Wal-Mart Stores, Inc. - 2009

Walmart Stores, Inc. 2009

Case Notes Prepared by: Dr. Mernoush Banton

Case Authors: Amit J. Shah and Michael L. Monahanat

A.

Case Abstract

Walmart Stores, Inc. (www.walmart.com) is a comprehensive strategic management case that includes the companys fiscal year-end January 31, 2009 financial statements, competitor information and more. The case time setting is the year 2009. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Newport in the U.S. state of Arkansas, Walmart Stores, Inc. is traded on the New York Stock Exchange under ticker symbol WMT.

B. Vision Statement (proposed)

Providing quality products at everyday low prices.

C. Mission Statement (Proposed)

Customers are our first responsibility (1). We are inspired by providing our customers the best value products and services with guaranteed satisfaction worldwide (2, 3, 4). We strive to create a friendly and flexible work environment for our associates (9) and, as such, be able to deliver high return to our stakeholders (5), year after year. As a global company, we continue to be socially responsible to our environment (8) and to provide equal opportunity for all individuals (7). We will continue to offer the highest quality products at the lowest price (6) to strive to be the best in the retail industry.1. Customer

2. Products or services

3. Markets

4. Technology

5. Concern for survival, profitability, growth

6. Philosophy

7. Self-concept

8. Concern for public image

9. Concern for employees

D.External Audit

CPM Competitive Profile Matrix

WalmartTargetCostco

Critical Success FactorsWeightRatingWeighted ScoreRatingWeighted ScoreRatingWeighted Score

Advertising0.1040.4030.3020.20

Service / Product Quality0.0930.2740.3620.18

Price0.1040.4020.2030.30

Management0.0330.0920.0610.03

Financial Position0.0940.3620.1830.27

Customer Loyalty0.1040.4020.2030.30

Product Lines0.1040.4030.3020.20

Market Share0.0640.2430.1820.12

Customer Service0.0920.1830.2740.36

Technology0.1040.4030.3020.20

Employees0.0520.1020.1030.15

Global Expansion0.0940.3610.0920.18

Total1.003.602.542.49

Opportunities

1. Asian market has been untapped by mass retailers2. Not too many mass retailers in European markets

3. Demand for buying in bulk to save money is high4. Competitors have not tapped into many available markets overseas

5. Expected increase in retail sales among low priced stores6. Many large retailers have had several stores closed permanently

7. High entry barriers for a company to open too many stores quickly8. Due to weak economy and job cutbacks and lay-offs, many consumers are switching to substitute products such as private label productsThreats

1. Tense competition between retailers by offering low everyday prices2. Weak economic conditions causing many to cut back on large item products

3. Unemployment is increasing causing cutback in buying brand-name products

4. Increase in fuel cost could impact the purchasing power of the consumer

5. Increase in fuel cost could cause suppliers to raise their prices

6. Consumer confidence is lower due to decline in U.S. economy

7. Costco is gaining market share by having higher sales against Sams Club by approximately US$30 billionExternal Factor Evaluation (EFE) Matrix

Key External FactorsWeightRatingWeighted Score

Opportunities

1. Asian market has been untapped by mass retailers0.0540.2

2. Not too many mass retailers in European markets0.0440.16

3. Demand for buying in bulk to save money is high0.0830.24

4. Competitors have not tapped into many available markets overseas0.0720.14

5. Expected increase in retail sales among low priced stores0.0830.24

6. Many large retailers have had several stores closed permanently0.0920.18

7. High entry barriers for a company to open too many stores quickly0.0440.16

8. Due to weak economy and job cutbacks and lay-offs, many consumers are switching to substitute products such as private label products0.0740.28

Threats

1. Tense competition between retailers by offering low everyday prices0.0830.24

2. Weak economic conditions causing many to cut back on large item products0.0740.28

3. Unemployment is increasing causing cutback in buying brand-name products0.0640.24

4. Increase in fuel cost could impact the purchasing power of the consumer0.0830.24

5. Increase in fuel cost could cause suppliers to raise their prices0.0630.18

6. Consumer confidence is lower due to decline in U.S. economy0.0530.15

7. Costco is gaining market share by having higher sales against Sam's Club by approximately US$30 billion0.0420.08

8. Target for false or bogus law suits related to labor and general liability law suits0.0420.08

Total1.003.09

Positioning Map

E.Internal Audit

Strengths 1. Walmart has a well-mixed balance of products (consumable, perishable and durable goods such as electronics)2. The international segment grew by 10 percent3. One of the largest corporations in the U.S., so enjoys an economy of scale4. Currently has around 3,615 stores in the international market5. Walmart leads the industry in information technology and logistics system6. Strong brand image in the U.S.7. Walmarts sales contributes approximately 0.4 percent to the total Gross Domestic Product 8. Continuously has had sales increases of US$30 billion each year, for the last 3 years

9. For the last 3 years, has had increase in net income by more than US$400 million10. Strong in-house programs for employee training and benefits

Weaknesses 1. Heavy reliance on information technology for order processing and distribution2. Easy target for various law suits including violating the labor laws such as benefits for part-time workers, discrimination, pay, and promotion3. Heavily concentrated in consumer products

4. Some of online services such as music download and one-hour photo has not been very successful as of yet5. Depends heavily on imported low cost products from China and other similar countries6. Quick ratio of 0.3 is below industry average

Financial Ratio Analysis (October 2009)

Growth Rates %WalmartIndustryS&P 500

Sales (Qtr vs year ago qtr)-1.40-1.50-5.20

Net Income (YTD vs YTD)0.80-1.50-10.20

Net Income (Qtr vs year ago qtr)1.401.7027.10

Sales (5-Year Annual Avg.)9.419.1713.14

Net Income (5-Year Annual Avg.)8.397.5312.59

Dividends (5-Year Annual Avg.)21.4220.5811.83

Price RatiosWalmartIndustryS&P 500

Current P/E Ratio15.416.627.3

P/E Ratio 5-Year HighNA6.215.1

P/E Ratio 5-Year LowNA1.52.9

Price/Sales Ratio0.500.502.08

Price/Book Value3.012.903.41

Price/Cash Flow Ratio9.8010.2013.10

Profit Margins %WalmartIndustryS&P 500

Gross Margin24.324.337.9

Pre-Tax Margin5.25.09.6

Net Profit Margin3.43.26.7

5Yr Gross Margin (5-Year Avg.)23.423.737.8

5Yr PreTax Margin (5-Year Avg.)5.45.316.6

5Yr Net Profit Margin (5-Year Avg.)3.63.511.5

Financial ConditionWalmartIndustryS&P 500

Debt/Equity Ratio0.680.681.12

Current Ratio0.91.11.5

Quick Ratio0.30.41.2

Interest Coverage12.133.327.3

Leverage Ratio2.52.53.6

Book Value/Share17.3717.9221.66

Adapted from www.moneycentral.msn.comAvg P/EPrice/ SalesPrice/ BookNet Profit Margin (%)

01/0916.400.462.833.3

01/0814.800.553.123.4

01/0716.000.573.203.5

01/0617.600.623.613.7

01/0522.300.794.493.7

01/0426.900.915.323.4

01/0331.100.925.323.4

01/0236.301.317.613.1

01/0137.501.328.103.3

01/0040.601.479.453.3

Book Value/ ShareDebt/ EquityReturn on Equity (%)Return on Assets (%)Interest Coverage

01/09$16.630.6520.38.110.4

01/08$16.260.6919.97.910.4

01/07$14.910.6319.88.011.3

01/06$12.770.7321.58.313.2

01/05$11.670.6321.28.714.6

01/04$10.120.6120.38.415.1

01/03$8.980.6419.88.212.6

01/02$7.880.6218.47.78.6

01/01$7.010.7120.18.18.2

01/00$5.800.8521.67.99.9

Adapted from www.moneycentral.msn.comF.SWOT Strategies

StrengthsWeaknesses

1. Walmart has a well-mixed balance of products (consumable, perishable and durable goods such as electronics)

2. The international segment grew by 10 percent3. One of the largest corporations in the U.S., so enjoys an economy of scale

4. Currently has around 3,615 stores in the international market

5. Walmart leads the industry in information technology and logistics system

6. Strong brand image in the U.S.

7. Walmarts sales contributes approximately 0.4 percent to the total Gross Domestic Product

8. Continuously has had sales increases of US$30 billion each year, for the last 3 years

9. For the last 3 years, has had increase in net income by more than US$400 million

10. Strong in-house programs for employee training and benefits 1. Heavy reliance on information technology for order processing and distribution

2. Easy target for various law suits including violating the labor laws such as benefits for part-time workers, discrimination, pay, and promotion

3. Heavily concentrated in consumer products

4. Some of online services such as music download and one-hour photo has not been very successful as of yet

5. Depends heavily on imported low cost products from China and other similar countries

OpportunitiesS-O StrategiesW-O Strategies

1. Asian market has been untapped by mass retailers

2. Not too many mass retailers in European markets

3. Demand for bulk buying to save money is high

4. Competitors have not tapped into many available markets overseas

5. Expected increase in retail sales among low priced stores

6. Many large retailers have had several stores closed permanently

7. High entry barriers for a company to open too many stores quickly8. Due to weak economy and job cutbacks and lay-offs, many consumers are switching to substitute products such as private label products1. Due to economic downturn and Walmarts wide selection and low pricing, they can expect increase in sales (S6, S7, O3, O5)2. Add additional stores in international market where the company has brand recognition and can take advantage of economy of scale ( S2, S3, O1, O2)1. Use suppliers other than those in China for better cost leadership strategies in producing private label products (W5, O8)

ThreatsS-T StrategiesW-T Strategies

1. Tense competition between retailers by offering low everyday prices

2. Weak economic conditions causing many to cut back on large item products

3. Unemployment is increasing causing cutback in buying brand-name products

4. Increase in fuel cost could impact the purchasing power of the consumer

5. Increase in fuel cost could cause suppliers to raise their prices

6. Consumer confidence is lower due to decline in U.S. economy

7. Costco is gaining market share by having higher sales against Sams Club by approximately US$30 billion8. Target for false or bogus law suits related to labor and general liability law suits1. Add more distribution centers causing further cut back in transportation costs.

2. Create backward vertical integration by acquiring small manufacturers for high demand products (S3, S9, T5, T7)1. Create a compliance assurance team for matters related to labor laws, compliance, and other liability-related issues (W2, T8)

G.SPACE Matrix

Financial Stability (FS)Environmental Stability (ES)

Return on Investment6Unemployment-4

Leverage5Technological Changes-2

Liquidity4Price Elasticity of Demand-3

Working Capital5Competitive Pressure-4

Cash Flow6Barriers to Entry-1

Financial Stability (FS) Average

5.2Environmental Stability (ES) Average-2.8

Competitive Stability (CA)Industry Stability (IS)

Market Share-1Growth Potential4

Product Quality-3Financial Stability3

Customer Loyalty-5Ease of Market Entry5

Competitions Capacity Utilization-4Resource Utilization3

Technological Know-How-6Profit Potential6

Competitive Stability (CA) Average-3.8Industry Stability (IS) Average

4.2

Y-axis: FS + ES = 5.2 + (-2.8) = 2.4X-axis: CA + IS = (-3.8) + (4.2) = 0.4H.Grand Strategy Matrix

1. Market Development

2. Market Penetration

3. Product Development

4. Forward Integration

5. Backward Integration

6. Horizontal Integration

7. Related Diversification

I.The Internal-External (IE) MatrixThe IFE Total Weighted Score

Strong3.0 to 4.0Average2.0 to 2.99Weak1.0 to 1.99

High3.0 to 3.99I

Walmart Stores, Inc.IIIII

Medium2.0 to 2.99IVIV

VI

Low1.0 to 1.99VIIVIIIIX

J.QSPM

Open 10 additional Superstores in the U.SOpen 5 new Supercstores in Asian and European Market

Key FactorsWeightASTAS0TAS

Opportunities

1. Asian market has been untapped by mass retailers0.0510.0540.2

2. Not too many mass retailers in European markets0.0410.0440.16

3. Demand for buying in bulk to save money is high0.0820.1640.32

4. Competitors have not tapped into many available markets overseas0.0720.1440.28

5. Expected increase in retail sales among low priced stores0.0830.2420.16

6. Many large retailers have had several stores closed permanently0.0940.3620.18

7. High entry barriers for a company to open too many stores quickly0.0420.0810.04

8. Due to weak economy and job cutbacks and lay-offs, many consumers are switching to substitute products such as private label products0.0730.2110.07

Threats

1. Tense competition between retailers by offering low everyday prices0.0830.2410.08

2. Weak economic conditions causing many to cut back on large item products0.0740.2810.07

3. Unemployment is increasing causing cutback in buying brand-name products0.0630.1810.06

4. Increase in fuel cost could impact the purchasing power of the consumer0.08------------

5. Increase in fuel cost could cause suppliers to raise their prices0.0620.1210.06

6. Consumer confidence is lower due to decline in U.S. economy0.0540.210.05

7. Costco is gaining market share by having higher sales against Sam's Club by approximately US$30 billion0.04------------

8. Target for false or bogus law suits related to labor and general liability law suits0.04------------

TOTAL1.002.31.73

Strengths

1. Walmart has a well-mixed balance of products (consumable, perishable and durable goods such as electronics)0.0820.1630.24

2. The international segment grew by 10 percent0.0710.0740.28

3. One of the largest corporations in the U.S., so enjoys an economy of scale0.0730.2110.07

4. Currently has around 3,615 stores in the international market0.0510.0530.15

5. Walmart leads the industry in information technology and logistics system0.07------------

6. Strong brand image in the U.S.0.0930.2710.09

7. Walmart's sales contributes approximately 0.4 percent to the total Gross Domestic Product0.04------------

8. Continuously has had sales increases of US$30 billion each year, for the last 3 years0.08------------

9. For the last 3 years, has had increase in net income by more than US$400 million0.0740.2830.21

10. Strong in-house programs for employee training and benefits 0.03------------

Weaknesses

1. Heavy reliance on information technology for order processing and distribution0.0620.1210.06

2. Easy target for various law suits including violating the labor laws such as benefits for part-time workers, discrimination, pay, and promotion0.0530.1510.05

3. Heavily concentrated in consumer products0.08------------

4. Some of online services such as music download and one-hour photo has not been very successful as of yet0.06------------

5. Depends heavily on imported low cost products from China and other similar countries0.120.210.1

SUBTOTAL1.001.511.25

SUM TOTAL ATTRACTIVENESS SCORE3.812.98

K.Recommendations1. Build additional 10 Superstores in the U.S. in markets that economically are not doing well and demand for low-priced consumer products are high. Approximate start-up cost of US$15 million each, total of US$150 million.2. Spread expansion of the new stores within the next 3 years.

L.EPS/EBIT AnalysisUS$ Amount Needed: 150M

Stock Price: US$54.63Tax Rate: 34%

Interest Rate: 5%

# Shares Outstanding: 487,222,000Common Stock FinancingDebt Financing

RecessionNormalBoomRecessionNormalBoom

EBIT$300,000,000$600,000,000$1,000,000,000$300,000,000$600,000,000$1,000,000,000

Interest 0007,500,0007,500,0007,500,000

EBT300,000,000600,000,0001,000,000,000292,500,000592,500,000992,500,000

Taxes102,000,000204,000,000340,000,00099,450,000201,450,000337,450,000

EAT198,000,000396,000,000660,000,000193,050,000391,050,000655,050,000

# Shares489,967,744489,967,744489,967,744487,222,000487,222,000487,222,000

EPS0.400.811.350.400.801.34

70 Percent Stock - 30 Percent Debt70 Percent Debt - 30 Percent Stock

RecessionNormalBoomRecessionNormalBoom

EBIT$300,000,000$600,000,000$1,000,000,000$300,000,000$600,000,000$1,000,000,000

Interest 6,000,0006,000,0006,000,0001,500,0001,500,0001,500,000

EBT294,000,000594,000,000994,000,000298,500,000598,500,000998,500,000

Taxes99,960,000201,960,000337,960,000101,490,000203,490,000339,490,000

EAT194,040,000392,040,000656,040,000197,010,000395,010,000659,010,000

# Shares489,144,021489,144,021489,144,021488,045,723488,045,723488,045,723

EPS0.400.801.340.400.811.35

M. EpilogueIn October 2009, the company announced that their profits are up after cutting prices further on products such as brand-name electronics. Their strategy now is to capture new consumers and try keeping them as they may enter back into the job market. Due to economic downturn, Walmart is planning a major price cut for the Holiday season, hoping to increase its sales and market share further.In late 2009, the company opened several stores in the United States in areas such as Chicago, Phoenix, and New Jersey (2 Superstores), and in Canada. Each new store occupies approximately over 120,000 sq. ft of space, adds over 500 new jobs and as a promotion, contributes thousands of dollars to local communities and charities. They also are improving the design on some of their older stores and improving a few with the latest generation of high efficiencies such as using water to heat and cool the building.Wide Price Competitive

Narrow Price Competitive

Number of Stores (High)

Number of Stores (Low)

Costco

Walmart

Target

-1

-2

-3

-4

-5

-6

-7

7

-6

-1

-7

-5

-4

-3

-2

7

6

5

4

3

2

1

Defensive

Competitive

Aggressive

Conservative

1

2

3

4

5

6

IS

Weak Competitive Position

Quadrant II

Quadrant I

Quadrant IV

Quadrant III

StrongCompetitivePosition

Rapid Market Growth

Slow Market Growth

The EFE Total

Weighted Score

ES

CA

FS

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