Wal Mart Stores Inc Comprehensive Analysis

Wal-Mart Stores, Inc.
Comprehensive Analysis of SEC form 10-k and the DEF-14A Proxy statement
Contents
1. Background 1
2. Walmart’s Business Strategy 3
3. Stakeholder Evaluation 4
3.1. Internal Stakeholders 4
3.1.1. Shareholders 5
3.1.2. Board of Directors 5
3.1.3. Management 5
3.1.4. Employees 6
3.2. External Stakeholders 6
3.2.1. Retail Industry 6
3.2.2. Competitors 7
3.2.3. Customers 8
3.2.4. Suppliers/Vendors 9
3.2.5. Government Agencies 9
3.3.6. Communities 10
4. SWOT Analysis 10
4.1. Strength 10
4.2. Weakness 12
4.3. Opportunities 12
4.4. Threats 13
5. Conclusion 13
References 14
1. Background
Wal-Mart Stores, Inc, hereby referred to as Walmart, is a public traded multinational retail corporation of discount departmental, eCommerce stores and warehouse stores headquartered in Bentonville, Arkansas, and operating in 27 countries across the globe. Over the decades, Walmart has evolved into a global powerhouse in the retail industry. A comparison of Walmart’s revenue against Gross Domestic Product (GDP) 185 countries by McGee ( 2020) ranks Walmart’s revenue on 25th, demonstrating the dominance of Walmart in the global economy.
The fortune magazine Fortune 500 Index has ranked Wal-Mart Stores Inc, the largest retail company in the United States, the top two since 2000, and the top one for eight years in a row since 2012, based on the company’s total sales. Since its 1972 NYSE listing, the Walmart Stock has experienced remarkable milestones. For the period ended July 31st, 2020, Walmart recorded total revenues of $272 billion and consolidated net income amounting to $10.5 billion. Walmart declared $2.16 dividends per common share, an increase from $2.12 in 2019. Walmart's total assets amount to $237 billion. An analysis of the cumulative total shareholder return on Walmart's common stock reveals an increasing return for the last five years since 2015 (Figure 1).
Figure 1: Comparison of 5 Year Cumulative Total return on Walmart’s Common Stock
Source: SEC (2020b) FORM 10-K
Walmart Evolution
Source: SEC (2020b) FORM 10-K
Walmart was established in 1962 and incorporated in 1969 by Sam Walton. The retail giant operates 11,496 stores and clubs across 27 countries. Walmart ventured into the international market in 1991 by establishing in Mexico, which accounts for the largest international market accounting for 42% of the consolidated sales revenue reported in FY 2019/2020 (Figure 2).
Figure 2: Walmart's International segment by Soles Contribution
Source: SEC (2020b) FORM 10-K
Walmart pursued globalization aggressively; hence its operations span across wholesale, retail, and eCommerce websites operates across all the states in the U.S., Central America, Canada, Africa, Argentina, Chile, Japan, India, China, United Kingdom, and Mexico. Walmart International, Walmart U.S., and Sam's Club are the three reportable segments under which Walmart operates.
Walmart U.S segment entails mass merchandising within the U.S., the Walmart International segment entails operations outside the U.S., with both segments consisting of e-commerce and omnichannel initiatives. The Sam’s Club segment consists of the samsclub.com, the warehouse membership clubs, and omnichannel initiatives. In 2000 Walmart ventured in eCommerce under walmart.com and samsclub.com. Platforms to enable online shopping experience for the customers. Subsequently, the retailer has aggressively pursued other initiatives such as the Site to Store service in 2007, incubation for innovators since 2016, acquisition of Flipkart" in 2019, and NextDay Delivery, Delivery Unlimited, and Same Day Pickup in 2020.
2. Walmart’s Business Strategy
Walmart pursues strong and efficient growth to maintain a competitive position in the retail industry. The retail giant undertakes strategic investments that entail sales-rise with eCommerce sales platforms, increasing the comparable store and club sales, and expanding the omnichannel initiatives. The business model is premised on the retailing of vast merchandise at low prices, with its customers citing the low prices as the fundamental reason for shopping at Walmart (Barbaro, 2007).
Walmart business strategy is guided by four fundamental principles;
· Enhance shopping convenience for busy households
· Sharpening business culture and digitize operations
· Operate responsibly
· Cultivate customer trust as Walmart’s competitive advantage
Innovation and expansion of the ecosystem are at the core of Walmart’s business strategy. The company seeks to respond to global health pandemic by maximizing the safety of products and facilities. Walmart has invested in enhancing sanitation, expanding the online shopping, and no-contact pickup and delivery services. In the U.S., Walmart expanded the omnichannel platforms, with 3200 locations offering grocery pickup, and 1600 locations offering grocery delivery.  A seamless platform such as Flipkart and PhonePe supports same-day delivery in India.
Walmart’s sales have increased over the years. However, natural pandemics and economic crisis such as the COVID -19 pandemic in 2020 and the global recession of 2007/2008 have contributed to the decline of Walmart’s sales (see figure below)
Figure 3: Sales growth of Walmart U.S. from 2006 to 2020

Source: SEC (2020b) FORM 10-K and Statista (2020a)
3. Stakeholder Evaluation
Stakeholders include a group of people or institutions that affect or are affected by business activity. Essentially stakeholder relationship management is pivotal in achieving a company’s objectives. Developing a meaningful relationship with stakeholders yields a license to operate, reduces the cost of constraints, minimizes the risk of operations, enhances business opportunities, which ultimately results to value addition. Also, stakeholder relationship management assures the stakeholders that the company that company seeks to maximize every of the stakeholder groups' interests (Jeffery, 2009). Walmart stakeholders can be categorized into two; internal stakeholders who include the shareholders, the board of directors, the management and employees, and external stakeholders who include the competitors, industry, vendors, customers, government agencies, and communities
3.1. Internal Stakeholders
The internal stakeholder includes the groups, people, or organizations that directly affect Walmart’s business operations.
3.1.1. Shareholders
Walmart shareholding includes 50.56% individual shareholders, and 29.86% owned by institutional investors (14.02% mutual fund holders and 15.84% other institutional investors). Walton Enterprises LLC and the Walton Family hold the highest shareholding of 35.3% and 14.8%, respectively. The shareholders strategically influence Walmart's strategy implementation, mainly done through the annual shareholder meetings, where the shareholders resolve strategic issues. The shareholders vote on issues such as the election of directors, compensation of executive officers, ratification of the appointment of independent accountants, amendment of the shareholding structure, among other core business strategies. In 2020, Walmart adopted the first virtual shareholder meeting, with the shareholders voting electronically via mail, online, phone prior, or during the meeting.
3.1.2. Board of Directors
The Board of Directors (BOD) entails 27% female, 53 years nominee median age, and 6.6 years nominee median tenure. The BOD entails 11 nominees, with ten non-management nominees and seven independent nominees. The shareholders elect Walmart Board of Directors through the voting procedure of one share, one vote. Walmart Board leadership structure entails a Non-Executive Chairman, Lead Independent Director, and the President and CEO. The BOD plays a strategic oversight role over Walmart’s business strategy. The BOAD provides counsel to the management, implying that the BOD works closely with the management. Walmart Director policy entails a 12-year term limits for independent directors, ensures that the company retains diversification of skills with a mix of the right experiences and perspectives to steer the company to stay competitive and responsive to a dynamically changing environment. The BOD includes two distinct committees; Governance committees, which entail audit, compensation, and management development and nominating and governance, and the strategy committees, which include the technology and e-commerce and strategic planning and finance. The board committee plays an oversight role in the management to ensure adherence to Walmart's governance and strategy(SEC, 2020a).
3.1.3. Management
Walmart management is mandated to supervise and oversees the company’s operations. Walmart adopts a hierarchical management structure with vertical lines of command. Each employee reports to the direct supervisor. More than three-quarters of Walmart operations management team members are drawn from employees who joined the company as hourly employees. The four business segments, Walmart U.S.; Walmart International; Sam’s Club, and Global E-commerce and Technology, are all headed by a president and CEO with the current president and CEOs exhibiting a gender parity. Executive management consists of 47 senior management members, of which 32% are female.
3.1.4. Employees
Walmart employees employ their expertise, skills, and knowledge to deliver the organizational goals. The Walmart employees consist of a pool of approximately 2.2 million associates across its stores globally, with approximately 1.5 million employees in the U.S. The pool of employees entails hourly part-time or non-exempt associates that Walmart works towards the reduction of employee turnover through increasing wages, training, and improvement of the technology and tools of operation. The core interest of Walmart employees includes job security and wage maximization (Unsal & Hassan, 2020). While Walmart has employee policies and programs that guarantee a considerable degree of job security and boost productivity and job satisfaction, the company has over the decades being criticized for minimizing wages, which average $13.99 hourly wage for a full-time job.
3.2. External Stakeholders
The external stakeholders entail groups of businesses or persons that are not implicitly part of the company but possess a strategic interest.
3.2.1. Retail Industry
Trade liberalization has resulted in a diversification of the retail industry with the players operating locally and internationally. The Industrial Organization (I.O.) theory identifies that industry structure and industry forces determine a firm’s competitiveness. Factors such as the general industry attractiveness determined by the merchandise and resource substitutability, the firm’s position within the industry determines competitive advantage. The MC Kinsey reports that the power curve determines industry performance with a ripple effect on a firm’s performance. Industry participants, power of suppliers, buying patterns, distribution patterns, general industry economics are the dynamics that would influence a firm’s operations and profitability. The retail industry is characterized by the high growth of the Herfindahl-Hirschman indices (HHI), demonstrating the ease of entry of other firms into the industry, which translates to increasing competition for merchandise supply, customers, sources of capital as well as the reduction of profit margins (Smith, 2019).
The National Retail Federation estimates that the U.S. retail industry as one-sixth of US GDP, amounting to US 2.6 trillion, with the food and consumer products accounting for the largest share of US1 trillion (Jindal et al., 2020). The U.S. retail industry is, to some extent, seasonal with weather patterns, calendar events, religious and national holidays influencing demand for Walmart’s merchandise. While there exist limited barriers to entry in the retail industry, Walmart has established competitive strategies such as the low pricing and low-cost models, and the omnichannel initiatives that enable the firm to remain a dominant actor within the industry.
3.2.2. Competitors
Increasing trade liberalization, the rapid expansion of information technology, and increasing cultural homogenization have implied that Walmart's competition has increased over time, necessitating its innovativeness to compete in the global chains for customers, employees, and suppliers. Walmart operates in a highly competitive omnichannel retail industry with the key competition resulting from e-commerce, departmental, discount, dollar, specialty, and variety stores, supermarkets, and warehouse clubs that operate nationally and internationally.
With retail sales estimated at the double the sales of the nearest competitors, Walmart U.S. accounts as the leading retailer in the U.S in terms of sales and revenues. Walmart's influential competitors include Amazon, Alibaba, Target, Costco, Walgreens, Kmart, Home Depot, Walmart, Kroger, Tesco, Carrefour. Core and emerging competition arise from the leading players in the e-commerce and the m-commerce sector players such as Amazon and Alibaba. To ensure competitiveness, Walmart operates the Everyday low price (EDLP) pricing model to maximize on customer attraction and retention, Every Day Low Costs (EDLC) costing model to ensure cost savings that are passed to customers through low prices and Same Day Delivery, and Same Day Pickup omnichannel offerings that enable online ordering and free delivery.
Figure 4: 2017 Retail Sales (Billion) of Top Retailers
Data Source: National Retail Federation.
3.2.3. Customers
Averagely, Walmart serves 265 million customers weekly through its 56 banners eCommerce platforms, and its 11,500 stores (5,355 located in the U.S.) are positioned in 27 countries. Walmart customers are spread across the globe and are categorized into three segments; Walmart U.S. Segment, Walmart International Segment, and Sam’s Club. The Walmart U.S. segment serves customers in 50 states, Puerto Rico and Washington D.C., and accounts as the largest segment. The segments sale for the FY 2019/2020 accounted for 66% of the total consolidated net sale. Customers under the U.S. segment enjoy an omnichannel experience that integrates eCommerce and retail store service. The U.S. segment offers goods and services under three strategic merchandise units including the grocery (natural and organics, meat, deli and bakery, beverages, consumables), health and wellness (optical services, pharmacy, clinical services), and general merchandise (entertainment, apparel, hardlines, and home). Grocery accounts for 56%, general merchandise accounts for 32%, and health and wellness account for 11% of the total merchandise of the U.S. segment.
Under the Walmart International Segment, Walmart operates 221 distribution facilities in Canada, Argentina, Chile, Central America, United Kingdom, China, India, Japan, Mexico, and South Africa that ship merchandise to the e-commerce customers and the store customers. The company operates a membership-only warehouse club, Sam's Club, in 44 states in the U.S as well as Puerto Rico. Sam’s club sales accounted for 11% of our consolidated FY 2019/2020 net sales. The customers possess a bargaining power in the different territories the company operates. Given the presence of other retailers in the market, customer groups could exert a high quality and low-price bargaining power, necessitating Walmart's adaptation to the customers’ expectations. To address customer’s needs, Walmart employs four principles; price leadership, product access differentiation, delivery of the greater experience, and competitiveness in an assortment.
3.2.4. Suppliers/Vendors
Walmart’s high level integrated and cost-effective supply account is a key competitive advantage in the retail industry. Spanning across multiple geographies, Walmart's global supply chain entails over 100,000 suppliers that supply the merchandise sold online, physical stores, and club warehouses. Suppliers provide the merchandise on sale in Walmart’s stores; hence their existence is fundamental for the sustainability of Walmart. Unavailability of certain pharmaceutical vendors would, for example, severely disrupt the pharmaceutical operations that would cause reputational damage and loss of pharmacy customers. Walmart's dominant position enables the company to have bargaining power against its suppliers. Moreover, it establishes a strategic partnership with the suppliers and implements a robust supply chain management system that integrates technological tools such as Electronic Data Interchange that reduces transactional costs. Consequently, Walmart pushes efficiency among its suppliers, a strategy that has been instrumental in maintaining low prices, which is beneficial to Walmart’s customers.
3.2.5. Government Agencies
The government agencies maintain control over strategic resources that determine the effectiveness of business operations. Companies such as Walmart are affected by laws and regulations by governments in jurisdictions where Walmart operates. Noncompliance adversely increases the business operation risk, destroys reputation, and materially affects the financial performance of a company. Big box retailers are governed by national, state, and international laws and regulations related to health and safety, labor rights, ethical and responsible business practices, financial regulations, among others. The U.S. government, for example, is pursuing significant changes in the trade policies and regulations, such as the imposition of higher import tariffs in the U.S. with inherent effects on the trading partners that are either suppliers or markets for Walmart’s merchandise. Such policy and regulations changes would impose an increase in the prices, which would substantially affect Walmart’s financial performance. Moreover, the government develops infrastructures such as electricity and transport infrastructure that directly affect the business efficiency of companies such as Walmart. It’s paramount that Walmart abides by the local and international regulations that are set by the government.
3.3.6. Communities
The community stakeholders entail the groups, people, or organizations that can be affected or influence a company’s operations. Across the world, communities influence Walmart’s operations. Hence, the strategic interest of the communities, such as ethical operations, is pivotal for sustained operations. Walmart operations exert significant externalities to the communities. Hence initiatives to address public interest while implementing the core business are paramount for Walmart's sustainability. Arrangement of environmental social and governance (ESG) issues is one rooted community interest that impacts the decisions of Walmart (Neebe, 2020). For example, to address the environmental degradation challenges resulting from “single-use plastic bags,” Walmart is pursuing the elimination of unnecessary plastic packaging, recyclable, reusable, and biodegradable plastic packaging through the Sustainability Hub initiative.
4. SWOT Analysis
4.1. Strength
Walmart’s leading position in the international retail industry results from optimizing the inherent organizational strengths, particularly its competitive advantage (Zhao et al., 2020). The expansive organizational size enables Walmart to pursue global expansion. Moreover, the company’s global supply chain cultivates business resilience from market-specific risks. The company continuously invests in technology and process improvements, which optimizes efficiency and cuts on cost.
Walmart has, over the years, recorded robust growth in annual revenues. In FY 2019/2020, Walmart recorded US$ 524 billion in sales revenue, increasing from US$ 514 billion in the previous F.Y. Robust sales revenue is critical for financing the company’s operations.
Figure 5: Walmart Annual Revenue (Billions of U.S. $)
Source: FORM 10-K and FORM 10-K and (Statista, 2020b)
Walmart's historical operations are characterized by stability, which has enabled the company to maintain its liquidity. The company cashflows, short term borrowings, and long-term debt have not only enabled Walmart to finance its operations but also supported global investments and long-term investments, fostering the company’s sustainability. In the financial FY 2019/2020, Walmart reported $19 billion net cash from operating activities, instrumental in financing operations, payment of dividends, global investments, funding of share repurchase, and expansion activities. Walmart possesses a strong long-term debt and commercial paper rating by a leading rating agency such as Moody’s Investors Service (P-1 for commercial paper and Aa2 for long term debt), Standard & Poor’s (A-1+ for commercial paper and A.A. for long term debt), and Fitch Ratings (F1+ for commercial paper and A.A. for long term debt). Such strong ratings cultivate a favorable rate in the capital markets, enabling Walmart to refinance its debts as they mature. Walmart records an increasing Return on Assets (ROA), increasing to 7.7% in FY 2019/2020 compared to 6% in FY 2018/2019. Walmart recorded an increase in sales in the FY 2019/2020 compared to the FY 2018/2019, demonstrating the company’s increasing dominance in the retail market.
4.2. Weakness
Walmart adopts a cost leadership generic strategy with a relatively higher cost of sales, which contributes to thin gross profit margins (Gheibi, 2020). In contrast, Walmart adopts the strategy to attract more customers, which reduces the profit margins. The generic cost leadership strategy is an easily copied business model implying fewer competition differentiators. Moreover, the company loses out the market of quality-seeking buyers with lesser sensitivity to prices, increasing Walmart’s vulnerability to competition from high-end specialty retailers. Except for a strong brand image and large organizational size, Walmart fails to use its competitive differentiation to enhance its sustainability. Walmart's comparatively passiveness in optimizing technology and market disruptions, particularly the e-commerce trends, implies a loss of market to other innovative competitors such as Amazon. Such weaknesses constraints Walmart’s ability to withstand inherent threats and risks (Gheibi, 2020).
4.3. Opportunities
Walmart’s leading position in the retail market presents massive opportunities. The company pursues venturing and expansion, particularly in the developing countries experiencing a boom in consumption expenditures. Walmart's competitive advantage in offering competitively low prices would attract customers in developing countries. Being the largest private employer globally with employees in the excesses of 2.3 million, adopting favorable human resource policies would ensure Walmart attracts and retains high-quality workers. Health-conscious and environmental footprint conscious consumers are on the rise, presenting opportunities for Walmart to capitalize on best practices such as organic products and green practices as a strategy to retain and attract new customers.
Technology continues to evolve rapidly, and customers are increasingly embracing digital platforms and digital platforms growing in scope and complexity, presenting an opportunity for rating e-commerce. Walmart accounts for a leader in the use of technology. Investing in blockchain technology to control and predict inventory levels, predict demand, manage logistics, establish high-efficiency transportation routes, and manage customer relationships presents opportunities for cutting transaction costs and improving customer experience. Moreover, increasing trade liberalization presents opportunities for strategic alliances in foreign countries beyond the U.S., which is pivotal for competitive positioning.
4.4. Threats
Global pandemics, including the COVID-19, natural disasters, catastrophic events, climate change, unfavorable pollical environments, present a risk to the operations of Walmart. Adoption of new tax regimes, the introduction of new tariffs and labor policies, trade restrictions, changes in government policies, and initiatives account as core regulatory and legislative reforms that present a threat to Walmart operations. The uncertainty of the general economic environment, domestically, and internationally presents risks to the business operations of Walmart. The geopolitical environment, business conditions, and capital markets in countries that Walmart operates present economic uncertainties. Fluctuations of currency exchanges, changes in size and dynamics of eCommerce markets, changes in commodity prices such as natural gas and crude oil, competitors initiatives, changes in consumer shopping patterns account as other economic factors that pause threat on the sustainability of Walmart operations.
A downgrade if the credit ratings of Walmart pauses a risk of the increased cost of borrowing or impairment of the company’s ability to access credit and capital markets at favorable terms. A downgrade of the credit ratings would result in to use of debt financing. The credit ratings are influenced by implicit factors such as the company’s operating performance, financial position, business strategy, and explicit conditions such as conditions in the retail industry and the general economic environment.
Walmart has an expansive eCommerce platform where the customers pay via credit and debit cards, checks, gift cards, private label credit cards with the inherent risk of information security threat. Moreover, the company information systems have interlinkages with other institutions such as vendors, associates, third-party service providers, which present a risk of compromise of our data security systems, which would adversely affect the company’s reputation and financial performance.
5. Conclusion
An analysis of Walmart’s FY 2019/2020 Form DEF-14A Proxy Statement (2020) and SEC Form-10k Annual Report and demonstrates sustainable competitive advantage and global position resulting from the mix of strategic business strategies such as price leadership, technology efficiency, and innovative eCommerce models. An analysis of the Form 10-K and DEF-14A reveals that the management sought to boost economic performance in FY 2019/2020. The management is conscious of the inherent political, economic, regulatory, natural risks, hence puts sustainable mitigating strategies to address the adverse effects of such risks. Nevertheless, it’s fundamental that the retailer addresses some pivotal threats and weaknesses such as H.R. policies, supply chain management, and optimize opportunities such as blockchain technologies to retain global competitiveness.
References
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