Company Background:

Serving the “middle class family with 2 or 3 children”, Wal-Mart Stores Incorporated of Bentonville, Arkansas is the largest retailer in the world.  Its founder, Sam Walton set the goal of supplying a wide variety of merchandise at the lowest possible cost to rural Americans. Through its purchasing and inventory management efficiencies, Wal-Mart has led the industry on cutting costs, and in turn, affording lower prices for the consumer.

In the year 2000, 2500 Wal-Mart stores were in operation and 460 Sam’s Club warehouse stores yielding worldwide sales of $191 Billion, with 16% growth over the same period last year. Wal-Mart is ranked #2 in the Fortune 500 Company list and #5 on Fortune’s Global 500 list. As a market leader, Wal-Mart’s sales are greater than the combined sales of the five next competitors. 

Wal-Mart Stores Inc. has maintained excellent growth and profitability. Their sales doubled from $96 billion in 1996 to $191 billion in 2000 based on a strategy of geographical expansion installing new stores throughout rural US, enlargement of key stores into Superstores selling groceries and sometimes even gasoline, along with global expansion.

In order to “maintain the highest standards of honesty, morality and business ethics” in dealing with the public, Wal-Mart introduced programs that would better integrate the corporation into the surrounding community.  Wal-Mart is a discount department store chain that offers a wide variety of general merchandise to the shopper, and seeks to develop a meaningful customer.

Mission:

Serving the customers by opening large size stores in rural, small towns and urban areas by providing value for money by always low prices. Increase sales by using internet technology and also capture increased market share and be ahead of the competition by providing customer satisfaction.

Objectives:

• Pricing strategy: remain highly competitive.
• Promotion strategy: year-round low prices. Minimal ad expenditure compared to competitors.
• Product strategy: sell national brands, produce and sell Wal-Mart brands.
• Automate and customize distribution
• Penetrate international markets
• Low cost structure:  focus on grocery sales are boosting sales and market share
• Improve gross margins and reduce expenses
• Improve communication
• Tracking data of all customers by using the collaborative planning, forecasting and replenishment model
• Boost sales via the internet
• Introduce Wal-Mart to urban areas
• Continue with leadership style
• Centralized company

Board of Directors:(see pg:11)

Competition in Retail:

• Wal-Mart Stores Incorporated

$246 Billion in sales in 2001-2002, 11.5% growth. Wal-Mart currently controls 3500 stores and new ones are opening on a regular basis, targeting middle to low income families with average of 2-3 children.  Wal-Mart is also the top retailer in Canada and Mexico.  Profits are between 3.0-3.25%.  In 1999-2000, Wal-Mart was not in the top 20 e-commerce sites but has since improved its rating by leaps and bounds.

• Costco

$37.5 Billion in sales in 2001-2002, 15.7% growth. Costco has 325 membership warehouse stores vs. Sam’s Club 460. They boast the greatest income per store compared to competition. They also use the internet to increase sales.

• J.C. Penny

$32 billion in sales 2201-2002, 0.4% growth.  J.C. Penny has 4200 department stores and is closing the less profitable stores. Their pricing strategy is in the midrange. They have one of the nations largest catalog stores with majority of sales being home furnishings to women’s wear which is their target market segment. They were listed in the top 10 sites in 1999-2000. They also use internet to increase sales.

• K-Mart

$35 Billion in 2001-2001. K-MART has filed for chapter 11 bankruptcy, with a declining growth. K-Mart has 2200 stores and caters to “blue collar workers”. K-Mart experienced a 17.4% decrease in net income in 2001-2002. Its profit margin has dropped to negative 11%.  Like Sears, it was also closing a number of its least profitable stores to reduce expenses.  Online shoppers increase sales.

• Sears, Roebuck, & Company

$42 Billion in sales 2001-2002, 0.4% growth.  In order to cut costs, Sears has been closing the less profitable of its 860 stores. In 1999-2000 it had approximately 400,000 Internet customers and was listed in the top 10 sites.  Sears’ strategy is one of “bricks and clicks”, which utilizes both online and face-to-face sales, but strives mainly for the website to bring people into the brick and mortar store.

• Target

$38 Billion in sales 2001-2002, 12% growth. Target has more than 1500 stores of three varieties from discount to Marshall Fields. They target more upscale customers and are differentiated with higher priced merchandise compared to its competitors. It also uses internet to increase sales.

Porter Analysis

• Suppliers

Suppliers have little or no influence at all. Wal-Mart’s business model depends on leveraging purchasing power by minimizing cost and increasing profits. In online sales merchandise suppliers are still weak but technology suppliers are strong. 

• Customers

Stores tend to match Wal-Mart pricing giving consumers a choice and, hence, a measure of power. In online selling, sales are presently based mostly on price. With the efficiencies of the Internet and the funding of dotcoms this has provided many low cost alternatives giving strength to customers.  As rationality returns to the E-Commerce industry and profitability is being demanded by investors, Wal-Mart will see decreased competition.

• New entries

Wal-Mart’s purchasing influence and efficiencies provide barriers that are hard to overcome. In online sales, Wal-Mart’s purchasing power is very strong but their inventory management is based on large volumes and is not readily adaptable to handle fulfillment of individual orders. They are in the position of contracting with the same range of fulfillment companies that their competition may rely on. 

Wal-Mart should keep developing its core competencies of purchasing and inventory management. In online selling, the competition could take the service oriented or technically delivered sectors by technology and service innovations. 

• Competitor

It may be possible for large, competitors to develop better efficiencies, partnerships, or global strategies. Online sales present a more level playing field particularly for those with relevant or technical competencies or the right partnerships. 

External Analysis

• Situation

Wal-Mart is the unquestionable retail mass-market leader with strong core competencies. Their biggest challenge is maintaining the competitive edge of their competencies, maintaining growth, and defending from disruptive technology. It also needs to grow globally and capture more market share being the leader in retail marketing.

• Technology

The challenge of the Internet has to be successfully evaluated and addressed. Their core capability of low operational cost and low prices with high income is dependent on technology that must be continually upgraded to maintain their competitive edge in the market place.

• Economy

Deteriorating consumer confidence directly impacts sales, however, as the low cost marketer of major brands they could also pick up share during economic downturns. They have to maintain customer confidence which will help them to be brand loyal and habituate the customer.

• Political

International culture differences are arising.  Foreign nationalism resists Wal-Mart’s intrusion on the local culture.  Relations with China are delicate because China is a significant supplier.  Wal-Mart took a bold step to refuse to sell movies and recordings with violence and sex to children under 17. Wal-Mart is a major community benefactor, which helps to establish a good reputation and relationship with foreign market consumers.

SWOT Analysis:

Analysis of situation:

In our fast-moving economy no company can survive on past success and, as a public company, Wal-Mart has to demonstrate growth to maintain shareholder confidence as well as their market dominance. Wal-Mart’s supplies the lowest cost, brand name product to the low to middle income families.  The Internet promises cost advantage and reaches first the more educated, upper middle income consumer. Wal-Mart needs to determine the potential benefits or risks of this new distribution channel.

The total US Internet retail sales were nearly $14.5 billion in 2001 up 66% from 1999. Although this represents a relatively small portion of our $2.7 trillion total retail sales, retail Internet sales are expected to reach $125-250 billion in mid decade representing 4-8% of total retail sales according to Jupiter Research of New York. These sales are significant when compared to Wal-Mart’s 16% market share. 

The advantages of developing an online business include:

o        Lower capital requirement

• Favorable cash flows - customers are charged before inventory is
• The stores are functional 24 hours a day
• It is relatively easy to add new product categories
• It is relatively easy to expand sales internationally

Retail margins are relatively low compared to other markets.  Because of this, it is critical to achieve high inventory turnover with high sales volume and minimal capital expenditure.  This is why, because of low expense and high volume, giant sales warehouses are becoming so popular.  The Internet takes these advantages one step further.  In other words, once a website is up and running, online sales are capable of becoming a major competitive force.

Online business obstacles:

• Price competition due to the ease of comparison-shopping
• Individual shipping costs
• Customer service including e-mail, phone, mail, product returns, etc.  at a reasonable cost
• Cost and difficulty of producing an easy-to-use online retail site.
• Overcoming consumers’ internet shopping uncertainties

Wal-Mart Strategy:

Wal-Mart has a strategy of providing the consumer the highest value for the money. For this strategy to work, Wal-Mart must purchase at an advantage and keep its add-on costs extremely low.  Many major companies achieve near 20% of their sales through Wal-Mart.  As the number one customer for many firms, Wal-Mart can acquire goods at prices considerably lower than those its competition would have to pay.

The second key objective is to run a business with processing costs lower than competition. Wal-Mart has achieved a core competency in logistics and inventory management by integrating their own highly sophisticated inventory management system with those of their suppliers.  With success in these two areas, Wal-Mart has achieved enough to be profitable and to be able to train and encourage their employees effectively to support both efficiency and customer service.

However, e-commerce does provide transactional cost benefits beyond those already achieved. Wal-Mart can assume the competition will be taking advantage of these transactional efficiencies. Since efficiency of transaction has been a core competency of Wal-Mart’s this is a threat.  In internet sales, they need to strive to make the most of their core competencies to attain more efficiency in internet transactions than the other internet models. Their purchasing power may remain an advantage that is hard for internet companies to compete against.

The design of the site itself is another important factor.  A successful internet retailer must develop a site that makes navigation quick and easy for its customers.  Any complications or delays can jeopardize the finalization of the sale. It is estimated that 43% of internet sales are lost due to failures in the ease of use of their system with 40% of these failures occurring at checkout.

Future Strategy:

In evaluating how to proceed, some or all of the following alternative solutions be instituted:

• Discount internet purchase to encourage use until it is more developed; concentrate on growth – mergers and acquisitions may be profitable in the future.
• Regularly update and improve on the website to compete with competitors’ sites.
• Designate and develop a division within Wal-Mart to be internet business-specific
• Maintain market share and develop new markets by researching different cultures internationally.
• Increase revenues and net income
• Become the #1 company in Fortune 500 and Fortune’s Global 500 list
• Develop new products
• Relocate products to increase traffic flow and expose more products
• Employ a Help Desk to provide better access to consumers seeking help and information
• Open new Wal-Mart in more high-population urban areas
• Develop the growth of the Wal-Mart organization through geographic penetration

Alternatives:
Website development:

This approach could be a long-term goal.  An online storefront would definitely be profitable, assuming that the competition did not come up with a more technologically advanced and easier-to-use system.  It does provide flexibility to re-enter the market with new technology as soon as it is developed. It would be slightly positive on geographic expansion as it receives worldwide sales and increases profitability accordingly.

Online Vigil:

Since the internet sales may not be profitable from the start, there could be a positive effect of eliminating non-beneficial investment.  It would eliminate any negative press for the Wal-Mart brand as they try to develop a workable strategy.

To eliminate efforts and investment in the internet strategy could positively impact overall corporate sales short term but would likely be a negative impact in the long run as internet sales grow and Wal-Mart may have to reinvest to become a stronger player in an already developed channel at a later date.

International Divisions:

International acquisitions have helped Wal-Mart increase sales last year by 85 percent to $22.7 billion.  There are now more than 1,000 international stores in nine countries, including Argentina (13), Brazil (14), Canada (166), Germany (95), Mexico (462), Puerto Rico (15) and the United Kingdom (232), and, under joint venture agreements, in China (six) and Korea (five). Analysts expect earnings and profits to increase as Wal-Mart works to incorporate certain operational efficiencies into the international units.  In the long run, Wal-Mart should grow stronger in existing international markets as well as enter new ones.

Distribution and Logistics:
With highly automated distribution centers, a devotion to technology, and a private truck fleet, Wal-Mart is able to serve its customers by getting the right products on the shelves when they need them to be there. This dedication should continue on all fronts.  Super Centers, discount stores, Sam's Clubs, and the small-format food and drug combinatory stores in their Neighborhood Market should all be expanded upon in terms of both of scale and scope.

Financials

The stock price of Wal-mart has been falling. The table below shows the stock price from Feb02 – Jul02.

Forecast for Wal-Mart: