FREE ESSAY ON WAL_MART TURNAROUD

WAL_MART TURNAROUD

Sam Walton, a leader with an innovative vision, started his own company and
made it into the leader in discount retailing that it is today. Through his savvy,
and sometimes unusual, business practices, he and his associates led the
company forward for thirty years. Today, four years after his death, the
company is still growing steadily. Wal-Mart executives continue to rely on
many of the traditional goals and philosophies that Sam's legacy left behind,
while simultaneously keeping one step ahead of the ever-changing technology
and methods of today's fast-paced business environment. The organization
has faced, and is still facing, a significant amount of controversy over several
different issues; however, none of these have done much more than scrape
the exterior of this gigantic operation. The future also looks bright for
Wal-Mart, especially if it is able to strike a comfortable balance between
increasing its profits and recognizing its social and ethical responsibilities.
Why is Wal-Mart so Successful? Is it Good Strategy or Good Strategy
Implementation? -- In 1962, when Sam Walton opened the first Wal-Mart
store in Rogers, Arkansas, no one could have ever predicted the enormous
success this small-town merchant would have. Sam Walton's talent for
discounts retailing not only made Wal-Mart the world's largest retailer, but
also the world's number one retailer in sales. Indeed, Wal-Mart was named
Retailer of the Decade by Discount Store News in 1989, and on several
occasions has been included in Fortune's list of the 10 most admired
corporations. Even with Walton's death (after a two-year battle with bone
cancer) in 1992, Wal-Mart's sales continue to grow significantly. Wal-Mart is
successful not only because it makes sound strategic management decisions,
but also for its innovative implementation of those strategic decisions.
Regarded by many as the entrepreneur of the century, Walton had a
reputation for caring about his customers, his employees (or associates as
he referred to them), and the community. In order to maintain its market
position in the discount retail business, Wal-Mart executives continue to
adhere to the management guidelines Sam developed. Walton was a man of
simple tastes and took a keen interest in people. He believed in three guiding
principles: 1. Customer value and service; 2. Partnership with its associates;
3. Community involvement (The Story of Wal-Mart, 1995). The word
always can be seen in virtually all of Wal-Mart's literature. One of Walton's
deepest beliefs was that the customer is always right, and his stores are still
driven by this philosophy. When questioned about Wal-Mart's secrets of
success, Walton has been quoted as saying, It has to do with our desire to
exceed our customers' expectations every hour of every day (Wal-Mart
Annual Report, 1994, p. 5). Walton's greatest accomplishment was his ability
to empower, enrich, and train his employees (Longo, 1994). He believed in
listening to employees and challenging them to come up with ideas and
suggestions to make the company better. At each of the Wal-Mart stores,
signs are displayed which read; Our People Make the Difference.
Associates regularly make suggestions for cutting costs through their Yes
We Can Sam program. The sum of the savings generated by the associates
actually paid for the construction of a new store in Texas (The story of
Wal-Mart, 1995). One of Wal-Mart's goals was to provide its employees
with the appropriate tools to do their jobs efficiently. The technology was not
used as a means of replacing existing employees, but to provide them with a
means to succeed in the retail market (Thompson & Strickland, 1995).
Wal-Mart's popularity can be linked to its hometown identity. Walton
believed that every customer should be greeted upon entering a store, and
that each store should be a reflection of the values of its customers and its
community. Wal-Mart is involved in many community outreach programs and
has launched several national efforts through industrial development grants.
What are the Key Features of Wal-Mart's Approach to Implementing the
Strategy Put Together by Sam Walton -- The key features of Wal-Mart's
approach to implementing the strategy put together by Sam Walton
emphasizes building solid working relationships with both suppliers and
employees, being aware and taking notice of the most intricate details in store
layouts and merchandising techniques, capitalizing on every cost saving
opportunity, and creating a high performance spirit. This strategic formula is
used to provide customers access to quality goods, to make these goods
available when and where customers want them, to develop a cost structure
that enables competitive pricing, and to build and maintain a reputation for
absolute trustworthiness (Stalk, Evan, & Shulman, 1992). Wal-Mart stores
operate according to their Everyday Low Price philosophy. Wal-Mart has
emerged as the industry leader because it has been better at containing its
costs, which has allowed it to pass on the savings to its customers. Wal-Mart
has become a capability competitor. It continues to improve upon its key
business processes, managing them centrally and investing in them heavily for
the long-term payback. Wal-Mart has been regarded as an industry leader in
testing, adapting, and applying a wide range of cutting-edge merchandising
approaches (Thompson & Strickland, 1995, p. 860). Walton proved to be
a visionary leader and was known for his ability to quickly learn from his
competitors' successes and failures. In fact, the founder of Kmart once
claimed that Walton not only copied our concepts, he strengthened them.
Sam just took the ball and ran with it (Thompson & Strickland, 1995, p.
859). Wal-Mart has invested heavily in its unique cross-docking inventory
system. Cross docking has enabled Wal-Mart to achieve economies of scale,
which reduces its costs of sales. With this system, goods are continuously
delivered to stores within 48 hours and often without having to inventory
them. Lower prices also eliminate the expense of frequent sales promotions
and sales are more predictable. Cross docking gives the individual managers
more control at the store level. A company owned transportation system also
assists Wal-Mart in shipping goods from warehouse to store in less than 48
hours. This allows Wal-Mart to replenish the shelves 4 times faster than its
competition. Wal-Mart owns the largest and most sophisticated computer
system in the private sector. It uses a MPP (massively parallel processor)
computer system to track stock and movement which keeps it abreast of fast
changes in the market (Daugherty, 1993). Information related to sales and
inventory is disseminated via its advanced satellite communications system.
Wal-Mart has leveraged its volume buying power with its suppliers. It
negotiates the best prices from its vendors and expects commitments of
quality merchandise (Thompson & Strickland, 1995). The purchasing agents
of Wal-Mart are very focused people. Their highest priority is making sure
everybody at all times in all cases knows who's in charge, and it's Wal-Mart
(Vance & Scott, 1995, p. 32). Even though Wal-Mart was tough in
negotiating for absolute rock-bottom prices, the company worked closely
with suppliers to develop mutual respect and to forge long-term partnerships
that benefited both parties (Thompson & Strickland, 1995, p. 866).
Wal-Mart built an automated reordering system linking computers between
Procter & Gamble (P&G) and its stores and distribution centers. The
computer system sends a signal from a store to P&G identifying an item low
in stock. It then sends a resupply order, via satellite, to the nearest P&G
factory, which then ships the item to a Wal-Mart distribution center or
directly to the store. This interaction between Wal-Mart and P&G is a
win-win proposition because with better coordination, P&G can lower its
costs and pass some of the savings on to Wal-Mart. Sam Walton received
national attention through his Buy America policy. Through this plan,
Wal-Mart encourages its buyers and merchandise managers to stock stores
with American-made products. In a 1993 annual report management stated
the program demonstrates a long-standing Wal-Mart commitment to our
customers that we will buy American-made products whenever we can if
those products deliver the same quality and affordability as their foreign-made
counterparts (Thompson & Strickland, 1995, p. 868). Environmental
concerns are important to Wal-Mart. A prototype store was opened in
Lawrence, Kansas, which was designed to be environmentally friendly. The
store contains environmental education and recycling centers (Slezak, 1993).
Wal-Mart has also adopted the low cost theme for its facilities. All offices,
including the corporate headquarters, are built economically and furnished
simply. To conserve energy, temperature controls are connected via
computer to headquarters. Through these programs, Wal-Mart shows its
concern for the community. Wal-Mart has been led from the top but run from
the bottom, a strategy developed by Sam Walton and carried on by a small
group of senior executives led by CEO David Glass. Although recent growth
has led Wal-Mart to add more management layers, senior executives strive to
maintain its unique culture. This culture, described as one part Southern
Baptist evangelism, one part University of Arkansas Razorback teamwork,
and one part IBM hardware has worked to Wal-Mart's advantage
(Saporito, 1994, p. 62). Just how Successful is Wal-Mart? -- A forecast
(see Appendix A) of Wal-Mart's income for the period 1995-2000,
considering increases of 30.6% in Net Sales, 27.7% in Operating Expenses,
and 52.3% in Interest Debt (a level which is below Wal-Mart's historically
compounded growth rate of 55.6%) indicates that the company should
continue to report gains each year until 2000. According to most analysts and
company projections, sales should approximate $115 billion by 1996,
representing an increase of 30.6% as compared to 1995. If the company
continues at this pace, sales should reach $334 billion by the year 2000. The
growth on sales that Wal-Mart reported during the 1980s and the beginning
of the 1990s will be difficult to repeat, especially considering the
ever-changing marketplace in which it competes. In an interview, Bill Fields,
President of the Stores Division said, Wal-Mart is now seeing price pressure
from companies that once assiduously avoided taking it on. These include
specialty retailers such as Limited, category killers like Home Depot and
Circuit City, and catalog companies like Spiegel. I think everybody prices off
of Wal-Mart. You've got Limited reaching levels we'd thought they'd never
get to. The result is that everyday low prices are getting lower (Saporito,
1994, p. 66). In addition, the baby-boomers are reaching their peak earnings
years, when financial and personal priorities change. Thus, savings, not
spending, will likely take precedence because most baby-boomers are
approaching retirement. Based on Wal-Mart's position in 1994, which was
considered a year of expansion for the company, (Wal-Mart added 103 new
discount stores, 38 Super-centers, 163 warehouse clubs, and 94,000 new
associates) interest debt increased 52.3%. The cost paid by Wal-Mart to
finance property plants and equipment forced the company to increase long
term debt by 4.6 times during the period 1991-1995. Long term debt for
1995 is $7.9 billion. If Wal-Mart continues its expansion plans based on
more debt acquisition at 1994 levels, the company may not attain forecasted
gains by as early as 1998. Operating expenses will be a key strategic issue
for Wal-Mart in order to maintain its position in the market. The challenge is
how to run more stores with less operating expenses. According to Bill
Fields,. . . the goal is to increase sales per square foot and drive operating
costs down yet another notch (Saporito, 1994, p. 66). Trends indicate that
operating expenses have been growing at a rate of 27.7% in recent years.
However, Wal-Mart should reap the benefits of its investments in high
technology, and be able to operate more stores without increasing its
expenses. Cost of sales historically has been equal to the level of sales. If the
company continues to take advantage of its buying power, Wal-Mart can
expect to lower its cost of sales. Wal-Mart's future will depend on how well
the company manages its expansion plans. For the coming years, the
company will need to justify its expansion plans with consistent growth in
sales, in order to offset the increases in debt interest and operating expenses.
What Problems are ahead for Wal-Mart? What Risks? -- Throughout the
1980s, Wal-Mart's strategic intent was to unseat industry leaders Sears and
Kmart, and become the largest retailer in the U.S. Wal-Mart accomplished
this goal in 1991. But Wal-Mart's current strong competitive position and its
past rapid growth performance can't guarantee that the company will remain
as the industry leader or maintain its strong business position in the future.
Carol Farmer, a retail consultant, told the Wall Street Journal that, One little
bad thing can wipe out lots of good things (Trimble, 1990, p. 267). Every
move in its business operation ought to be well thought-out and executed.
Wal-Mart needs to address two major areas in order to maintain or to
capture an even stronger long term business position: 1) Single-business
strategy -- Wal-Mart's success is mainly based on its concentration of a
single-business strategy. This strategy has achieved enviable success over the
last three decades without relying upon diversification to sustain its growth
and competitive advantages. Given its current position in the industry,
Wal-Mart may want to continue its single-business strategy and to push hard
to maintain and increase market share. However, there is risk in this strategy,
because concentration on a single-business strategy is similar to putting all of
a firm's eggs in one industry basket (Thompson & Strickland, 1995, p. 187).
In other words, if the retail industry stagnates due to an economic downturn,
Wal-Mart might have difficulty achieving past profit performance. Also, if
Wal-Mart continues to follow Sam Walton's vision of expansion, Wal-Mart
will reach its peak in the very near future. When it does, its growth will start
to slow down and the company will need to turn its strategic attention to
diversification for future growth. Social responsibility -- Retail stores can
compete on several bases: service, price, exclusivity, quality, and fashion.
Wal-Mart has been extremely successful in competing in the retail industry by
combining service, price, and quality. However, other merchants may object
to Wal-Mart's entry into their community. Because of its ability to out-price
smaller competitors, Wal-Mart's stores threaten smaller neighborhood stores
which can only survive if they offer merchandise or services unavailable
anywhere else. This makes it very hard for small businesses, such as
mom-and-pop enterprises, to survive. They, therefore, fight to keep
Wal-Mart from entering their locales. Numerous studies conducted in
different states both support and criticize Wal-Mart (Verdisco, 1994).
Nevertheless, Wal-Mart did drive local merchants out of business when it
opened up stores in the same neighborhood. As a result, more and more rural
communities are waging war against Wal-Mart's entrance into their market.
Besides protesting and signing petitions to attempt to stop Wal-Mart's entry
into their community, the opposition's efforts can even be found on The
Internet. Gig Harbor, a small town in Washington, recently started a World
Wide Web page entitled Us against the Wal. The town's neighborhood
association promised that they will fight them [Wal-Mart] tooth and nail
(PNA/Island Aerie Internet Productions, 1995/1996). The increasing
opposition indicates that the road ahead for Wal-Mart may not be as smooth
as Wal-Mart's annual report would entail. This requires Wal-Mart to rethink
its expansion strategy since it would not be profitable to operate in an
unfriendly community. How Big Will Wal-Mart be in Five Years if all
continues to go well? -- Before he died, Sam Walton expressed his belief that
by the year 2000 Wal-Mart should be able to double the number of stores to
about 3,000 and to reach sales of $125 billion annually. Walton predicted
that the four biggest sources of growth potential would be the following: 1.
Expanding into states where it had no stores; 2. continuing to saturate its
current markets with new stores; 3. Perfecting the Super-center format to
expand Wal-Mart's retailing reach into the grocery and supermarket arena --
a market with annual sales of about $375 billion; 4. Moving into international
markets (Thompson & Strickland, 1995). Wal-Mart Super-centers represent
leveraging on customer loyalty and procurement muscle in order to create a
new domestic growth vehicle for the company. With few locations left in the
U.S. to put a new Sam's Club or traditional Wal-Mart, the Super-center
division has emerged as the domestic vehicle for taking Wal-Mart to $100
billion in sales. Before the Super-center, Walton experimented with a massive
Hyper-mart, encompassing more than 230,000 square feet in size. The idea
failed. Customers complained that the produce was not fresh or
well-presented and that it was difficult to find things in a store so big that
inventory clerks had to wear roller skates. One of Walton's philosophies was
that traveling on the road to success required failing at times. As a result of
the unsuccessful experiment, Walton launched a revised concept: the
Super-center, a combination discount and grocery store that was smaller than
the Hyper-mart. The Super-center was intended to give Wal-Mart improved
drawing power in its existing markets by providing a one-stop shopping
destination. Super-centers would have the full array of general merchandise
found in traditional Wal-Mart stores, as well as a full-scale supermarket,
delicatessen, fresh bakery, and other specialty shops like hair salons, portrait
studios, dry cleaners, and optical wear departments. Super-centers would
measure 125,000 to 150,000 square feet, and target locations where sales
per store of $30 to $50 million annually were feasible. Walton's prediction
was right on target. The Super-center division more than doubled in size
during 1993, then doubled again in 1994. Super-centers, once thought of as
risky because of slim profit margins on the food side, will most likely make
Wal-Mart the nation's largest grocery retailer within the next five to seven
years (Longo, 1994). Expanding overseas, Wal-Mart moved into the
international market in 1991 through a joint-venture partnership with CIFRA
S.A. de C.V., Mexico's leading retailer. Since then the company has entered
Canada, Hong Kong, Mainland China, Puerto Rico, Argentina, and Brazil.
The Wal-Mart International Division was officially formed in 1994 to manage
the company's international growth. By the year 2000, analysts expect
Wal-Mart to be a huge international retailer, with numerous locations in South
America, Europe, and Asia. The ever-changing market presents continuing
challenges to retailers. First and foremost, retailers must recognize the strong
implications of a buyers' market (Lewison, 1994). Customers are being
offered a wide choice of shopping experiences, but no one operation can
capture them all. Therefore, it is incumbent upon management to define their
target market and direct their energies toward solving that specific market's
problems. Technology, demographics, consumer attitudes, and the advent of
a global economy are all conspiring to rewrite the rules for success. Success
in the next decade will depend upon the level of understanding retailers have
about the new values, expectations, and needs of the customer. If Wal-Mart
continues its customer-driven culture, it should remain a retail industry leader
well into the next century. 
Bibliography
Bibliography
REFERENCES: Daugherty, R. (1993). New approach to retail signals
strong future for point of purchase displays. Paperboard Packaging, pp.
24-27. Lewison, M. D. (1991). Retailing. New York: Macmillan. Longo, D.
(1994). New generation of exec's leads Wal-Mart into the next century.
Discount Store News, pp. 45-47. PNA/Island Aerie Internet Productions
(1995/1996). Us against the Wal. Gig Harbor, Washington: Peninsula
Neighborhood Association. [Online] Available:
http://www.harbornet.com/pna/. Saporito, B. (1994, May). And the winner
is still . . . Wal-Mart. Fortune, pp. 62-68. Slezak, M. (1993). Seeds of
environmental store planted in 1989. Discount Stores Inc., pp. 25-27.
Stalk, G., Evans, P., Shulman, L. (1992, March-April). Competing on
capabilities: the new rules of corporate strategy. Harvard Business Review,
pp. 55-70. Thompson, A. A., Jr. & Strickland, A.J. III. (1995). Strategic
management concepts and cases (8th ed.). Chicago: Irwin. Trimble, V. H.
(1990). Sam Walton: The inside story of America's richest man. New York:
Dutton. Vance, S., & Scott, S. (1994). Wal-Mart: a history of Sam Walton's
retail phenomenon. New York: Twayne. Verdisco, R. J. (1994, October).
Superstores and Smallness. Discount Merchandiser, p. 8. Wal-Mart Stores,
Inc. (1995). The story of Wal-Mart. Bentonville, Arkansas: Corporate
Offices of Wal- Mart Stores, Inc. Wal-Mart Annual Report, 1994 Wal-Mart
Annual Report, 1995 
Da