Table of Contents INTRODUCTION2 COMPANY HISTORY AND BACKGROUND4 Organizational Culture5 International Penetration6 INDUSTRY DESCRIPTION9 Industry Analysis9 Table 1: TED Spread (2005-2010)11 Table 2: VIX (2005-2010)12 Table 3: FCI (2005-2010)12 Size of the U. S. Retail Market13 Table 4: S&P Retail Index (2005-2010)14 Table 5: U. S. Retail Sales (2005-2010)14 Structure of the U. S. Retail Market15 Table 6: U. S. Retail Sales 200716 Table 7: U. S. Retail Sales 200817 Table 8: Consumer Confidence Index18 Potential Growth18 Table 9: PERSONAL SAVING RATE19 Graph 10: U. S.
Real Consumption and Income Growth 1933-200920 Table 11: Sales Growth and Profitability by region/country 200822 Walmart’s Performance in the Context of Global, U. S. and Industry Trends23 Table 12: Walmart’s Revenue 2005-2009 in $m23 Table 13: Real GDP Developed World25 Walmart & its competitors26 Walmart International – Overview26 International Sales27 Competition within United States30 Walmart Stock compared to Target Corp. , Costco & Kroger over the last 5 years31 Walmart – Global competition33 Global Presence of Walmart Vs its Competitors34 Product-Offering of Walmart Vs.
Its global competitors35 COMPANY DESCRIPTION36 Financial36 Sales:39 Operating Income:40 Return on Equity (ROE):41 Earnings per share:42 Key Financial Highlights of Walmart from 2004 to 200843 Personal and Human Resources43 Several measures were taken to increase the productivity of the employees. 44 Current Human Resources (HR) policies of WM44 Criticism of the HR policies of Walmart45 Operations45 CONCLUSION OR LOOKING INTO THE FUTURE47 PART 249 An outline of major problems or issues the organization is facing or will face during the strategic period49
Mission and Vision53 environmental threats and opportunities profile & strategic advantage profile54 Strategic Advantage Profile57 Strategic Objectives61 U. S. Market/Competitors:64 International Market/Competitors:65 Product65 Customers66 Other long term objectives66 Strategic alternatives69 a. Aggressive Growth Strategy69 b. Mixed Strategy72 c. NEUTRAL STRATEGY74 CRITERIA’S for evaluation of the strategies75 Choice (best alternative)79 Guidelines and recommendations for the implementation and the evaluation techniques80 BIBLIOGRAPHY88 INTRODUCTION
The world economy has undergone a radical transformation in the last two decades. Geographical and cultural distances have shrunk significantly with the advent of airplanes, fax machines, global computers, and world televisions satellite broadcasting and most important the internet. These advances have allowed business corporations to widen substantially both their markets and their supplier sources. In the business world today, people refer to Globalization. Globalization is about worldwide economic activity – about open markets, competition and the free flow of goods, services, capital and knowledge.
It has made the world economy more efficient. As global companies enter local markets, local companies enter global ones. The resulting competition increases product quality, widens the range of available goods, and keeps prices low. Consumers everywhere are the big winners from the globalization process. Globalization actually creates more diversity, not less. While it expanded into international markets, making products and services universally available, it also increased consumer choice. The good news is that the globalization means a much larger market for goods and services.
The bad news is that these companies now face a greater number of competitors. Environmental deterioration presents many opportunities for companies that can create more effective means of protecting or cleaning up the environment. Infrastructure neglect provides huge opportunities for companies in the construction, transportation, and communication industries. Economic stagnation favors companies that are good at lean production and lean marketing. Low labor skills challenge educational and training companies to design more effective programs for upgrading human skill.
Walmart Stores, Inc. , is a national discount department store chain operating primarily in small towns throughout the United States. The use of new information technology enabled Walmart to know what customers were buying and to tell manufactures what to produce and where to ship the goods. COMPANY HISTORY AND BACKGROUND Walmart Stores, Inc. is the largest retailer in the world, the world’s second-largest company after ExxonMobil and the nation’s largest nongovernmental employer. Walmart Stores, Inc. operates retail stores in arious retailing formats in all 50 states in the United States. The Company’s mass merchandising operations serve its customers primarily through the operation of three segments. The Walmart Stores segment includes its discount stores, Supercenters, and Neighborhood Markets in the United States. The Sam’s club segment includes the warehouse membership clubs in the United States. The Company’s subsidiary, McLane Company, Inc. provides products and distribution services to retail industry and institutional foodservice customers.
It is now has more than 4,700 stores including some 1,475 discount stores, 1,750 combination discount and grocery stores and 538 membership-only warehouse stores (SAM’S CLUB) (Bianco, 2003). With net income of approximately US$8 billion on sales of US$247 billion (“Income Statement”, 2004), Walmart was the subject of countless newspaper features and journal articles praising its dominance and success. Nearly 75% of its stores are in the United States (“Walmart International Operations”, 2004), but Walmart is expanding internationally.
The International segment includes all of its operations in Asia, Europe, and South America which are comprised of Argentina, Brazil, Mexico, Canada, China, Germany, Japan, Korea, Puerto Rico, and United Kingdom (“About Walmart” 2004). Organizational Culture Walmart satisfy itself on its strong culture, with various references to Sam Walton’s personal life story, the history of the company and how Walton’s personal values become core beliefs for the company. Walmart public information showed that its customer-focused culture shoot from the company’s pursuit of low prices products and authentic customer service.
Walton had three basic beliefs on which the company was build which are respect for the individual, service to customers, and strive for excellence. In addition, there were two key rules that supported these three basic beliefs: the Sundown Rule (attending to requests the same day they were received); and the Ten-foot Rule (offering greetings whenever one was within 10 feet of a customer) (“The Walmart Culture”, 2004). This Walton’s philosophy leads Walmart different from the rivals with aggressive hospitality – striving to be the friendliest, giving better service over what customers expected, and generally exceeding customers’ expectations.
Moreover, Walmart good concept also involved stores offering customers a variety of name-brand goods at deep discounts that were part of an everyday-low-prices strategy. International Penetration Another vehicle for company growth was aggressive international expansion. The International Division was sat up to manage oversee growing opportunities (“About Walmart”, 2004). This division is one of the high growth rate departments in the company. Walmart said in financial report (2003) that sales of International Division had reached more than forty billion dollar and growth rate was more than fifteen percent compare to the previous year.
Moreover, the operation profit increased fifty five percent from the year 2002. This division is believed that if trend in the United States goes down in one day, this international market will be replaced that position. John Menzer, president and CEO of the International Division says that “We need to be the growth of Walmart some day when the United States slows down” (as cited in Molin, 2004). Within thirteen years in International Market, Walmart has expanded its store throughout global market. There are almost a thousand stores in nine countries around the world.
Not all stores are newly established by Walmart itself; joint venture or buy local companies also the strategies that it uses in order to expand into each country. In the mid-1990sWalmart started introducing its designation to the world by joint venture with Cifra, A. A. de C. V. , Mexico’s largest retailer. This created Mexico became the first member of the International division in 1991. In June of 1992, operations in Puerto Rico was started with the opening a Walmart store in Fajardo. In 2002, Walmart acquired Supermercados Amigo, a local supermarket chain, in order to make connection with local suppliers on the island.
Store opening in Brazil confirm expanding plan of Walmart to South America market. The operation began in May 1995 when a San’s Club opened in metropolitan area of Sao Paulo. Nine years after that Walmart Brazil is present in four states – Sao Paulo, Minas Gerais, Rio de Janeiro and Parana. This year it will acquire Bompreco, a leading supermarket and hypermarket chain in northeastern Brazil. The next stop of South America operation was at Argentina. Walmart Argentina began in august 1995, three months after Brazil. It started with the opening of a Sam’s Club in Avellaneda.
Today, Walmart runs into 11 supercenters and one distribution center. The acquisition of Woolco in 1994 brought Walmart to Canada which is now present in 231 discount department stores and 5 Sam’s Clubs. China was the first country in Asia that Walmart choose to enlarge its market share. It was first enter in August 1996 with the opening of supercenter and Sam’s Club in Shenzhen (“Walmart Inter…” 2004). Walmart website claimed that “As a harbinger if China’s economic reform and the fastest growing coastal city in China, Groeber proved to be the best location for Walmart’s investment” (2002).
In January 1998, Walmart had first entry in Europe market with the acquisition of Wertkauf hypermarkets in Germany. Later in that year, Walmart also acquired Interspar, another German hypermarket chain. It has invested in modifying these stores since then and now, Walmart operates the total 92 supercenters in Germany. Later that same year, Korea became a member of Walmart international operation. The company expanded by acquisition and conversion Makro stores, a discount store chain. Moreover, the company also established its first new construction project in Seoul, which opened in July 1999.
One month later, ASDA, Britain’s best value retailer, became part of the Walmart family. And in the year 2000, The first time for Walmart to have name appeared on a UK store which is ASDA-Walmart Supercenter (“Walmart Inter…”, 2004). The latest place outside U. S. market that Walmart entered was Japan. In March, 2002, The Company gained a minority interest of The Seiyu, Ltd. , one of Japan’s top retailers. Today, 37. 8% of its stock was hold by Walmart and it was planned to retain the option up to nearly 67% by year 2007(“Walmart Stores, Inc. ”, 2004). The expansion in number of store is a continuous plan of Walmart.
Accordingly, top management had consistently informed the press of the importance of Walmart expansion plans in foreign markets indication that between one third to half of its growth in the following years should come from outside the saturated US market (Jones, 1998). The overseas expansion of Walmart, therefore, was seen as part of a long-term strategy of becoming a dominant force in international retailing. INDUSTRY DESCRIPTION Industry Analysis In the fiscal year of 2009, Walmart made 75,4% of its sales in the U. S. market and 24,6% outside of it. Because U. S. arket still constitutes the lion’s share of Walmart’s operations we feel obliged to take a closer look at the retail industry in the U. S. especially. On other hand, we also have to focus on internationalization because this is where the future of Walmart lies. We strongly believe that both the U. S. retail market as well as the international arena is critical to Walmart’s long-term sustainable success and that we have to make a through analysis of both markets in order to be able to come up with the best possible strategic decisions for Walmart’s long-term growth.
The economic crisis of 2007-2009 has had a considerable impact on the U. S. economy and the world’s economy in general. Its impact is best evaluated against the years when the American economy was doing well. Therefore, we use a five-year span in evaluating the U. S. retail market. A five-year span is more relevant to today’s situation than a ten-year time frame, because benchmarking today’s retail market performance against ten-year old data would not make as much sense as benchmarking it against the pre-crisis levels. We believe that this angle will allow us to estimate the impact that the recession had on the U. S. onsumers as well as clearly see the distance that the U. S. retail industry has to go to return to the pre-crisis level. Mostly important, it will also allow us to estimate the relative attractiveness of the U. S. and international markets for Walmart’s future. The U. S. retail business is closely connected to the performance of the U. S. economy. It is a fair assumption that people have more money to spend during good times than they have to spend during difficult times. Some of the reasons for that are the higher unemployment rate, the limited availability of credits and the frugal consumer spending during recession times.
The insight that we gain through comparing the performance of the U. S. retail market to the U. S. economy can help us understand the intricate relationship between the two. It will also help us to plan the short-term strategy for Walmart that will coincide with the economic recovery of the U. S. and the global economy. We use three financial market indicators to evaluate the performance of the U. S. economy: (1) TED Spread – shows the difference between US Treasury bill rate and Eurodollar rate. It measures the perceived credit risk in the U. S. economy.
The high values of TED Spread indicate that the lenders believe that there is high risk of banks defaulting on the interbank loans, while the lower values of TED Spread indicate the lenders’ confidence in the stability of the financial markets. (2) The Chicago Board Options Exchange Volatility Index (VIX) – shows the market’s expectation of 30-day volatility. It is based on S 500 Index and is calculated from the number of calls and puts. The higher values of VIX stand for a greater degree of market uncertainty, while the lower values indicate the perceived stability of the stock market. (3) The Bloomberg U.
S. Financial Conditions Index (FCI) – “provides a daily measure of the relative strength/weakness of the U. S. money, bond and equity markets, and is considered a useful gauge of bank lending conditions and the overall availability of credit” (Bloomberg. com). The index shows whether the current financial conditions lie above or below the average of the 1992-June 2008 period, which gives the observer a useful historical perspective on the current state of the U. S. financial market. The corresponding values of the three indices in the five-year time frame are presented in the tables below.
Table 1: TED Spread (2005-2010) [pic] Source: Bloomberg. com Table 2: VIX (2005-2010) [pic] Source: http://finance. yahoo. com Table 3: FCI (2005-2010) [pic] Source: Bloomberg. com After comparing the current state of the U. S. financial markets to the pre-crisis level, we reach the conclusion that the U. S. financial markets have almost recovered from the financial crisis. Even though the recovery is not totally completed yet, yet there are good signs it will be completed in the near future. The stable financial markets provide a very good basis for the economic and industrial recovery of the U.
S. , which in turn will have positive impacts on the retail industry. Not only will the consumer confidence increase gradually, but the consumers will also have more disposable income to spend for the retail industry. For that reason, we expect a somewhat retarded reaction of the retail industry to the financial and economic recovery. Size of the U. S. Retail Market We expect the retail industry to lag behind the general economic trends. In the next step, we explore whether the above mentioned hypothesis is right. For that purpose, we compare the recovery of the U. S. etail sector to that of the U. S. economy. We decided to take two indicators for the U. S. retail sector. The same time frame of five years apply: (1) S Retail Index – “is a capitalization-weighted index of domestic equities traded on the New York Stock Exchange, American Stock Exchange and NASDAQ. ”[1] It shows the total market value of outstanding shares of the retail companies listed in the index. Based on that data we can infer the overall state of the U. S. retail sector. (2) U. S. Retail Sales – is another indicator that we choose to use in our comparison.
We believe that the level of sales fairly accurately indicate the level of consumer spending and the consumers’ confidence in the U. S. economy. Moreover, U. S. retail sales show how much of the economic recovery has been experienced by the general population of the U. S. We believe that S Retail Index and U. S. Retail Sales ideally supplement each other, because the former presents the investors’ perspective for the retail industry and the latter depicts the consumer’s side. The following two tables depict the development of S Retail Index and U. S. Retail Sales over the last five years:
Table 4: S Retail Index (2005-2010) [pic] Source: http://finance. yahoo. com Table 5: U. S. Retail Sales (2005-2010) [pic] Source: http://www. census. gov/retail/mrts/www/data/html/09Q4table3. html The two graphs even though do show similar trends, still do not overlap. While the financial markets were beginning to show some signs of upcoming crisis in May-July of 2007, the consumers did not come to feel it until late 2008 when the financial market crashed. The financial market has almost recovered from the recent recession, but neither S Retail Sector Index nor U. S. etail consumption has returned to the pre-recession level. S Retail Sector Index shows clear signs of recovery and will probably reach the pre-crisis level very soon, but the consumer spending has still quite a long way to go especially taking into account the fact that the current level of retail sales corresponds to the level of spending in 2006. In the fourth quarter of 2007 U. S. market was a $1. 020 billion market. In a little more than a year it lost around 10% of its potential. Currently it is up 3% from the lowest point, but has still 7% to go to reach the level of 2007.
In sum, the recession has not had an immediate impact on the performance of the retail industry, nor has it had an immediate impact on consumer spending. The retail industry needs quite a long time to react to changing economic conditions. It goes later into the recession and it needs more time to recover from it. This insight is extremely valuable, because it gives us a better idea of current and future spending patterns, which we will need for the development of strategic alternatives. Structure of the U. S. Retail Market The size of the US retail market has decreased considerably during the recent recession.
The consumer patterns have also shifted quite a bit. People began to spend considerably less money on fashion goods, hard lines and leisure goods, and diversified, while increasing the relative amount of money they spent on fast moving consumer goods (see the two tables below). People spend more money on food in difficult times because they switch to buying food instead of going out (Deloitte, Global Power 2010). The relative share of money spent on food increases, while the consumer spending in other product sectors becomes smaller.
The collapse of the real estate market has had an impact on consumer spending in hardliners and leisure goods segment. The share of sales in that product sector in respect to the year before has decreased by almost 6% from 21% to 15. 1%. People also began spending 6% less on fashion goods and about 17% less on diversified. Table 6: U. S. Retail Sales 2007 [pic] Source: Deloitte “Feeling the squeeze Global Powers of Retailing 2009” Table 7: U. S. Retail Sales 2008 [pic] Source: Deloitte “Emerging from the Global Downturn: Global Powers of Retailing 2010”
The chart below indicates the current consumer confidence is quite low. It might take a year or even longer before the spending patterns reverse. There is also a possibility of crisis having a long-term effect on consumer spending patterns, which implies that the pattern might never return to the pre-crisis level or a completely new pattern will emerge as a result of that. The low Consumer Confidence Index has an important implication for the retail industry. For most retail businesses it means that they will still have to deal will the severe repercussions of the crisis for at least one more year.
The weak players might be eventually forced to leave the ground and the strongest might use this as an opportunity to increase their dominance. As a result, a new constellation of plays will emerge, where the bests will be left to compete against the bests. For that reason, we think that this time is especially crucial for optimizing one’s strategy based on the changing market attractiveness and competitor’s position. Table 8: Consumer Confidence Index [pic] Source: http://www. market-harmonics. com/free-charts/sentiment/consumer_confidence. htm Potential Growth The challenge that we currently see with U. S. etail sales recovering to the pre-crisis level is that much of the consumption in pre-crisis era was fueled by debt. We do not expect this trend to persist in the future. We believe that the future consumption to the most part will be financed through real income. In other words, in order for retail sector to reach the pre-crisis level, the growth in real income should compensate what was previously financed through debt. What is more, the crisis might have led people to reevaluate their consuming behavior which could translate into a generally more frugal approach to how the money is spent and what they are spent on.
Finally, there is also a clear indication that people begin to save money right now. The money that people save is not used for immediate consumption. The consumption is deferred for the future. Therefore, the growing personal saving rate can slow down somewhat the growth of the retail market. Table 9: PERSONAL SAVING RATE [pic] Source: http://www. bea. gov/BRIEFRM/SAVING. HTM Until roughly 1970s the growth real consumption matched the growth in real income. However, after the 1970s the U. S. population began to spend more money than they were able to make.
In other words, the actual growth of the consumptions consistently outmatched the real income of the people. Since the 1970s the U. S. has experienced five recessions with current recession being the 6th. Still the consumer spending patterns have not reversed with large amount of spending still being financed through debt. Whether the current crisis forces the people reconsider their spending habits depends a lot from the government and their credit policies, from banks and from consumers themselves. We consider this information as very critical in determining the potential growth of the retail market.
We have seen already in table 9 that people began to save more money after the crisis. However, this reaction usually occurs after every crisis and as the history since the 1970s shows this behavior is easy to reverse. Graph 10: U. S. Real Consumption and Income Growth 1933-2009 [pic] Source: http://www. desdemonadespair. net/2010/03/graph-of-day-us-real-consumption-and. html We think that in the long run people will fall back on spending money beyond their means, unless government and banks do something to curb consumer spending that exceeds person’s real income.
For government to introduce the radical measures, it needs to realize that financial markets are not as efficient as it thought them to be and that it needs to exercise more control and vigilance especially during the periods of financial expansion. So far, the government has not introduced any relevant measures that would make us conclude that it has responsibly assumed its role of regulating financial markets and the consumer behavior as a result. When it comes to banks, they have learned their lesson and some time has to lapse before they forget it again.
There are some clear signs that banks have introduced better risk management which already now has an immediate impact on availability of consumer credits as Allie Johnson reports. We believe that banks will be the institution that will have the most negative impact on the growth of consumer spending in the near future. We do not expect the high saving rate to persist long however. In sum, taking into account composite growth rates for the last five years for the U. S. Table 11), the currently low consumer confidence, the currently high savings rates and the limited availability of consumer credit in the near future, we estimate the potential growth of the retail market in the U. S. to be around 4. 5% for this year and about 6-7% in the years after the recession. At this point, it is extremely important to stress that Walmart has outperformed the growth rates of the U. S. retail industry with its revenues growing 9. 9% in 2005, 9. 8 in 2006, 11. 7% in 2007, 8. 6 % in 2008 and 7. 2% in 2009 (Societe Generale). However, these numbers are very deceiving, because uch of that revenue growth is contributed to international growth and to the growing number of stores. Walmart organic growth rates were consistently 2% throughout all these years (Societe Generale). However, the U. S. population growth was between 0. 9% and 1% in the years from 2005 to 2009[2] , which means that organic growth of Walmart that can be attributed not to population growth is only 1%. Walmart’s organic growth rate is a way below the 2003-2008 composite retail growth rate for the U. S, which is 7. 8%. It means that Walmart is gradually loosing its competitive advantage in the U. S. arket in terms of capturing the sales growth, creating chances for its competitors to grow in strength. In sum, current strategy of Walmart on the U. S. market is not sustainable and badly needs to be reconsidered. Table 11: Sales Growth and Profitability by region/country 2008[pic] Walmart’s Performance in the Context of Global, U. S. and Industry Trends Even though the U. S. retail industry has suffered a lot under the current crisis, this does not apply that much to Walmart. According to Yahoo Finance, Walmart’s beta is as low as 0. 26, which means that Walmart’s stock has a quite low sensitivity to the return on the market portfolio.
A one percent change in return to the market portfolio leads to only 0. 26 percent change in return on Walmart’s stock. The positive value of beta indicates that Walmart generally does better during good times as opposed to difficult times, even though it is somewhat counterintuitive. It is a common assumption that Walmart is a discount store and more people are expected to use discount stores during recession, still Walmart’s stock behaves much more like a normal stock, which would place Walmart into a category of competitively priced stores.
The blue line in the graph below shows that Walmart’s revenue growth slows down a little bit during the recession from what is projected (red line), which once again supports the assertion that Walmart is susceptible to economic conditions, but the impact is marginal. Table 12: Walmart’s Revenue 2005-2009 in $m [pic] Source: Walmart’s Income Statement The decline in Walmart’s total revenues is not as bad as the decline in U. S. retail sales (Table 5) and not even nearly as bad as the decline in real GDP in Walmart’s several markets as the table shows. Walmart’s revenue behaves somewhat counter-intuitively.
One would expect Walmart performance should at least to a certain degree resemble the performance of the U. S. GDP. After all consumers spending accounts for more than two thirds of real GDP and almost completely determines the performance of Walmart. However, this is not what happens in the reality. Walmart is very strongly positioned in Latin America, China and the United Kingdom. These two regions have experience quite impressive growth rates in retail sales in the last year despite the current crisis (see Table 11). It is reported that Walmart’s sales grew 4. % in the U. K. , 3. 8% in Mexico, 5. 6% in Brazil, and 4. 8% in China in the fourth quarter of 2009 (Deutsche Bank). That factor compensated for lower incomes in countries other than the UK, China and Latin America and helped Walmart to retain its growth momentum. Table 13: Real GDP Developed World Source: Bloomberg. com In sum, currently Walmart susceptibility to the behavior of financial markets and the development of GDP is considerably lower than the industry’s average, which allows the company to safely weather the recession, insuring its survival in the years to come.
Walmart has effectively spread the economic risk over its market, which has helped it to make money despite unfavorable economic conditions at home and in some other critical markets like Canada and Japan. Based on the analysis of global, US and industry trends, we expect Walmart to be one of the winners who not only have successfully overcome the difficult times, but also managed to grow on difficulties. All in all, Walmart has shown quite an impressive performance during the recession times both in the U. S. and abroad.
However, our industry analysis let us to conclude that Walmart is gradually losing its competitive advantage at home because of its inability to match its performance to industry’s growth rates. We strongly believe that despite its relative strength, it should address this issue the sooner the better. Walmart & its competitors Walmart International – Overview As per February 2010, Walmart is operating in 15 countries and with 4062 units across the globe (excluding United States) serving over 200 million times per week. Walmart employs more than 2. 1 million associates worldwide out of which 683,000 are only international associates. Market |Retail Units |Date of Entry | |Mexico |1469 |Nov-91 | |Canada |317 |Nov-94 | |Brazil |436 |May-95 | |Argentina |43 |Aug-95 | |China (*) |282 |Aug-96 | |United Kingdom |371 |Jul-99 | |Japan |371 |Mar-02 | |Costa Rica |170 |Sept-05 | |El Salvador |77 |Sept-05 | |Guatemala |164 |Sept-05 | |Honduras |53 |Sept-05 | |Nicaragua |55 |Sept-05 | |Chile |253 |Jan-09 | |India |1 |May-09 | (*) Includes a 35% interest in Trust-Mart, which operates 104 stores in China. International Sales Walmart’s net sales for fiscal year 2010 were $100. 1 billion, an increase of 1. 3 percent from last year and a double-digit sales growth in the fourth quarter. Many countries delivered strong comparable sales performance and gained market share.
As per a management consulting firm, Deloitte, Walmart is positioned number one among the top 250 global retailers in 2008. [pic] In its international operations, Walmart faces stiff competition from: [pic] Within the United States, Walmart faces stiff competition from Costco Warehouse and Target Corporation. When compared to outside United States, Walmart in spite being the number 1 retailer in the world has strong competitors like Carrefour (France), Metro (Germany) and Tesco(UK). Competition within United States Starting in 1962 with a store in Arkansas, today Walmart has over 4300 stores in United States with1. 4 million associates. It paved way for Discount retail. With time many players entered the discount retail and variety store industry.
Today, its faces stiff competition from Costco Warehouse, Target Corporation and Kroger Corporation. |S. no |Company Name |Market Cap(USD |Revenue (USD Billion) |Net Income (USD |Employees | | | |Billion) | |Billion) | | |1 |Walmart |208. 7 |404. 5 |13. 61 |2100000 | |2 |Target |39. 99 |64. 74 |2. 161 |351000 | |3 Costco |27. 2 |72. 33 |1. 089 |142000 | |4 |Kroger |14. 18 |75. 35 |0. 164 |326000 | [pic] [pic] Walmart Stock compared to Target Corp. , Costco & Kroger over the last 5 years [pic] From the graph above, it can be seen that over the past 5 years Walmart stock has been overall stable. On the contrary, both the close competitors – Target Corp. & Costco Warehouse, have seen major changes in their stock price. From 2008 – 2009, Target corp. stock price dipped drastically.
Costco stock price dropped starting July 2008 and dipped further in 2009. Kroger Corp. has also been relatively stable over these 5 years. [pic] From 2004 – 7th April 2010 Walmart – Global competition Walmart is operating in 15 countries across the world and is the number one retailer in the world. Global Presence of Walmart Vs its Competitors [pic] Product-Offering of Walmart Vs. Its global competitors [pic] Walmart and Its German Rendezvous Walmart started its operation in Germany in 1998. The company was booming with success in the US market and wanted to replicate that in Europe’s biggest economy –Germany. It had to sell its 85 stores in the country to the rival supermarket chain Metro for $1 Billion.
The German closure came just two months after it sold off all its 16 outlets in South Korea to a local retailer. There are many reasons for its failure in Germany. Some of them are listed below: ? Germany proved to be a tough market for Walmart’s brand of low-margin, high-volume retailing which in turn helps in keeping labor and other costs low. ? Walmart tried to force its American-style management policies in the German workplace which totally backfired. ? Walmart struggled with understanding the local shoppers. For example: Walmart ended up stocking American standard pillows, which are way off from than the German standards. Also, Some German customers didn’t like the idea of somebody else bagging their purchases. ? Merck Finck and Co. ankers quoted the chain had “limited critical mass, insufficient square meter productivity and a too aggressive pricing policy. ” Walmart idea of German market was based on its phenomenal success in the United States moving contrary on the fact that forcing a business model onto another country’s market just because it works well somewhere else. COMPANY DESCRIPTION FinancialS Walmart uses various financial metrics to assess its overall economic and financial performance. These are: • Total sales • Operating income; • Earnings per share; • Return on investment; and • Free cash flow. Ratio analysis of the competitors Walmart stated revenues is to the tune of $401 billion and scores well on al the financial paramaters.
However, when we go on to analyze the key finacuial ratios, we may come to concluson that Wall-mart is not as effective as its other three compitetors Costco, target and Kroger which we have considered. Although, Kroger has been found to be worst in the case of all its competitors. |Key ratios |Walmart |Costco |Target |Kroger | |pre tax profit margin |5. 5 |2. 4 |5. 9 |0. 8 | |ROE |21. 19 |14. 59 |16. 2 |1. 4 | |P/E ratio |14. 98 |16. 88 |23. 51 |10. 7 | Source: Forbes. com [pic]
The above given table gives us the suggestion that wlamart is better than Costco,when it comes to net profit margin,Walmartnet profit margin is 5. 5% which ismore than that of Costco(2. 4%). But, less than that of Target 5. 9%. whn it comes to return on equity wall_amrt stands out at 21. 19% ,which is 14. 59% for Costco and 16. 2% for target. Thus, it can be said that WalMart is suing the money of it sharehodlers better than its two cpmpetitors. The price to earning ratio is the best for walmart again as it the least for wall-amart,which means you have to spend less money for a share which is earning more for you. In this case, the P/E ratio for Wall-mart is 14. 98 and maximum for target,which is 23. 51.
The key ratios for kroger are the worst in the compariosn to the other three. For example the pretax profit margin is at a dismal . 8 % and the return on equity is at 1. 4 % ,again the lowest. The P/E ratio is also at the lowest at 10. 7. |Ratios |Walmart |Costco |Target |Kroger | |Current ratio |0. 87 |1. 2 |1. 6 |1 | |Quick ratio |0. 22 |0. 6 |0. 8 |0. 3 | |Leverage ratio |2. 4 |2. 2 |2. 9 |4. | |Inventory turnover ratio |8. 79 |12. 4 |6. 6 |12. 1 | |Total debt/Equity |0. 65 |0. 21 |0. 98 |1. 67 | Source : Forbes. com [pic] Analyis of the liquidity ratio: An anaysis of the liquidity ratios of Wall-mart and its three competitors does not paint a preety picture of the Wall-Mart. The current ratio and the quick ratio seems to be the worst for Walmart. Even kroger fares better than Walmart. An ideal current ratio is current considered to be “1” by the finacial analysts and Wall-Mart is close to that level as it has a current ratio of . 87.
The quick ratio which is calculated by dividing cashplust marketabel securities plus bills receivables is also not good for Walmart. The quicjk ratio stands at . 22 which is . 8 for target , the best amongts al the four . The leverage ratio seems to goood in comparison to the the competitors. The most advanced and effective distribution channel has allowed it to maintain an inventory turnover ratio of 8. 79. Costco and Kroger seem to fare better than Wall-mart in this regard but the sheer volume of inventory that is turned over by wall mart, gives it the edge volume wise and enables it to generate profits and cash much larger than that of its compitetors. Total debt to equity ratio also seems to be good,which is second best only to costco.
All said and done ratios can not be considered as water tight compartment and is a subejctive thing,which is subject to the measure of situational context. Sales: | |Percent of Total Sales | | |2009 |2008 |2007 |2006 |2005 | |Walmart U. S. |63. 70% |64% |65. 60% |67. 90% |68. 10% | |International |24. 60% |24. 10% |22. 30% |12. 90% |13. 20% | |Sam’s Club |11. 70% |11. 90% |12. 10% |19. 20% |18. 70% | Source: Walmart. com The net sales increased by 7. 2% and 8. % in fiscal 2009 and 2008 when compared to the previous fiscal year. Those increases resulted from the intensive global store expansion programs, comparable store sales increases and acquisitions. [pic] Source: walmart. com Operating Income: | |Operating Income Percent of total | | |2009 |2008 |2007 | |Walmart U. S. |82. 30% |79. 80% |81. 10% | |International |21. 70% |21. 50% |20. 80% | |Sam’s Club |7. 10% |7. 40% |7. 0% | |Other |-11. 10% |-8. 70% |-9. 10% | Source: Walmart. com Operating income growing faster than net sales is a meaningful measure because it indicates how effectively Walmart manages costs and leverage expenses. For fiscal 2009, the operating income increased by 3. 9% when compared to fiscal 2008, while net sales increased by 7. 2% over the same period. For the individual segments, Walmart U. S. segment met this target; however, International and Sam’s Club segments did not. The International segment fell short of this objective due to fluctuations in foreign currency exchange rates.
The Sam’s Club segment fell short of this objective due to increases in operating, selling, general and administrative expenses (“operating expenses”). Return on Equity (ROE): It is an important measure for measuring the return generated on the stockholder’s investment. Walmart’s ROE has been very consistent over the past five years and has grown slightly. | |Return on Equity | |2009 |21. 20% | |2008 |21% | |2007 |22% | |2006 |22. 80% | |2005 |23. 10% | [pic] Earnings per share:
The major contributor to Walmart’s net income growth in the future should be its International segment, which has shown substantially increasing growth in its sales and operating margin. Earnings per share from continuing operations were up 6 percent to $3. 35 in year 2009 compared to $3. 16 of year 2008. | |Earnings per share in dollars | |2009 |$3. 35 | |2008 |$3. 16 | |2007 |$2. 92 | |2006 |$2. 2 | |2005 |$2. 46 | |2004 |$2. 08 | Key Financial Highlights of Walmart from 2004 to 2008 [pic] Source: walmart. com Personal and Human Resources Walmart tried to create a culture in the organization, in which the needs of the workers could be looked after. Sam Walton, the founder of the Walmart believed that “happy and satisfied employees performed well and were responsible for the happy customers. ” This was the philosophy of the Walmart in the early years in relation to its employees.
These were the yearly years of the Walmart, and employees were strategically were considered as an asset and means to achieve the strategic goal at that time. “Human Resource Culture”, was considered to be one of the three big tenets established by Sam Walton in the year 1962. Several measures were taken to increase the productivity of the employees. (1) To instill the spirit of equality and oneness. (2) The concept of empowering the employees financially, with stock options and to share the profits was also introduced. (3) Compensation and bonus was given in accordance with the contribution of the employees. (4) The company also adopted the policy of filling more than 70% of the managerial positions from the workers from the store. 5) Overtime was not allowed but workers were allowed to clock in earlier so that they could work more. (6) Walmart also contributes to the workers 401K Plans Current Human Resources (HR) policies of WM Strategically, the current HR policies of the Walmart are dictated by the price leadership policy of the organization. The company president and CEO, while defining the HR policies of the organization says, “The fact is our entire business model is based on being efficient enough to have a price about 5% less than the competition. ” The new hiring policy at Walmart will use a software program which will use the data to analyze the employee who are best fit for a particular job opening. ” Criticism of the HR policies of Walmart 1)Non unionization__ In order to do away with unionizations, Walmart has adopted a policy of “open door”, where the employees can voice their concern (2) Sex discrimination lawsuits have been filed against the organization, because despite large number of female workers working at Walmart: The number of female workers at supervisory and managerial positions is miniscule. (3)Walmart has started mechanizing most of its functions. So, it becomes easier for it to train its new employees. As a result of this, the new employees can be trained easily, in case of employee turnover. Walmart is an America based chain of discount stores in the retail sector.
It operates in more than 15countries. Since Walmart is the market leader in the retail sector and its philosophy is based on the “low cost”. Walmart’s operations are very efficient and high tech which gives it edge over its competitors to become a company with revenue of 401 billion dollars. Operations One of the most important aspects of the operations of the Walmart is supply chain management. (1) One of the ways in which Walmart reduced cost, was by buying the merchandise directly from the manufacturer, thus doing away with the need of the intermediaries. A deal can go through only if the product under negotiation could not be brought or sold at lower price. 2) Walmart developed its own transportation system, which allowed it to deliver the goods to different locations, sometimes within a span of 2 days. (3) Walmart was able to achieve its leadership status in the retail sector by efficient use of information technology(IT) tools, which helped it in developing a supply chain management, which none of its competitors could match (4) Walmart has always been ahead of its competitors, by using supply chain management practices better than any of its competitors. It starts right from demand forecasting, inventory management, logistics and procurement. Walmart looked at the entire operations of supply chain management by summing up the costs of very products as it reaches the shelf. 5) Walmart uses collaborative planning, forecasting and replenishment, with its key suppliers to determine the demand of every product. The year 2000 was important in the history of Walmart when it started using “Retail Link System” to increase global outsourcing for further reduction of the cost. CONCLUSION OR LOOKING INTO THE FUTURE Walmart is the world’s largest retailer and the largest company in the world based on revenues, ignoring profits (income), assets, and market capitalization. While Walmart has been tremendous successful running its business in the U. S. market, it also enforces expanding throughout in the international market. However, the achievement in the U. S. arket cannot always guarantee that Walmart will also success in anywhere else. There are several reasons, which are presented in this paper, giving the reason why Walmart does not do well in the global market. Both external and internal problems which Walmart is facing with at this current situation are the primary reasons. The external problems are late entry, overlook competitors, destroy small business, joint venture and nationalism, culture different, house brand and price differentiate, suppliers, and government regulations. On the other hand, the internal problems which it still confronts in the operation systems are unique culture and concepts, and human resource management.
These critical problems provide the difficulty for expanding in this new market and competing with its competitors in the global market. It is critical for Walmart to analyze these external and internal problems and find the solution to overcome them, so that this will help to create the opportunity for it to glow in the market and be the globally competitive in the future. Moreover, expanding to the unfamiliar market which contains a different culture, environment, and pattern, the company needs to be flexible to adapt the new environment in order to survive and accomplish in its market. PART 2 An outline of major problems or issues the organization is facing or will face during the strategic period 1) Abstract: Walmart is the biggest retailer I the world with revenues to the tune of $405 billion approximately. It has its operations in 15 countries. The giant retailer has to face a lot of issues not only in foreign land, but is also plagued with a lot of issues at home as well. Walmart had to face a lot of problems while entering different markets. Some of the problems include inability to get into production and late entry into different countries. These two factors have reduced the competitive edge of Walmart to some extent in the new countries. In some cases regulations on the part of the home countries have made things difficult for wall= mart.
On the home front Walmart has always been accused of paying low wages, sex discrimination and its anti union stance. Some of the major problems being faced by Walmart and which it might have to face are summarized below: Labor Relations: Walmart happens to be the second biggest employer in US, next only to the United States government. With a labor force of around 2 million worldwide, the retail giant has found labor relations a tough nut to crack, and keep the costs down at the same time. Wages: As some of the analyst in the retail sector calls it, Walmart is “always on low wages”. The wage rates for the employees of Walmart has increased from $9. 69 in the year 2004 to $10. 86 in the year 2008,which if accounted for inflation was $9. 36.
Therefore, the wage rate decreased rather than increased in real terms. Walmart also pays a lower wage rate of 26% to 37% less than national jobs for similar jobs in the retail sector. The various studies conducted in the context of women at senior position, draws a dismal picture. (http://walmartwatch. com/img/documents/brennan_center. pdf) Health Care benefits: Walmart does not fare well, when it comes to health care plans as well. Large American Corporations (corporations employing more than 5000 employees), provide 64% of its employees with health care benefits. In the case of Walmart it is just 50%. Walmart is trying to increase the number of part time workers, in order to do away with heal care cost.
The retailer is trying to increase the percentage of part time workers from 20% to 40% of the total work force to below 34 hours a week. This will disqualify them from health care benefits. Moreover, to put things into perspective, Walmart’s health care benefits have become unaffordable for an average employee. The out of pocket cost for an average employee comes to $ 12000 a year, who makes $20,000 per year. This is for an employee going for a family plan, which includes a premium to be paid in two weeks, annual deductible charges and health care credit. (http://action. walmartwatch. com/page//Fact%20Sheets/2009%20health%20care%20fact%20sheet_040709. pdf) Wal Mart and Unionization: Walmart has always been know to discourage unionization of the workforce.
In 2007 a respected human right watchdog gorup,human right watc, released a report which lambasted Walmart for union busting policies and practises in the United States. (http://walmartwatch. com/img/documents/walmart_unions. pdf). The issue of unionization can be major issue for Walmart in the next 2 to 5 years, as the retail giant has allowed unions fron China and Canada to sighn collective bargaining agreements. The American unions could take cue from it and then there will be country wide repurcussions in the context of unionization at Walmart. To put things into perspective, Lee Scott ,Chairman of the Executive comitte of the board once said, “We like driving the car, and we are not going to give the steering wheel to anybody but us”.
Consumer Safety : This is going to be one of the major issues for the biggest cpmnanies in the world. This is because of the fact that, Walmart has recently found itself ina tight spot for being lax in consumer safety. There have been congressional hearings in the context of recalls of dangerous Chinese Toys. Wal Mart nearly controles one third of the toy market, and nearly 80% of the toys are imported from China. (http://walmartwatch. com/img/blog/toy_safety. pdf). Some of the toys have been found to contain lead. Walmart also imports food itmes from China,leading to safety concerns. The standards are lax in China and the food market is poorly regulated,which enables Walmart to cut down on costs.
Government Regulations: There are certain regulations in ceratin countries of the world, which make functioning of the stores not a ssmoot as in America. For example, in China Walmart has to buy liqour and tobacco localy. Chinese also prefer vegetables produced locally. Some of the governments in other countries have not allowed Walmart to enter into production by themselves. In some countries the kind of products that can be sold through retails stores is limited. Supply managemnt: Wla-Mart has dominated the American market because of its strong supply managemnt. This has allowed it to keep the cost sdown and and to compete on the basis of the price.
However, Walmart has failed to duplicate the same in foreign countries, as it has been unable to bypass the intermediiaries, which it has done so well in America. Some of the suppliers have declined to suplly the goods to the distribution centers. Therefore, the bottomline is that, Walmart has to galvanize its relationships with the suppliers in other countries to be more cpmpetetive. Cultural Differences: some of the communities do not want a big store in their locality. On the other hand the buying patterns of the consumers be different as well. For example, Chinese may prefer byuing in large quantities, whereas Brazilians may not like to do so. Mission and Vision Mission stament: Mission statemnt is a broady framed but enduring stament fo a firm’s intent.
It is the unique purpose that sets it apart from others of its type and identifies the scope of its operations in product,market, and technology terms. Walmart ,does not have an official stament, but the corporate site states the purpose as “saving people money to help them live better”. So fra Walamart seems to be doing well in its mission and the fact that whther common pepole are able to buy the same things as the rich people is a questionalable propisition. Vision Statement : Vision is a desired state of natureand what a company wants to become. Walamart unofficial vision statement seems to be, “ to become a worldwide leader in reatiling. Walmart seems to be well on its way to achieve that goal. It has presence in North America, South America,Europe and Asia. However, in many new markets it has to go through learning and esperience curve effects to do well. environmental threats and opportunities profile & strategic advantage profile Whenever Walmart is going overseas it has to take into account the different enviornmental factors asuch as,economic factors, social factors,political factors or governemental actors,technological factors and ecological factors. Follwing are the analysis of eth factors that Walmart should consider before going into any other country. Economic forces: Factors such as interest rates.
Inflation rates, GDP,monetary factors,fiscal factors, and tax arates and percapiata income should be considered befre making a decesion to enter a new market. For example two fo the fatstest growing economis of the world India and China, have benn facing the issue of high inflation rates and hi gh intersr rates. Walmart has alrady established a foot hold on China . However the Indian retail market ,which according to the market anaylysts in to the tune of $204 billion. So there lies a huge potential to tap tehindian retail market. However with the oppurtunities comes the threats such as high inflationa and interest rates. The infrastructure of the developing countries is not adeqauate for WalMart businessmodel.
All these factors have to be considered before going on a alrge scale. Also, another important factor that needs to be considered is the political situation of the country. In many developing countries Walmart ways of doing business is considered as eveil. They first try to enter the market on the basis of low markets, and afetr taking over the market,go ahead and increse the prices. So wall mart should be aware of suck out look towards the functioning or taking a plunge in the markets. For example, in India local retail Giant, relainace was not allowed to function in one of the states as it was considered as opposed to the intersts of the the local mom and pop stores.
So the strategy of Walmart to test the waters in India by opening just one store is the right way to go about it. Social factors of the country or the new market into which , the company is entering should be considered. Lifestyeles,(whether there is a demand of luxury goods or necessaties),pollution control, relegion and education should be considered as well. Wall-Mart is known for offering quality products at low prices. But the product offerings can, should and has been changed in order to cater to the demands of the local market. For example, in China Wall-amart also sells luxury items , such as high end liqour and and high end clothing.
Since China, is developing very fast and the customers have a demand for luxury items. Wall-mart has to cater to the demands accordingly. Then the Wall-Mart has also to take into account the relegion, and be sensetive to the relegious beleiefs of the coutries in which it is entering. IF the issue is not handeled proplerly the retail giant might have to face adversities and considerable amaonut of goodwill. The level of education in the countries that are to be ventured are also to be considered ,as the country that has highly educated people will see high growth rates in the economy and then the all the retail stores will be ready to jump in the market.
Political factors are the most important that should be considered, before entering any new market. The main factors include government regualations that apply in the retail sector,relationship of United States with the country of the venture, and import and export regulations etc. If for example walmart is consideringa a move into russia it will have take into account the import and export and regualtions. I Russia imposes hefty tarrifs on import for the food items , then it can make the imports expensive and Walamart will become less competetive. Then the regulations regarding, the invetment share of walmart which is ussually imopsed by the home countries.
In that case Wall-mart has alwas taken the route of going into a new market in the form of joint ventures, in order to fulfill the investement holding criteria of the countries in which it opened its operations. Technologicalfactors should be consired as well. This is because of the fact that whether the country has the necessary technological factors to support the business model of Walmart. Wal mart is known to have the most advanced inventory managemnt system in the world. IT also has to its credit the largets private sattelite communication. This helps the retail giant to keep track of the every movent of any inventory in any part of the world.
So before, enetring any market the size of the market should not be the sole consideration. It will also have take into account the factors such as technological capabilities of the country that it is venturing into. If the necessary technological factors are not there, Walamart will not be able to leverage its technical competencies in order to take advantage of the new market. The cost of developing the technological comptetencies should not outweigh the return from a particular market. Ecological factor is another factors that should be taken into account. Especially in European countries, where the regualations pertaining to the ecology are strict. Enviornmental Threats |Enviornmental Opportunities | |Govenement regulations |Untapped markets | |Technical differences |First mover Advantage, to implemet technology and gain amrket share | |Cultural differences |Cater to the needs accordingly | Strategic Advantage Profile A model of the strategic advantage profile of Wal Mart can be shown as given below: Corporate Culture
Managemnt system Operation System Resources Prodcuts Markets Purchasing and Vendor Relationship. In order to get the cheapest and greatest deals, the purchasing of the company is centralized and all the transactions took place at the headquarters of Walmart. The transactions are directly between the manufacturers and Walmart, and from the year 1992 the company refused to negotiate with the representatives of the manufacturers. And to avoid the dependence on a manufacturer the company only allowed supplying more than 2. 5%. Moreover, Walmart had established closer cooperative transactions with its biggest suppliers such as the Proctor & Gamble.
And as a result there is faster refilling of products and goods that agrees with the needs of the consumers, plus a lower cost for inventory. Warehousing and Distribution. A big part of distribution of the suppliers products are handled by Walmart and 80 percent of the purchases are directly shipped in the Warehouse. And still the Walmart is continuously upgrading its distribution system wherein the products that arrive via the inbound trucks were loaded and unloaded on outbound trucks without sitting first in the inventory of the warehouse. In- Store Operations. The management of the retail stores of Walmart has the fundamental purpose of creating customer satisfaction through low prices, wider scope of excellent products and pleasing shopping experience.
The management of Walmart identified the three important characteristics which are; Merchadising, Decentralization of Store Management and Customer service. Marketing Strategy. The core of the company’s marketing strategy is its slogan stating “Everyday Low Prices” in which the undercutting of prices is the basic principle of Walmart’s business. And because of this marketing strategy consumers started to flock Walmart stores upon word-of-mouth which made advertising of the stores easier and least expensive. Information Technology. Walmart was the primary organization that utilized information and communications technology in order to aid in the decision-making and advanced the effectiveness on the response to consumers. Human Resource Management.
The policy of the human resource is based on the ideas of Sam Walton regarding the relationship of its employees to the organization and vice versa. All of the employees of Walmart from the executive down to the clerks are called “Associates. ” The relationship of Walmart and its employees is based upon respect, high expectations, clo
