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Wal-Mart Stores Discount Opera

Team - iStore

Anupam Bara

P.Swetha

Pritesh

Shikha Singh

Vinay Dhok

Saurabh Jain

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Wal-Mart stock stillremains a good buy at aP/E multiple of 26

ConvincingAnalysts

Population in Sunbelt rosefaster than other areas,competitors areencroaching on Wal-Marts areas

IncreasingCompetition

Rapid expansion hasincreased logistics costfrom 2.8% in 1984 to 4%in 1985

IncreasingLogistics Cost

As Wal-Mlarger, motown, rentby 0.1% anincrease fu

Rise in RenPrice

Hard Goods constituting28% of Wal-Marts saleshad lower margins despitehigher sales per sqft andlower markdowns.

Increasedreliance on HardGoods

Satellite Technology, UPCTechnology and changingcomputation technologymight cause higherspending on technologyupgrades

Technologychanges

People purchased pricesensitive categories fromWal-Mart but were notinfluenced by it in apparel,hardware and consumerelectronics

Perception ofWalmart =Discount

Shrinkagereduced, isales

HandlingShrinkage

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Everyday Low Prices ina Cash Strapped

Economy

First Mover Advantagein Towns where they

opened stores

High Bargain Power asno more than 1/5 ofvolume purchased

from 1 vendor

Superior Technology,Close-Knit

Communicationreduced Reaction time

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Economics of Discounting in 1984 (% of net sales)

Industry 1984 Walmart 1984 Walmart 1985

Net Sales 100% 6401 100.00% 8451 100.00%

License Fee and other

income 1.10% 52 0.81% 55 0.65%

Cost of Goods Sold 71.90% 4722 73.77% 6361 75.27%

Payroll Expense@ 11.20% 556.98 8.70% 678.53 8.03%

Advertising Expense* 2.30% 54.33 0.85% 54.33 0.64%

Rental Expense# 2.20% 121.62 1.90% 160.57 1.90%

Miscellaneous Expense^ 7.60% 448.07 7.00% 591.57 7.00%

Operating Income 5.90% 498.00 7.78% 605.00 7.16%

Net Income 2.70% 271.00 4.23% 327.00 3.87%

*Assuming TV Ad Expense is 30% of total Promotion Expense

#Taking rental expense at 1.9% as per data in case text

^Miscellaneous expense has been considered slightly less than industry value at 7%

@Payroll Expense = Admin & Other Expense from Exhibit Ad Expense Rental Expense Miscellaneous Exp calculated as detailed above

1976 - 1985 1984 - 1985

CAGR Sales 37.57% 32.03%

CAGR Net Income 39.83% 20.66%

CAGR Sales and Net

Income have reduced

in 1984-85 compared

to historical data

Revenue

other

while

Has Wal-

at the c

Net Ma

1985 c

yet

ind

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