Wal-Mart Case Study

Wal-Mart Stores, Inc., incorporated in 1969, operates retail stores in various formats around the world. It organizes its business into three segments: Wal-Mart Stores, SAM'S CLUB, and International. The Wal-Mart Stores segment is the largest segment of the Company's business, accounting for 68% of sales during the year ending January 31, 2004 (FY2004). This segment consists of three different retail formats, all of which operate in the United States, and includes Discount Stores, which offer a variety of general merchandise and a limited variety of food products; Supercenters, which offer a variety of general merchandise and a full-line supermarket, and Neighborhood Markets, which offer a full-line supermarket and a limited variety of general merchandise. The SAM'S CLUB segment consists of membership warehouse clubs, and accounts for 13.5% of fiscal 2004 sales. The International segment consists of retail operations in eight countries and Puerto Rico, and generated 18.5% of the Company's fiscal 2004 sales. The International segment includes several different formats of retail stores and restaurants, including Discount Stores, Supercenters and SAM'S CLUBs that operate outside the United States. Additionally, the Company owns an unconsolidated 37.8% minority interest in The Seiyu, Ltd., a retailer in Japan.

As of January 31, 2004, the Company operated 1,478 Discount Stores, 1,471 Supercenters, 538 SAM'S CLUBs and 64 Neighborhood Markets in the United States. Internationally, the Company operated 11 units in Argentina, 25 in Brazil, 235 in Canada, 92 in Germany, 15 in South Korea, 623 in Mexico, 53 in Puerto Rico and 267 in the United Kingdom. It also operates through joint ventures in 24 locations in China. Additionally, the Company holds a 37.8% interest in Seiyu, a Japanese retail chain, which operates approximately 400 stores throughout Japan. Subsequent to fiscal year-end 2004, in February 2004, the Company completed its purchase of Bompreco S.A. Supermercados do Nordeste, a supermarket chain in northern Brazil with 118 hypermarkets, supermarkets and mini markets.

External Environment

General

The retail industry until the 1980s was very fragmented with considerable product groupings such as dry goods, groceries, electronics, and sporting goods often having their own specialized outlets.

Economic: On the national home front, our economy is on an upswing. However, some of the small rural areas are still experiencing poor economic conditions. This is of special concern to Wal-Mart because Wal-Mart locates stores in rural areas, with populations of 50,000 or less. Wal-Mart thrives even in times of recession because people want to save money, but still need the essentials for which Wal-Mart is known.

Political-regulatory: The political-regulatory environment is very dynamic both domestically and globally.

1. The climb in oil prices continues to hurt businesses and consumers. Many countries across the globe have recently completed or are waiting for legislation to be completed that will regulate unstable oil prices and promote black economic empowerment (www.walmartstores.com).

2. The war in Iraq continues to affect the United States relationships with other countries. Many of these relationships have been strained by conflicts regarding war participation. This in turn affects the international marketplace because strained government relationships can make the process to enter a foreign market more difficult.

3. Wal-Mart management must fully understand the regulations of the country it is entering. This topic crosses over with that of global changes, which are discussed below.

4. The past 20 years have seen a great deal of labor legislation in countries all over the world. This legislation requires a variety of responses from economic sectors on issues such as employment equity, skills development and diversity. Protection barriers are falling, regional trade blocks are emerging, and multilateralism is on the rise.

Technological: The main technological issue that is currently impacting the retail industry is consumer behavior on the internet. The internet is changing the way the world conducts business, for business owners and consumers. It offers new opportunities for selection and convenience, never before available to most people. As more consumers turn to online shopping, e-retailers are striving for improved shopping environment. There are many advances in this direction, including surround video, 3-D images, and VR technology in online stores. These applications are often the most visited features of some online stores, reflecting the shoppers' strong interest. These features improve the shopping experience for shoppers who crave the atmosphere of the physical store, and who depend on something more tangible to look at while comparison shopping. While this industry is very technical, one thing that has not, and will not ever change is that consumers want and demand superb customer service. The companies that understand how to offer this on the Web are those that are succeeding today.

Another current technology issue in the retail industry is business process innovation. Flexible, open standards-based systems provide retailers with a competitive advantage that can improve productivity, differentiate the shopping experience and increase profitability. Some examples of these information technology modernizations follow:

· Radio frequency identification (RFID) and electronic product code (EPC) identification systems help retailers register and track movement of goods from the warehouse to the store shelf.

· Extended point-of-sale (ePOS) solutions provide transaction terminals that switch between checkout and customer service, enabling employees to manage distributed data.

· Intelligent inventory management (IIM) enables real-time visibility into inventories and throughout the supply chain so retailers can make smart decisions faster.

Global changes: A study conducted by PricewaterhouseCoopers examined new retail and consumer group patterns in transitional economies. The study assessed growth opportunities in fourteen countries: China, India, Turkey, Thailand, Malaysia, Hungary, South Korea, Poland, Romania, Czech Republic, Singapore, Slovenia, Russia and Indonesia. The study found that transitional economies across the globe offer varying degrees of challenge and opportunity for investors (PricewaterhousCoopers Website, 2004).

The most immediate opportunities in the retail and consumer sector are in China. China is the biggest consumer market in the world. National and regional brands are still strong there. Multinationals need to adapt their products and marketing to the Chinese consumer. The Chinese government will play an important role in creating an environment conducive to long-term and economic development.

India offers more long-term potential for investors. Consumer goods companies have already successfully established themselves in India. Foreign retail and wholesale investment is currently restricted to cash and carry, and e-commerce. India's superior capabilities in IT will expedite development in modern retailing space. The new government is developing policies to help improve the lifestyles of its 300 million people.

Turkey, Thailand, Malaysia and Hungary are considered investment havens that offer general opportunities for development in the short or long run. Turkey has a young and growing population, which makes it an obvious target for retail companies. The Turkish economy is undergoing a major modernization. Regulatory constraints are still an issue in Thailand, but there is potential for development. Increasing consumer demand and the existence of a middle-class make Malaysia a good investment opportunity. Malaysia also has a young and growing population, low unemployment and a growing retail sector. Hungary has a fast maturing retail and consumer market, but there are still opportunities for investment for hypermarkets, convenience stores and specialized outlets.

Niche opportunities exist in South Korea, Poland, Romania, Czech Republic, Singapore and Slovenia despite being already saturated for their market size. Singapore and Slovenia's prosperous populations make them good targets for niche opportunities. Romania currently has limitations on property and land acquisitions, skilled staff and management, which makes it a better destination for small, targeted retail opportunities.

Investors should be cautious and view Russia and Indonesia as long-term investment options. Russia is a potentially huge mass consumer market with one of the highest current world growth rates. However, it has fragile economic, political and social framework. Decisions made by Indonesia's government will have a big impact on the country's development in the long run. The changing political and regulatory environment is stunting the development for foreign companies.

Three major trends emerged from the assessment:

· Price sensitivity is having a significant impact on brand management and the development of private label.

· Expansion from the saturated major cities into small, regional cities.

· The development of "shopping-tainment" - shopping centers with alls and the creation of adjacent leisure activities.

Demographic: The population in the United States is aging. People are living longer, and older people are becoming more technologically savvy than ever before. This affects product offerings, marketing strategies, and presents both new problems and new opportunities for almost every industry.

Industry

In the last two decades Wal-Mart has lead a revolution that has changed the industry. Now, most of those separate commodities are under a single roof and at discount prices. After the creation of the first hub and spoke (a single distribution center serving 15 to 20 stores) model in 1970 expansion was simple replication, therefore little opportunity exists to economize through learning. It was by building the logistics needed to support the many rural locations that Wal-Mart positioned itself to be able to buy in never before heard of quantities.

Although retail deals in commodity goods that are easily substituted, such substitutions are usually made from a selection on the retailer's shelf. Buyers in North America do very little barging, a practice quite different from many other cultures. (It will be interesting to see how Wal-Mart will fair as it enters the Egyptian market.) The aforementioned competitors have the same process in place of trying to wring the lowest price possible from their suppliers. Indeed, Wal-Mart's abusive treatment of their suppliers has taken on legendary status.

Other retail stores such as Target, K-Mart, and Dollar General have successfully differentiated themselves in the retail market through their choice of product lines. Although avoiding direct competition with many of the "category killers" retailers such as Best Buy, Staples and Home Depot within their major product lines, Wal-Mart does lose some sales of ancillary products in those lines that overlap. Because of the cost of entry to develop the stores as well the distribution capabilities, there is little threat of new entrants successfully mimicking the industry standard and making significant inroads into the total market.

Perhaps the most likely threat Wal-Mart and other mass retailers will face is the supplier himself or herself! As Chuck Martin (1997) describes it:

In an inter-networked world, consumers browse, shop, and purchase in new ways. The walking-the-isle experience is supplemented or supplanted by surfing through thousands of aisles at high speed. In this environment, with digital money and unlimited product selection, consumers find companies competing among themselves and directly with manufactures and suppliers. When consumers feel that a company on the Net serves them, they return.

As the manufactures become more attuned to the power of the Internet and the maturity of the light package delivery services, their desire to tolerate the narrow margins or the retailers will weaken. Certainly one would not expect a manufacture to conduct such a shift overnight, nor will all the commodities shift at the same time, but the aggregate sum of individual shifts might well be felt very soon. Indeed, vendor relations might well become Wal-Mart's next big challenge. There is a growing speculation that the Internet might well change the manufacturer to consumer channel just as significantly and just as rapidly as Wal-Mart's entry into the regional markets did. The company might want to devise a strategic plan that addresses the harsh reputation perceived by the supply channel.

Major Competitors The major competitors of Wal-Mart include Costco, Target Corp., and K-Mart. Wal-Mart leads the industry and sector in market cap, employees, revenue, EBITDA, net income, and earnings per share. Target and Costco have surpassed Wal-Mart in Revenue Growth by quite a margin. Target also leads Wal-Mart in gross margin. K-Mart has shown a decline over the past years and is dropping out of the major competitor category.

Assessment of External Environment

Opportunities

1. Weaknesses of major competitors

2. Ability to continue expansion and dominance across industries

3. Entrance into other markets through horizontal diversification

There are plenty of opportunities that Wal-Mart can tap into. Obviously, this "model retailer" has successfully found many weaknesses of their competition and has effectively improved Wal-Mart's market share by doing so. The industry giant continues add services to their offerings such as automotive, gasoline, travel, and in some places financial services. This diversification tactic extends Wal-Mart's fingers into a variety of markets, making it very possible for them to become the dominant force across all retail categories.

Threats

The top three threats to Wal-Mart are:

1. "Category Killers" such as Toys R Us and Office Max,

2. Waning image, and

3. Retail innovations, particularly internet.

Toys "R" Us considered exiting the toy business because of competition from Wal-Mart. Toys "R" Us pioneered the "category killer" concept that's now employed by other specialty stores like Best Buy, Home Depot and Bed, Bath & Beyond. The notion of specialty stores that cater to a particular product segment has become a staple of the U.S. economy, but Wal-Mart continues to counter the category killers by meeting their competition head-on.

The Arkansas-based Wal-Mart again tops the list as the nation's largest retailer with 2003 sales of $258.68 billion, an 11.7 percent increase over the previous year. According to some analysts, Wal-Mart once thought of as a role model for retailers, has become "Public Enemy No. 1" within and outside the industry. Wal-Mart may need to rethink its strategy regarding image.

Perhaps the need to actually step foot into a supercenter or Wal-Mart store will decline because of the improvements in security and internet availability. This would leave stores potentially empty and create the need for Wal-Mart to unload an elephant building.

Other threats that may affect Wal-Mart include:

1. Foreign currency exchange rates

2. Costs including goods and energy

3. Inflation

4. Governmental costs

5. Trade restrictions

6. Changes in tariffs and trade rates

7. Economic variables such as employment rates
Internal EnvironmentCompany profileHistory: Wal-Mart is without question the most powerful force in retailing. Known for their incredibly low prices, nationwide outlets, and convenient hours Wal-Mart has re-wrote the book on how to dominate the retailing sector. Wal-Mart has become somewhat of an American icon and is considered by many to be the most admired company in America, as selected by Fortune magazine in.The Wal-Mart success story began with a humble beginning in 1962 when brothers Sam and Bud Walton opened their first Wal-Mart store in Rogers, Arkansas. Over the next 5 years Wal-Mart opened another 23 stores as they began to venture outside of Arkansas to Missouri and Oklahoma, which led to their incorporating in October 1969.In 1970, Wal-Mart began to capitalize upon successes and opened their first distribution center; which would prove to be one of the keys to their future success and explosive growth. This same year Wal-Mart's stock was first publicly traded on the over the counter (OTC) stock market, commonly referred to as the "Penny Stock Market" since many of the equities that trade on the OTC market have a share price of less than $1. By 1972 Wal-Mart had opened 38 stores in 5 states and was selected to move its stock from the OTC market to the New York Stock Exchange, commonly referred to as the "Big Board". Before the decade was out Wal-Mart would have 276 stores in 11 states and be the fastest company to ever reach over a $1 billion in sales with $1.248 billion in sales and 21,000 associates.Growth continued in the 1980s as Wal-Mart expanded its distribution center network opening its largest distribution center to date in Palestine, Texas and as it began to take over the retailing market share from traditional giants such as K-Mart. In 1983 Wal-Mart opened its first SAM'S CLUB in Midwest Oklahoma to cater to businesses and those who wanted greater savings in return for making bulk purchases, a key to Wal-Mart's own success. In 1988 Wal-Mart used this same principle upon opening their first Supercenter. To foster the small "hometown America feel" that Wal-Mart sought they implemented the "People Greeter" in all stores which is a practice that still exists today. To facilitate the vital flow of information around an increasingly large company in 1987 Wal-Mart completed the Wal-Mart Satellite Network, the largest private satellite communications system in the United States, providing 2-way voice, data and one way video. By the end of the 1980s Wal-Mart's stock split 8 times, had 16 distribution centers in operation, and was operating in 26 states.In 1990 Wal-Mart became the nation's Number 1 retailer and continued to grow. On April 5^th Co-founder and legendary leader of Wal-Mart, Sam Walton passed away. With achieving their first billion-dollar sales week, domestic growth maturing, Wal-Marts in all but 5 states, Wal-Mart International was formed in 1993 to explore international opportunities for growth. By the end of the 1990s Wal-Mart would had entered all 50 states, had over 1,140,000 employees, making it the largest private employer in the world with nearly 1 in every 250 Americans being a Wal-Mart employee. Wal-Mart's stock split a total of 11 times and it had stores in 7 countries.With the arrival of new decade Wal-Mart has continued to do what it does best, grow. In 2002 Wal-Mart had its biggest 1 day of sales in history, reaching $1.43 billion on the eve of Thanksgiving. Today, Wal-Mart operates 1,478 traditional Wal-Mart stores, 1,471 Supercenter, 538 SAM' CLUB'S and 64 Neighborhood markets in the United States, Internationally, the Company operates 11 stores in Argentina, 25 in Brazil, 235 in Canada, 92 in Germany, 15 in South Korea, 623 in Mexico 53 in Puerto Rico and 267 in Britain. Wal-Mart also operates through a joint venture in 24 stores in China and owns a 37.8% interest in Seiyu, a Japanese retail chain, which operates approximately 400 stores throughout Japan.Employment:As of 2004, Wal-Mart employed over 1.5 million associates worldwide. Corporate headquarters for Wal-Mart Stores, Inc. are located in Bentonville, Arkansas. Wal-Mart operates 1,478 traditional Wal-Mart stores, 1,471 Supercenter, 538 SAM' CLUB'S and 64 Neighborhood markets in the United States, Internationally, the Company operates 11 stores in Argentina, 25 in Brazil, 235 in Canada, 92 in Germany, 15 in South Korea, 623 in Mexico 53 in Puerto Rico and 267 in Britain. Wal-Mart also operates through a joint venture in 24 stores in China and owns a 37.8% interest in Seiyu, a Japanese retail chain, which operates approximately 400 stores throughout Japan. Output/Product lines:

1. Wal-Mart Stores:The Company operates Wal-Mart Discount Stores in all 50 states, Supercenters in 45 states and Neighborhood Markets in 12 states. Discount Stores range in size from 30,000 square feet to 220,000 square feet, with an average size of approximately 98,000 square feet. Supercenters range in size from 100,000 square feet to 261,000 square feet, with an average size of approximately 187,000 square feet. Neighborhood Market stores range in size from 38,000 square feet to 55,000 square feet, with an average size of approximately 43,000 square feet. Customers can also access a broad assortment of merchandise and services on-line through the Internet at www.walmart.com.Wal-Mart discount stores and the general merchandise area of Supercenters carry apparel for women, girls, men, boys and infants, domestics, fabrics, stationery and books, shoes, house wares, hardware, electronics, home furnishings, small appliances, automotive accessories, horticulture and accessories, sporting goods, toys, pet food and pet accessories, cameras and supplies, photo processing, health and beauty aids, pharmaceuticals, jewelry and optical products. In addition, the stores offer an assortment of grocery merchandise. The grocery assortment in Supercenters consists of a full line of grocery items including meat, produce, deli, bakery, dairy, frozen foods and dry grocery. Most of the Company's Discount Stores carry a limited assortment of dry grocery merchandise while a number of larger Discount Stores in some markets carry a broader assortment of grocery items, including perishable items. Neighborhood Markets are generally organized into dry grocery, meat, produce, deli, bakery, dairy, frozen foods, pharmaceuticals, photo processing, health and beauty aids, household chemicals, paper goods, general merchandise and pet supplies. 2. SAM'S CLUB: The Company operates SAM'S CLUBs in 48 states. SAM'S CLUB's facility sizes generally range between 70,000 and 190,000 square feet, with the average SAM'S CLUB facility being approximately 127,000 square feet. SAM'S CLUBs are membership only, cash-and-carry operations, offering bulk displays of name-brand merchandise, including hard goods, some soft goods, institutional-size grocery items and selected private-label items under the Member's Mark and Bakers & Chefs brands. Generally, each SAM'S CLUB also carries software, electronics, jewelry, floral, sporting goods, toys, tires, stationery and books. Most Clubs have fresh departments, including bakery, meat, produce, floral and Sam's Cafe. Additionally, a significant number of the Company's Clubs offer photo processing, pharmaceuticals, optical departments and gasoline stations. Limited credit facilities are available, including the SAM'S Direct commercial finance program and Business Revolving Credit, available to qualifying business members. The Company also makes a Personal Credit program available to qualifying club members, and accepts the Discover Card in all Clubs. SAM'S CLUB provides to its members a broad assortment of merchandise and services online through the Internet at www.samsclub.com.3. Neighborhood Markets: Neighborhood Markets are generally organized into dry grocery, meat, produce, deli, bakery, dairy, frozen foods, pharmaceuticals, photo processing, health and beauty aids, household chemicals, paper goods, general merchandise and pet supplies.4. International: The International segment is comprised of the Company's operations through wholly owned subsidiaries in Argentina, Canada, Germany, South Korea, Puerto Rico and the United Kingdom, operations through majority-owned subsidiaries in Brazil and Mexico and operations through joint ventures in China.

Operating formats vary by country, but include Discount Stores in Canada and Puerto Rico; Supercenters in Argentina, Brazil, China, Germany, South Korea, Mexico, Puerto Rico and the United Kingdom; SAM'S CLUBs in Brazil, Canada, China, Mexico, and Puerto Rico; Superamas (traditional supermarket), Bodegas (combination discount and grocery store), Suburbias (specialty department store) and Vips (restaurant) in Mexico; Todo Dias (combination discount and grocery store) in Brazil; Neighborhood Markets (traditional supermarkets) in China; ASDA stores (combination grocery and apparel store) and George stores (apparel store) in the United Kingdom, and Amigo supermarkets in Puerto Rico.The merchandising strategy for the International operating segment is similar to that of domestic segments in the breadth and scope of merchandise offered for sale. While brand name merchandise accounts for a majority of sales, several store brands not found in the United States have been developed to serve customers in the different markets in which the International segment operates. In addition, steps have been taken to develop relationships with local suppliers in each country to ensure reliable sources of merchandise.Product lines vary by country, but include discount stores in Canada and Puerto Rico; Supercenters in Argentina, Brazil, China, Germany, South Korea, Mexico, Puerto Rico and the United Kingdom; SAM'S CLUBs in Brazil, Canada, China, Mexico, and Puerto Rico; Superamas (traditional supermarket), Bodegas (combination discount and grocery store), Suburbias (specialty department store) and Vips (restaurant) in Mexico; Todo Dias (combination discount and grocery store) in Brazil; Neighborhood Markets (traditional supermarkets) in China; ASDA stores (combination grocery and apparel store) and George stores (apparel store) in the United Kingdom, and Amigo supermarkets in Puerto Rico. The merchandising strategy for the International operating segment is similar to that of domestic segments in the breadth and scope of merchandise offered for sale. While brand name merchandise accounts for a majority of sales, several store brands not found in the United States have been developed to serve customers in the different markets in which the International segment operates. In addition, steps have been taken to develop relationships with local suppliers in each country to ensure reliable sources of merchandise.

Organization structure/organizational charts/caliber of personnel:1. Organizational Structure:Wal-Mart's organization is organized into a divisional structure within the company. The Chairman is S. Robert Walton who is assisted by Vice Chairman Thomas Coughlin. The operational leadership comes from H. Lee Scott, Jr. who serves as Wal-Mart's President, CEO, and Director. Thomas Schoewe serves as Wal-Mart's CFO. David Glass provides strategic direction as the Chairman of the Executive Committee and Director. Regional Vive Presidents are each responsible for between 10-15 district managers. The district managers in turn have responsibility for 8 to 12 stores.2. Caliber of Personnel:One of Wal-Mart's greatest strengths is the caliber of the personnel that it has leading the company. Wal-Mart cultivates a culture of leadership that flows down to their stores. Do not expect to find a bunch of Harvard MBA's wearing Rolex watches running the various leadership posts of Wal-Mart instead expect to see senior Wal-Mart leaders who have worked their way up to their position. A review of the 2002 executive team was absent a single member from an "Ivy League" school. What was lacking in Ivy League was made up in experience, with an average of over 20 years experience. The Wal-Mart culture of thriftiness that Sam Walton created and cultivated throughout his life continues from Wal-Mart's top executives all the way down to the line workers in the store. Analyst Loomis Sayles of Brian James considers their management team to be "one of the deepest management teams I've ever experienced" and elaborated to say that "you can go down two or three layers and be impressed".Market Share:Wal-Mart owns a 55% market share in its sector, with $217.8 billion in 2002 revenues, holds a 10.3% of the U.S. grocery market, and is responsible for 5% of all U.S retail sales. Its closest direct competitors are Target at 17% with $39.9 billion of 2002 revenues and Kmart with 13% with $36.2 billion of 2002 revenue.Sales distribution: a. By Segment in 2002: Wal-Mart-63%, SAM'S CLUBS-13%, International-16%, and other being 8%b. In 2004: Wal-Mart-68%, SAM'S CLUBS-13.5%, International-18.5%. Distribution Methodology:Wal-Mart has built an extensive network of over 51 distribution centers to supply its stores. The distribution system uses a "hub-and spoke" system. This has helped Wal-Mart support its growth in new markets as it expended across the country, predominately in small towns of less than 50,000. The distribution centers, which on average serve 150 stores, are typically less than 200 miles or better referred to as less than a days drive away. This unique system has led to Wal-Mart distributing a higher proportion of goods to its stores and than any of its competition, with 80%. To facilitate this well-oiled machine of distribution Wal-Mart utilizes such methods as bar coded computerized inventory control that feeds the sales into Retail Link, their supply-chain management system, to instantly adjust their order. The result according to Treasurer, Jay Fitzsimmons, is that "we can move a box of Tide from company loading docks to car trunks in three to five days".Proprietary assets/knowledge:Wal-Mart has takenthe tenements of its founder, Sam Walton, and internalized them into a customer/price conscience corporate culture. While there is no proprietary claim to be had to this knowledge base (indeed they often form the core of literature about the company), their application of the knowledge base puts them in a league of their own.1. Wal-Mart's Corporate Culture: The retailing sector is somewhat of an open book in so far as any retailer can go into the others stores and see their display, prices, and layout. But the corporate culture that Sam Walton was able to create at Wal-Mart of: Respect for the individual, Service to the customer, and striving for excellence has resulted in Wal-Mart's established culture being one of its greatest assets.2. Wal-Mart's Distribution Centers: As described in 6b Wal-Mart's distribution centers are and continue to be one of the keys to Wal-Mart's phenomenal success.3. Retail Link: Wal-Mart's supply chain management system that monitors and control sales forecasts, vendor production planning and delivery, and electronic funds transfer.4. Electronic Data Interchange (EDI): An established close collaboration between Wal-Mart and some of its selected key suppliers where the supplier actually has representatives at Wal-Mart to manage sales and deliveries to Wal-Mart. This practice has grown from 2% in the early 1990s to over 70% by the mid 1990s.5. Wal-Mart's Satellite Network: Wal-Mart Satellite Network, the largest private satellite communications system in the United States, providing 2-way voice, data, one-way video, inventory control, rapid credit card authorization, and enhanced EDI transmission.Location and age of facilities:Corporate headquarters for Wal-Mart Stores, Inc. are located in Bentonville, Arkansas. Wal-Mart operates 1,478 traditional Wal-Mart stores, 1,471 Supercenters, 538 SAM' CLUB'S and 64 Neighborhood markets in the United States, Internationally, the Company operates 11 stores in Argentina, 25 in Brazil, 235 in Canada, 92 in Germany, 15 in South Korea, 623 in Mexico 53 in Puerto Rico and 267 in Britain. Wal-Mart also operates through a joint venture in 24 stores in China and owns a 37.8% interest in Seiyu, a Japanese retail chain, which operates approximately 400 stores throughout Japan. The age of each of these facilities varies. Capacity and production: Wal-Mart's capacity and production would best be gauged by its sales. Sales for the latest quarter were $65.44 billion. Discount Stores range in size from 30,000 square feet to 220,000 square feet, with an average size of approximately 98,000 square feet. Supercenters range in size from 100,000 square feet to 261,000 square feet, with an average size of approximately 187,000 square feet. Neighborhood Market stores range in size from 38,000 square feet to 55,000 square feet, with an average size of approximately 43,000 square feet.Experience: Wal-Mart has operated stores in the United States since 1962 and internationally since 1992. Wal-Mart's senior management team has a depth of knowledge with the average experience being over 20 years.Quality: Wal-Mart is committed to quality and standing behind the products that it sells. The heart of this concept was embodied in Sam Walton's Rule # 8 for founding a business, which states: Rule 8
Exceed your customers' expectations. If you do, they'll come back over and over. Give them what they want - and a little more. Let them know you appreciate them. Make good on all your mistakes, and don't make excuses - apologize. Stand behind everything you do. The two most important words I ever wrote were on that first Wal-Mart sign, "Satisfaction Guaranteed." They're still up there, and they have made all the difference. (www.walmartstores.com) R&D position: Wal-Mart is continually monitoring operations and looking for a way to do things better. This is not so much a dedicated position or team, but a way of life in Wal-Mart's corporate culture.Raw material cost quality: Wal-Mart ensures that all of their products are made from quality raw materials that will stand up to their "Satisfaction Guaranteed" pledge. In return for the suppliers selling at razor thin margins all of Wal-Mart purchases are in large bulk orders. These low costs often allow Wal-Mart to retail their products at prices lower than many of its competitor's wholesale prices. Image: Wal-Mart has battled with its image since its growth began to force many of the competing "mom-and-pop" stores out of business as it expanded across the nation. All along Wal-Mart has fought to keep its rural hometown image in tact in spite of the fact that it was growing into one of the largest businesses in the world. Despite these facts and the reality that a number of towns initially fought to keep the industry leader out, Wal-Mart has traditionally arrived and been greeted with unparalleled success by these same towns. Wal-Mart has been careful to foster its image of supporting American workers with programs such as its "Buy American" program that sought to buy products made in the U.S.A. In 2003, Wal-Mart was named the most admired company in America, by Fortune magazine. As of June 22, 2004, Wal-Mart has been named by Federal Judge Martin Jenkins in the largest civil rights class action ever certified, on behalf of over 1.6 million women who have worked at Wal-Mart anywhere in the United States since December 26, 1998. The result of this litigation and its lasting effects on Wal-Mart's image is yet to be determined. Internal Politics: Wal-Mart has a cohesive management team which blends Sam Walton's family heritage with his son S. Robertson Walton assuming the role as Chairman and placing David Glass in charge, who has since taken on the role of Chairman of the executive Committee with H. lee Scott, Jr. now having operational control as the company's President and CEO. Internal Culture and Symbolism: Sam Walton believed in the following "3 Basic Beliefs" that formed his corporate culture:

1. Respect for the Individual

2. Service to Our Customers

3. Strive for Excellence (www.walmartstores.com)

In addition to these core values, Wal-Mart has worked hard to standardize many of the physical features of their stores so that customers across the country could expect a known standard of quality at any Wal-Mart store in any of the 50 states. This is evidenced by the personal greeters at the front doors, the yellow smiley faces, all the way down to the blue bags at the checkout lines.

Market: Who are the customers and what needs are served?

Wal-Mart serves the entire U.S. population with over 100 million shoppers visiting a Wal-Mart weekly through its retail stores, SAM'S CLUBs and Neighborhood Markets. Internationally Wal-Mart serves customers in 9 countries with a mix of retail products and grocery items. Wal-Mart's expertise has been in having all products for all people, with a few exceptions such as pornographic material which the company objects to do to social concerns.

Wal-Mart offers many non-food items such as apparel, shoes, household textiles, appliances, toys, games, sporting goods, electronics, music, pharmaceuticals, health and beauty products, stationary, auto supplies, jewelry, candy, office supplies. In addition to these services many Wal-Mart's also offer optometrist services, auto repairs, hair salons, dry cleaning, photo labs, and banking, and groceries all from under one roof. It is not uncommon for a customer to be able to completely outfit their kids for a new school year, buy new glasses through their optometrist's shops, and stock up on a week's groceries all while having the car's brake's fixed at the same time. Nearly everyone shops at Wal-Mart, not to mention the nearly 1 in 250 Americans who are employed there.

Market segmentation:

Wal-Mart markets to the entire population versus a specific marketing niche, strive to be available in all towns, and have adapted the business and stores to accommodate a variety of areas.

Value Chain Analysis

Primary Activities

Manufacturers Negotiate with Wal-Mart Buyers:Since 1992 Wal-Mart has refused to negotiate with Manufacturer's representatives or agents, and insisted on all negotiations to be held directly with Wal-Mart. This process has allowed Wal-Mart to purchase items at razor thin margins, barley over cost, for the agreement to purchase very large bulk shipments. Wal-Mart is a brutal negotiator as described by one manufacturer, "once you're ushered into one of the Spartan little buyer's rooms, expect a steely eye across the table and be prepared to cut your price". Wal-Mart prevents any one supplier from gaining too much leverage by attempting to limit purchases from any one manufacturer to under 2 ½% of their total purchases.

Orders Generated:Wal-Mart uses its Wal-Mart's Satellite Network to monitor and automatically adjust its inventory orders as the items bar code is scanned into the company's computer system. This factors in suppliers data from the company's Internet based Retail Link system. Wal-Mart uses a 101-terrabyte computer that is constantly monitored by a staff of 1,500 technicians. To facilitate Wal-Mart always being in stock approximately 70% of the company's vendors have employees working at Wal-Mart to monitor their sales through the companies electronic data interchange (EDI).

Orders Shipped: Orders generate and ship quickly and approximately 80% are delivered from Wal-Mart distribution centers. Wal-Mart that has built an extensive network of over 51 distribution centers to supply its stores uses a "hub-and spoke" system. This has helped Wal-Mart support its growth in new markets as it expended across the country, predominately in small towns of less than 50,000. The distribution centers, which on average serve 150 stores, are typically less than 200 miles or better referred to as less than a day's drive away.

Marketing:Wal-Mart takes advantage of their unique cookie cutter store profile to have a standardized marketing campaign that has often been limited to 1 advertisement per month, per store with some additional television advertising. Wal-Mart has traditionally spent .5% of every sales dollar on advertising versus the 2.5% and 3.5% of Kmart and Sears Roebuck and Company respectively. Their marketing focuses on giving the customer the absolute lowest price with a guarantee on satisfaction. Since the 1980s Wal-Mart has promoted manufacturing in the United States with their "Buy American" program.

Sales:Wal-Mart uses their nation wide network of stores to implement their strategy of being all things to all people by having stores accessible to the nation's population. Their stores are typically open 9 a.m. to 9 p.m. 6 days a week with shorter hours on Sunday, Supercenters and a number of selected traditional stores are open continuously.

Customer Support:Wal-Mart guarantees satisfaction and takes back products with no questions asked.This return policy exemplifies Wal-Mart's commitment to stand behind their merchandise sold and has kept a number of customers who choose Wal-Mart for this very reason as opposed to their competitors, especially Target which has a relatively strict return policy.

Support Activities

Wal-Mart Culture: Sam Walton believed in the following "3 Basic Beliefs" that formed his corporate culture (www.walmartstores.com): 1. Respect for the Individual 2. Service to Our Customers 3. Strive for Excellence

These basic beliefs are the foundation of Wal-Mart's culture. Engrained with Wal-Mart is the team concept. Each day, Wal-Mart employees start their day off with the Wal-Mart cheer. This team concept extends beyond viewing the employees as a company's workers; Wal-Mart has a deep commitment to achieving buy in from their employees and encourages their ownership in the company through discounted stock purchasing plans. This has led to a number of Wal-Mart employees retiring as millionaires including the first hourly paid employee in 1989. Most stores go so far as to post their stock price in the back room with signs that state: " TODAY'S STOCK PRICE IS $XX.XX, TOMORROW DEPENDS ON YOU".

Company's Current Strategies

Cost Advantage

Wal-Mart focuses its strategy on gaining and maintaining through a cost advantage strategy. Wal-Mart's bulk shipments and unique distribution centers has allowed Wal-Mart to be a cost leader. You may like or hate shopping at Wal-Mart, but at the end of the day you walk away with a price that typically beats the competition considerably.

Shift from traditional Wal-Mart Stores to Supercenters

Since 1988 Wal-Mart has slowly but with increasing speed shifted their strategy from the traditional stores to 180,000 square feet plus Supercenters. Since, 2002 Superstores were generating more sales than the traditional Wal-Mart discount stores. In 2000, Wal-Mart was predicted to become the nation's # 1 grocer by 2005. This achievement was realized in 2002.

International Expansion

With domestic markets maturing Wal-Mart is looking overseas for expansion. Internationally, currently Wal-Mart operates 11 stores in Argentina, 25 in Brazil, 235 in Canada, 92 in Germany, 15 in South Korea, 623 in Mexico 53 in Puerto Rico and 267 in Britain. Wal-Mart also operates through a joint venture in 24 stores in China and owns a 37.8% interest in Seiyu, a Japanese retail chain, which operates approximately 400 stores throughout Japan.

Company's Current Financial Performance

Ratio Analysis

Profitability: From 1990 to 2000, Wal-Mart's profits increased 300 percent and sales grew by $112 billion. It added almost $30 billion in sales during 2000 fiscal year alone. Discount Stores accounted for an estimated $65 billion in domestic sales from approximately 1,800 units out of Wal-Mart's total sales of $165 billion (FY 2000).

As of January 9, 2004, Wal-Mart has seen its growth slow down over the past year with same-store comparisons down three to four percent from the 2003. As of December 10, 2004, the Net Profit Margin for Wal-Mart Stores is 3.95% (FY 2003) and the Return on Assets is 9.22%. Wal-Mart Stores Inc. (WMT) said fiscal third-quarter net income rose 13%, in line with its most recent estimate, notching another record quarter of sales and earnings. The company also raised its full fiscal-year earnings forecast. The world's largest retailer Tuesday reported net income of $2.29 billion, or 54 cents a share, for the quarter ended Oct. 31, compared with $2.03 billion, or 46 cents a share, a year earlier.

Wal-Mart said earlier this month that it expected to report earnings at the high end of its original plan for earnings of 52 cents to 54 cents a share. The company cited better-than-expected gross margin and a change in the effective tax rate, although sales were below its original plan.

Net sales climbed 9.7% to $68.52 billion from $62.48 billion, falling short of a mean estimate of $69.22 billion from analysts surveyed by Thomson First Call. Revenue, which includes net sales and other income, rose 9.9% to $69.26 billion from $63.04 billion.

Debt:The Debt to Total Assets ratio is 58.4%, an improvement over 60.7% from January of 1996. This trend shows Wal-Mart is at a fair risk for the market.

Liquidity:The current ratio for Wal-mart Stores as of December 10, 2004 is .872. This shows significant change from 1996 when the organization was more liquid at 1.54%.

Trend Analysis

Comparison with previous time periods:

Earnings HistoryJan-04Apr-04Jul-04Oct-04

EPS Estimate

0.63

0.49

0.61

0.54

EPS Actual

0.63

0.50

0.62

0.54

Difference

0.00

0.01

0.01

0.00

Surprise %

0.0%

2.0%

1.6%

0.0%

http://finance.yahoo.com retrieved December 10, 2004.

EPS TrendsCurrent Qtr
Jan-05Next Qtr
Apr-05Current Year
Jan-05Next Year
Jan-06

Current Estimate

0.74

0.58

2.40

2.73

7 Days Ago

0.74

0.58

2.40

2.73

30 Days Ago

0.74

0.58

2.40

2.72

60 Days Ago

0.74

0.57

2.38

2.72

90 Days Ago

0.74

0.57

2.39

2.71

For the fiscal year ending Jan. 31, 2005, Wal-Mart raised its earnings outlook to a range of $2.39 to $2.41 a share, compared with its October projection of $2.36 to $2.40 a share. This outlook assumes comparable-store sales growth of 2% to 4% in the fourth quarter. Wal-Mart said it expects fourth-quarter earnings of 73 cents to 75 cents a share, in line with a mean estimate of 74 cents a share from analysts surveyed by First Call.

Industry Comparison

Compare with industry averages:Wal-Mart is in the Services sector, Retail (Department & Discount) industry. As of 12/10/2004 and according to www.yahoofinance.com, Wal-Mart Stores was up 0.17% and the industry average was up 0.10 %. Wal-Mart is currently the industry leader among the sector and industry.

Name

Ticker

Change

Wal-Mart Stores Inc

WMT+0.17%

Retail (Department & Discount)

^YHOh281+0.10%

http://finanance.yahoo.com retrieved December 10, 2004.

Common Size Statements

Common size income statement (income statement line item / Net sales revenue):

PERIOD ENDING 31-Jul-04

30-Apr-04

31-Jan-04

31-Oct-03

Annual 04*

Total Revenue 100.00%100.00%100.00%100.00%100.00%

Cost of Revenue75.97%76.35%77.46%76.61%0.08%

Gross Profit24.03%23.65%22.54%23.39%23.17%

Selling General and Administrative17.78%18.14%16.23%18.00%0.02%

Operating Income or Loss6.25%5.51%6.31%5.39%5.81%

Total Other Income/Expenses Net 0.06%0.06%0.07%0.06%0.06%

Earnings Before Interest And Taxes 6.31%5.57%6.38%5.45%5.87%

Interest Expense 0.40%0.38%0.34%0.38%0.39%

Income Before Tax 5.91%5.19%6.04%5.07%5.49%

Income Tax Expense2.07%1.82%2.32%1.77%1.98%

Minority Interest -0.08%-0.06%-0.11%-0.08%-0.08%

Net Income From Continuing Ops3.76%3.31%3.62%3.22%3.43%

Discontinued Operations 0.07%

Net Income 3.76%3.31%3.62%3.22%3.50%

Net Income Applicable To Common Shares 3.76%3.31%3.62%3.22%3.50%

*All numbers in percent/thousands

Common size balance sheet (balance sheet line item/total assets)

PERIOD ENDING 31-Jul-0430-Apr-0431-Jan-0431-Oct-03

Annual 04*

Current Assets

Cash And Cash Equivalents 4.28%3.56%4.96%3.16%8.48%

Net Receivables 1.16%1.14%1.20%1.06%2.05%

Inventory 25.41%2.63%25.37%29.85%4.34%

Other Current Assets 1.51%1.28%1.29%1.03%2.21%

Total Current Assets 32.36%32.30%32.81%35.10%56.16%

Property Plant and Equipment 56.41%56.21%55.79%53.62%95.50%

Goodwill 9.20%9.42%9.42%9.01%16.12%

Other Assets 2.03%2.07%1.98%2.27%3.39%

Total Assets 100.00%100.00%100.00%100.00%100.00%

Current Liabilities

Accounts Payable 28.68%29.90%29.60%29.98%50.66%

Short/Current Long Term Debt 10.40%8.27%6.07%7.44%10.39%

Other Current Liabilities

Total Current Liabilities 39.08%38.17%35.67%37.42%61.05%

Long Term Debt 18.30%19.06%19.16%19.03%3.42%

Deferred Long Term Liability Charges 2.12%2.02%2.18%1.96%3.73%

Minority Interest 1.30%1.36%1.41%1.36%2.42%

Total Liabilities 60.80%60.60%58.42%59.77%100.00%

Common Stock 2.40%2.43%0.41%2.40%0.70%

Retained Earnings35.82%35.59%38.32%0.04%65.60%

Capital Surplus 1.94% 3.48%

Other Stockholder Equity 0.98%1.37%0.81%-0.09%1.39%

Total Stockholder Equity 39.20%39.40%41.58%40.23%71.18%

Net Tangible Assets 30.00%29.98%32.16%31.22%55.05%

*All numbers in percent/thousands

Growth rates

Compound growth rates: Wal-Mart went public in 1971 - $55 million sales; 1996-$100 billion; $300+ billion this year (as of August, 2004). According to Dr. Steidtmann of Deloitte Research, Wal-Mart has shown a compounded annual growth of 25% from 1971 through the mid-1990's; and continues on a similar track today. Supercenters generated a compound annual growth rate of 82 percent from1992 to 2000, significantly faster than the overall supercenter industry's average annual growth rate.

Comparisons with competitors:

DIRECT COMPETITOR COMPARISON

WMTCOSTPvt1TGTIndustry

Market Cap:223.60B22.31BN/A46.38B3.21B

Employ­ees:1,500,00062,500158,000¹328,00025.91K

Rev. Growth (ttm):4.90%13.10%N/A9.70%4.90%

Revenue (ttm):280.36B48.11B23.25B¹47.22B7.77B

Gross Margin (ttm):22.77%12.50%N/A31.69%33.37%

EBITDA (ttm):20.74B1.83BN/A4.95B538.06M

Oper. Margins (ttm):5.90%2.88%N/A6.56%1.97%

Net Income (ttm):9.82B882.39M-614.00M¹1.93B180.90M

EPS (ttm):2.2911.851N/A2.1041.54

PE (ttm):23.0525.69N/A24.6220.14

PEG (ttm):1.381.88N/A1.331.23

PS (ttm):0.800.47N/A0.980.52

COST = Costco Wholesale Corp

Pvt1 = Kmart Corporation (subsidiary or division)

TGT = Target Corp

Industry = Retail (Department & Discount)

¹ = As of 2004

The Direct Competitor Comparison shows Costco, Target Corp., and K-Mart as Wal-Mart's major competitors in the sector and industry. Wal-Mart leads in many categories, but Target and Costco are providing enough challenge in important areas such as revenue growth and gross margin. These organizations are formidable opponents, however do not are not the lion power like that of Wal-Mart.

President and Chief Executive Lee Scott said sales were "lower than we are satisfied with," with the company's namesake Wal-Mart stores turning in a "particularly poor" performance. Wal-Mart stores generated sales of $45.89 billion, up 8.3% from a year earlier, while sales at Sam's Club stores climbed 5.5% to $9.08 billion. International sales jumped 18% to $13.55 billion, with Mexico posting especially strong results.

Sales in U.S. stores open at least a year, an industry benchmark known as comparable-store sales, edged up 1.7%. Comparable-store sales rose 4% at Sam's Club and 1.3% at Wal-Mart stores.

Assessment of the Internal Environment

Strengths

Stability of Leadership: S. Robson Walton had been with Wal-Mart since 1969. Other Directors and Senior Officers have been around for just as many years. With longevity of leadership comes stability which stability transfers into the company culture.

Extent of Operations: Wal-Mart stores, supercenters, Sam's Clubs, Neighborhood Market, international, and internet operations create the Wal-Mart expanse.

Sam Walton's Philosophies: Sam's three Basic Beliefs and 10 Rules for Building a Business are still in force today after more than 40 years. Sam Walton built Wal-Mart based upon philosophies of excellence in the workplace, customer service and always having the lowest prices. Wal-Mart has stayed true to these philosophies since 1962.

Emphasis of Associates: Wal-Mart believes that its Associates should be empowered and are provided the opportunities to grow. Wal-Mart was chosen as Retailer of the Century because the company "cares about the individual, whether her or she is an associate or a customer" (Anthony, Kacmar & Perrewe`, p. 793).

Careful Emphasis of distribution logistics: Wal-Mart's adaptation and advancement of computer and satellite technology has allowed them to order stock as soon as it is out with the use of the remote merchandise wands used by Wal-Mart Associates.

Name recognition and reputation: Wal-Mart has a reputation of meeting the needs of shoppers without the higher prices of competitors. Wal-Mart is known as the hometown store and has even developed "Neighborhood Markets", a smaller version of the larger Wal-Mart stores. This strategy allows Wal-Mart into smaller stores and locations, but will serve the customers the same as the larger stores.

Superb merchandising policies: The Every Day Low Price (EDLP), Rollback Pricing, and Special buys offer merchandise for the lowest price. Dr. Steidtmann, Director of Deloitte Research explained in a recent Web Cast that the success behind the EDLP concept isn't offering merchandise at a lower price than it was purchased. The success is from an Every Day Low Cost practiced by Wal-Mart. This means Wal-Mart buys products at the very lowest prices and passes the savings onto the customer. Volume creates enough revenue to make up the thin profit margins on products.

Customer friendliness: From the greeter that you first see when you enter Wal-Mart to the cashier at the checkout, Wal-Mart associates are expected to provide what Sam Walton called "aggressive hospitality." Each associate is supposed to exude the nicest, friendliest approach to all customers and give better sever than what is expected by the customer.

Adoption of advancement of technology for inventory management: The use of the world's largest private, fully integrated satellite network connects every Wal-Mart store and distribution center, as well as most foreign operations. This real time connection provides up to the minute transaction information to be transferred to the home office in Bentonville. It also helps to track stock and create orders with the use of the hand-held computers associates use to scan inventory. These improvements increase efficiency and customer service, as well as keep stock arriving in a timely manner.

Weaknesses

International merchandising: Each country is different and will require each Wal-Mart store to climb the learning curve. What may be even more difficult is the effect of foreign economies and the currency exchange rates.

Law suits: Law suits have plagued Wal-Mart from the predatory pricing lawsuits it experienced in the 1980's and 1990's to personal injury cases that appear from time to time. These law suits have done quite a bit of damage to the image of the retail giant and there are efforts in place aimed at positively changing how people perceive Wal-Mart.

Waning Image: Arkansas-based Wal-Mart again tops the list as the nation's largest retailer with 2003 sales of $258.68 billion, an 11.7 percent increase over the previous year. According to STORES magazine, Wal-Mart once thought of as a role model for retailers, has become "Public Enemy No. 1" within and outside the industry. Wal-Mart may need to rethink its strategy regarding image.

Systems and Stakeholder Analysis

In determining the public affairs strategy of Wal-Mart, there are many groups and individuals who have a stake in what Wal-Mart does. These stakeholders can be divided into two groups: market and non-market stakeholders. Market stakeholders are those groups and individuals who have an economic stake in what the company does. Non-market stakeholders are those groups and individuals who have a non-economic, political stake in what course the company takes.

Market Stakeholders

Stockholders: These are the people who own shares of Wal-Mart and therefore are interested in seeing a return on their investment. Shareholders hope the value will rise, thus increasing dividends. According to the 2001 Annual Report, Wal-Mart paid out $.24 per share in dividends (Annual Report 2001, 45).

Wal-Mart Executives: Many of the top executives receive stock options as part of their salary. Obviously, these executives want their stock value to rise because it effects their compensation.

Employees: While some of the employees may have stock in the company, many of them have an economic stake in the company because their job is their primary source of income. Those that do not have stock rely on the stability and growth Wal-Mart emanates.

Communities: Many of these communities rely on Wal-Mart not only for jobs, but for a place to purchase necessities at a low price. Communities without Wal-Marts might experience higher unemployment rates and families may pay higher prices for the goods.

Consumers: According to the 2001 Annual Report, Wal-Mart is the country's largest grocery retailer (Annual Report 2001, 7) and therefore many people rely on Wal-Mart for their groceries.

Non-profit Organizations: Wal-Mart community non-profit organizations gain a potential funding source or contributor. The Wal-Mart Foundation provides many non-profit organizations with funding; if the company is not doing well, the Foundation is not going to do as well either. According the Wal-Mart Good Works Foundation, 97 percent of their funding goes to non-profit organizations in the communities where their stores are located. The Wal-Mart Good Works Foundation provides funding to programs that deal with community, education, environment and children.

Other Retailers: If Wal-Mart moves into a community, the chances are retailers in that community are going to lose money or worse - close. Wal-Mart's power gives them the ability to buy at lower costs, lower their prices, and force other retailers out of business.

Online Retailers: Like other retailers in communities where there is a Wal-Mart, online retailers also have a stake in how well Wal-Mart is doing. Wal-Mart totally revamped their website in 2000 in order to make it a more profitable part of their retail empire. Wal-Mart's online sales only represent a small portion of their overall sales, but the website is a low cost way for Wal-Mart to deliver goods to consumers who live in communities without physical stores.

Gasoline Retailers: In 1996, Wal-Mart made its first partnership with the gasoline industry. Today, Wal-Mart has contracts with companies such as Murphy Oil USA, Sunoco, and Tesoro Petroleum. Wal-Mart contracts with these companies and leases real estate on their lots to offer gasoline onsite. The local gas stations often cannot compete with Wal-Mart in either price or convenience

Non-Market Stakeholders

Labor Unions: Labor unions have a political stake in Wal-Mart because of the strict policy about not having their workers unionized. Wal-Mart takes the position that it is able to take care of their employees and provide them with the best benefits and compensation plans without a union.

International Retail Stores: One of Wal-Mart's key policy issues has been to move into the international retail market and open stores in other countries. Currently, Wal-Mart has stores in China, Puerto Rico, South Korea, the United Kingdom, Brazil, Argentina, Germany, Canada and Mexico. Wal-Mart must work closely with Public Relations firms in those countries to mitigate backlash against them. Wal-Mart must also be careful to follow the laws of each country when opening new stores.

Politicians: Politicians have a non-market stake in Wal-Mart for several reasons. First, politicians may or may not want Wal-Mart opening in their district. On one hand, it may be good for the community; however, if it is a district with a large union presence, the politician may not want Wal-Mart in that area. Also, politicians may rely on Wal-Mart for campaign funding. Wal-Mart's Political Action Committee (PAC) has contributed over $752,500 to various committees and candidates during the 2001 cycle.

Assessments &Future Prospects

Problem Statement

The problem in this case is how can the Wal-Mart culture transcend international boundaries and improve the Wal-Mart image?

Generation and Evaluation of Alternatives

Many in retail see the company as a bully and a tyrant while presenting the impression that Wal-Mart destroys communities and clamps down on workers rights (www.walmartwatch.com). While Wal-Mart displays a cheery attitude in public, off camera this industry giant is quite aggressive. Coming to an understanding with organized labor is needed. Wal-Mart must ease their way into foreign markets, instead of barging in and buying up companies.

Alternative strategies available to Wal-Mart are to:

1. Soften the Aggressive Corporate Strategy,

2. Increase Philanthropy,

3. Consider Unionization, and

4. Examine Political Capital & Culture.

Recommendations

Soften the Aggressive Corporate Strategy: Although there is nothing wrong with being aggressive in the marketplace, Wal-Mart seems ruthless. Countless grassroots, anti-Wal-Mart groups have sprung up to keep the retail giant out of their communities. The pubic perception is that Wal-Mart can destroy a community. Wal-Mart inflames this perception by moving in and shutting down local. Wal-Mart boasts that it provides jobs for the people in a particular area it moves into. The underlying reality is that people have to work at Wal-Mart because the local stores closed. To fight this negative image, Wal-Mart must stop trying to circumvent laws when building new facilities. It must demonstrate precisely how it can be a good neighbor, and "walk the walk."

Increase Philanthropy: Wal-Mart loves to be charitable to show they have helped communities; however the company needs to be more active in this work, and not simply provide cash to organizations such as the United Way. The company boasts over $150 million raised funds in 2001. That money however was raised from the contribution of employees, rather than from company coffers (www.walmartfoundations.org).

Wal-Mart needs to send its store managers and executives into local communities to give their time in the community in a meaningful way. It would also be a positive if store managers were permitted to work on community projects on company time, rather than on their own time. The public loves to see powerful organizations and people help the community. For example, President Jimmy Carter wealthy, a former President of the United States, and yet he helps everyday people build homes through Habitat for Humanity. If Wal-Mart could do something similar, get positive media coverage, it could mitigate much of the negative press that hurts company. The headlines could change from "Wal-Mart Behemoth Rolls into Town" into "Local Wal-Mart Workers Donate Money, Time to Help the Local Poor". Wal-Mart could continue to expand, but shift the focus from dominance to philanthropy. This would raise its suffering profile immensely.

Consider Unionization: Wal-Mart could relax its anti-unionization policy and allow its employees to freely choose to organize themselves. Wal-Mart is hit hard for their unfair labor practices constantly publicized. The public sympathizes with the rights of workers, their choice to unionize, and have a collective voice in the workplace. A current issue involves workers in Wal-Mart's automotive division, who want to unionize. Wal-Mart is using serious political capitol to keep that from happening. This mistake could be detrimental to the corporation in the long run. Wal-Mart is being sued by the National Labor Relations Board and several unions, a fight that could end up costing Wal-Mart a great deal.

In addition to litigation costs, Wal-Mart loses creditability and reputation. Wal-Mart's fight to keep out unions forces the company to battle with employees, fight local regulators, and gain negative media attention. Expansion into foreign markets will mean that Wal-Mart will increasingly encounter the unionization issue. The reaction could land the company into trouble not only with European regulators, but with angry European customers.

Examine Political Capital & Culture: Wal-Mart must better utilize its political capitol and learn from the experience of local retailers when attempting to expand overseas. The stores must be willing to bend their uniformity and consider the reaction of the local culture. Wal-Mart has begun to adopt this posture in their dealings with Japan and Seiyu, a Japanese retailer. Some of their other ventures have not been so successful. For example, stores in the province of Quebec had some initial cultural difficulties. The over-patriotic style of Wal-Mart does not work well with the culture in Quebec, which spurns overt patriotism. Flying a Canadian flag in a Quebec store can become an embarrassing political issue due to heightened francophone Quebec nationalism in some regions of Quebec. Yet to fly only a Quebec flag and not the national flag of Canada is a symbol of supporting separatism. The company learned quickly to tone down its use of patriotism in Quebec. Another mistake the company made in Quebec was to publish its circular in English to a mostly French-speaking population.

Suggestions Concerning Decision Implementation

The world is not yet-ready for full-on, U.S. Wal-Mart-style retail, especially in the anti-American European climate. Wal-Mart must consult with business leaders in the various countries they are growing into, determine the best way to attract business, and not upset the local populace. For example, Wal-Mart experienced problems in Germany where they attempted to drop all their prices below their competitors. Price-fixing in Germany is commonplace, and Wal-Mart's faux pas was against the law. Wal-Mart eventually circumvented the law, making more enemies than friends. Wal-Mart needs to work with governments, not against them, to adjust to the various markets and achieve success overseas.

Wal-Mart might have to spend more time and money to implement the aforementioned strategy ideas, but bad press is simply not good for the bottom line. A friendlier corporate image is more than a smiley face that slashes prices. Encouraging Wal-Mart's people to participate in philanthropic or community events is what makes a company image positive and perceptions improve. Working with governments and being sensitive to local cultures will benefit the company in the long term.

By implementing these suggestions, Wal-Mart would not only expand into foreign markets at a quicker pace, they would also be better positioned to defend themselves against their critics. These strategies could make Wal-Mart the largest retail chain in the world and one of the most popular stores in history.

Conclusion

Wal-Mart is the number one retailer in the United States and is at the top of the Fortune 500 listing. Wal-Mart operates in many countries world-wide and is moving into new countries every year, continuing to expansion in more ways than one. Wal-Mart has expanded into many sectors of the marketplace, including groceries, gas stations, electronics, and auto maintenance. Each year, Wal-Mart finds new ways to grow and offer more services to their customers. Additionally, the number of people who have a stake in Wal-Mart grows. Consequently, more claims are made against Wal-Mart by the unions and other businesses that have been forced to close. As a result of Wal-Mart's ever-growing size and variety of services, the public affairs department is going to become increasingly important.

As animosity becomes more widespread, in the U.S. and abroad, Wal-Mart is going to have to work harder to maintain a good reputation. Wal-Mart's Foundation will become increasingly more important and strategic in the effort improve community relations. In order for Wal-Mart to stay at the top leadership will need to improve their relationship with stakeholders and change the public's perception of Wal-Mart from a cut-throat industry giant to a community's loyal best friend.

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Assisting authors to submitting author: Chris Kelly & Kristin Slyter December 8, 2004