence of this can be seen in the below table which is showing the net sales, earning per share and dividends from 2008 to 2012. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Wal Mart's Net Sales, Earnings per Share and Dividends from 2008 to 2012

Category

2008

2009

2010

2011

2012

Net Sales

$373.82 billion

$401.08 billion

$405.13 billion

$418.95 billion

$443.84 billion

Earnings Per Share

$3.15

$3.35

$3.73

$4.18

$4.54

Dividends

$.88

$.95

$1.09

$1.21

$1.46

("50 Years of Helping Customers to Save Money and Live Better," 2012)

These figures are illustrating how Wal Mart has been seeing consistent increases in the overall net sales, earnings per share and dividends. This is an indication that the company is consistently meeting and exceeding the Wall Street consensus. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

However, the three divisions of the firm are experiencing uneven levels of performance. What is happening is a slowdown is occurring in the percentage of sales the company makes from locations inside the U.S. (in comparison with other divisions). The below table is showing, how the percentage of earnings from the U.S. has declined since 2010. While, there has been an increase in sales from international and wholesale outlets. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Wal Mart's Growth by Segment from 2010 to 2012

Category

2010

2011

2012

USA

64.2%

62.1%

59.5%

International

24.0%

26.1%

28.5%

Wholesale

11.8%

11.8%

12.0%

("50 Years of Helping Customers to Save Money and Live Better," 2012)

These numbers are illustrating how Wal Mart must focus on an international value orientated strategy. (Roberts, 2012)

The best way to capitalize on these trends is to open locations in other regions (such as India and more South American countries). One possible recommendation that will create value and help to fuel sales is to take the Sam's Club concept to these countries. This strategy would make the wholesale division more popular by offering consumers with greater value. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Over the course of time, this will help to increase sales and the dominance of Wal Mart inside these markets. This is the point that they can take advantage of above average growth by having the products and services customers are demanding. In the future, this will add to the company's sales exponentially. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

At the same time, the U.S. segment needs to be responsive to the needs of customers. This means that the company should motivate employees to go the extra mile by improving the working environment. A possible approach is to have a structured salary and benefits program (versus paying everyone minimum wage regardless of experience or seniority). (Thomas, 2011) Moreover, Wal Mart needs to train the staff in understanding the different products and offer customers with some kind of warranty. (Roberts, 2012) If this takes place, the employees will be more knowledgeable and can create better value. This will improve the brand image of the firm and increase sales. (Roberts, 2012)

Evaluate Wal-Mart's cash position. Articulate its ability to invest in capital projects in future years.

Wal Mart has the ability to continually generate consistent amounts of cash. The funds are used to invest in other projects that will expand the earnings results. For instance, the operating income generated over the last three years is showing that the firm has realized increases of around $1.5 billion per year to their cash position. The below table is highlighting these trends. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Wal Mart's Operating Income from 2010 to 2012

Year

Amount

2010

$24.00 billion

2011

$25.54 billion

2012

$26.55 billion

("50 Years of Helping Customers to Save Money and Live Better," 2012)

These figures are showing how Wal Mart has tremendous amounts of liquidity. In the future, this will help the firm to expand its image internationally and the enhance kinds of products / services they are providing to everyone. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Analyze the effectiveness of Wal-Mart's inventory or service costing methods. Make a recommendation for improvement in this area.

Wal Mart has one the best logistics and customer supply chains in the industry. This occurs by having the stores working directly with different warehouses. In the event that they run out of an item, this system ensures that they are resupplied within a few hours. At the same time, they can evaluate customer trends and what products are most in demand. This helps executives to more effectively understand what the customer wants and offer it to them in large quantities. (Hugos, 2011)

One possible improvement is to have staff members focus on helping to reduce costs. This means bringing them into the process and educating them about the long-term benefits of engaging in this strategy. Over the course of time, this will increase the total amounts of vigilance surrounding rising costs (by: having each employee control their energy usage and waste). This will help them to feel as if they are a part of a team that is willing to do more. (Hugos, 2011)

Evaluate the adequacy or risks of the internal control environment noted in the annual report by management, and internal and external auditors.

The internal controls are helping the firm to continue meeting its various financial goals. This is because different divisions do not let internal or outside influences impact their ability to reach these benchmarks. For instance, the company is currently involved in ligation surrounding wage / gender discrimination and they are the subject of hazardous waste investigation. These issues have not affected the ability of employees to meet various goals. This is sign that the company is adequately accounting for risks. In the future, this protects them against sudden internal or external shocks by having tight controls in place. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Assess the risk of Wal-Mart related to foreign currency translations, foreign economic events, and international financial reporting standard requirements in order to summarize the risk tolerance level for the company.

The biggest risks that Wal Mart is facing are from changes in foreign currency rates, economic events and rising energy prices. Foreign currency rates will have a direct impact on the total amounts of earnings for the international division (based upon the underlying levels of strength or weaknesses in the U.S. dollar). To protect against this, the company will often engage in hedging. This is when they will buy a call or put option to protect against tremendous amounts of volatility in these markets. ("50 Years of Helping Customers to Save Money and Live Better," 2012) (Roberts, 2012) (Holmes, 2011)

Foreign economic events will have a direct impact on Wal Mart's supply chain and their ability to sell products in different regions. For example, if there was a nationwide labor strike in China. This could have a negative effect on the company's ability to resupply stores with inexpensive merchandise. (Lopez, 2011) (Mentzer, 2001)

At the same time, this will have an adverse impact on the earnings for various stores inside the country. To address these risks, the company has many different divisions. However, their supply chain has never faced these kinds of severe disruptions. This means there is a possibility of these events having a negative effect on the firm's bottom line results. (Roberts, 2012) (Holmes, 2011)

As far as energy costs are concerned, Wal Mart has been using technology and hedging to decrease these amounts. This has helped the firm to adjust with sudden changes in fossil fuel prices. Over the long-term, this has made the company more productive by taking this kind of focus. However, if there are sharp increases in these rates, it will have an adverse impact on the firm. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

Furthermore, Wal Mart is adhering to different international reporting standards. This is helping them to increase the transparency of various operations around the globe. In the future, this reduces risks by providing investors with greater amounts of information about their activities. ("50 Years of Helping Customers to Save Money and Live Better," 2012) (Ingram, 2012)

As a result, Wal Mart is exposed to international events. To address potential challenges, they do have strategies in place (such as hedging). However, the risks from sudden changes in the economic or financial environment could impact the supply chain and customer demand. When this happens, there is a possibility that Wal Mart cannot control costs and will have limited access to select products. ("50 Years of Helping Customers to Save Money and Live Better," 2012)

From reading the annual report and reviewing the Website, determine where the company appears vulnerable for displaying unethical behavior.

The biggest vulnerabilities that Wal Mart is facing are from the lawsuits they are fighting. This is because the wage discrimination case makes the firm appear as if they are only focused on the company's objectives. When it comes to the needs of employees, they are often ignoring their requirements and the challenges they are dealing with. This helps the firm to look like a corporation that is focused on meeting its goals at any costs (including: taking advantage of employees on pay and benefits). ("50 Years of Helping Customers to Save Money and Live Better," 2012)