Table of Contents

Overview.....................................................................................................................3

Company's history, development, and growth........................................................3

Company's internal strengths and weaknesses........................................................6

Analyzing the external environment.........................................................................7

Evaluating the SWOT Analysis.................................................................................9

Analyzing corporate-level strategy..........................................................................10

Analyzing business-level strategy.............................................................................12

Analyzing structure and control systems.................................................................13

Recommendations......................................................................................................14

References..................................................................................................................16

1

Overview:

Wal-Mart Stores is one of the most successful growth stories in American history and can boast

of an unparalleled track record of growth in nearly any measure one can think of.   Whether your

preferred metric is the number of square footage of retail space, sales, earnings, or dividend

growth, a quick look at Wal-Mart quickly reveals an impressive trajectory that few others in

retail can hope to match.  However, as one looks at the statistics over the past ten years, it is clear

that one measure has stagnated:  Wal-Mart’s stock price. The following case study shows the

overall ups and downs, strengths and weaknesses, opportunities and threats for Wal-Mart from

the day it started its business till the recent past.

In all, the company strategy is that of growth, expansion, and diversification by finding new

areas to expand into within retail and the service industry. It is the number one retailer in the US

and in the World as a result. The competition is scared of them. Its customers know its brand,

and will shop there because of the price, selection, and size. It has been ranked number one on the

Fortune 500 Index by Fortune Magazine.

Company's history, development, and growth:

The Wal-Mart story began in 1962, when Sam Walton opened the company’s first discount store

in Rogers, Ark. During the 1970s, the retail industry became highly competitive, but, at the same

time the economy became weak due to inflation. Sears was the leading retailer in the nation,

during the 1970s, however, the recession of 1974-1975 and inflation affected Sears adversely.

Sears targeted middle class families and expanded its overhead. Wal-Mart's strategy was to

compete with its rivals and lower overhead expenses. Wal-Mart grew rapidly during the 1980s

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due to diversification of the company. Wal-Mart's fundamental business principles at that time

were to provide "high-quality," brand name merchandise at low-prices and to locate stores in

small towns. Wal-Mart centered on small-towns first, and then tried to move to large cities. This

happened while other retailers centered on larger urban centers. However, as the economy faced

a downturn, people wanted low price stores. Furthermore, as people became mobile, they moved

to small towns and suburbs and were willing to travel further to buy low price products.

By 1967, there were 24 Wal-Mart stores in Arkansas ringing up $12.6 million in sales. The

company officially incorporated as Wal-Mart Stores Inc. on October 31, 1969. The 1970s

marked the beginning of significant growth for the company. Wal-Mart also began selling shares

over the counter as a publicly-held company in 1970. In 1978, the company acquired the

Hutcheson Shoe Company, and introduced the Wal-Mart pharmacy, auto service center and

jewelry divisions. In 1979, Wal-Mart became the first company to reach $1 billion in sales in

such a short period of time. The company closed out the decade with 276 stores, 21,000

associates and $1.248 billion in sales. Forbes magazine ranked Wal-Mart No. 1 among general

retailers for the eighth year straight in 1983. Wal-Mart became the nation’s No. 1 retailer in

1990. Branching out further in 1991, Wal-Mart stepped into the international market with the

opening of a retail unit in Mexico City. On April 5, 1992, Sam Walton passed away at the age of

74. Just weeks before, President George H.W. Bush presented him with the Medal of Freedom,

the nation’s highest civilian honor, during a ceremony at Wal-Mart headquarters. Following

Sam’s passing, his son S. Robson Walton was named chairman of the board.

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Wal-Mart’s track record over the past ten years:

Fiscal Year

Sales per Share Div. per Share EPS

Gross Margin

Net Margin

Store Count

Avg PE Ratio

1999                     37.02 

                     0.19 

   1.28 

22.9% 3.5%              3,985 

                 39.1 

2000                     42.80 

                     0.23 

   1.40  23.0% 3.3%

              4,189 

                 38.0 

2001                     48.91 

                     0.27 

   1.50 

22.7% 3.1%              4,414 

                 34.9 

2002                     55.64                      0.30 

   1.81  22.9% 3.3%              4,688 

                 30.3 

2003                     59.46 

                     0.35 

   2.03  24.0% 3.5%

              4,906 

                 26.9 

2004                     67.36                      0.48 

   2.41  24.5% 3.6%              5,289 

                 22.8 

2005                     75.01                      0.58 

   2.63  24.6% 3.5%              6,141 

                 18.3 

2006                     83.51                      0.65 

   2.92  25.0% 3.5%              6,779 

                 16.0 

2007                     94.27                      0.83 

   3.16  25.2% 3.4%              7,262 

                 14.5 

2008                  103.25                      0.93 

   3.38  25.2% 3.3%              7,550 

                 16.5 

Notes:  Data from Value Line.  2008 Data uses estimates based on Value Line Publication Date of 2/6/09.  Those interested in more precision for 2008 should reference Wal-Mart’s recently issued 10K.  For purposes of this article, the exact precision for 2008 is not material to the point of the argument.

Wal-Mart’s Long Suffering Shareholders:

Even a casual glance at the last column of the table showing the average annual Price/Earnings

ratio shows that the market dramatically revised the valuation of Wal-Mart shares over this ten

year period.  Despite a decade of very satisfactory business results at Wal-Mart during which

time earnings and dividends advanced in every single year, the price the market assigned to each

dollar of earnings collapsed from 39.1 in 1999 to 16.5 in 2008.

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In 2006, the number of weekly customers grew to more than 176 million around the world, with

6,779 locations. Wal-Mart International reached significant milestones as well. In August 2007,

Wal-Mart and Bharti Enterprises announced an agreement to establish Bharti Wal-Mart Private

Limited, a joint venture for wholesale cash-and-carry and back-end supply chain management

operations in India.

Company's internal strengths and weaknesses:

Strengths: The company is the world's number one retailer, the number one retailer in the US,

and the number one retailer in various countries. It was recently ranked number one in sales in

Fortune Magazine. Other strengths include

Cost advantage

Low-price and customer oriented

Strong supply chain

People are key to success

Supercenters offer one stop shopping

Satisfaction guaranteed programs promoting customer goodwill 

Weaknesses: There are several areas of concern for Wal-Mart. These can be divided up into

categories: Extensive labor relations problems, Community Relations Problems, and

miscellaneous public relations problems.

Extensive labor relation problems are common at Wal-Mart. Generally, the company is opposed

to unionized labor. This seems to go against its founding principles of respect for employees.

The company is also in frequent legal trouble with regulators and union groups in the courts.

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Community relations' problems are bound to exist with a corporation the size of Wal-Mart.

Complaints mainly arise from community groups accusing Wal-Mart of destroying the local

retail environment in the downtowns of small towns. The company is accused of monopolistic

behavior. It wages aggressive price wars, and uses its power to bully its suppliers.

Other public relations problems vary from zoning violation complaints, to itemized complaints

from competitors of Wal-Mart using its power unfairly. Censorship, for example, came up as an

issue. Wal-Mart publicly believes in "Family Friendly" products, therefore if a movie or CD

contains "mature content" the company will not carry the product for sale. This has caused much

criticism from various groups. Other weaknesses include:

No formal mission statement

Membership only for SAM’S Club  

Keep poor performing employees on hand   

Old fashioned store policies   

Few women and minorities in top management 

Analyzing the external environment:

Now we shall analyze the opportunities and threats that a big retail store like Wal-Mart can have.

When Wal-Mart first arrived on the scene with their low prices, K-Mart store was unable to

discount brand-name products. Customers wanted to buy good quality brand-name products.

K-Mart provides non-name brand goods cheaply; however, it could not maintain constant low

prices with its name-brand products. K-Mart and Sear could not beat Wal-Mart due to several

reasons: First, Sears' prices are higher than Wal-Mart's because the Sears infrastructure gives it

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higher overhead costs. K-Mart declined in customer appeal because it neglected its store

environment and could not provide satisfactory levels of service for its customers. Widespread

complaints of poor customer service at K-Mart began to surface while Wal-Mart placed

emphasis on customer satisfaction and neat store environments.

Today, Wal-Mart's competitions in the retail market are K-Mart and Target, which come behind

Wal-Mart in the US retail market. Wal-Mart is also on top of their game because of the

management strategies they employ. The management strategies of Wal-Mart emphasize its

workforce and its corporate culture, that being a morally conservative, religious, and family-

oriented business. Wal-Mart emphasizes how it listens to the needs of its workforce so that each

employee is able to suggest improvements to company policy and practice. At Wal-Mart, store

employees are called “associates”. The company offers generous financial rewards for

employees by means of profit-sharing plans such as stock-purchase options. Furthermore, the

company provides comprehensive training programs for all employees.

Most employees are not entitled to any benefits, as it takes a part-time employee over five years

to become eligible for benefits, profit-sharing, or other such compensation. There is a high

turnover rate among these employees, which means most do not reach the requisite level of

seniority. In many cases the local minimum wage is far below the poverty line.

So, by the above analysis some common environmental opportunities can be:

Build its own brand

Put efforts on social welfare like better image

New locations and store types

Overseas markets

Retails sails expected to increase

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Internet shopping growing

Elderly population growing

Some of the threats can be:

Other competitors

Substitute products more easily because of intense competition

Small towns do not want entry of Wal-Mart

Regulation of Wal-Mart pharmacies

Variety of competition nationally, regionally and locally

Evaluating the SWOT Analysis:

The weaknesses can be turned into strengths by following certain corporate-level strategies and

business-level strategies. Membership which is only given for SAM’s Club can be given to Wal-

Mart customers too. All the poor performing employees should be terminated. New policies

should be implemented by replacing few of the old store policies. More women and minorities

should be given opportunities in the top management.

Being number one means that you are the target of competition, locally and globally. So you

have to face the competition and make it an opportunity to increase your sales. Being a global

retailer means that you are exposed to political problems in the countries that you operate in. So

you have to be ready to face all the political problems you have. The cost of producing many

consumer products tends to have fallen because of lower manufacturing costs. Manufacturing

cost has fallen due to outsourcing to low-cost regions of the World. This has lead to price

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competition, resulting in price deflation in some ranges. Intense price competition is a threat. So

you have to reduce the price to be the leader in the market.

By turning the weaknesses into strengths and threats into opportunities, it can continue its current

business or pursue its corporate-level strategy profitably. It can also develop new business

strategies or corporate strategies to accomplish this change.

Analyzing corporate-level strategy:

Wal-Mart has four parts to their corporate strategy.

1. Dominance in the Retail Market:

Company founder Sam Walton put in place a retail philosophy the company still follows. Wal-

Mart is primarily a discount retailer because they sell their products at the lowest possible prices.

By selling at the "lowest price", Walton outlines that the essence of successful discount retailing

is to cut the price on an item as much as possible, lowering the markup, and earn profit on the

increased volume of sales. Each store is encouraged to ferociously compete against all other

stores in its customer base until the Wal-Mart store gains dominance over its local competitors.

2. Expansion in the U.S. and International Markets:

A strategic goal of Wal-Mart is to expand. It has done so successfully. Looking at the facts and

figures clearly shows the corporation’s dominance and power. Its expansion strategy

internationally has been aggressive and powerful. The latest expansion strategy is for the

company to gain entry into a nation by corporate takeover of a national retailer. Once the

company is bought, Wal-Mart converts the stores into Wal-Mart stores. Three countries, all with

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no previous Wal-Mart stores, became part of the corporation's international presence when

domestic retail chains were overtaken. In 1994, Wal-Mart bought 122 Woolco stores in Canada,

today there are 196 units in Canada.

3. Creation of Positive Brand and Company Recognition:

The company aims to create positive impression of customer satisfaction with the Wal-Mart

brand. Their goal is to have the customer associate the retailer with the reputation of offering the

best prices. The company accomplishes this through television advertising campaigns and

newspaper adverts. Characteristic of Wal-Mart advertising is the use of actual Wal-Mart stores

and employees in its commercials. Key themes, such as "Low Prices Always" are featured.

4. Branch Out into New Sectors of Retail:

A successful company strategy has been to branch out into new sectors of retailing. Wal-Mart

has recently become a major pharmacy, automotive repair shop. This is an example of success, it

exemplifies Sam Walton's vision of being the best retailer around. Wal-Mart has also encroached

into home electronics, automotive supplies, pharmaceuticals, jewelry sales, photo finishing,

travel planning, and home gardening. More recently Wal-Mart has begun to move into the

grocery store business with its new "Neighborhood Markets." Everywhere the store has a

department, it competes with those businesses, which specialize in that sector, often putting

smaller competitors out of business.

Wal-Mart’s public affairs strategy must work to make implementation of these policy goals

happen. Its public affairs strategy enables the company to move into other sectors of the

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marketplace and expand into foreign countries. The public affairs strategy also involves gaining

access to politicians who can help Wal-Mart achieve its goals.

Analyzing business-level strategy:

Global centralized information system for their operations

Universal systems and platforms

First two philosophies have enabled Wal-Mart to drive costs down and helps maintain

efficiency.

Merchants first and technologists second

Third philosophy is to develop easy to use systems; developers have responsibility and

obligation to understand the business

Minimal transition to transfer people

The processes and the systems are generally the same. Easy to transfer people from one store to

the other, and they're able to pick up right where they left off. Therefore, no significant

downtime or startup time in the transition.

For business acquisitions, eliminate before automate practice with IS/IT Development:

Define success; eliminate before automate; business process overview. The next step is to

eliminate before they automate. Eliminate steps, processes, reports, keystrokes; eliminate any

activity that can possibly be eliminated.

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Power/Authority: They follow a model of decentralized decisions but centralized systems and

controls. They have a common system and a common platform, but we have to allow a great deal

of flexibility in their systems.

Analyzing structure and control systems:

Key strategies for its growth:

Locate store in isolated rural areas and small towns.

Pattern of expansion: Always push from inside out.

We can see that Wal-Mart has been implementing the structure of establishing new stores in

isolated areas and developing them to be the only retailers in that location and avoiding

competition from its regular competitors. Wal-Mart’s regular competitors like K-mart and Target

do not establish stores in isolated areas. So, this structure and controlling its competitors from

establishing stores at its location makes it the leading retailer in the world.

Wal-Mart is successful not only because it makes sound strategic management decisions, but

also for its innovative implementation of those strategic decisions. Wal-Mart executives continue

to rely on many of the traditional goals and philosophies that Sam's legacy left behind, while

simultaneously keeping one step ahead of the ever-changing technology and methods of today's

fast-paced business environment. Through his savvy, and sometimes unusual, business practices,

Sam Walton, a leader with an innovative vision and his associates led the company forward for

thirty years. Today, the company is still growing steadily. The organization has faced, and is still

facing, a significant amount of controversy over several different issues; however, none of these

have done much more than scrape the exterior of this gigantic operation. The future also looks

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bright for Wal-Mart, especially if it is able to strike a comfortable balance between increasing its

profits and recognizing its social and ethical responsibilities. Sam Walton's talent for discounts

retailing not only made Wal-Mart the world's largest retailer, but also the world's number one

retailer in sales. Indeed, Wal-Mart was named "Retailer of the Decade" by Discount Store News

in 1989, and on several occasions has been included in Fortune's list of the "10 most admired

corporations." Even with Walton's death in 1992, Wal-Mart's sales continue to grow

significantly.

Recommendations:

While Wal-Mart’s public affairs strategy works well with its corporate strategy, I feel that there are a few

recommendations which could make the company work better. Recently, Wal-Mart has been criticized for

their opposition to allowing their employees to be unionized. Wal-Mart needs to clarify their reasons for

their opposition to unionization. It says that by non-unionizing, it can always be the number one

retailer. But, this can be changed and make the employees in the company unionized.

The public affairs strategy must also address the negative feelings harbored by some groups who

feel that Wal-Mart is encroaching into far too many other sectors retail than it should. It is trying

to get small businesses in small towns to close their businesses. These concerns must be

addressed if Wal-Mart is to enjoy continued success in creating positive name recognition. As

the animosity against Wal-Mart becomes more widespread, here and in foreign countries, Wal-

Mart is going to have to work harder to maintain their good reputation. Wal-Mart's foundation

will become increasingly more important for giving things back to the community. In order for

Wal-Mart to stay at the top of their game and follow the company strategy and achieve their key

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policy goals, they have to deal better with their stakeholders and make sure they guard their

reputation well.

Wal-Mart will need to implement the above recommendations if they are going to remain at the

top of the Fortune 500, while simultaneously keeping a good reputation and making their name

synonymous with cheap prices and good quality merchandise.

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References:

http://walmartstores.com/AboutUs/7603.aspx

http://allman.rhon.itam.mx/~oromero/Wal_Mart_CaseStudy.pdf

http://www.slideshare.net/mhwei0304/case-study-of-walmart-store-inc

http://www.echeat.com/essay.php?t=25044

https://nusametime1.neu.edu/stconf.../ Wal-Mart %20Case-ISY285.ppt

http://mgtclass.mgt.unm.edu/.../ Strategy %20of%20International%20Business%20%20CH

%2011.ppt

http://www.marketingteacher.com/SWOT/walmart_swot.htm

http://www.rationalwalk.com/?p=896

Bernstein, Aaron "Labor Finally Puts A Target on Wal-Mart" Business Week, Dec. 6, 2000.

Quinn, Bill How Wal-Mart is Destroying America and the World, Berkeley CA: Ten Speed

Press, 2000.

Reid, Keith. "The Wal-Mart Approach" National Petroleum News. May 2001: 20.

Thau, Barbara. "Wal-Mart Takes on the World." HFN, September 3, 2001: 8

www.walmartfoundation.org

www.fortune.com

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