Wal-Mart Case Study Case Issues: Term Paper

Robson Walton - Chairman of the Board of Directors of Wal-Mart Stores, Inc.

Stephen P. Whaley - Senior Vice President and Controller

Eric S. Zorn - Executive Vice President and President, Wal-Mart Realty

III. INTERNAL ENVIRONMENT: STRENGHTS and WEAKNESSES

A. CORPORATE STRUCTURE

Wal-Mart's retail division is formed from four major subsidiaries: Wal-Mart Discount Stores, Wal-Mart Supercenters, Wal-Mart Neighborhood Markets and Sam's Clubs. (Wal-Mart Facts, 2007)

Wal-Mart Discount Stores more than 1,000 in U.S. alone average surface per store of 107,000 square feet; 225 associates and 120,000 items sold

Wal-Mart Supercenters are generally open 24 hours a day and sell wide array of products, including grocery, clothing and any other general merchandise more than 2,300 stores, internationally spread average surface of 187,000 square feet; 350 or more associates and 42,000 different products

Wal-Mart Neighborhood Markets grocery, pharmaceuticals and general merchandise more than 120 neighborhood markets, generally present on markets with supercenters average surface of 42,000 square feet; 95 employees and approximately 29,000 items sold

Sam's Clubs offer general merchandise in large quantities and at value prices; they are generally targeted by small businesses employs and average of 160 up to 170 associates and offers about 5,500 different items

Wal-Mart has opened subsidiaries in all 50 American states and in 13 additional foreign countries: Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the United Kingdom.

B. CORPORATE CULTURE

The corporate culture of Wal-Mart is one of the biggest contributing factors that make it one of the world's most admired companies. From the three basic beliefs to the sundown rule, we respect our customers, associates and suppliers and strive to treat them as we ourselves want to be treated. In building and nurturing these relationships, as well as serving the communities where we live, we've helped build a better business - one committed to excellence." (Website of Wal-Mart Stores, 2007)

1. The Wal-Mart culture is based on high standards of ethics, morality and integrity.

2. A new feature promoted by the company includes the usage of environment friendly procedures and packaging

3. Wal-Mart treats all employees, partners and customers with the utmost respect

4. Wal-Mart values diversity and encourages innovation

C. CORPORATE RESOURCES

1. Marketing a. Product

Wide array of products

Everything from grocery and apparel to general merchandise

Both organic and non-organic products b. Promotion

Strong advertisements and promotions realized by the Wal-Mart marketing department with the aid of specialized firms

Advertisements aired on all media channels, including television advertisements, radio announcements, internet ads, street banners, flyers and interviews in newspapers and journals

Focus on the low prices c. Price

Low prices generally due to cheap imports

The cheap products pose significant threats on local businesses (CI#2) d. Place

International coverage as Wal-Mart is present in all American States and another 13 countries

Available for online purchases at http://www.walmart.com/

2. Research and Development

Since Wal-Mart is simply a retailer, they do not feel the need for product innovation and improvement, therefore the R&D budgets are rather limited

3. Operations and Logistics

Basically include the import of low cost products, transport, storage, inventory and selling of the items

No major difficulties are encountered as the corporation employs strict procedures that insure a smooth ongoing of the operations highly efficient logistics system that allows the conglomerate to collect and then transport products to numerous destinations

The high efficiency of Wal-Mart's operations and logistics represents the key to their ability to maintaining low retail prices

4. Human Resource Management

Almost 2 million employees in 2007

Wal-Mart employees work an average of 34 hours per week; they are discouraged to work overtime and are presented with training programs

Sales associates is the most common position within Wal-Mart

Employees are generally dissatisfied with the wages, lower than in other companies, and the benefits, which generates an increased turnover (CI#3)

5. Information Systems

Skilled and qualified technicians to maintain and update the information system and databases

Offer the backbone for online purchases and assistance

The Information System Division is focused on three beliefs and five commitments

Beliefs: "Respect for Individual; Service to our Customers and Strive for Excellence"

Commitments: "Know the Business; Build it Right; Show the Value; Count on Us and Teach Up" (Information Systems Divisions, Wal-Mart Stores Website)

6. Financial Data and Analysis

Financial highlights for 2006, 2005 and 2004:

Net Sales $312,427 $285,222 $256,329

Cost of Sales $240,391 $219,793 $198,747

Net Income $11,231 $10,267

Diluted Earnings per Share

Long-Term Debt $26,429 $20,087 $17,102

Return on Assets

Return on Shareholders' Equity

Note: The data are presented in million of dollars and have been retrieved from the Wal-Mart Annual Report for 2006

7. Wal-Mart Ratios

Ratios

Value for fiscal year 2006

Valuation Ratios

P/E Ratio

Price to Sale

Price to Book

Dividend Yield

Profitability Ratios

Gross Margin

Operating Margin

Pre-tax Margin

Net Profit Margin

Effective Tax Rate

Management Effectiveness

Return on Assets

Return on Investment

Return on Equity

Efficiency Ratios

Receivable Turnover

Inventory Turnover

Asset Turnover

Data retrieved from Reuters Website in November 2007

1. Valuation Ratios - are identified in order to ease the comparison of the price of a company stock with other stocks on the market

1.1 Price to Earnings (P/E) Ratio = Price per Share / Earnings per Share

Wal-Mart's P/E Ratio is a bit higher than the industry's (14.71>14.55), meaning that the investors are paying more for each unit of income and are expecting increased growth in comparison to other companies in the industry. (Investopedia, 2007)

1.2 Price to Sales Ratio = Share Price / Revenue per Share

The Wal-Mart price to sales ratios is almost identical with the industry's P/S Ratio, meaning that the value of the WMT stocks is extremely well balanced with other traded companies in the industry.

1.3 Price to Book = Stock Price / (Total Assets - Intangible Assets and Liabilities)

Wal-Mart's price to book ratio is a bit higher than the industry's ratio (2.93 > 2.66). This could reveal a slight over evaluation of the WLM stocks.

2. Dividend Yield = Annual Dividends per Share / Price per Share

The 1.93% value of the dividend yield reveals that investors get 0.0193 dollars in return for each dollar they have invested in Wal-Mart. The dividend yield is a bit higher than the industry's (1.79%), meaning that Wal-Mart is a rather profitable investment.

3. Profitability Ratios

They reveal the performance achieved by Wal-Mart in terms of realized profits

All of the five ratios are lower that the industry's average ratios. This means that Wal-Mart realizes lower profits than other companies activating in the same industry. 4. Management Effectiveness Ratios

The Management Effectiveness Ratios "compare financial measures from company financial statements to evaluate management performance." (O'Reilly, 2007)

Wal-Mart's ROI, ROA and ROE are higher that the industry's ratios, meaning that the company possess qualified, capable and skilled management.

5. Efficiency Ratios

Measure how well the company can manage their resources and assets and simultaneously maximize profits

All three Receivable turnover, Inventory turnover and Asset turnover are higher than the industry's.

IV. EXTERNAL ENVIRONMENT: OPPORTUNITIES and THREATS

A. SOCIETAL ENVIRONMENT

1. Economic

The weakening of the U.S. dollar in comparison to the strengthening of the European Union currency, the EURO

Strong position on the United States market as opposed to fierce competition on the European Market (METRO or Carrefour). For instance, the Wal-Mart store in Germany was closed as it did not deliver the expected results on a highly competitive market

2. Technology

http://www.walmart.com/is a highly efficient website with a user-friendly interface, which aids customers in their shopping process and enlarges Wal-Mart's customer reaching

Technological developments have been registered in the logistics sector as to sustain the international success

3. Political-legal

Wal-Mart has been involved in several judiciary law suits based on their procedures

Among the most outstanding criticizers of Wal-Mart's are: employee unions (CI#3), environment organizations and local entrepreneurs (CI#2)

4. Socio-cultural

Customers are attracted by the low prices promoted by Wal-Mart, but they criticize the quality of the products on sale (CI#1)

The retailer has been blamed for importing products from countries that do not implement strict health and quality regulations and also for having mislabeled some items as organic when in fact they were non-organic

B. TASK ENVIRONMENT

1. Threat of new entrants - Low

It takes years and it is quite difficult to achieve such a development level as to be able to compete with Wal-Mart. Therefore, however new entrants do pose some risks, the level is rather limited.

2. Bargaining power of buyers - Medium

Customers praise Wal-Mart for the low prices they promote. However, they do criticize the sometimes inappropriate quality of the products. Therefore, they pose the threat of boycotting the retailer. Wal-Mart would have superior arguments to defend their operations, but the boycotting might have medium impacts upon the company.

3. Treat of substitute products - Low

Wal-Mart sells a wide array of products, everything from grocery to apparel. It would be rather…