for the exclusive use of s. paramasivam, 2018. 2019.… · walmart’s core competency has been...

“There is only one boss-the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”1

Sam Walton, Walmart Founder

Tuesday, January 24, 2017 – “It is worse than I thought” muttered Walmart’s CEO, Doug McMillon. After reading the front page Wall Street Journal article on American shopping mall property own-ers increasingly walking away from mortgages because of the rapid growth in online shopping,2 he turned to look out the window of his Bentonville office and wondered about the future of Walmart. Customers were increasingly turning to online retailing, contributing to Walmart closing 269 stores worldwide in 2016.3 This was a first for the U.S. retail giant. While Walmart had a net gain in stores last year, store growth slowed and the make-up of U.S. stores shifted to either larger Supercenters or smaller Neighborhood Markets. Another adjustment was the 2016 purchase of online retailer Jet.com for $3.3 billion to bolster Walmart’s e-commerce presence.4 Further, CEO McMillon put Jet.com founder, Mark Lore, in charge of Walmart’s e-commerce operations to drive the retailer online initia-tive.5 However, Doug McMillon wondered: Am I doing enough?

History of Walmart

Established in 1962 and headquartered in Bentonville, Arkansas, Walmart is the largest retailer in the world (Exhibit 1). It serves nearly 260 million customers worldwide in over 11,500 stores sup-ported by 158 distribution centers. Walmart is also the world’s largest company in terms of revenues, earning $482.1 billion in 2016 (Exhibit 2).6 It has been the largest company in terms of revenues ten times since 1995.7 Walmart employs 2.2 million associates worldwide–1.5 million in the U.S. alone.8 Exhibit 3 displays Walmart’s key financial data.

Sam Walton, who was born in Oklahoma in 1918, founded Walmart. During the 1930s, Oklahoma was one of the hardest hit states by the Dust Bowl, years of draught combined with severe dust storms, devastated many farms in Midwestern prairies. The Walton’s family farm was destroyed and they lost everything. This happened during Sam Walton’s formidable teenage years. As a result, Sam Walton promised himself that he would never be poor.9 His first job was in the retail industry at a J.C. Penny

Professors Frank T. Rothaermel and David R. King prepared this case from public sources. The authors gratefully acknowledge Tapa Sitaula for research assistance. This case is developed for the purpose of class discussion. This case is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, and all errors and omissions, are entirely the authors. © by Rothaermel and King, 2017.

FRANK T. ROTHAERMEL

DAVID R. KING

MH00451259927628

REV: MARCH 18, 2017

Walmart

For the exclusive use of S. PARAMASIVAM, 2018.

This document is authorized for use only by SULOSHINI PARAMASIVAM in 2018.

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store in Iowa where he worked as a sales trainee. Walton’s emphasis on customer service was appar-ent early on, and his paperwork was generally a mess since he hated to make customers wait as he completed the paperwork.10 However, his retail career was interrupted when he joined the U.S. Army during World War II. Following the war, Sam Walton purchased his first store, a Ben Franklin franchise in Arkansas, with a $20,000 loan from his father-in-law and $5,000 he had saved.11 After expanding his portfolio to 15 Ben Franklin stores in less than two decades, his frustration over the chain’s manage-ment led Walton to abandon the chain. Walton had pushed for expansion into the rural market, but this was ignored by Ben Franklin.

The first Walmart store opened in Rogers, Arkansas in 1962, and it was called Wal-Mart Discount City12 (The official name of the company today is Wal-Mart Stores, Inc.; but it is doing business under the name Walmart). At this time, Sears was already a household name and Kmart had also recently opened. These big names, however, failed to recognize the threat posed by Walmart focusing on the rural market as a discount store. By moving into small towns, Walmart was able to leverage a greater sales volume to offer lower prices than mom-and-pop stores. The focus on small towns has been a source of criticism for Walmart, but it offered these communities jobs and lower prices that are esti-mated to save American families roughly $2,500 annually.13 However, the main advantage Walmart had from targeting smaller towns is that the towns were unable to support another major competitor, so there was less competition making Walmart stores profitable. These small towns then provided Walmart a basis to expand. By 1969, there were 18 Walmart stores in Arkansas and Missouri, and by 1976, Walmart was a publicly traded company valued at more than $176 million. Sam Walton was the richest man in the U.S. from 1982 to 1988. By 1987, under Walton’s leadership, Walmart became the third largest American retailer after Sears and Kmart.

In 1991, Walmart went international by opening a store in Mexico, and has since expanded to 28 countries. Walmart entered Canada in 1994, China in 1996, and into the UK in 1999. Exhibit 4 dis-plays the growth in Walmart stores over time, both domestically and internationally.

In the 1990s, Walmart’s valuation passed $45 billion to supplant Sears to become the largest retailer in America14 and Walmart has retained that position by continuing to adapt its store formats. In the U.S., Walmart offers several types of stores, including Supercenters, Discount stores, Sam’s Club, Neighborhood Markets, and e-commerce. Supercenters are large stores (approximately 182,000 square feet) that are generally open 24 hours and employ about 300 associates each. Supercenters sell every-thing from groceries and fresh produce to electronics and home furnishings, with many including specialty shops such as banks and vision centers. The first Discount store was opened in 1962. The Discount stores reflect Walmart’s heritage and are smaller (approximately 106,000 square feet), they employ about 200 associates each, and they offer most products found at Supercenters. In 1983, Walmart opened Sam’s Club, a membership-only warehouse club operating in 48 U.S. states and Puerto Rico. Sam’s Club accounts for only 12 percent of Walmart’s revenue. In 1998, Walmart opened its first Neighborhood Market to provide quick purchasing and affordable groceries, merchandise, and a pharmacy to smaller communities. Neighborhood Markets are the smallest store (~38,000 square feet) and employ up to 95 associates. While it launched online shopping in 1996, Walmart was a relatively latecomer to e-commerce with a redesign of its website for e-commerce not occurring until 2006. Online order and in-store pickup were offered for the first time in 2007.15 By 2017, Walmart only had e-commerce website in 11 countries.



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Walmart’s Current Leadership

The current leadership team at Walmart consists of Greg Penner as Chairperson, and Doug McMillon as President and CEO. Other notable executives include Greg Foran and David Cheesewright as Presidents and CEOs of Walmart U.S. and Walmart International, respectively. Rosalind Brewer is President and CEO of Sam’s Club and Neil M. Ashe is President and CEO of Global eCommerce and Technology. Walmart executives are generally recruited internally, and many have spent decades with the retailer.

ChAirperSon GreG penner

Walmart has seen three chairpersons so far – founder Sam Walton until 1992, his son Rob Walton from 1992 to 2015, and Rob’s son-in-law, Greg Penner from 2015. An MBA graduate of the Stanford Business School, Greg Penner was elected to the Walmart board in 2008 after working at Walmart for over a decade. His previous roles include senior Vice President and Chief Financial Officer for Walmart Japan. He also has knowledge of Walmart’s e-commerce and China business. Prior to work-ing for Walmart, he was an analyst at Goldman Sachs. The Walton family continues to have strong influences on Walmart because the Walton family owns about 51 percent of outstanding shares. After founder Sam Walton’s death in 1992, his son Rob Walton became the chairperson. Twenty-three years later, in 2015, Rob Walton’s son-in-law Greg Penner, despite objections from many shareholders, suc-ceeded him. A shareholder proposal, however, calling for an independent chairperson (i.e., one that is not related to the Walton family), received only 16 percent of votes. After the 2015 election, three of the 15 directors on Walmart’s board of directors had family ties to the Walton family.16

Ceo DouG MCMillon

After Sam Walton stepped down as CEO and President of Walmart in 1988, David Glass became the CEO. He was followed by H. Lee Scott, Jr. in 2000, Mike Duke in 2009, and Doug McMillon in 2014. Before becoming CEO of Walmart, Doug McMillon was the President and CEO of Walmart International from 2009 to 2014 and President and CEO of Sam’s Club from 2006 to 2009. McMillon has been at Walmart since he first worked at Walmart as a summer associate in 1984. Later, in 1990, he rejoined the company as assistant manager in an Oklahoma store. He has been on the Walmart board since 2009.

McMillon’s long career at Walmart is seen as a strength he brings to the position of CEO. He has worked in almost all business units of Walmart. One of his predecessors, Lee Scott said of him, “I told the board that I thought that he would be the best CEO since Sam... I think he’s prepared so much bet-ter than we were.”17 Since taking up the role of CEO, McMillon has raised hourly wages of associates, increased investment in technology and e-commerce, and invested in improving customer experience. Despite these changes, Walmart continues to struggle; revenues have fallen and stock price is below industry average (Exhibit 5). The wage raise has also negatively affected earnings. McMillon realizes this, but emphasizes long-term growth at the cost of short-term earnings. In an interview with CNBC, he said, “the real issue is, are we doing the right things to position Walmart for the future? Are we investing in the business to strengthen it?”18



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Core Competency

Walmart’s core competency has been low-cost, and historically Walmart has been a clear cost-leader with a strategy to lead on price. In their own words, “Every Day Low Price (EDLP) is the cor-nerstone of our strategy, and our price focus has never been stronger.”19 In opening remarks at the company’s 21st Annual Meeting for the Investment Community, Walmart President and CEO Doug McMillon said, “At Walmart, we serve value-conscious customers that come from all walks of life and all income levels. Price matters to our customers and it always will. As a company, being a low-cost operator is in our DNA. This will never change and we will be the price leader, across a broad assort-ment, everywhere we operate.”20

Walmart’s reputation as a low-price vendor is deep-rooted. Price-sensitive customers trade Walmart’s low prices for the ambience and superior service offered by other stores. An article in Forbes put it this way: “Walmart customers want the lowest possible prices on the things they use every day. And Walmart delivers, with reliably rock-bottom pricing and fantastic product variety. To afford it, the company under-delivers on other parts of the retail experience, such as sales support and ambience. You won’t find an army of helpful employees at your average Walmart, and its decor isn’t likely to give you ideas for your home renovation. Yet Walmart customers are delighted to make these tradeoffs.”21

Walmart can offer low prices to its customers because of its extremely efficient supply chain. It combines tremendous buying power and super-efficient supply chain management to offer consumers “everyday low prices” they have come to expect.22 The efficiency of Walmart’s supply chain is among the best in the world, and it relies on a combination of information technology and hub-and-spoke warehouses that enable replenishing products on store shelves the next day. This relates to Sam Walton having redefined retail supply chain by getting stores to reorder items only when needed instead of maintaining large inventories. This helped to lower inventory cost, and contributed to Walmart’s ability to provide discount prices.

Low cost is not just a source of competitive advantage for Walmart, it also poses a significant chal-lenge to its competitors, says one observer: “Walmart’s mania for selling goods at rock-bottom prices has trained consumers to expect deep discounts everywhere they shop, forcing competing retailers to follow suit or fall behind.”23 Without the supply-chain efficiency of Walmart, competitors have a tough time fighting back, and several companies have gone bankrupt in the past by trying to match Walmart’s discount prices. For example, in 2002, Kmart filed for bankruptcy protection because it was trying to compete with Walmart on pricing.24 Sears later bought Kmart for $11.5 billion in 2004.25 Flash forward to 2016 and Sears’ suppliers fear it is near bankruptcy.26 However, this cannot solely be blamed on Walmart, as e-commerce offers customers greater selection, convenience, and frequently low prices. In January 2016, the market value of Walmart and Amazon were both roughly $250 bil-lion; however, Walmart depended on $154 billion in capital (e.g., stores) to generate its revenue, while Amazon only used $35 billion in capital.27

Competition

Over the past five years, Walmart’s stock price is up 47 percent, but this is only half the gain of the S&P 500 and badly trails the returns of other retailers such as Costco and Whole Foods. Major grocery store chains such as Kroger and Safeway have adapted and learned how to compete better on



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price while outdoing Walmart on “fresh,” drawing in shoppers in search of better produce and pre-pared food. Yet, Walmart remains the largest grocery retailer in the U.S.

At the same time, Walmart has been losing cash-strapped customers to so-called dollar-store chains such as Family Dollar and Dollar General. Over the past three years, while Walmart’s sales grew by 8.6 percent, revenue at Amazon has nearly doubled.28 Globally, Walmart’s competitors include other multinational and local stores, including Carrefour SA in France, Metro AG in Germany, Tesco in the UK, Loblaw Companies in Canada, and Ahold in the Netherlands.29

AMAzon

Even though Amazon’s total revenues ($136 billion in 2016) are much smaller than Walmart’s ($486 billion in 2016), Amazon is the largest online retailer. Amazon expanded during the late 1990s to offer the world’s largest selection of books, CDs, videos, DVDs, and electronics. Today, Amazon is an online platform that sells virtually every kind of product including toys, tools, home furnishings and housewares, apparel, kitchen gadgets, and more recently, even groceries. It sells products from its own warehouses as well as from third-party sellers including well-known retailers. Amazon aggressively focuses on increasing its market share, at the expense of profits. Even though it lacks a physical store for the most (it is experimenting with small retail outlets), Amazon can provide similar convenience as a Walmart physical store using Free Same-Day Delivery30 and Prime Now 2-hour delivery31 in major metropolitan areas.

In addition, Amazon launched the Amazon Campus store concept in 2015. Now available at several college campuses in U.S., the Amazon Campus stores serve as a central hub where students retrieve deliveries from lockers and drop off returns, all free of charge. The idea is to bridge the “last mile,” which is the most expensive part of a home delivery, and to sign students up to Amazon’s Prime pro-gram at a discount rate.

CoSTCo

Costco Wholesale is a global retailer with membership-only warehouse clubs. Its first location opened in 1976, and it now operates in eight countries including the U.S. and Canada. Its annual rev-enue was $121 billion in 2016. By 2017, Costco operates over 720 warehouses in the U.S.

It is a major competitor to Walmart, particularly to Sam’s Clubs because of its low prices. Similar to Sam’s Club, Costco makes a significant portion of its income from membership dues. Costco sells products in all of the categories that Walmart sells, including groceries, furniture, clothes, and phar-macy. However, it offers much fewer product choices (about 4,000 stock keeping units (SKUs) com-pared to the 30,000 found at most supermarkets)32, while offering perceived higher quality and more brand name products.

DollAr GenerAl

Dollar General and other dollar stores like Family Dollar and Dollar Store (both owned by Dollar Tree, with $20 billion revenues in 2016) provide competition to Walmart for highly price-sensitive customers. Dollar General offers products that are frequently used and replenished at home, includ-ing food, health and beauty products, cleaning supplies, clothing, housewares, and seasonal items at



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extremely low prices, most commonly one dollar. Dollar General operates more than 13,000 stores in 43 states and had over $20 billion in sales in 2016.33 The mission of Dollar General is “Serving Others” by providing everyday household necessities at very low prices in small neighborhood stores for hassle-free shopping. These smaller discount stores have a strong presence in urban areas in the U.S. where Walmart is notably more or less absent.

The hoMe DepoT

Founded in 1978, The Home Depot has been a popular home improvement store. It created the “do-it-yourself” market in the home improvement industry. Today, it is the world’s largest home improve-ment retailer, with 2,200 retail stores in the U.S., Canada, and Mexico, and $95 billion revenue in 2016.34 Although not a competitor for Walmart in most sectors, The Home Depot does offer a signifi-cant competitive threat in the home improvement product sector.

oTher CoMpeTiTorS

Walmart receives competition from virtually every retailer. Kroger stores, which include super-markets, price-impact warehouse stores, and multi-department stores, are present in 35 states across the U.S. and had fiscal year 2016 sales of $116 billion. Meanwhile, the employee-owned grocery chain Publix, with over 1,100 stores and over $32 billion in sales (2016), provides competition in the south-eastern U.S. Other traditional retailers, such as Target, Kmart, and Sears remain competitors in the U.S. Additionally, Walmart faces a slew of competition from the local retailers in all the countries where it operates. Because Walmart is still struggling to establish a strong online presence, local and interna-tional online retailers, such as taobao.com (a subsidiary of Chinese online giant Alibaba), also provide an increased online threat to Walmart from a retail industry that continues to change.

Changing Retail Industry

Despite all the changes being introduced under McMillon’s leadership, the company faces many challenges as the retail industry continues to change due to evolving technology (especially online retailing) and globalization that pushes the pursuit of growth internationally, and pressure on wages and working conditions as the U.S. economy improves.

online reTAilinG

Amazon and other online retailers pose a significant competitive threat to Walmart, which the retailer’s leadership clearly recognizes. In an interview with CNBC, McMillon said, “Walmart must build a technology company to address consumers’ shift to e-commerce.”35 McMillon has also said, “We will change the mix of our capital spend through reductions in areas we have invested in his-torically to fund investments in new growth opportunities. Specifically, we will moderate the growth of investments in stores, and we will increase our investments in e-commerce.36 However, Walmart’s initial response to this threat was far from adequate and it lost customers to Amazon and other e-commerce websites. Walmart’s e-commerce platform, Walmart.com, was unable to provide the wide assortment of products that a purely online retailer like Amazon made available from wholesalers and third-party providers. In addition, Walmart’s website was, for a long time, not as sleek and user



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friendly as its Internet-only competitors. Finally, Walmart also requires warehouses for its products while the inventory costs for Amazon can be close to zero for third-party retailers because Amazon also functions as an online retail platform.

Walmart’s unique advantage, however, is that it can provide a combination of online and physical presences. In opening remarks at Walmart’s 21st Annual Meeting for the Investment Community, CEO McMillon in outlining the company’s growth strategy said: “There is a growing consensus that the future of retail is not just in-store and not just online. The winners in retail will be those that can put them together. Frankly, we think we’re already doing the harder part. Locations matter because convenience matters. We have the stores, the associates, and the expertise in the physical world that others will need to build. To capture the upside of our strategic advantages, we need to develop a more seamless relationship with our customers … We’ll give customers the choices they want and need by integrating digital and physical retail.”37 An example of how this hybrid retail concept combining physical stores with online transactions may be working is with groceries. Instead of ordering online and having to wait for delivery, Walmart has seen success allowing customers to order online and then have a dedicated curbside pick-up at stores. In turn, Amazon is responding with a trial Amazon Fresh store format.38 While hybrid retail concepts are quickly evolving, Walmart was nonetheless the only traditional retailer in 2016 that grew sales in both its traditional stores and online.39

According to CEO Doug McMillon, achieving increased sales both online and in Walmart’s stores results from customers distinguishing less between apps, websites, delivery, and stores with pick-up.40 Walmart’s purchase of Jet.com for $3.3 billion in 2016 facilitates a shift towards the so-called hybrid retail model. In particular, the Jet.com acquisition allowed Walmart to strengthen its online presence and sales by acquiring customers and management talent. For instance, Jet.com founder and CEO, Marc Lore was appointed CEO of Walmart’s e-commerce.41 Jet.com was founded in 2014, and the Jet.com website was made publicly available in July 2015.42 Marc Lore first founded Diapers.com, which Amazon acquired for $550 million in 2010.43 Marc Lore stayed at Amazon.com for two years and applied what he learned to found Jet.com and offered lower prices than Amazon.com by leveraging a $50 membership fee and options to limit returns and group orders.44 Jet.com’s initial tactic was to focus on gaining customers by losing money on every order to gain customers, but this approach is similar to Amazon’s, and was underwritten by investors.45 The tactic worked and Jet.com passed one million users within two months of making its website publicly available and four million customers by its 2016 first anniversary.46 A month after later, in August 2016, Walmart acquired an unprofit-able Jet.com for $3.3 billion, marking the most expensive e-commerce acquisition of all-time.47 The combination of Walmart and Jet.com leverages Walmart’s purchasing power to lower costs and Jet.com’s rapidly expanding customer base to be able to better compete against Amazon.com. Imitating Amazon’s $99 Prime membership concept that offers free shipping, Walmart and Jet.com now offer free shipping for any order above $35, or free in-store pickup with no minimum order requirements. At Walmart, Marc Lore took over the firm’s e-commerce and started making changes by laying off 200 Walmart staff in a re-organization and making an acquisition of ShoeBuy for $70 million.48

inTernATionAl expAnSion

The retail market in the U.S. is maturing as well as saturated geographically with over 5,000 Walmart stores. Some 95 percent of the Walmart stores closed in the U.S. during 2016 were within a mere 10 miles of another Walmart store.49 Walmart is now again seeking future growth internation-ally after decades of trial-and-error. In 1994, Walmart bought and later re-branded 120 of 142 Woolco



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discount stores in Canada. More recently, Walmart became a major retailer in the UK after acquiring Asda and making it a subsidiary.50 Several of Walmart’s international ventures did not work out. For example, after years of attempting to succeed, Walmart withdrew from Germany and South Korea. Therefore, over 85 percent of Walmart’s revenues come from the U.S., UK, and Mexico. This makes Walmart’s expansion into international and emerging markets increasingly important.

In Mexico, Walmart entered the market in 1991 with a joint venture with Cifra in successfully replicating its Everyday Low Prices (EDLP) model with a focus on convenience and operational effi-ciency.51 Walmart also collaborated with a local trucking company to overcome logistical challenges in its supply chain. However, Walmart’s success in Mexico came under criticism in 2012 after alleged bribery of government officials in exchange for real estate in Mexico, and other countries such as China, Brazil, and India.52 Unlike other firms that settled allegations with the outgoing administra-tion of President Obama, Walmart decided to fight the allegation, which may jeopardize its ability to accept federal food stamps in its 5,300 U.S. stores.53 The potential impacts of renegotiating NAFTA and building a U.S-Mexico border wall remain unknowns for Walmart’s operations in Mexico. To compound Walmart’s problems, its international expansion into other emerging economies has run into problems, including exposure to new competitors, less-developed road systems, and cultural dif-ferences. Still, Walmart has continued to invest in Mexico and plans to invest $863 million, or a 19 percent increase, in 2017.54

In Brazil, Walmart first entered the market in 1995 by opening stores based on its U.S. store format, and this contributed to Walmart being slow to adapt to the local market. Walmart later introduced smaller stores similar to what it uses in Mexico, and by 2013, it had expanded to 560 stores in Brazil.55 However, Walmart continued to be hampered by a poor understanding of Brazil’s tax laws, labor unrest, and then by Brazil’s middle class being hit hard by a recession from lower global prices for commodities. In 2016, Walmart closed 10 percent of its stores in Brazil.56 However, in 2017, Walmart has outlined plans to invest $320 million over three years to upgrades its stores in Brazil.57 This likely reflects that Walmart faces strong competition in Brazil from Carrefour because Brazil is their second largest market after its home market in France.58

In India, the government first allowed foreign direct investment in 2012, and Walmart quickly entered the country in a joint venture with local Bharti group to serve nearly one-fifth of the world’s population experiencing rapid economic growth. By 2016, Walmart operated 21 “Best Price Modern Wholesale” stores59 and it experienced a 34 percent increase in sales.60 While the stores offer educa-tion programs to their members and shared best practices with small- and medium-sized retailers, political issues have been a major drawback for Walmart’s growth in India. The Wall Street Journal captured Walmart’s challenges in India with this pithy headline: “Bad Roads, Red Tape, Burly Thugs Slow Wal-Mart’s Passage in India.”61 Moreover, India is also not immune to growing online sales, and Walmart invested $1 billion in India’s largest online retailer, Flipkart, in 2016.62 Flipkart, founded in 2007 by former Amazon engineers, also dominates Amazon in India.

Walmart entered China in 1996, where it encountered a vastly different environment.63 The retail landscape is highly fragmented, with thousands of omnipresent mom-and-pop stores operat-ing on razor thin margins. As a result, these stores often cut corners to avoid regulations and taxes. Additionally, Chinese consumers live in densely populated urban areas and have very different hab-its. For example, consumers in China drive less and visit grocery stores much more often than U.S. consumers. Instead of relying on its traditional EDLP model, Walmart initially attempted to target China’s emerging middle class with more upscale goods. However, this initiative had limited success



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and the U.S. retailer eventually shifted back to its traditional positioning as a low-cost retailer. In addition, Walmart gave store managers in China significant authority and control to run operations in adapting to local tastes. As Walmart works to establish a physical presence in China, Alibaba’s retail marketplace has more than 450 million active users that spent $5.7 billion on China’s Singles Day (11/11) in 2013.64

WAGeS AnD WorkinG ConDiTionS

The working conditions at retail stores are also a matter of scrutiny. In an open letter to CEO McMillon, Walmart employee Lisa Pietro wrote, “My salary is too low for me to afford health insur-ance and, because Walmart doesn’t guarantee job security if we take sick time, my colleagues and myself are forced to go to work, even when we’re sick… It’s terrifying to imagine that we could lose our jobs if we get sick….” Jasmine Dixon, another Walmart associate, was allegedly punished for requesting better working conditions during her pregnancy. Eventually, she gave up and quit after her manager required her to continue lifting heavy boxes after she requested a less intense work assign-ment.65 A wider movement demanding that employers pay a livable wage with a focus on Walmart, the largest private employer in the U.S., more broadly reflects this incident.

While large corporations often pay more, Walmart has paid its workers less than small retail-ers. Because low-wage workers often rely on government programs to subsidize their expenses (e.g., Medicaid for health insurance), Walmart also puts undue pressure on taxpayers. A 2013 Congressional report alleged that a Wisconsin Walmart Supercenter cost taxpayers $900,000 a year in welfare pay-ments to its associates.66 Meanwhile, Walmart reported 17 percent profitability in 2014, due in part from paying low wages. In response, CEO Doug McMillon has raised Walmart’s hourly wages from about $7.25-$8.00 per hour to $10 per hour in 2016, above the $7.25 minimum federal wage.

Walmart: A new way to compete?

Shifting back to his desk, CEO Doug McMillon realized Walmart needed a new way to compete. Continued focus on being a low-cost provider with customer convenience from thousands of retail store locations may be less viable as e-commerce expands. Additionally, the Everyday Low Price (EDLP) model has not been consistently replicated internationally where markets and culture are often quite different, and where e-commerce is growing. Walmart beats Sears by having lower costs that enable competing on price: How does Walmart avoid becoming Sears as e-commerce expands? Where is future growth coming from?



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ExHIbIt 1 Walmart Key Events and Net Income (in $ million), 1972–2016

Source: Depiction of publicly available data.

$18,000

$16,000

$14,000

$12,000

$10,000

$8,000

$6,000

$4,000

$2,000

$0

1972 Initial Public Offering (NYSE)

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

1983 First Sam’s Club opens. Number of stores exceeds 1,000

1991First non-U.S. store (Mexico)

1992Sam Walton, founder of Walmart, dies; his son Rob Walton becomes chairman

1993 Over $1 billion sales per week

1996First store in China

1997Over $100 billion sales per year

2000Walmart.com, online presence

2010First store in India

2011More than 10,000 retail stores globally

2014Doug McMillon becomes 5th CEO

2015Rob Walton retires as chairman and Greg Penner succeeds



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ExHIbIt 2 Walmart Stores (left axis) and Revenue (right axis, in $ million), 1971–2016


14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

$0

RevenueNumber of stores

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980 1981

1982

1983

1984

1985

1986

1987

1888

1989

1990 1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11 20

12

2013

20

14

2015

2016



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ExHIbIt 3 Walmart Key Financial Data (in $ millions, except earnings per share (EPS) data), 2012–2016

Fiscal Year 2012 2013 2014 2015 2016

Cash and short-term investments 6,550 7,781 7,281 9,135 8,705

Receivables (total) 5,937 6,768 6,677 6,778 5,624

Inventories (total) 40,714 43,803 44,858 45,141 44,469

Property, plant, and equipment 112,324 116,681 117,907 116,655 116,516

Depreciation and amortization 48,614 55,043 60,771 65,979 71,538

Assets (total) 193,406 203,105 204,751 203,706 199,581

Accounts payable (trade) 36,608 38,080 37,415 38,410 38,487

Long-term debt 47,079 41,417 44,559 43,692 44,030

Liabilities (total) 117,241 120,848 121,921 117,769 115,970

Stockholders’ equity (total) 75,761 81,738 81,339 85,937 83,611

Sales (net) 444,948 467,231 474,259 483,521 482,130

Cost of goods sold 326,997 343,987 349,199 355,913 351,530

Selling, general, and administrative expense 85,199 88,716 90,920 92,996 96,948

Income taxes 7,944 7,981 8,105 7,985 6,558

Income before extraordinary items 15,766 16,999 15,918 16,182 14,694

Net income (loss) 15,699 16,999 16,022 16,363 14,694

Earnings per share (basic) excluding extraordinary items 4.56 5.04 4.87 5.01 4.58

Earnings per share (diluted) excluding extraordinary items 4.54 5.02 4.85 4.99 4.57

Source: Walmart Annual Reports (various years).



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ExHbIt 4 Walmart Stores (domestic and international), 1971–2016.


7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

Number of International StoresNumber of Domestic Stores

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980 1981

1982

1983

1984

1985

1986

1987

1888

1989

1990 1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11 20

12

2013

20

14

2015

2016



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ExHIbIt 5A Walmart vs. Dow Jones Industrials Average, Stock Price Percentage Change (normalized), 1972–2017

ExHIbIt 5b Walmart vs. Dow Jones Industrials Average, Stock Price Percentage Change (normalized), 2007–2017


99.22K%

2.07K%

130.0K%

110.0K%

90.0K%

70.0K%

50.0K%

30.0K%

10.0K%

-10.0K%

Wal-Mart Stores Price % Change Mar 9’17 99.22K%Dow Jones Industrials Level % Change Mar 9’17 2.07K%

1980 1990 2000 2010

46.03%

70.12%

90.0K%

70.0K%

50.0K%

30.0K%

10.0K%

-10.0K%

-30.0K%

-50.0K%

Wal-Mart Stores Price % Change Mar 9’17 46.03K%Dow Jones Industrials Level % Change Mar 9’17 70.12%

2008 2010 2012 2014 2016



Walmart

15

Endnotes

1 “Sam Walton Biography,” entrepreneur, accessed 2017. http://www.entrepreneur.com/article/197560.

2 E. Fung, “Mall Owners Head for Exists as Retail Tenants Move Out,” The Wall Street Journal, January 25, 2017, A1.

3 A. Adamczyk, “Walmart to Close 269 Stores Worldwide,” Money, accessed January 15, 2016, http://time.com/money/4182308/Walmart-closing-269-stores-2016/.

4 “Walmart has Completed Its Acquisition of Jet.com,” reuters, accessed September 30, 2016, http://fortune.com/2016/09/20/Walmart-acquisition-jetcom/.

5 S. Nassauer, “Walmart Shakes Up Web Ranks—Several E-commerce Executives Departing in Wake of Retailer’s Purchase of Jet.com,” Wall Street Journal, November 2, 2016, B3.

6 “Walmart Reports Q4 Adjusted EPS of $1.49, Fiscal Year 2016 Adjusted EPS of $4.59,” Walmart.com, accessed 2016, http://news.walmart.com/news-archive/2016/02/18/walmart-reports-q4-adjusted-eps-of-149-fiscal-year-2016-adjusted-eps-of-459.

7 “The Biggest Companies in the World in 2015,” Telegraph, accessed 2015, http://www.telegraph.co.uk/business/2016/02/11/the-biggest-companies-in-the-world-in-2015/shopper-with-an-overflowing-trolley-in-Walmart/.

8 “About Us,” Walmart.com, accessed 2017, http://corporate.Walmart.com/our-story.

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11 T. Hayes, “Sam Walton is Dead at 74; the Founder of Wal-Mart Stores,” new York Times, accessed 2016, http://www.nytimes.com/1992/04/06/us/sam-walton-is-dead-at-74-the-founder-of-Walmart-stores.html?pagewanted=all.

12 “Walmart 10K,” Security and exchange Commission, accessed 2015, http://www.sec.gov/Archives/edgar/data/104169/000010416915000011/wmtform10-kx13115.htm.

13 T. Worstall, “Walmart Destroys Jobs, Yes, But The Benefits Go To Consumers, Not The Top,” Forbes, accessed 2015, http://www.forbes.com/sites/timworstall/2013/08/11/Walmart-destroys-jobs-yes-but-the-benefits-go-to-consumers-not-the-top/#9231a1364c49.

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16

Walmart

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35 T. DiChristopher, “Wal-Mart’s McMillon: Investments in Stores, Tech Will Help Us Win,” CNBC, accessed 2015, http://www.cnbc.com/2015/10/14/Walmarts-mcmillon-investments-in-stores-tech-will-help-us-win.html.



38 L. Stevens and K. Safdar, “Amazon’s Grocery Project Moves Ahead,” Wall Street Journal December 6, 2016, B1.

39 P. Wahba, “Here’s How Walmart Is Reigniting Its E-Commerce Growth,” Fortune, accessed 2016, http://fortune.com/2016/08/18/walmart-ecommerce-2/.



Walmart

17

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42 J. D’Onfro, “Jet, a Buzzy Startup that Raised $225 Million to Take on Amazon, Just Officially Launched,” Business insider, accessed 2015, http://www.businessinsider.com/jetcom-launches-today-ceo-marc-lore-interview-2015-7.

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48 E. Griffith, “Walmart Layoffs Hit E-commerce Division,” Fortune, accessed 2017, http://fortune.com/2017/01/26/walmart-layoffs-ecommerce/.

49 K. Gustafson, “Wal-Mart to Close 269 Stores in 2016, Open Up to 405 Others,” nBC news, accessed 2016, http://www.nbcnews.com/business/business-news/wal-mart-close-269-stores-2016-open-405-others-n497361.

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51 N. Morton, “H-E-B Takes Battle with Wal-Mart South of Border,” houston Chronicle, accessed 2015, http://www.houstonchronicle.com/business/retail/article/H-E-B-takes-battle-with-Walmart-south-of-border-6392158.php.

52 D. Barstow, “The Bribery Aisle: How Wal-Mart Got Its Way in Mexico,” new York Times, accessed 2012, http://www.nytimes.com/2012/12/18/business/Walmart-bribes-teotihuacan.html?pagewanted=all&_r=0.

53 J. Lublin, A. Viswanatha, and S. Nassauer, “Walmart Stuck in Limbo,” Wall Street Journal, January 28, 2017, B1.

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18

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66 “Walmart and Low-wage America: High Expectations.” economist, accessed 2016. http://www.econo-mist.com/news/united-states/21689607-what-big-pay-rise-Walmart-means-minimum-wage-debate-high-expectations?fsrc=email_to_a_friend.



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