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walmart

walmart Wal-Mart is a general merchandise discount retailer, which was incorporated in 1962. Wal-Mart’s history is based on one man, Sam Walton, who changed the course of retailing forever. Sam Walton first entered retailing when he was a management trainee at J.C. Penny Co. in 1940 in Des Moines, Iowa. After serving in the Army in World War II, Walton acquired a Ben Franklin variety store franchise with his brother James Walton in Newport Arkansas, until they lost the lease to the store in 1950. By 1962, when the first Wal-Mart Discount City was opened in Rogers Arkansas, both Walton’s were operating fifteen stores under the “Walton 5 & 10” name, and were the largest Ben Franklin franchisee in the country. Limited pricing, low gross margins, and high inventory turnover characterized these stores. Walton phased out the stores in 1976 in order to focus on the emerging Wal-Mart stores. In 1978, the first distribution center was built, followed by the first Wal-Mart Supercenter in 1983 and a Sam’s Club in 1988. Important to Walton, and ultimately Wal-Mart, are certain philosophies that were amounted over time. Walton held these values tightly, and engrained them in the Wal-Mart cultures. From his experience at J.C. Penny Co. he was impressed with the philosophies they used (e.g. “The Penny Idea”) and used them to mold Wal-Mart. This included referring to employees as “associates”, serving the public to their complete satisfaction, and receiving a fair profit from services rendered. Walton’s theory on what Wal-Mart should be is “a conveniently located one-stop shopping unit where customers could buy a wide variety of quality merchandise at discount prices.” And as Wal-Mart grew, management sought a firm that was a “discount department store chain offering a wide variety of general merchandise to the customer.” It was on these values and philosophies that Wal-Mart expanded. Wal-Mart has grown above and beyond the Arkansas store that opened thirty-nine years ago. It serves more than 100 million customers weekly in all of the 50 states, plus Puerto Rico, Canada, China, Mexico, Brazil, Germany, United Kingdom, Argentina, and South Korea. Wal-Mart’s current operating numbers are: Total Worldwide Associates 1,240,000 Wal-Mart’s financial numbers have grown substantially as well. At the end of the fiscal year 2000, total company sales reached $191 billion dollars. This was an increase over the previous year of 15.9%. Total international sales amounted to $32 billion dollars at the end of the 2000 fiscal year, which was an increase of 41% over the previous year. Wal-Mart is widely recognized as one of the leading discount variety store chains. It is the nations largest discount department store chain, and also one of the largest discounters in the nation in terms of sales dollars.  Nation’s largest discount department store chain.  A company with a very defined mission set by Sam Walton.  Good distribution concepts with no one store more than 6 hrs. away from warehouse.  Constant expansion over lifetime of company.  Offers a variety of merchandise for its consumers.  Valued their employees and consumers happiness.  “Everyday Low prices” advertising campaign.  First retailer to embrace “green” marketing.  Inventory Control system is the best in retail industry.  Support of different community activities.  Illustrates low prices and at the same time, not portray a cheap image to consumer.  Viewed by some consumers as Mom and Pop shop killers.  Industry competes on many similar elements.  Over exposure to many close markets.  Expanding the Sam’s Club brand and Superstores  Partnerships with other businesses to house in store.  Inability to enter the Urban Market.  Fierce Competition: Kmart, Sears and Target.  Getting caught in price wars with competition  Economic uncertainty and buying patterns of consumers.  Factory Outlet stores with lower price strategies.  Specialty stores: e.g. Toys’R’Us and Home Depot. Wal-Mart targets a wide variety of consumers with many different strategic advertising campaigns. Have you ever heard of that “Everyday low prices” slogan? This is an example of Wal-Mart’s mass marketing approach to the marketplace. Wal-Mart’s specific target market ranges from 25 years old and up. Wal-Mart targets the family oriented consumer who is looking for a good value at a low price. Wal-Mart has numerous strengths and weaknesses that must be analyzed to better understand their industry. (See Appendix for Porter’s Five Forces analysis of the company.) Taking an overview look at Wal-Mart, an individual may see an immense amount of strengths and opportunities for the company. However, there are some weaknesses and threats that must be considered in order to continue their success. Wal-Mart is the largest discount department store chain in the nation beating out many different competitors. It is believed that one of Wal-Mart’s most valuable strengths is their mission statement set by their late CEO and founder, Sam Walton. He set the company’s values on which the store would operate with to continue success in the future. Wal-Mart continues to grow to many different regions of the world and is a well-known retail chain among consumers internationally. Wal-Mart possesses one of the best inventory control systems in the industry. Wal-Mart has excellent distribution channels throughout the country. Wal-Mart has a distribution warehouse no more than six hours from any of its stores location. Additionally, the fact that they do not have to pay outside shipping companies to deliver the goods to the stores saves a considerable amount of money on their distribution costs. However, despite Wal-Mart’s strengths, the company also has weaknesses that need to be addressed. One of their weaknesses is the company’s strong focus on a lower price strategy that often gives the consumer a perception of goods and services of poor quality. Also, some consumers view Wal-Mart as mom and pop killers when they build a new superstore in a small town. Many consumers value their personal relationships with hometown department stores and would not like to see them eliminated. A dollar must circulate several times within a community in order for there to be a good local economy. Most of Wal-Mart’s dollars leave the local community aside from their employees salary’s. This trend eventually makes a community poorer over time. Finally, most of Wal-Mart’s competition competes on many of the same elements, such as price, promotion, distribution, and products. This makes it harder to gain a competitive advantage for Wal-Mart. Wal-Mart has many opportunities it may consider to pursue for its future success. The international marketplace is the trend of the future for many companies. Wal-Mart has started to expand overseas with limited success. However, it will take a certain time period for consumers to adapt to Wal-Mart’s concepts. Another opportunity may be to expand their Sam’s Club stores and their Superstores because they are very profitable for the company. A final opportunity is if Wal-Mart could emerge more into the urban marketplace, they would definitely see solid returns. The major barrier to entry in urban areas is the price of real estate required for their storefront. Although it seems that Wal-Mart has few threats to consider, it must still consider them in order to remain one of the best in the industry. The discount variety store industry is a fiercely competing marketplace and the big players are always strategically placed to gain new customers from the competition. Wal-Mart must keep an eye on its competitors, such as Kmart, Sears and Target. Another threat to Wal-Mart is factory stores that offer consumers the alternative of brand names at a lower price. Plus, Wal-Mart must also be aware of specialty retailers, such as Toys’R’Us and Home Depot. The specialty retailers can often offer a wider variety of specific product categories and lower prices. (See Appendix for more detailed list of SWOT.) Wal-Mart’s financial information Wal-Mart’s stock has consistently done well for investors. From the period 1995 until the present, the stock rose consistently to the point where it split in March of 1999 and peaked in December of that year. It held its footing relatively well after the bearish market activity of 2000 with a market capitalization higher than that of any other company in the discount variety store industry. The price-earnings ratio remains a little high at 33.5 given their large market capitalization. Investor’s like Wal-Mart’s stock especially since its beta is almost one, which means it is a good stock to have in your portfolio in turbulent times in the market. Wal-Mart’s earnings-per-share are most recently about $1.40/sh, about half that of Sears (a notoriously low growth/high dividend stock) but with a commendable 16% 10 year EPS growth rate. As for dividends, Wal-Mart paid about $0.28 per share with a decent 18.9% 10-year dividend growth rate. Wal-Mart’s latest annual revenue is approximately 200 billion, about 5 times that of their closest competitor Sears. Wal-Mart's income growth trends are some of the best in their industry. They continue to be on the upswing and are practically killing companies like K-mart, who have had consistently negative growth over the past five years. Wal-Mart’s latest annual income was over 6 billion dollars with 15.9 percent income growth over a 10-year stretch. While many of their competitors are in the negative growth phase, Wal-Mart continues to become even more dominant in the industry. Revenue and growth don’t always tell the whole story. There are much better ways to measure a company’s financial strength such as return on equity, debt/shareholder equity ratio, and net profit margins. There are no foreseeable problems with the net profit margins of approximately 3% (net profit margins are management’s ability to turn sales into profits). However I do think that Wal-Mart’s current debt to equity ratio may be having an adverse effect on the true return on equity, according to Warren Buffet’s philosophy. Mr. Buffet is a conservative investor yet one of the richest men in the world. Wal-Mart may be inflating the returns on equity with the use of leverage. What this means is that instead of Wal-Mart issuing new shares to finance their growth, they may be borrowing money in the form of debt, which will ultimately water down the owner’s actual claims to the company. For example, if Wal-Mart decides that it is better for the company to take on more debt to finance their activities, the percentage claim that investors have in the form of equity will decrease. This is true even if Wal-Mart profits from this borrowing by showing increased net income and high returns on that equity portion of the company. The net effect remains that the company is now more insolvent due to the taking on of more debt and thereby decreasing the equity portion of the companies overall capitalization. At a current debt/equity ratio of .85 Wal-Mart has about 46% equity and 54% debt which is tolerable but could be improved. Wal-Mart is the undisputed industry leader in the discount variety story sector. They consistently show good financial numbers. The only concern may be their increasing trend in using debt financing. They may have a very good reason for it since their market cap is already so high. Issuing more shares is sure to increase their price-earnings ratio as well as possibly decrease their stock price. However the company is still in good overall financial shape. Wal-Mart’s corporate strategies are simple foundational guidelines on how the store conducts business. The first objective is: “customers would be provided what they want, when they want, at a value.” Second: “treating each other as we would hope to be treated, acknowledging our total dependency on our Associate-partners to sustain our success.”1 Both of these strategies are a tribute to Wal-Mart’s mission to serve its customers a good value. The corporate structure is constantly innovating forward, because as soon as Wal-Mart thinks that company can settle, profits and success will die as an outcome. Charged with this mentality Wal-Mart has made several innovations in its time. Most are familiar with SAMS Clubs, Supercenters, and the pharmacies, which make up some of the more successful innovations of the past two decades. Wal-Mart is continuing to innovate by refurbishing old stores and testing new stores such as a drive through grocery store. Much of the changes occur domestically because Wal-Mart is still growing faster in North America than in any other part of the world. This is not to suggest that the company is overlooking international growth, which has been substantial on its own. Wal-Mart’s goal on an international corporate level is to become an international brand name similar to Disney and Coke. Wal-Mart is achieving this goal by strategically expanding into markets in each continent being conscience of each country’s culture. This growth will require an expanded distribution that will encompass the world. Any market that to be tapped will still follows the principles of honest business on which Sam Walton founded the company on. Wal-Mart provides its customers with a vast selection of quality products at low prices through its use of an inventory control system and its dealings with suppliers. The buying power Wal-Mart possesses gives it an advantage over small retailers in product pricing. Wal-Mart’s use of its inventory system provides its customers with the products they want when they want it, which reassures its customers of a vast product mix. Wal-Mart and its subsidiaries have over 3400 stores that make for an impressive amount of buying power. Buying large amounts of inventory allows Wal-Mart to obtain products at a lower cost than smaller retailers. Wal-Mart also has considerable influence with its suppliers for best price, delivery terms, promotion allowances and continuity of supply because in many areas it is the dominant distributor. Wal-Mart has a policy of only doing business with the top sales executives of suppliers. Wal-Mart has also been accused of threatening its suppliers if they didn’t sell directly to Wal-Mart, it would go to another supplier. The savings Wal-Mart receives from its suppliers is passed on to its customers, giving Wal-Mart a price advantage over its competitors. Wal-Mart not only has cost savings with its aggressive dealings with suppliers, but also with its inventory-control system. Wal-Mart has a computer controlled inventory system that logs every item sold at the checkout counter. The information produced by this system automatically informs the warehouses of merchandise to be ordered, and where to place those items. The system keeps track of sales information that alerts management to sales trends, allowing Wal-Mart to keep more inventories on hand that customers want. This system also allows Wal-Mart to reduce its over all amount of inventory, which produces a savings that can be passed on to its customers. Using this system has allowed Wal-Mart to speed up the time it takes to replace items on the shelves, which prevents the possibility that customers will have to go elsewhere to find the products they want. Wal-Mart not only uses controls to help its product pricing but also uses them to affect its store personality. Wal-Mart places priority on customer service in the way it does business. Wal-Mart uses people greeters to make customers feel welcome in its stores. Rules have also been placed in service by the company to enhance customer service such as the Sundown Rule that states, “Why put off until tomorrow what you can do today”. Wal-Mart also uses the 10ft attitude, which means that whenever an employee comes in contact with a customer they should greet that customer and offer assistance. The structure and controls that Wal-Mart has in place enable it to achieve the objectives and goals of the company from product pricing to customer service. Wal-Mart not only has controls for customers but also employees such as, using the term associates helps Wal-Mart achieve its customer goals by making its employees feel part of a team. This team works together towards Wal-Mart’s goals and objectives. The direction for Wal-Mart’s future is focused on increased customer satisfaction and service, introducing new types of stores, and expanding on their distinctive competency of distribution. Each direction has been analyzed for possible success and although each idea for continued growth might lead to substantial gains, only the most successful ideas will carry a recommendation. Certain ideas, while possibly being beneficial to Wal-Mart if instituted, are not the best ones to be implemented. Two directions that were not used are improved employee training and the introduction of chain that would cater to a new market. Improved employee training was eliminated as a recommendation when it was determined that it could not provide a significant benefit to the company. The idea of opening a chain that caters to an upscale market was eliminated because it could conflict with Wal-Mart’s mission of providing low cost to customers. It also would have been difficult to separate this new chain from the image of Wal-Mart that currently exists, and could have the potential to take away sales from the current stores. Wal-Mart currently is doing very well. Sales have increased substantially over the last year both domestically and internationally, and the company serves more than 100 million customers every week. Wal-Mart’s future is very bright. However, there are recommendations that when instituted, would allow for added profit, customer satisfaction, and company expansion. Customer satisfaction and service are key areas where improvements can lead to increased profits and an increased customer base. Wal-Mart should strive to improve its current stores to be more appealing for the customer and to make the shopping experience more pleasing. To make locating items easier in the stores, Wal-Mart should place interactive computer stations at various strategic areas in the store that allow a customer to search the store using a touch screen computer. Once the information is entered, the station should tell the customer where the item is located in the store in relation to their current location. A possible extension of this recommendation is a portable handheld computer that allows a customer with disabilities to search the store with the least amount of difficulty. The store itself should be remodeled to decrease the cheap warehouse feeling normally associated with Wal-Mart. This can be done by installing brighter and more focused lighting, using brighter colors to decorate the store, having more carpeted areas, hanging posters of famous brand name products, and upgrading employees uniforms to consist of more than just vests (i.e. polo shirts). The shopping experience would feel more “upper class”, and customers will not feel that they are settling for less. In order to reduce customer waiting and frustration at checkout, Wal-Mart should decrease the amount of items needed to use the Express Lane checkout. Wal-Mart should also implement automated checkouts, in which customers check themselves out and bag their own items. To aid customers in entering and leaving the store with the least amount of inconvenience, Wal-Mart should implement more entrances and exits into different departments, such as the Garden department and the Grocery department, with signage that easily identifies what part of the store the entrances are leading too. Moving from the retail level to business relationships, Wal-Mart has extensive opportunities to expand on its distinctive competency of its distribution system. The company has strategically placed distribution centers all over the US close to its stores. This not only makes for an excellent venue to supply Wal-Marts, but other companies’ stores as well. Wal-Mart Inc. can be a competitive distributor that would service companies not in direct competition with Wal-Mart. A study should be conducted to find out which industry should be targeted for this type of venture. This is a low risk high return venture because Wal-Mart would be using facilities that the company already owns, and expansion of these facilities is already in the making. In addition, Wal-Mart has already been successful in distribution with its offspring grocery store distributor “McLean”. McLean services not only Wal-Marts, but convenience stores as well. Bibliography:

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