Walmart Case Study: Strategy, Ethics & Corporate Structure

Introduction and Case Issues

CI#1 — Consumer Safety: Walmart Stores has been severely criticized for its intense drive to offer customers the cheapest products on the market. In pursuit of that goal, the company has at times neglected the quality and safety of its merchandise.

CI#2 — Impact on Local Communities: Communities generally object to the opening of a Walmart store in their region. Citizens fear the impact the store will have on their lives and the environment, while local entrepreneurs worry about being driven out of business.

CI#3 — Employee Turnover: A large majority of Walmart employees are dissatisfied with their wages, benefits (including healthcare), and working conditions. This dissatisfaction generates significant personnel fluctuation.

Walmart embodies the ultimate model of retail business success. The company is the largest retailer in the United States, with a market share of approximately 20%. It operates a total of 2,701 stores spread across all American states and 13 additional countries. Fiscal year 2006 produced strong financial results, including net sales of $312.4 billion and net income of $11.2 billion (Walmart Annual Report for 2006).

The end of fiscal year 2006 was marked by a 44.9% increase in free cash flow, which reached $4,498 million compared to $3,105 million in 2005. Walmart also recorded a 9.5% increase in net sales and a 9.4% increase in net income (Parmelee, 2007).

In the preceding year, Walmart continued its territorial expansion by adding five more countries to its portfolio. The company increased expenditures — primarily employee wages — and conducted intensive marketing research to identify and satisfy customer needs.

The Walmart mission encompasses several commitments drawn from company statements:

1. Offer customers cheap, high-quality products:

2. Territorial expansion:

3. Support community development (CI#2):

4. Human resources (CI#3):

Pricing policies:

Return policy: Essentially all purchased items can be exchanged or refunded within 90 days of purchase, provided the customer retains the receipt. Exceptions include computer components and accessories (45 days), camcorders and digital cameras (30 days), and computers and postpaid mobile phones (15 days) (Return Policy, Walmart Stores Website).

Diversity policies: Walmart values the diversity of its employees and associates. The corporation engaged with a number of leadership groups, including:

Walmart's Board of Directors is composed of fifteen members, as listed on the Walmart Stores website:

Corporate Governance

Walmart's senior executive team, as presented on the Walmart website, includes:

Walmart's retail division consists of four major subsidiaries: Walmart Discount Stores, Walmart Supercenters, Walmart Neighborhood Markets, and Sam's Clubs (Walmart Facts, 2007).

Walmart operates 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.

The corporate culture of Walmart is one of the biggest contributing factors to its status as one of the world's most admired companies. As the company states: "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." (Walmart Stores Website, 2007)

Key cultural principles include:

1. Marketing

Product: Walmart offers a wide array of products, from grocery and apparel to general merchandise, including both organic and non-organic items.

Promotion: Strong advertisements and promotions are developed by the Walmart marketing department with the aid of specialized firms. Advertisements run across all media channels — television, radio, internet, street banners, flyers, and print media — with a consistent focus on low prices.

Price: Low retail prices result primarily from cheap imports. These low prices, however, pose a significant threat to local businesses (CI#2).

Place: Walmart maintains international coverage across all American states and 13 countries, and is also available for online purchases at walmart.com.

2. Research and Development

Internal Environment: Strengths and Weaknesses

Because Walmart is primarily a retailer, the company does not perceive a strong need for product innovation or improvement, and R&D budgets remain relatively limited.

3. Operations and Logistics

Operations principally involve the import of low-cost products, transport, storage, inventory management, and selling. The corporation employs strict procedures that ensure smooth ongoing operations. Its highly efficient logistics system enables the conglomerate to collect and transport products to numerous destinations — a capability that is central to maintaining low retail prices.

4. Human Resource Management

Walmart employed approximately 2 million people in 2007. Employees work an average of 34 hours per week; overtime is discouraged and training programs are provided. The most common position is sales associate. Employees are generally dissatisfied with wages — which are lower than at comparable companies — and with the limited benefits package, both of which contribute to elevated turnover (CI#3).

5. Information Systems

Skilled and qualified technicians maintain and update the information systems and databases that support both online purchases and customer assistance. The Information Systems Division is guided by three beliefs — "Respect for the Individual; Service to Our Customers; and Strive for Excellence" — and five commitments: "Know the Business; Build it Right; Show the Value; Count on Us; and Teach Up" (Information Systems Division, Walmart Stores Website).

6. Financial Data and Analysis

Key financial highlights for fiscal years 2004–2006 (in millions of dollars, from the Walmart Annual Report for 2006):

7. Financial Ratios (Fiscal Year 2006)

Data for the following ratios were retrieved from the Reuters website in November 2007:

Valuation Ratios: These ratios allow comparison of a company's stock price relative to other stocks in the market.

Dividend Yield: Dividend Yield = Annual Dividends per Share / Price per Share. The 1.93% dividend yield indicates that investors received $0.0193 for each dollar invested in Walmart. This figure exceeds the industry average of 1.79%, indicating that Walmart was a relatively profitable investment.

Profitability Ratios: All five profitability ratios — gross margin, operating margin, pre-tax margin, net profit margin, and effective tax rate — were below the industry average, suggesting that Walmart earned lower profits than its sector peers on a relative basis.

Management Effectiveness Ratios: According to O'Reilly (2007), these ratios "compare financial measures from company financial statements to evaluate management performance." Walmart's ROI, ROA, and ROE all exceeded industry averages, indicating that the company possesses a capable and skilled management team.

Efficiency Ratios: These ratios measure how well a company manages its resources and assets while maximizing profits. All three metrics — receivable turnover, inventory turnover, and asset turnover — exceeded the industry average.

Economic: The weakening of the U.S. dollar relative to the strengthening euro presented a macro-level challenge. While Walmart maintained a strong position in the U.S., it faced fierce competition in Europe from retailers such as METRO and Carrefour. The German market exemplified this difficulty: Walmart's stores there were closed after failing to deliver expected results in a highly competitive environment.

Technology: Walmart.com serves as a highly efficient, user-friendly website that assists customers in their shopping and broadens Walmart's customer reach. Technological advancements have also been made in the logistics sector to support international operations.