Wal-Mart Strategic Audit

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STRATEGIC AUDIT OF

WAL-MART STORES, INC.

Prepared by:

AQUINO, ANALIZA DOCTOR

BERNARDO, BERGA GASMEN

DACUMOS, SUNSHINE NARAG

IBIS, MONIQUE ACEBEDO

PASCUAL, KRISHA ULEP

SIBAL, MARIEFLOR PAMITTAN

VILLON, JHON MARK SANTOS

Submitted to:

MARY GRACE T. DELELIS

Wal-Mart Strategic Audit

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OVERVIEW1

Wal-Mart was founded in 1962 by a man named Samuel Moore Walton. He was

considered ―one of the most influential retailers of the century‖ (Wheelen & Hunger, 740). Sam

Walton started his retail career in management in 1940 with J.C. Penney Co. His training and

hard work at J.C. Penney Co. led him to his great Wal-Mart idea. He decided that small town

populations would welcome, and make profitable, large discount shopping stores. When Sam

Walton created Wal-Mart in 1962, he declared that three policy goals would define his business:

―respect for the individual, service to customers, and striving for excellence‖

Wal-Mart stores ―sold nationally advertised, well-known-brand merchandise at low

prices in austere surroundings‖ (Wheelen & Hunger, 738). The 1970‘s marked significant

growth for Wal-Mart with its first Wal-Mart Distribution Center as well as the Wal-Mart Home

Office. By the end of 1979, there were 276 Wal-Mart stores in 11 states and in 1991, the firm

had 1,573 stores in 35 states to include the international market. Wal-Mart sales growth

continued into the 1980s. Wal-Mart was divided into three business segments: Wal-Mart stores,

Sam‘s Clubs, and the International Division.

In 1983 the company opened its first three Sam's Wholesale Clubs and began its

expansion into bigger city markets. Wal-Mart Supercenters were large combination stores that

included a full-line grocery center, a general merchandise discount store, banks and some even

offered a food court of restaurants. Wal-Mart‘s international expansion accelerated

management‘s plans for expansion and notoriety. In 2000, Fortune magazine named it as one of

the ―100 Best Places to Work‖ and in 2002, ―Wal-Mart officially became the world‘s largest

company based on its $245 billion in sales‖

Wal-Mart‘s winning strategy in the United States was based on selling brand products at

low cost while still offering the customer a quality product. Wal-Mart is in the business of

selling everything customers need in their everyday lives. This includes the consumer goods

listed above as well as food-service items.

Wal-Mart took pride in its domestic strategies and programs that were based on a set of

two priorities:

1) ―Customers would be provided with what they want, when they want it, all at a value‖.

2) ―Treating each other as we would hope to be treated, acknowledging our total dependency on

our Associate-partners to sustain our success‖

In the year ending January 31, 2006, Wal-Mart‘s financials reflected the following:

(all dollar amounts are in millions)

Total revenue - $315, 654

Net income - $11,231

Total assets - $138,187

Total liabilities - $48,826

Total shareholder‘s equity - $53,171.

According to the 2006 consolidated balance sheets total liabilities and shareholders‘ equity

equaled $138,187 not just totals shareholders‘ equity as previously shown.

1 Wheelen, Thomas L., and J. David Hunger. Strategic Management and Business Policy.

Upper Saddle River: Prentice, 2010. Print.

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I. CURRENT SITUATION

A. Current Performance

Wal-Mart is divided into three business segments: Wal-Mart Stores, Sam's Club, and the

International Division. In 2002, ―WM officially became the world‘s largest company based

on its $245 billion in sales.‖ As of January 31, 2006, the company had over 6,100 stores

worldwide, bought products from 70 countries, and 20% of its business was generated

outside of the United States.

In its 2006 fiscal year sales, it yields $312.4 billion, a 9.5% year over year increase

which resulted to a $11.2 billion net income, up 9.4% to $2.68 per share. The stock price is

$46.11, down from $56.98 on January 31, 2002. These results are due to better competition

and future expected growth slowdown.

B. Strategic Posture

1. Mission

Wal-Mart Stores, Inc. is a global retailer committed to improving the standard of

living for our customers throughout the world (Annual Report 2006). Wal-Mart‘s advertised

mission statement and its advertising slogan are the same:

“We save people money so they can live better.”

In addition to this mission statement, the company looks to its founder, Sam Walton

for a company ―purpose‖:

“If we work together, we’ll lower the cost of living for everyone...we’ll give the world an

opportunity to see what it’s like to save and have a better life.‖

2. Objectives

Comparative store sales is a measure which indicates the performance of our existing

stores by measuring the growth in sales for such stores for a particular period over the

corresponding period in the prior year.

Operating income growth greater than net sales growth has long been a measure of

success for us.

Inventory growth at a rate less than that of net sales is a key measure of our

efficiency.

With an asset base as large as ours, we are focused on continuing to make certain our

assets are productive. It is important for us to sustain our return on assets (Annual

Report 2006).

3. Strategies

We have developed several initiatives to help mitigate this pressure and to grow

comparable store sales through becoming more relevant to the customer by creating a

better store shopping experience, continual improvement in product assortment and

an aggressive store upgrade program to be instituted over the next 18 months.

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Our expansion programs consist of opening new units, converting discount stores to

supercenters, relocations that result in more square footage, as well as expansions of

existing stores.

Sam‘s Club - We believe that a greater focus on providing a quality in-club

experience for our members will improve overall sales, including sales in these

categories.

International – A shift in the mix of products sold toward general merchandise

categories which carry a higher margin (Annual Report 2006).

4. Policies

We earn the trust of our customers every day by providing a broad assortment of

quality merchandise and services at everyday low prices (―EDLP‖) while fostering a

culture that rewards and embraces mutual respect, integrity and diversity. Putting Our

Customers First.

EDLP is our pricing philosophy under which we price items at a low price every day

so that our customers trust that our prices will not change erratically under frequent

promotional activity.

Our focus for SAM‘S CLUB is to provide exceptional value on brand-name

merchandise at ―members only‖ prices for both business and personal use.

Internationally, we operate with similar philosophies (Annual Report 2006).

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II. CORPORATE GOVERNANCE

A. Board of Directors

The Board is composed of 13 members, four are affiliated with the company, nine are

independent, three women, two African Americans, two Hispanic Americans. The Chairman

of the Board is S. Robson Walton, son of the founder.

B. Top Management

Eduardo Castro-Wright Executive Vice President, President and Chief Executive Officer,

Wal-Mart Stores Division U.S.

M. Susan Chambers Executive Vice President, People Division

Patricia A. Curran Executive Vice President, Store Operations, Wal-Mart Stores Division

U.S.

Douglas J. Degn Executive Vice President, Food, Consumables, and Hardlines, Wal-Mart

Stores Division U.S.

Linda M. Dillman Executive Vice President, Risk Management and Benefits

Administration

Johnnie Dobbs Executive Vice President, Logistics and Supply Chain

Michael T. Duke Vice Chairman, Responsible for Wal-Mart International

Joseph J. Fitzsimmons Senior Vice President, Treasurer

John E. Fleming Executive Vice President, Chief Marketing Officer, Wal-Mart Stores

Division U.S.

Rollin L. Ford Executive Vice President and Chief Information Officer

David D. Glass Chairman of the Executive Committee of the Board of Directors

Mark D. Goodman Executive Vice President, Marketing, Membership and E-commerce,

SAM‘S CLUB

Craig R. Herkert Executive Vice President, President and Chief Executive Officer, The

Americas, Wal-Mart International

Charles M. Holley, Jr. Senior Vice President, Finance

Thomas D. Hyde Executive Vice President and Corporate Secretary

Lawrence V. Jackson Executive Vice President, President and Chief Executive Officer,

Global Procurement

Gregory L. Johnston Executive Vice President, Club Operations, SAM‘S CLUB

C. Douglas McMillon Executive Vice President, President and Chief Executive Officer,

SAM‘S CLUB

John B. Menzer Vice Chairman, Responsible for U.S.

Thomas M. Schoewe Executive Vice President and Chief Financial Officer

H. Lee Scott, Jr. President and Chief Executive Officer

Gregory E. Spragg Executive Vice President, Merchandising and Replenishment, SAM‘S

CLUB

S. Robson Walton Chairman of the Board of Directors

Claire A. Watts Executive Vice President, Product Development, Apparel and Home

Merchandising, Wal-Mart Stores Division U.S.

Eric S. Zorn Executive Vice President, Wal-Mart Realty (Annual Report 2006).

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III. EXTERNAL ENVIRONMENT: OPPORTUNITIES AND THREAT (SWOT)

A. Natural Environment

Raw materials availability.(O)

Land availability. (O)

Electricity usage. (T)

Oil and Gas usage. (T)

Water scarcity. (T)

Hazardous waste storage, transportation and disposal. (T?)

B. Societal Economy

1. Economic

Interest rate increases may signal end of economic expansion (T).

Economic deterioration may mean more frugal shopping habits. (O)

Increasing commodity costs. (T)

Increasing transportation costs. (T)

Currency fluctuations. (T)

Slowing national economy (T)

2. Technology

Increased usage of RFID for inventory management. (O)

Internet presence allows for customer options. (O)

Information technology increasingly important. (O)

3. Political-Legal

Regional trade pacts are making free trade available between countries. (O)

Differing laws between countries may evoke compliance issues. (T)

Potential unionization of workforce. (T)

The Company is involved in a number of legal proceedings. In accordance with

Statement of Financial Accounting Standards No. 5, ―Accounting for Contingencies,‖

the Company has made accruals with respect to these matters, where appropriate,

which are reflected in the Company‘s consolidated financial statements (Annual

Report 2006). (T)

The Company is a defendant in numerous cases containing class action allegations in

which the plaintiffs have brought claims under the Fair Labor Standards Act

(―FLSA‖), corresponding state statutes, or other laws (Annual Report 2006). (T)

4. Sociocultural

Aging U.S. demographics. (O)

Slowing U.S. population growth. (T)

Wal-Mart seen as a reason for closing of mom and pop stores. (T)

International cultural differences. (T)

Green environmental movement. (O)

C. Task Environment

United States market saturation. (T)

Expansion into Europe, China, South America, Canada, and Mexico. (O)

Rivalry High. Target, Sears, K-Mart (T)

Chance of new entrants low. (O)

Purchasing power high. (O)

Substitute power high. (T)

Government regulations power medium. (T)

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IV. INTERNAL ENVIRONMENT

A. Corporate Structure

Wal-Mart Stores, Inc. was structured into three business units, namely: Wal-Mart Stores

USA, Sam‘s Club, and Wal-Mart International. Wal-Mart Stores unit had 3,289 locations and

included the company‘s supercenters, discount stores, Neighborhood Markets in the US, and

walmart.com. Sam‘s Club unit had 567 locations and included the warehouse membership clubs

in the US plus samsclub.com. Wal-Mart International had 2,285 locations in 10 countries. The

International total was increased in February 2006 by purchasing a majority control of CARHCO

with 360 locations in five Central American countries.

The organizational structure outlines the responsibilities and duties of the top leaders.

Individual store managers were given considerable decision-making authority in relation to

product range, product positioning within stores, and pricing. This differed from most other

discount chains where decisions over pricing and merchandising were made either at head office

or at regional offices. Decentralized decision-making power was also apparent within stores,

where the managers of individual departments (for example, toys, health and beauty, consumer

electronics) were expected to develop and implement their own ideas for increasing sales and

reducing costs. Purchasing is centralized. All dealing with U.S. suppliers takes place at Wal-

Mart‘s Bentonville headquarters.

Organizational structure may be defined as the system of relations that subsist among a

variety of positions and position holders. Formal structure is a blueprint of relations that has been

knowingly deliberated and put into action. It includes a formal chain of command of power as

well as policies and procedures and other premeditated attempts to control conduct.2

Wal-Mart‘s organizational structure consists of a divisional structure. A divisional

structure has three different categories in which are product structure, market structure, and

geographic structure. Wal-Mart falls under market structure. This is where groups function by

types of customers so that each division contains the functions it needs to service a specific

segment of the market (p.514, George, Jones). For example Wal-Mart offers vision, pharmacy,

haircuts, grocery, crafts, clothes, electronics, house wares and etc.

Comparing Wal-Mart and K Mart as retail companies, both of companies have different

strategy to reach competitive advantages. Base on study, the types of competition between Wal-

Mart and K mart is Monopoly competition. Wal-Mart provides the customer with low price and

products differentiation, whereas, K mart does not only focus on cost leadership but also in

product differentiation. They provide products with different quality and brand compare to

competitor. For Organization Structure, Wal-Mart is better than K mart, Wal-Mart has good

reorganization system and also has good quality to maintain organization structure.3

We have found that both Wal-Mart and K-mart has developed their resources to improve

their value, their competitive advantages and promote their brands as well. By resources

improvement, they have gained the competition among competitors. When doing this, they can

increase the capability of manufacturing and supplying products to market. Internal analysis

helps both Wal-Mart and K-mart to increase their competitive advantages and extend their

2 http://www.writework.com/essay/wal-marts-organizational-structure-consists-divisional-str

3 http://www.studymode.com/essays/Ilham-Wal-Mart-1009709.html

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market share in order to improve their business performance. Regarding business level strategy

both of them (Wal-Mart and K-Mart). Actually they have similarity business level strategy but

Wal-Mart more specific in Cost leadership. Wal-Mart has more acquisition and merger than K

Mart, Wal-Mart was doing acquisition to open new market share, get more profit. But for K Mart

only make acquisition with Sears.

B. Corporate Culture

As Wal-Mart continues to grow into new areas, their success will always be attributed to

their culture. Whether customers walk into a Wal-Mart store in their home town or one across

the country while on vacation, they can always be assured of getting low prices and that genuine

customer service they expect. They‘ll feel at home in any department of any store…that‘s their

culture.

Sam Walton’s Three Basic Beliefs4

Sam Walton built Wal-Mart on the revolutionary philosophies of excellence in the

workplace, customer service and always having the lowest prices. We have always stayed true to

the Three Basic Beliefs Mr. Sam established in 1962:

Respect the Individual

―Our people make the difference‖ is not a meaningless slogan—it‘s a reality at Wal-Mart.

We are a group of dedicated, hardworking, ordinary people who have teamed together to

accomplish extraordinary things. We have very different backgrounds, different colors and

different beliefs, but we do believe that every individual deserves to be treated with respect and

dignity. (Don Soderquist, Senior Vice Chairman, Wal-Mart Stores, Inc.)

Service to Our Customers

We want our customers to trust in our pricing philosophy and to always be able to find

the lowest prices with the best possible service. We‘re nothing without our customers.

Wal-Mart‘s culture has always stressed the importance of Customer Service. Our Associate base

across the country is as diverse as the communities in which we have Wal-Mart stores. This

allows us to provide the Customer Service expected from each individual customer that walks

into our stores. (Tom Coughlin, President and Chief Executive Officer, Wal-Mart Stores

division.)

Strive for Excellence

New ideas and goals make us reach further than ever before. We try to find new and

innovative ways to push our boundaries and constantly improve. ―Sam was never satisfied that

prices were as low as they needed to be or that our product‘s quality was as high as they

deserved—he believed in the concept of striving for excellence before it became a fashionable

concept.‖ (Lee Scott, President and CEO.)

4 https://www.inkling.com/read/contemporary-strategy-analysis-grant-7th/case-5/appendix-the-wal-mart-culture

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Sam’s Rules for Building a Business

People often ask, ―What is Wal-Mart‘s secret to success?‖ In response to this ever-present

question, in his 1992 book Made in America, Sam Walton compiled a list of ten key factors that

unlock the mystery. These factors are known as ―Sam‘s Rules for Building a Business.‖

Rule 1. Commit to your business.

Rule 2. Share your profits with all your Associates, and treat them as partners.

Rule 3. Motivate your partners. Money and ownership alone aren‘t enough.

Rule 4. Communicate everything you possibly can to your partners.

Rule 5. Appreciate everything your Associates do for the business.

Rule 6. Celebrate your successes. Find some humor in your failures.

Rule 7. Listen to everyone in your company. And figure out ways to get them talking.

Rule 8. Exceed your customers‘ expectations.

Rule 9. Control your expenses better than your competition.

Rule 10. Swim upstream. Go the other way. Ignore the conventional wisdom.

In order to fulfil its mission, Wal-Mart has developed some unique policies, principles,

rules, processes and procedures, the sum total of which form Wal-Mart Stores corporate culture5:

Open Door Policy - Managers' doors are open to employees at all levels

Sundown Rule - Answering employee, customer, and supplier questions on the same

day the questions are received.

Grass Roots Process - Capturing suggestions and ideas from the sales floor and front lines

3 Basic Beliefs & Values - Respect for the Individual, Service to our Customers, Striving for

Excellence

10-Foot Rule - Making eye contact, greeting, and offering help to customers who

come within 10 feet.

Servant Leadership - Leaders are in service to their team

Wal-Mart Cheer - An actual structured chant that was created by founder Sam Walton

to lift morale every morning.

Sustainability Goals6

Environmental sustainability has become an essential ingredient to doing business

responsibly and successfully. As the world's largest retailer, their actions have the potential to

save our customers money and help ensure a better world for generations to come. We've set

three sustainability goals:

To be supplied 100% by renewable energy

To create zero waste.

To sell products that sustain people and the environment.

Cultural Emphasis

In many ways, Wal-Mart‘s corporate culture was a reflection of the values of its founder, Sam

Walton, in its emphasis on everyday low prices, corporate growth, concern for people and

loyalty to the company. The company‘s cultural roots have been considered by some to be both a

key strength and a serious weakness. But the strong emphasis on Wal-Mart values offended

some employees with different backgrounds.

5 http://retailindustry.about.com/od/retailbestpractices/ig/Company-Mission-Statements/Wal-Mart-Mission-

Statement.htm 6 http://corporate.walmart.com/global-responsibility/environment-sustainability

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C. Corporate Resources

1. Marketing

Wal-Mart had been founded on Sam Walton‘s belief that: ―There is only one boss: the

customer.‖ For Wal-Mart, the essence of customer service was low prices. Hence, Wal-Mart‘s

marketing strategy was built upon its slogan ―Everyday Low Prices‖: Wal-Mart‘s customer

appeal was as a price leader across its entire product range, all the time—it did not engage in

promotional price cutting.

The centrality of ―Everyday Low Prices‖ to Wal-Mart‘s relationship with its customers had

important implications for its marketing activities. Wal-Mart was able to rely on word-of-mouth

communication of its merits and was able to spend comparatively little on advertising and other

forms of promotion. Advertising typically involved one home-delivered advertisement circular

per month by each store and some television advertising. As a result, Wal-Mart‘s

advertising/sales ratio during the past three financial years was 0.55%—most of its rivals had

advertising/sales ratios of between 1.5% and 3.0%. Nevertheless, with an advertising budget of

over $2 billion, Wal-Mart was among the world‘s biggest advertisers.

Beyond its emphasis on serving customers by providing unbeatable value-for-money, the

values that Wal-Mart projected were traditional American virtues of hard work, thrift,

individualism, opportunity, and community. This identification with core American values was

buttressed by a strong emphasis on patriotism and national causes.

However, as Wal-Mart increasingly became a target for politicians and pressure groups,

former CEO Lee Scott initiated a major shift in the image that Wal-Mart projected to the world.

In 2004, Wal-Mart issued its first annual report on ethical sourcing where it published results of

its audit of suppliers‘ adherence to its code of conduct. In November 2005, Scott committed

Wal-Mart to a program of environmental sustainability and set ambitious targets for renewable

energy, the elimination of waste and a shift in product mix towards environmentally friendly

products. Two years later, Wal-Mart published the first of its annual sustainability reports.

Commitment to social and environmental responsibility can be seen as part of a wider effort

by Wal-Mart to broaden its consumer appeal and counter the attempts by activist groups to

characterize Wal-Mart as a heartless corporate giant whose success was built upon exploitation

and oppression. Wal-Mart broadened its customer base to include more upper income consumers

and expanded its geographical base into the more politically liberal parts of the U.S. (for

example, the west coast and New England) and beyond U.S. borders, so building an appeal that

extended beyond ―everyday low prices.‖

In 2008, Wal-Mart launched a company-wide image makeover that involved a new

corporate logo and a redesign of its stores. The new logo replaced upper-case characters by

lower-case, eliminated the star-hyphen (―Wal*Mart‖), and added a ―sunburst‖ design. According

to branding consultant, Marty Neumeier: ―The new ―sunburst‖ looks organic. My sense is they

are trying to say, ‗we‘re an eco-aware company,‘‖ Tobias Frere-Jones, a professor of

typography, observed that lower case letters tend to be interpreted as more casual and

approachable. The new logo coincided with a program of store redesign that included wider

aisles, improved lighting, and lower shelves.

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2. Finance7

In the midst of tough competition of these large companies, you might have wondered

what makes a company a successful in their chosen field of the industry and what makes other

companies go down on the deep abyss of failure.

Success and failure of companies cannot be attributed to a sense of luck. In the world of

commercialism, it seems that luck has no room in it, but it is a financial strategy that can make

and unmake a company. Financial Strategy is being employed by each company in order for its

company to successfully place itself on top of the competition.

Success of a company can be traced on how it had carefully planned and executed their

business strategy. Financial analyst had been making intensified research in order to come out

with a financial strategy that can be suited to that particular company. Without a sound

investment strategy, company can go astray as it tries to compete with their competitors. Hence,

the success behind the battle in the world of commercialism is a financial strategy. A company

needs to be armed with a financial strategy before it can go out in the field and compete.

The world‘s largest retailer is Wal-Mart had also armed itself with a financial strategy in

order to ensure that it will continuously wave the flag of supremacy in the sector of retail

business in almost 27 countries. Financial Strategy at Wal-Mart is now having its focus on

existing market.

Top executives of the company believe that merger and acquisition should be based on

existing market. This strategy will mean that Wal-Mart will first focus on those countries of

which they are already in operation rather than to venture on a different region. Their attention is

not to expand fair market but to concentrate on their existing market.

Financial Strategy at Wal-Mart will give priority on the area of which they are already in,

although, there are still new areas of which Wal-Mart could venture, but the company believes

that it will focus first on the area that it had its operation. But the company is still open to

different areas when an opportunity will present itself.

As to the strategy of merger and acquisition of existing market, Wal-Mart has an eye in

acquiring assets in Japan such as the Japanese retailer Aeon Co. Wal-Mart had been open on the

idea of acquiring an asset in Japan. This is considered as part of Financial Strategy at Wal-Mart.

Wal-Mart is driven by the mission, and that is to save people money and to help people

live better lives. This could be the driving force behind the Financial Strategy at Wal-Mart, and

that is for the company to fully concentrate on their existing market.

This will ensure that what they will give to their consumers their full attention that can

mean that consumers will get products that are low in prices and geared to improve their lives.

By having a focus on the areas of which they are already in operation will give an assurance that

Wal-Mart will give to their customers the value of their money.

5. Human Resource Management

Wal-Mart‘s human-resource practices in 2009 were based upon Sam Walton‘s beliefs about

relations between the company and its employees and between employees and customers. All

employees—from executive-level personnel to checkout clerks—were known as ―associates.‖

7 http://financial-management-slides.com/financial-strategy-at-walmart/#sthash.hQa5mKju.dpuf

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Wal-Mart‘s relations with its associates were to be founded on respect, high expectations, close

communication and clear incentives.

Wal-Mart‘s employees received relatively low pay—the median rates for hourly paid retail

workers in 2009 was between $8.46 and $12 an hour. However, these rates were, on average,

slightly above those paid in the retail trade generally. Employee benefits included a company

health plan that covered 94% of Wal-Mart employees and a retirement scheme, which covered

all employees with a year or more of service.

A key feature of Wal-Mart‘s compensation system was its profit incentives, which extended

to hourly employees. A stock purchase plan was also available to employees. Wal-Mart retirees

included a large number of millionaires—not all of whom were managers: in 1989, the first

millionaire hourly associate retired from the company.

Wal-Mart resisted the unionization of its employees in the belief that union membership

created a barrier between the management and the employees in furthering the success of the

company and its members. Despite strenuous efforts by unions to recruit Wal-Mart employees,

union penetration remained low. Between 2000 and 2008, the United Food and Commercial

Workers union together with AFL-CIO fought a concerted campaign to recruit Wal-Mart

workers, but to little effect.

Associates enjoyed a high degree of autonomy and received continuous communication

about their company‘s performance and about store operations. Every aspect of company

operations and strategy was seen as depending on the close collaboration of managers and shop-

floor employees. To control ―shrinkage‖ (theft), the company instituted a system whereby a

store‘s cost savings from reduced shrinkage were shared between the company and the store‘s

employees. Wal-Mart‘s shrinkage was estimated to be just above 1%, versus an industry average

of 2%.

Wal-Mart‘s approach to employee involvement made heavy use of orchestrated

demonstration of enthusiasm and commitment. The central feature of Wal-Mart meetings from

corporate to store level was the ―Wal-Mart Cheer‖—devised by Sam Walton after a visit to

Korea. The call and response ritual (―Give me a W!‖ ―Give me an A!‖…) included the ―Wal-

Mart squiggly,‖ which involved employees shaking their backsides in unison.

Fortune suggested that the Wal-Mart Cheer‘s mixture of homespun and corporate themes

provided an apt metaphor for what it called ―the Wal-Mart paradox‖:

The paradox is that Wal-Mart stands for both Main Street values and the efficiencies of the huge

corporation, aw-shucks hokeyness and terabytes of minute-by-minute sales data, fried-chicken

luncheons at the Waltons‘ Arkansas home and the demands of Wall Street.

Critics of Wal-Mart call the homespun stuff a fraud, a calculated strategy to put a human

face on a relentlessly profit-minded corporation. What is paradoxical and suspect to people

outside Wal-Mart, however, is perfectly normal to the people who work there. It reflects a deal

that Sam Walton, Wal-Mart‘s founder, made with the people who worked for him.

The deal was a lot more than just a matter of the occasional visit from Mr. Sam. Wal-Mart

demonstrated its concern for workers in many ways that were small but specific: time-and-a-half

for work on Sundays, an ―open-door‖ policy that let workers bring concerns to managers at any

level, the real chance of promotion (about 70% of store managers started as hourly associates).27

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The paradox of Wal-Mart‘s human resource practices continues. The enthusiasm it

generates among employees supports a level of involvement and empowerment that is unique

among large retail organizations. At the same time, the intense pressure for cost reduction and

sales growth frequently results in cases of employee abuse. Wal-Mart suffered reversals in class

action lawsuits by current and former employees. In a series of adverse court decisions, Wal-

Mart was forced to compensate current and former employees for unpaid overtime work, for

failure to ensure that workers received legally mandated rest breaks, and for systematically

discriminating against women in pay and promotion.

6. Information Technology

Wal-Mart was a pioneer in applying information and communications technology to support

decision making and promote efficiency and customer responsiveness. During the 1970s, Wal-

Mart was among the first retailers to use computers for inventory control, to initiate EDI with its

vendors, and to introduce bar code scanning for point-of-sale and inventory control. To link

stores and cash register sales with supply chain management and inventory control, Wal-Mart

invested $24 million in its own satellite in 1984. By 1990, Wal-Mart‘s satellite system was the

largest two-way, fully integrated private satellite network in the world, providing two-way

interactive voice and video capability, data transmission for inventory control, credit card

authorization, and enhanced EDI.

During the 1990s Wal-Mart was pioneering the use of data-mining for retail merchandising:

At Wal-Mart, information technology gives us that knowledge in the most direct way: by

collecting and analyzing our own internal information on exactly what any given shopping cart

contains. The popular term is ―data-mining,‖ and Wal-Mart has been doing it since about 1990.

The result, by now, is an enormous database of purchasing information that enables us to place

the right item in the right store at the right price. Our computer system receives 8.4 million

updates every minute on the items that customers take home—and the relationship between the

items in each basket.

Data analysis allows Wal-Mart to forecast, replenish, and merchandise on a product-by-

product, store-by-store level. For example, with years of sales data and information on weather,

school schedules and other pertinent variables, Wal-Mart can predict daily sales of Gatorade at a

specific store and automatically adjust store deliveries accordingly.

Point-of-sale data analysis also assisted in planning store layout:

There are some obvious purchasing patterns among the register receipts of families with infants

and small children. Well-thought-out product placement not only simplifies the shopping trip for

these customers—with baby aisles that include infant clothes and children‘s medicine alongside

diapers, baby food and formula—but at the same time places higher-margin products among the

staples…Customers who buy suitcases are likely to be looking for other items they might need

for travelling too—such as travel alarms and irons, which now, logically enough, can be found

displayed alongside luggage at many Wal-Mart stores.

The common thread is simple: We are here to serve the customer; and customers tend to

buy from us when we make it easy for them. That sounds like a simple idea. But first you must

understand the customer‘s needs. And that‘s where information comes in.

The role of IT was most important in linking and integrating the whole of Wal-Mart‘s value

chain:

Wal-Mart Strategic Audit

14

Wal-Mart‘s web of information systems extends far beyond the walls of any one store.

Starting from the basic information compiled at the checkout stand, at the shelves, and gathered

by associates equipped with hand-held computer monitors, Wal-Mart works to manage its

supplies and inventories not only in the stores, but all the way back to the original source. Wal-

Mart has given suppliers access to some of our systems, which enables them to know exactly

what is selling, and to plan their production accordingly. This not only helps us keep inventories

under control, but also helps the supplier deliver the lowest-cost product to the customer. With

sales and in-stock information transmitted between Wal-Mart and our supplier-partners in

seconds over the internet, buyers and suppliers are privy to the same facts and negotiate based on

a shared understanding—saving a significant amount of time and energy over more traditional,

low-tech systems.

Our buyer benefits from the supplier‘s product knowledge, while the supplier benefits from

Wal-Mart‘s experience in the market. Combine these information systems with our logistics—

our hub-and-spoke system in which distribution centers are placed within a day‘s truck run of the

stores—and all the pieces fall into place for the ability to respond to the needs of our customers,

before they are even in the store. In today‘s retailing world, speed is a crucial competitive

advantage. And when it comes to turning information into improved merchandising and service

to the customer, Wal-Mart is out in front and gaining speed. In the words of Randy Mott, Senior

Vice President and Chief Information Officer, ―The surest way to predict the future is to invent

it.‖

A. Corporate Resources

1. Marketing

Advertising costs are expensed as incurred and were $1.6 billion in 2006. Advertising

costs consist primarily of print and television advertisements (Annual Report 2006).

Buy American campaign. (S)

Green marketing offers the option of buying products which were better for

environment. (S)

Wal-Mart Strategic Audit

15

Offers quality brand names at lower-than-competitive prices (Wheelen and Hunger

19-19). (S)

Introduced a ―Value Plan‖ benefits plan to its employees at premiums ranging from

$11 to $65 a month. (S)

2. Finance

$312.6 billion in annual sales. (S)

$11.2 billion net income. (S)

$2.68 earnings per share. (S)

8.9% return on assets. (S)

11.4% increase in sales and operating income for the international business (Wheelen

and Hunger 19-24). (S)

3. R&D

More involved with the development side. (W)

Focusing on expansion and development of already established business model. (W)

4. Operations

Wal-Mart USA. We are intent on driving comparative store sales by being relevant to

our broad customer base and by improving our cost structure and inventory flow to

strengthen return on investment. (S)

Sam‘s Club. We remain committed to serving the needs of our members – where

pennies matter – by leveraging productivity improvements and lowering expenses, so

that we can provide the products and services they want at the lowest prices in the

industry. (S)

Wal-Mart International. Our approach to ensuring continued profitable growth

includes three dimensions – new markets with multiple formats, new store growth in

existing markets and increasing sales at existing stores (Annual Report 2006). (S)

5. Human Resources

Employees are called associates. (S)

Employee stock ownership and profit-sharing program. (S)

Decentralized approach to retail management development. (S)

Utilizes the Total Quality Management approach. (S)

Discourages unionization (Wheelen and Hunger 19-23). (W)

6. Information Systems

Leader in RFID technology. (S)

Good internet presence. (S)

Utilizes satellite communications, data centers, and handheld devices. (S)

V. ANALYSIS OF STRATEGIC FACTORS

A. Situational Analysis

1. Strengths

International brand name.

Financial position.

Market leadership.

2. Weaknesses

Market saturation.

Public opinion.

Adjustment to cultural differences after entering a foreign market.

Wal-Mart Strategic Audit

16

Supplier alienation.

Past employee discrimination.

Employee health benefits.

International supplier employee violations.

3. Opportunities

International expansion.

Environmental leadership.

Worker‘s rights leadership.

Community involvement.

Social initiatives.

4. Threats

Strong U.S. competition.

Changing demographics.

Economic uncertainty.

Current litigation.

Employee unionization.

B. Review of Current Mission and Objectives

.

.

VI. Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives

.

B. Recommended Strategy

. 12. PORTER ANALYSIS

LOWBargaining power of Suppliers:

Forging relationships with suppliers is

essential to Wal-Mart‘s business.

Without timely inventory deliveries,

Wal-Mart could not maintain its full

shelves and would lose customers. For

this reason, the company engages in

contractual agreements with its

suppliers. This arrangement is beneficial

for both parties, as the supplier makes

sure it will have constant access to-

retailers with large market share. This

way, suppliers have a guaranteed buyer

for the supplies and can arrange specific

prices. Wal-Mart benefits by

guaranteeing the cost of their

merchandise and the timely deliveries,

which will ultimately benefit consumers.

Consumers will receive lower prices and

an assortment of products.

13. PORTER ANALYSIS

LOWBargaining power of Buyers:

Wal-Mart Strategic Audit

17

Consumers today are searching for the

best deals possible. They are waiting for

discounts and sales to bulk up on

products. Discount retailers like Wal-

Mart are creating huge supercenter

stores because they want their stores to

become a one-stop trip. This was most

beneficial in 2007 as the high oil prices

led consumers to shop less frequently to

save gas. Instead of traveling from store

to store in search for a variety of

products, consumers can find them all in

one location. Customers know what they

want and how far they are willing to

search for the item. Retailers must

maintain high inventory levels to retain

customers and their market share.

14. PORTER ANALYSIS LOW

Being that the retail industry is aThreats

of New Entrants: highly saturated

market, new entrants would face

difficulty succeeding in this industry. In

fact, it is highly difficult for discount

retailers to penetrate other markets as

Wal-Mart tried to enter Germany and

South Korea. The company was

unsuccessful and had to pull out because

of its unprofitability

15. PORTER ANALYSIS MEDIUM

Substitute products are products that can

be used asTHREAT OF SUBSTITUTE

replacements for other products to

satisfy the same necessity. Wal-Mart

benefits from this idea as discounters

have lower prices than department stores

and consumers go for higher quality

product with the lowest prices. Macys

and PRODUCTS: Wal-Mart may both

sell apparel and bedding products but

there is a major price difference between

the two. When consumers are trying to

save, they will substitute pricier Macy‘s

items with lower priced Wal-Mart items.

In making substitutions, consumers may

have to forgot certain features such as

the quality of the product, brand or even

the service the store provides. Wal-Mart

is working on providing the best

customer service possible but as a high-

Wal-Mart Strategic Audit

18

traffic store, it is generally impossible to

provide one-on-one service.

16. PORTER ANALYSIS HIGH The

retail business is a highly competitive

industry. Wal-Mart faces a number of

competitors in all segments of their

business. After being the first in the

industry to build the first supercenter,

Kmart and Target built supercenters as

well. Discount stores were generally

thought of as shopping centers for low-

income consumers but this idea has

changed. AsRivalry: retailers expanded

their product lines, they included

products for different customer incomes.

Target, in particular, has generally been

thought of as an upscale discount store

as the company tends to target medium

income consumers but their prices are

usually higher than Wal-Mart‘s.

17. • Customers loyalty • High Brand

value • Good inventory control SystemS

• • Good reputation on Quality and low

price Emphasis in Human Resource

management and development • Much of

the same merchandise • Low reaction to

changes in market • Insistence on doing

things ―the Wal-mart way‖W • • Low

current ratio Low market research in

foreign countries • Strategic Alliances

and merger • Increase Demand •

Technological developmentsO • • New

retail formats Customers concern about

environment • Cultural differences in

new markets • Countries economic

problems • Local regulationsT • •

Antitrust issues Intense competitive

conditions

18. IFE - MATRIX

19. EFE - MATRIX

20. THE INTERNALEXTERNAL

MATRIX

21. SPACE MATRIX Internal Strategic

Position External Strategic Position

FINANCIAL (FS) ENVIRONMENTAL

(ES) +6 best, +1 worst -1 Best, -6 Worst

(+6) Net Sales (-1) TechnologyY(+3)

Current Ratio (-2) Demand Increase (+6)

Revenues (-5) Barriers to entry (+5) Net

Wal-Mart Strategic Audit

19

Income (-6) Competitive pressure (+6)

Comparative store sales Increase (-3)

Antitrust Issues Avg. = 5.2 Avg. = -3.4

COMPETITIVE (CA) INDUSTRY (IS)

-1 best, -6 worst +6 best, +1 worst (-1)

Costumers loyalty (+5) Growth

potentialX Brand value (-1) (+5) Profit

potential (-2) Product Quality (+5)

Developments in technology (-1) Human

resource management (+6)

Consolidation (-1) Inventory Control

System (+2) Easy to entry Avg. = -1.2

Avg. = 4.6 Y= 5.2 + (-3.4) = 1.8 X= -1.2

+ (4.6) = 3.4

22. FINANCIAL RATIOS

23. SUMARY SPACETOWS IFE-EFE

MATRIXInvest on marketing and

publicity The Internal – External Matrix

Wal-Mart should pursue an Increase the

satisfaction to get shows that Wal-Mart

is a strong aggressive strategy. The

mouth advertisement company in the

retail industry company needs to use its

and the analysis recommended strengths

and opportunities to Sell innovative

merchandise that Wal-Mart should

pursue increase their sales, keep their

Improve investment on research the

strategy of grow and build brand value

and get a and development in foreign to

reach the gold of increase successful

penetration in markets sales and profits.

foreign markets.

24. ALTERNATIVE 1•Increase the

investment on research and development

tounderstand the foreign markets before

enter to them. PROS CONS Reduce the

effect of the High cost of R & D cultural

differences Increase sales and profits

Perfect penetration in new markets

25. ALTERNATIVE 2•Increase the

satisfaction of customers and give

tothem more benefits like promotions

and gift tomaintain the loyalty and

increase the mouthadvertising. PROS

CONS Increase sales and profits High

cost of investment Costumers loyalty

High cost of R & D Increase the mouth

advertising. Increase brand value

Increase top of mind on consumers

Wal-Mart Strategic Audit

20

26. ALTERNATIVE 3Make alliances

with successful companies that

haveexperiences on the new markets and

do the things ―ontheir successful way‖ in

that market. PROS CONS Avoid the

reject of potential High investment

customers to the brand Risk of merger

Increase sales on foreign markets Lose a

little of the ―Wal-Mart Way‖ Learn new

retail models Increase the brand value

Increase sales and profits

27. RECOMENDATION Lee Scott,

new Wal-Mart‘s CEO should pursue the

third alternative to keep Wal-Mart as the

world‘s biggest retailer and keep

increasing sales and profits into the

future. It means that Lee Scott should

look for successful companies around

the world that can bring benefits and

which working‘s philosophy resembles

Wal-Mart philosophy. This alternative

has several cons but its pros are better

and reach the gold. Wal-Mart has to

keep growing and increase their

investment on marketing to raise its top

of mind and keep it above the

competitors.

o .

VII. Implementation

Management needs to be open to change regarding clashes with ―grass-roots‖

movements that push to keep new construction of Wal-Mart stores in rural America.

While many residents welcome a new Wal-Mart, there will always be opposition and

by developing ways to appease those that oppose the giant retailer, they will be more

welcome to the neighborhood.

Wal-Mart has been steadily reaching into every corner of the earth, but not always

with successful results. Upper management is making the assumption that every

culture will welcome box stores and the American culture that Wal-Mart is known

for. As has been proven time and again, this is not always true. There need to be

committees established that can perform thorough research before just barging onto

foreign land.

Several lawsuits have been filed regarding the treatment of employees. Wal-Mart

needs to get involved with developing a way to ensure employees are getting the right

benefits that is equal to the retail industry‘s average worker.

VII. Evaluation and Control

.

.

Wal-Mart Strategic Audit

21

.

Wal-Mart Strategic Audit

22

EFAS (External Factor Analysis Summary)

Key Internal Factors Weight Rating Weighted

Scores

Comments

Opportunities

International expansion

Environmental leadership

Worker‘s rights

leadership

Community involvement

Social initiatives

Threats

Strong U.S. competition

Changing demographics

Economic uncertainty

Current litigation

Employee unionization

Total Scores 1.0

IFAS (Internal Factor Analysis Summary)

Key Internal Factors Weight Rating Weighted

Scores

Comments

Strengths

International brand name

Financial position

Market Leadership

Weakness

Market saturation

Public opinion

Adjustment to cultural

differences

Supplier alienation

Past employee discrimination

Employee health benefits

International supplier employee

violation

Total Scores 1.0

Wal-Mart Strategic Audit

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SFAS (Strategic Factor Analysis Summary)

Key Strategic Factors Weight Rating Weighted

Score

Duration

S I L

Comments

X X X

X X X

X X

X X X

X X X

X X X

X X X

TOTAL SCORES 1.00 2.95

Wal-Mart Strategic Audit

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Works Cited

Wheelen, Thomas L., and J. David Hunger. Strategic Management and Business Policy:

Achieving Sustainability. Upper Saddle River: Prentice, 2010. Print.

I. CURRENT SITUATION

A. Current Performance

Management uses a number of metrics to assess the Company‘s performance including:

• comparable store sales,

• operating income growth greater than net sales growth,

• inventory growth less than net sales growth and

• return on average assets.

5

Comparable store sales is a measure which indicates the performance of our existing stores by

measuring the growth in sales for such stores for a particular period over the corresponding

period in the prior year. Our Wal-Mart Stores segment‘s comparable store sales were 1.9% for

fiscal 2007 versus 3.0% for fiscal 2006. Our Sam‘s Club segment‘s comparable club sales were

2.5% in fiscal 2007 versus 5.0% in fiscal 2006, including the impact of fuel sales.

Operating income growth greater than net sales growth has long been a measure of success for

us. For fiscal 2007, our operating income increased by 9.5% when compared to fiscal 2006,

while net sales increased by 11.7% over the same period. Our Wal-Mart Stores and Sam‘s Club

segments met this target; however, the International segment did not due to the impact of the

newly acquired and consolidated entities.

Inventory growth at a rate less than that of net sales is a key measure of our efficiency. Total

inventories at January 31, 2007, were up 5.6% over levels at January 31, 2006, and net sales

were up 11.7% when comparing fiscal 2007 with fiscal 2006.

With an asset base as large as ours, we are focused on continuing to make certain our assets are

productive. It is important for us to sustain our return on assets. Return on assets is defined as

income from continuing operations before minority interest divided by average total assets from

Wal-Mart Strategic Audit

25

continuing operations. Return on assets for fiscal 2007, 2006 and 2005 was 8.8%, 9.3% and

9.8%, respectively. Return on assets in fiscal 2007 and 2006 was impacted by acquisition and

consolidation of entities with lower asset returns.

This excerpt taken from the WMT 10-K filed Mar 29, 2006.

Company Performance Measures

Management uses a number of metrics to assess the Company‘s performance. The following are

the more frequently used metrics:

• Comparative store sales is a measure which indicates the performance of our existing

stores by measuring the growth in sales for such stores for a particular period over the

corresponding period in the prior year. Our Wal-Mart Stores segment‘s comparative store

sales were 3.0% for fiscal 2006 versus 2.9% for fiscal 2005. Our SAM‘S CLUB

segment‘s comparative club sales were 5.0% in fiscal 2006 versus 5.8% in fiscal 2005.

• Operating income growth greater than net sales growth has long been a measure of

success for us. For fiscal 2006, our operating income increased by 8.4% when compared

to fiscal 2005, while net sales increased by 9.5% over the same period. Our SAM‘S

CLUB segment met this target; however, the Wal-Mart Stores segment fell short of the

target, while the International segment grew operating income at the same rate as net

sales.

• Inventory growth at a rate less than that of net sales is a key measure of our efficiency.

However, our increased purchases of imported merchandise and recent acquisition activity

impact this measure. Total inventories at January 31, 2006, were up 8.2% over levels at

January 31, 2005, and net sales were up 9.5% when comparing fiscal 2006 with fiscal

2005. Approximately 150 basis points of the fiscal 2006 increase in inventory was from

increased levels of imported merchandise, which carries a longer lead time, and an

additional 170 basis points was from the consolidation of The Seiyu, Ltd. and the

purchase of Sonae Distribução Brasil S.A.

• With an asset base as large as ours, we are focused on continuing to make certain our

assets are productive. It is important for us to sustain our return on assets. Return on assets

is defined as income from continuing operations before minority interest divided by

average total assets. Return on assets for fiscal 2006, 2005 and 2004 was 8.9%, 9.3% and

9.2%, respectively. Return on assets in fiscal 2006 was impacted by acquisition activity in

the fourth quarter.

This excerpt taken from the WMT 10-K filed Mar 31, 2005.

Company Performance Measures

Management uses a number of metrics to assess its performance. The following are the more

frequently discussed metrics:

• Comparative store sales is a measure which indicates whether our existing stores

continue to gain market share by measuring the growth in sales for such stores for a

particular period over the corresponding period in the prior year. Our Wal-Mart Stores

Wal-Mart Strategic Audit

26

segment‘s comparative store sales were 2.9% for fiscal 2005 versus 3.9% for fiscal 2004.

The lower comparative store sales growth in fiscal 2005 is generally reflective of the

softer economy in fiscal 2005, including the impact of higher fuel and utility costs on our

customers. Our SAM‘S CLUB segment‘s comparative club sales were 5.8% in fiscal

2005 compared to 5.3% in fiscal 2004. The more favorable growth in fiscal 2005 resulted

from our continued focus on the business member.

• Operating income growth greater than net sales growth has long been a measure of

success for us. For fiscal 2005 our operating income increased by 13.8% when compared

to fiscal 2004, while net sales increased by 11.3% over the same period. Both

International and SAM‘S CLUB segments met this target; however, the Wal-Mart Stores

segment fell slightly short.

• Inventory growth at a rate less than half of sales growth is a key measure of our

efficiency. Total inventories at January 31, 2005, were up 10.7% over levels at January

31, 2004, and sales were up 11.3% when comparing fiscal 2005 with fiscal 2004. This

ratio was affected in fiscal 2005 by sales which were weaker than anticipated, as well as

by increased levels of imported merchandise, which carries a longer lead time.

• With an asset base as large as ours, we are focused on continuing to make certain our

assets are productive. It is important for us to sustain our return on assets at its current

level. Return on assets is defined as income from continuing operations before minority

interest divided by average total assets. Return on assets for fiscal 2005, 2004 and 2003

was 9.3%, 9.2 % and 9.2%, respectively.