Walmart SEC 10-K & Proxy Statement Comprehensive Analysis

Background and Corporate Overview

Wal-Mart Stores, Inc. — referred to throughout this paper as Walmart — is a publicly traded multinational retail corporation operating discount department stores, eCommerce platforms, and warehouse stores. Headquartered in Bentonville, Arkansas, the company operates 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 the Gross Domestic Product (GDP) of 185 countries by McGee (2020) ranks Walmart's revenue 25th worldwide, demonstrating the company's dominance in the global economy.

The Fortune 500 Index has ranked Walmart the largest retail company in the United States, placing it in the top two since 2000 and number one for eight consecutive years since 2012, based on total sales. Since its 1972 NYSE listing, Walmart stock has experienced remarkable milestones. For the period ended July 31, 2020, Walmart recorded total revenues of $272 billion and consolidated net income of $10.5 billion. Walmart declared $2.16 in 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 over the five-year period since 2015.

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 operations in Mexico, which accounts for the largest international market, contributing 42% of the consolidated sales revenue reported in FY 2019/2020.

Walmart pursued globalization aggressively, and its operations span wholesale, retail, and eCommerce websites across all U.S. states, Central America, Canada, Africa, Argentina, Chile, Japan, India, China, the United Kingdom, and Mexico. Walmart operates through three reportable segments: Walmart International, Walmart U.S., and Sam's Club.

The Walmart U.S. segment entails mass merchandising within the United States. The Walmart International segment covers operations outside the U.S. Both segments include eCommerce and omnichannel initiatives. The Sam's Club segment consists of samsclub.com, membership warehouse clubs, and omnichannel initiatives. In 2000, Walmart ventured into eCommerce through walmart.com and samsclub.com, creating platforms to enable an online shopping experience for customers. The retailer subsequently pursued other initiatives aggressively, including the Site to Store service in 2007, an innovation incubation program since 2016, the acquisition of Flipkart in 2019, and NextDay Delivery, Delivery Unlimited, and Same Day Pickup in 2020.

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 driving sales growth through eCommerce platforms, increasing comparable store and club sales, and expanding omnichannel initiatives. The business model is premised on retailing vast merchandise at low prices, with customers consistently citing low prices as the fundamental reason for shopping at Walmart (Barbaro, 2007).

Walmart's business strategy is guided by four fundamental principles:

Innovation and ecosystem expansion are at the core of Walmart's business strategy. The company sought to respond to the global health pandemic by maximizing the safety of products and facilities. Walmart invested in enhancing sanitation and expanding online shopping, no-contact pickup, and delivery services. In the U.S., Walmart expanded its omnichannel platforms, with 3,200 locations offering grocery pickup and 1,600 locations offering grocery delivery. Seamless platforms such as Flipkart and PhonePe support same-day delivery in India.

Walmart's sales have increased over the years; however, natural disasters and economic crises — such as the COVID-19 pandemic in 2020 and the global recession of 2007/2008 — have contributed to periodic declines in sales growth.

Stakeholder Evaluation

Stakeholders include groups of people or institutions that affect or are affected by business activity. Stakeholder relationship management is pivotal in achieving a company's objectives. Developing meaningful relationships with stakeholders yields a license to operate, reduces operational constraints, minimizes risk, enhances business opportunities, and ultimately results in value creation. Stakeholder relationship management also assures stakeholders that the company seeks to maximize the interests of every stakeholder group (Jeffery, 2009). Walmart's stakeholders can be categorized into two groups: internal stakeholders — shareholders, the board of directors, management, and employees — and external stakeholders — competitors, the industry, vendors, customers, government agencies, and communities.

Internal stakeholders are the groups, people, or organizations that directly affect Walmart's business operations.

Walmart's shareholding comprises 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 at 35.3% and 14.8%, respectively. Shareholders strategically influence Walmart's strategy implementation, primarily through annual shareholder meetings where strategic issues are resolved. Shareholders vote on matters such as the election of directors, executive officer compensation, ratification of independent accountants, and amendments to the shareholding structure, among other core business strategies. In 2020, Walmart adopted its first virtual shareholder meeting, with shareholders voting electronically via mail, online, or by phone prior to or during the meeting.

The Board of Directors (BOD) comprises 27% female members, with a nominee median age of 53 years and a median tenure of 6.6 years. The BOD consists of 11 nominees — ten non-management nominees and seven independent nominees. Shareholders elect the Walmart Board of Directors through a one-share, one-vote procedure. Walmart's board leadership structure includes a Non-Executive Chairman, a Lead Independent Director, and the President and CEO. The BOD plays a strategic oversight role over Walmart's business strategy and provides counsel to management. Walmart's director policy establishes a 12-year term limit for independent directors, ensuring that the company retains a diversification of skills with the right mix of experiences and perspectives to steer the company competitively in a dynamically changing environment. The BOD includes two distinct committee types: governance committees — covering audit, compensation and management development, and nominating and governance — and strategy committees, which include technology and e-commerce and strategic planning and finance. These board committees play an oversight role over management to ensure adherence to Walmart's governance and strategy (SEC, 2020a).

Walmart management is mandated to supervise and oversee the company's operations. Walmart adopts a hierarchical management structure with vertical lines of command, where each employee reports to a direct supervisor. More than three-quarters of Walmart's operations management team members are drawn from employees who joined the company as hourly associates. The four business segments — Walmart U.S., Walmart International, Sam's Club, and Global E-commerce and Technology — are each headed by a president and CEO, with current leadership exhibiting gender parity. Executive management consists of 47 senior management members, of which 32% are female.

Walmart employees apply their expertise, skills, and knowledge to deliver organizational goals. The Walmart workforce consists of approximately 2.2 million associates across its stores globally, with approximately 1.5 million employees in the U.S. The workforce includes hourly part-time and non-exempt associates. Walmart works to reduce employee turnover by increasing wages, expanding training, and improving technology and operational tools. The core interests of Walmart employees include 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 been criticized for minimizing wages, which average $13.99 per hour for a full-time position.

External stakeholders are groups of businesses or persons that are not implicitly part of the company but possess a strategic interest in its operations.

Trade liberalization has resulted in diversification of the retail industry, with players operating locally and internationally. Industrial Organization (I.O.) theory identifies that industry structure and competitive forces determine a firm's competitiveness. Factors such as general industry attractiveness — determined by merchandise and resource substitutability — and a firm's position within the industry determine competitive advantage. The retail industry is characterized by high growth of Herfindahl-Hirschman Index (HHI) values, demonstrating the relative ease of entry for new firms into the industry, which translates to increasing competition for merchandise supply, customers, and capital, as well as a reduction in profit margins (Smith, 2019).

The National Retail Federation estimates the U.S. retail industry represents one-sixth of U.S. GDP, amounting to $2.6 trillion, with food and consumer products accounting for the largest share at $1 trillion (Jindal et al., 2020). The U.S. retail industry is, to some extent, seasonal, with weather patterns, calendar events, and 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 its low-pricing and low-cost models and omnichannel initiatives — that enable the firm to remain a dominant actor within the industry.

Increasing trade liberalization, the rapid expansion of information technology, and growing cultural homogenization have intensified Walmart's competition over time, necessitating continuous innovation to compete in global chains for customers, employees, and suppliers. Walmart operates in a highly competitive omnichannel retail industry, with key competition arising from eCommerce, departmental, discount, dollar, specialty, and variety stores, supermarkets, and warehouse clubs operating nationally and internationally.

With retail sales estimated at roughly double those of its nearest competitors, Walmart U.S. ranks as the leading retailer in the United States by sales and revenue. Walmart's principal competitors include Amazon, Alibaba, Target, Costco, Walgreens, Kmart, Home Depot, Kroger, Tesco, and Carrefour. Core and emerging competition arises from leading players in the eCommerce and mobile commerce sectors, such as Amazon and Alibaba. To ensure competitiveness, Walmart operates the Everyday Low Price (EDLP) pricing model to maximize customer attraction and retention, the Every Day Low Cost (EDLC) costing model to ensure cost savings that are passed on to customers through lower prices, and Same Day Delivery and Same Day Pickup omnichannel offerings that enable online ordering and free delivery.

Walmart serves an average of 265 million customers weekly through its 56-banner eCommerce platforms and its approximately 11,500 stores — 5,355 located in the U.S. — positioned across 27 countries. Walmart customers are categorized into three segments: Walmart U.S., Walmart International, and Sam's Club. The Walmart U.S. segment serves customers in all 50 states, Puerto Rico, and Washington, D.C., and is the largest segment, accounting for 66% of total consolidated net sales in FY 2019/2020. Customers in the U.S. segment enjoy an omnichannel experience integrating eCommerce and retail store service. The U.S. segment offers goods and services under three strategic merchandise categories: grocery (natural and organic products, meat, deli and bakery, beverages, and consumables), health and wellness (optical services, pharmacy, and clinical services), and general merchandise (entertainment, apparel, hardlines, and home). Grocery accounts for 56%, general merchandise for 32%, and health and wellness for 11% of total U.S. segment merchandise.

Under the Walmart International segment, Walmart operates 221 distribution facilities in Canada, Argentina, Chile, Central America, the United Kingdom, China, India, Japan, Mexico, and South Africa, shipping merchandise to both eCommerce and in-store customers. The company operates a membership-only warehouse club, Sam's Club, in 44 U.S. states and Puerto Rico. Sam's Club sales accounted for 11% of consolidated FY 2019/2020 net sales. Customers possess bargaining power in the various territories where the company operates, and the presence of competing retailers means customer groups can exert pressure for higher quality and lower prices, necessitating Walmart's ongoing adaptation to customer expectations. To address customers' needs, Walmart employs four principles: price leadership, product access differentiation, delivery of a superior experience, and competitiveness in product assortment.

Walmart's highly integrated and cost-effective supply chain is a key competitive advantage in the retail industry. Spanning multiple geographies, Walmart's global supply chain encompasses over 100,000 suppliers that provide merchandise sold online, in physical stores, and in club warehouses. Suppliers are fundamental to Walmart's sustainability; the unavailability of certain pharmaceutical vendors, for example, would severely disrupt pharmacy operations, causing reputational damage and the loss of pharmacy customers. Walmart's dominant market position enables the company to exercise bargaining power over suppliers. Moreover, Walmart establishes strategic partnerships with suppliers and implements a robust supply chain management system that integrates technological tools such as Electronic Data Interchange, which reduces transactional costs. Consequently, Walmart drives efficiency among its suppliers — a strategy instrumental in maintaining low prices that benefit Walmart's customers.

Government agencies maintain control over strategic resources that determine the effectiveness of business operations. Companies such as Walmart are affected by laws and regulations in every jurisdiction where they operate, and noncompliance adversely increases operational risk, destroys reputation, and materially affects financial performance. 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, and financial regulation, among others. The U.S. government, for example, has pursued significant changes in trade policy — such as the imposition of higher import tariffs — that have inherent effects on trading partners who serve as either suppliers or markets for Walmart's merchandise. Such policy changes can impose price increases that substantially affect Walmart's financial performance. Additionally, governments develop infrastructure such as electricity grids and transportation networks that directly affect the operational efficiency of companies like Walmart. Compliance with local and international regulations is therefore paramount for Walmart.

Community stakeholders encompass the groups, people, or organizations that can be affected by or can influence a company's operations. Communities across the world influence Walmart's operations, and the strategic interests of communities — such as ethical business conduct — are pivotal for sustained operations. Walmart's operations exert significant externalities on the communities in which it operates; hence, initiatives that address public interests while pursuing core business goals are essential for Walmart's long-term sustainability. Environmental, social, and governance (ESG) considerations represent one deeply rooted community interest that impacts Walmart's decisions (Neebe, 2020). For example, to address environmental degradation resulting from single-use plastic bags, Walmart is pursuing the elimination of unnecessary plastic packaging and promoting recyclable, reusable, and biodegradable plastic packaging through its Sustainability Hub initiative.

Conclusion

An analysis of Walmart's FY 2019/2020 Form DEF-14A Proxy Statement and SEC Form 10-K Annual Report demonstrates sustainable competitive advantage and a strong global position resulting from a mix of strategic business approaches such as price leadership, technology efficiency, and innovative eCommerce models. The management sought to boost economic performance in FY 2019/2020 and remains conscious of inherent political, economic, regulatory, and natural risks, putting in place mitigating strategies to address their adverse effects. Nevertheless, it is essential that Walmart address pivotal weaknesses such as human resource policies and supply chain management, and capitalize on emerging opportunities such as blockchain technology, to retain its global competitiveness.