Walmart Case Study

Wal-Mart’s (WM) management needs to address key issues which pertain to fundamental problems, to institute ways of sustaining the company’s growth which it has seen over the years. WM’s management is aware of the fact that they need to identify and cultivate areas which has abetted them to be leaders in retail business. What should the WM’s managers do to enhance the existing sectors in retail, expand within and outside U.S. and create a positive brand, thereby ensuring their organization’s dominant position in the retail business and maximize returns to their shareholders?

WM’s core business spans across its retailing formats - Discount Stores, Super Centers, Neighborhood markets and SAMS clubs. Retail sales for discount stores in U.S. reported a slow growth (mere 0.25% in 2000-02) and WM reported 1.6% which was relatively slowest in the last few years and least as compared to the other retailing formats. WM’s management was not successful in holding on to its position in the warehouse store segment. Consumers preferred COSTCO more. WM has evolved as the leader in distribution network via effective usage of state of art technologies leading to niche supply chain management and inventory control, and an efficient Hub-Spoke model. Strong relationship between the manufacturer and WM led to a sustainable distribution network. WM has been a pioneer in developing IT solutions (e.g. - EDI and retail link), which led to high operating efficiencies. WM did face a setback because of attrition of its key IT personnel. WM has to target high inventory turn which would help maintain a competitive advantage. Despite having state-of-art distribution capability Walmart ended up selling its distributor McLane because of severe losses. With WM’s vision of adding another thousand stores, a question remains to be answered whether the system is capable enough to manage huge inventory. Although Hard Goods were the best sellers in any WM store, it netted a lower gross margin as compared to Soft Goods. The MCAP system needs to be effectively used as failure to do so could lead to multi-billion loss in sales. Through a strong advertising channel, WM has been able to promote and sell goods at a much lower price as compared to other retailers. Strong advertising is also attributed to the fact that the Advertising to Sales ratio is less as compare to competitors. Reduction in labor charges can be attributed to the EDLP program; this also led to high reduction in the shrinkage cost (which was reduced to 1% of WM’s discount sales in 2002). In store innovations such as credit card authorizations reduced checkout times and increased productivity at the checkout counters. WM had intent of expanding their business across U.S. shores, mostly because of visible saturation and presence all over U.S. Chinese goods dominated WM’s import. But severe violations in audits raised concerns across WM. Additionally, the concept of discount stores was not as successful as it was in the U.S. WM has to think out of the box and come up with an innovative retailing concept, specifically focused on the international market. Even though WM paid out $ 1.3 B as dividends, around 70% of equity value in WM’s stock price was based on growth options.