Walmart analysis Essay
Sam Walton founded Wal-Mart in 1962. He was a businessman who started working in retail in 1940 at a J. C. Penney store in Des Moines, Iowa. In 1945, he ran a retail store in Newport, Arkansas, part of a chain of variety stores named Ben Franklin. Instead of renewing his lease, however, he decided to open a new Ben Franklin franchise in Bentonville, Arkansas and called it “Walton’s Five and Dime. ” He succeeded by selling at a discount. Wal-Mart’s purpose best exemplifies what the company still stands for today: “Saving People Money So They Can Live Better” (Walmartstores.
com) Within five years, the company had grown to 24 stores throughout Arkansas, reaching sales of $12. 6 million. The company officially incorporated on October 31, 1969 as Wal-Mart Stores, Inc. In 1970, it opened its first distribution center and home office in Bentonville, Arkansas. By this time, it had 1,500 associates working out of 38 stores. Its sales were $44. 2 million. In this same year, it began to trade its stock as a publicly held company and was soon listed on the New York Stock Exchange. By 1971, it had stores in five states: Arkansas, Kansas, Louisiana, Missouri, and Oklahoma.
It expanded into Texas in 1973, and Kentucky and Mississippi by 1974, and Texas in 1975. By this time, it had 125 stores and 7,500 associates, with sales of $340. 3 million. By its 25th anniversary in 1987, it had 200,000 associates working out of 1,198 stores. Sales were $15. 9 billion. It also completed a satellite network that linked all operating units with its Bentonville home office via two-way voice and data transmission and one-way video communication. It helped its home office to track inventory and sales and communicate instantly with its stores. In 1988, Sam Walton turned over the CEO role to David Glass.
However, he remained the Chairman of the Board. In this same year, the company opened its first Wal-Mart Supercenter in Washington, Missouri. In 1995 it entered South America, beginning with Argentina and Brazil. In 1998, the company introduced the “Neighborhood Market” with three stores in Arkansas. In 2000, H. Lee Scott became Wal-Mart’s President and CEO. Sales increased to $165 billion. By 2002 it had been listed at America’s largest corporation on Fortune 500 list, with profits of $6. 7 billion. By 2005, it had sales of $312. 4 billion, 6,200 facilities worldwide and 1.
6 million associates. Back Ground and Purpose of the Study Wal-Mart is known as a store where you can go shop and save a buck. They are friendly to the average consumer of moderate income, and in this market they have thrived. The purpose of the study is to analyze why Wal-Mart stores Inc. has their own internal issue. This report will provide a back ground of the study and focus on the methodology, provide findings, recommendations and implementation plans for the root causes of internal issue. . Findings and recommendations Decision Making- RESOURCES A. Planning Findings
They are a highly competitive company in an industry and economic time where lower prices are exactly what consumers are looking for. Wal-Mart has found that the reason they are so competitive is through their cheaper prices as compared to most of their competitors. This can create an effect so that many suppliers fight over their business. This in return gives Wal-Mart great bargaining power over whom they buy products from, and they can basically manipulate the original system/relationship of suppliers and retailers. They can almost in a sense control what price suppliers offer.
Wal-Mart has great deals, and those deals can bring almost anyone into their store. Wal-Mart has a vast array of customers, most of which at some point or another probably were loyal customers of another company who opposed the idea of Wal-Mart entering in their community. At some point or another most of these same people have gone into Wal-Mart to see what all the hype is about and they found it in the low prices. Within this section is discussed Wal-Mart’s internal analysis of the value brought to and perceived by the consumers through the value and rarity of their products, limitability of their practices, and organization.
By evaluating these four categories within their company it is easier to appraise which areas are strong and which are weak and, subsequently, need revision. To begin the main resources and capabilities of Wal-Mart Stores Inc. must be identified. As with many companies a major resource of Wal-Mart’s is their human capital; another is their image – concerning their layout of their stores, product quality, and satisfaction of their employees; Wal-Mart’s products and brands are a valuable resource; and Wal-Mart’s geographic locations are an important resource.
B. Direction As we have reviewed and studied the strategy, culture, finances and the challenges and successes at Wal-Mart, there are many strategies we see that the company must undertake to hold its dominate position and drive further growth. Herein, we define our top four. These core strategies include: rebuild and recreate its reputation in the face of recent challenges; continue to show price leadership; improve the customer experience; and drive international growth. The financial performance of Wal-Mart continues to be strong.
It delivered another record year in 2008 as total net sales increased 8. 6 percent to $375 billion. Yet, earnings growth rates and same store sales have slowed. And, the company faces a number of challenges to its operating procedures, reputation and growth prospects. Given the company’s stated objectives of “growing operating income faster than sales” and increasing shareholder value, the strategies we recommend will directly affect the company’s ability to overcome present challenges and meet these primary financial objectives. Reputation and Brand
A key strategic objective, perhaps the most critical for the company going forward, is to rebuild and recreate its reputation. While brand and reputation are closely interlinked, author and business consultant, John Foley, differentiates the two attributes in this manner: “Brand is inside out. Reputation is outside in” (Foley 3). Wal-Mart’s reputation has waned in the past several years and, according to Foley, “the company’s reputation problems are dragging down its brand and business performance” (Foley). This conclusion seems to be shared by a number of analysts.
Further validation can be found in a recent report (written in May 2007) by the company’s former advertising agency, GSD&M. This report plainly states “Wal-Mart’s #1 overall business challenge is reputation. ” Among the conclusions, the report states “(a) Wal-Mart’s consumer ratings as a “company I trust and respect” have steadily declined over the last two years, and (b) Shopping at Wal-Mart used to mean saving money and being patriotic, being a member of the community, being a part of the “American Dream. ” Today, it just means saving money.
All value – no values” (Kofinis). So, with this challenge facing the company, there are several areas where the company can apply focus and action to help recreate and strengthen its reputation. Our recommendations for this strategic objective are: Ensure that “associates” are compensated fairly and receive proper benefits. Put programs in place to improve healthcare coverage for the workers in the stores and throughout the distribution network. Sam Walton’s insistence at the formation of the company on treating employees as partners, or associates, was heralded for years.
This approach to managing must be reinforced through new benefits and compensation programs. Demonstrate leadership in societal issues including the environment, energy and healthcare. Wal-Mart’s power and influence are awesome and these forces can each be used to positively impact a broad number of initiatives around improving the environment, reducing carbon footprints and making healthcare more accessible and affordable to consumers. The company has started programs such as “Sustainability 360” in which it focuses on selling environmentally conscious goods.
In 2007, US Stores “sold 145 million energy efficient light bulbs – enough to eliminate the need for three new coal-fired power plants in the United States. ” In healthcare, Wal-Mart initiated a $4 prescription program to help consumers save money on critical prescription drugs. We recommend that programs like these be expanded in scale and that marketing and public relations dollars be increased to improve visibility to this work. Companies possessing a strong brand can easily topple without the support of a strong reputation.
Given this and our strong belief that brand and reputation are primary building blocks to company growth and customer loyalty, we absolutely believe that this is the #1 priority the company must address. Price Leadership The greatest area of emphasis in Wal-Mart’s brand and company history has always been “Low Prices – Always. ” And, while this emphasis continues today, we believe the company must continue to demonstrate leadership in this area. Value shoppers still represent the largest consumer base at Wal-Mart stores.
Fulfilling this strategy will involve continued “early adoption” of innovative technologies, such as RFID and a new work scheduling system to support increasing efficiencies that lead to lower consumer prices. Customer Experience The next strategic area for the company is the enhancement of the customer experience. Also playing a factor in strengthening reputation, the company must find new ways to make the customer experience more enjoyable and impactful. This suggests new ways to reach expanded customer segments beyond “low price shoppers.
” Besides the obvious merchandising strategies of optimizing product mix and bringing in new products that attract these customers, Wal-Mart must consider changes to store layouts, expanding aisles, installing better lighting and improving checkout procedures. During last year’s shareholder meeting, CEO Lee Scott addressed this area of their business saying, “…we have to improve in our merchandising areas…And we have to get better at consistently executing store standards and customer service, especially around the checkout. ” (Forbes) International Growth
In fiscal year 2008, Wal-Mart opened its 3000th International unit and grew sales by 17. 5%, representing $90. 6 billion of its total revenues. (Annual Report) An existing priority for the company, Wal-Mart’s ambition for higher growth rates will most likely be found overseas. Thus, we recommend continued investment in and focus on international markets be the fourth of our key strategies. International growth should be pursued through organic means and acquisition, both of which Wal-Mart has executed successfully since first expanding overseas in the early 1990’s.
Regardless of the means of entry into markets, the company must understand and adapt to local consumer preferences, customs, attitudes and expectations. A great example of this comes from Wal-Mart’s foray into China. Among many adaptations, “the company had to accept that most Chinese tend to buy in small quantities, and that language differences required tailoring marketing approaches for product labeling and brand names” (Govindarajin). The sheer size of populations in markets throughout Asia and other untapped markets make this a “must pursue” strategy for the world’s largest retailer. Organizing
Organizing is defined as the assembly and coordination of the human, financial, physical, informational, and other resources needed to achieve goals. (Bateman & Snell, 2009, pg. 20) This function is also referred to as the function used to build a dynamic organization. (Bateman & Snell, 2009, pg. 20) When looking at the organization process Sam Walton the founder of Wal-Mart made sure from the very beginning to keep up with his competitors. In 1972 Kmart expanded and at that time there were 15 Wal-Mart stores and Sam Walton could not afford to expand by building so he offered Wal-Mart stock on the New York Stock Exchange.
Due to the large profit that occurred because of the sales of stock Wal-Mart could expand and by the 1980s they had 276 stores. Organizing is comprised of several organizational resources: physical assets, knowledge, money, and human resources. Resources are organized effectively by the use of tools such as charts and or graphs. These tools will present the various functions of management for instance human resources activities and responsibilities, employee duties and responsibilities, recording relationships amongst upper and lower management. (Bateman & Snell, 2009, pg.
290) Within each department there are specific method being used which helps them in managing the resources provided to them. For example accounting and finance departments commonly use Microsoft Excel Spreadsheets and software such as QuickBooks. The management and maintaining of the human resources department is vital when evaluating the effectiveness of the organizing function. “People are assets not commodities”. (Bateman & Snell, 2009, pg. 337) Managers as well as their companies must work together to hire the right individuals for the job.
Human resource management is responsible for staffing, training, performance appraisals, rewards, labor relations, wages, and benefits. (Bateman & Snell, 2009, pg. 354) Worldwide Wal-Mart employs about 2. 1 million associates, and depending on the size of the store there can be about 225 to 350 more associates in each store. According to Fortune Magazine 2010 reported that Wal-Mart ranked first on their list of most admired companies. This favorable rating is due to their sustainability leadership, corporate compassion, and employment opportunity.
Wal-Mart’s staff practices the three basic beliefs and values established by Sam Walton in 1962. They are respect for individuals, services to our customers, and striving for excellence. Micromanaging is kept to a minimum and teamwork is highly encouraged by a style of leadership implemented back in the days of Mr. Walton called “servant leadership” where leaders work together with their employees. Wal-Mart also has an open door policy any issues which are questionable whether they ethical or immoral are brought to the attention of the store manager, market manager, and or the human resources department.
In the past years Wal-Mart has faced several lawsuits in which their ethics has been questioned. Their policies of hiring, promoting, and equality have all been questioned in cases like the sexual discrimination of women in June 2001. Wal-Mart business practices article of 2010 reported that a survey conducted by Wal-Mart indicated a rapid turnover of 70 % of employees that leave the company within the first year of employment and stated that it is attributed to the lack of recognition and inadequate pay of the employees. (Business Practices, para.
5) Despite these various issues that Wal-Mart has been faced with and the speculation that the human resources department does a poor job is just that. Wal-Mart in fact aims to take very good care of their employees. They claim that their organization is one of the best to workplaces, which offers various health and wellness benefits. Wal-Mart offers 80 % coverage on to its eligible employees. Health care benefits such as doctor’s visits and annual checkups, pharmacy benefits, dental, business travel accident insurance, life insurance, accidental death and dismemberment coverage (Walmartstores.
com, 2010) Wal-Mart like many other organizations is affected by many factors such as competitive pressures, insurance costs, market trends, economic conditions, cost of goods and services, and unemployment. (Walmartstores. com, 2010) Yet another issue they are constantly faced with is their wages. Average Wal-Mart employees make anywhere from $ 12,000 to $ 17,000 which causes them to have to turn to the state for public assistance. Further reports show that employees on average take home less than $250 a week.
(Business Practices, 2010) Full time employees make between $6 and $7. 50 an hour and work from 28-40 hour weeks. According to Business Practices 2010 this pay scale indicates that employees of Wal-Mart with dependents are below the poverty line. As mentioned previously the foreign exchange rate is a factor that Wal-Mart as a large retailer must beware of when maintaining their monetary and financial resources. Wal-Mart reported that fiscal year 2009 foreign exchange rates had a negative effect on international net sales by 2. 3 billion.
(Walmartstores. com, 2010) When compared to overall company net sales there was still a slight increase indicated despite the negative effect. Wal-Mart also offer its employees various financial benefits to compensate stock option plans, employee’s discounts, profit sharing (401k plan), retirement accounts, and holiday and when determining the success of an organization. Being mindful and utilizing the organizing function will help not only determine and maintain current success but will aid in future and in preventing failure.