Wal Mart Business Case Study

Index of contents

1 Wal-Mart Overview

2 Wal-Mart’s Strategy

3 Wal-Mart Management

4 Wal-Mart’s Culture

5 Financial Performance

6 Issues that Management Needs to Address and Recommendations

Bibliography

1 Wal-Mart Overview

Wal-Mart, the largest retail company in the world, specializes in the operation of mass merchandising and supermarket stores. The company operates through three segments, namely the Wal-Mart stores, Sam’s Club, and the International segments in Asia, Europe, and South America. Wal-Mart is headquartered in Bentonville, Arkansas.

Wal-Mart recorded total revenues of $287.9 billion during the fiscal year ended January 2005, an increase of 11.3% over fiscal 2004. The company recorded a net income of $10.2 billion in fiscal 2005, an increase of 13.4% over 2004.

There are several issues that impresses me about this company and of course some that I find unimpressive. First of all, a question that I asked myself for so many times was: How could it be that it is so easy to get in but so hard to get out? I can imagine that ever since they built a “super” WALMART here in Cullowhee, the place has really livened up (I can not tell how it was before. I just spent a year in Cullowhee as an international student). I mean where else can a guy go at 2 o’clock in the afternoon and find more people than there are open registers. It is literally amazing to me for the simple fact that every experience is a new one. You walk in and there is just as much hustle and bustle as Santa’s workshop, or Hugh’s Mansion. So you grab a cart and immediately jump in the fast lane. Not a good move in my opinion, once I had a fender bender with an elderly woman. She rammed into the back of my leg in a motorized cart and before I could say excuse me she said, “That’s how people get run over.” But as usual I kept on truckin’ and the first place I go is to the toiletries section. I always go there first because no matter what you always need something. From that point on, you are infected with the Wal-Mart virus. This infection deteriorates the bankbook and can result in permanent financial trauma. My advice is to practice safe Wal-Mart spending and bring somebody who has no money. The worst part of the whole experience comes upon exiting the building when you have to pass the security checkpoint at the door wearing a rubber glove.

I really hate this part because it makes you feel like you did steal something. The person politely asks for your receipt and looks at it to make sure you got everything. What are they going to do, look at it and say “excuse me sir are you aware that you stole this?” Meanwhile, I am standing there getting checked for a box of q-tips and this little dude walks by smiling with an X-Box and a bag of DVDs.

This might sound a little funny but after analyzing the business aspects of these experiences it makes all sense. The structure of the stores, the concept of processes within stores, and customers responses to these things are part of an intelligent and unique strategy. All in all I really think that although a trip to Wal-Mart can be dangerous, the personal interaction is priceless.

2 Wal-Mart’s Strategy

At first view, Wal-Mart’s winning strategy in the U.S. was based on selling branded products at low cost. Each week, about 100 million customers visited a Wal-Mart store somewhere in the world. The company employed more than 1.3 million associates (Wal-Mart’s term for employees) worldwide through more than 3,200 stores in the United States and more than 1,100 units in Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, Germany, and the United Kingdom. (The first international store opened in Mexico City in 1991.)

Wal-Mart enjoyed a 50 percent market share position in the discount retail industry. Procter & Gamble, Clorox, and Johnson & Johnson were among its nearly 3,000 suppliers. Though Wal-Mart may have been the top customer for consumer product manufacturers, it deliberately ensured it did not become too dependent on any one supplier; no single vendor constituted more than 4 percent of its overall purchase volume. Further, Wal-Mart had persuaded its suppliers to have electronic “hook-ups” with its stores.

Deeper matter, Wal-Mart's uniqueness comes from a business strategy as radically innovative as those of the Pennsylvania Railroad, Standard Oil and General Motors of the 19th and early 20th centuries, according to Nelson Lichtenstein, a labor historian at the University of California at Santa Barbara. Like Wal-Mart, those companies, all titans of their time, boosted efficiency and productivity far ahead of their rivals by creating a new management paradigm for their particular industry. Wal-Mart's sophisticated distribution system and information technology to track inventory has significantly improved its efficiency and productivity -- making it far more profitable than other retailers. As a result of Wal-Mart's profitable strategy, many other retail companies, such as Kmart Corp., are trying to emulate Wal-Mart's distribution system and telecommunications structure.

In addition to its overall business strategy, Wal-Mart's growth strategy is strikingly different from most other retailers. Most companies establish stores near major urban areas with a potentially large clientele base. Wal-Mart, by comparison, spread out from its Arkansas base by constructing new stores strategically located near distribution hubs and smaller towns. And its growth is completely homegrown. Unlike many other companies, Wal-Mart has not bought up existing retail chains in order to preserve control over its corporate culture which has helped Wal-Mart stay ahead of its rivals.

As an illustration of its productivity-driven corporate philosophy, Wal-Mart began an internal "survival of the fittest" competition among individual stores. By building more stores than necessary, store managers felt a strong incentive to "crack down on workers and improve the efficiency of their store to stay alive". This aggressive growth strategy -- with its potentially negative implications for workers in the U.S. and abroad -- has forced other retailers to follow suit, or fall behind.

3 Wal-Mart Management

Each store constituted an investment center and was evaluated on its profits relative to its inventory investments. Store-level data on sales, expenses, and profit and loss were collected, analyzed, and transmitted electronically on a real-time basis. The data could be analyzed by region, district, store, department within a store, or even at the level of an item within a department.

One of the significant costs for retailers was shoplifting, or pilferage. Wal-Mart addressed this issue by instituting a policy that shared 50 percent of the savings from decreases in a store’s pilferage among that store’s employees through store incentive plans.

Early in Wal-Mart’s history, Sam Walton implemented a process requiring store managers to fill out “Best Yesterday” ledgers. These relatively straightforward forms tracked daily sales performance against the numbers from one year prior. Recalled Walton, “We were really trying to become the very best operators—the most professional managers—that we could.… I have always had the soul of an operator, someone who wants to make things work well, then better, then the best they possibly can.” His organization was really a “store within a store,” encouraging department managers to be accountable and giving them an incentive to be creative. Successful experiments were recognized and applied to other stores. One example was the “people greeter,” an associate who welcomed shoppers as they entered the store. These greeters not only provided a personal service, their presence served to reduce pilferage. The “10-Foot Attitude” was another customer service approach Walton encouraged. When the founder visited his stores, he asked associates to make a pledge, telling them, “I want you to promise that whenever you come within 10 feet of a customer, you will look him in the eye, greet him, and ask him if you can help him.”

In return for employees’ loyalty and dedication, Walton began offering profit sharing. “Every associate that had been with us for at least one year, and who worked at least 1,000 hours a year, was eligible for it,” he explained. “Using a formula based on profit growth, we contribute a percentage of every eligible associate’s wages to his or her plan, which the associate can take when they leave the company, either in cash or in Wal-Mart stock.” In 2001, Wal-Mart’s annual company contribution totaled $486 million.

Wal-Mart also instituted several other policies and programs for its associates: incentive bonuses, a discount stock purchase plan, promotion from within, pay raises based on performance not seniority, and an open-door policy.

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