Walmart Stores, Inc. 2009 Case Notes Prepared by: Dr. Mernoush Banton Case Authors: Amit J.

. Shah and Michael L. Monahanat

A.

Case Abstract

Walmart Stores, Inc. (www.walmart.com) is a comprehensive strategic management case that includes the companys fiscal year-end January 31, 2009 financial statements, competitor information and more. The case time setting is the year 2009. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Newport in the U.S. state of Arkansas, Walmart Stores, Inc. is traded on the New York Stock Exchange under ticker symbol WMT.

B.

Vision Statement (proposed)

Providing quality products at everyday low prices.

C.

Mission Statement (Proposed)

Customers are our first responsibility (1). We are inspired by providing our customers the best value products and services with guaranteed satisfaction worldwide (2, 3, 4). We strive to create a friendly and flexible work environment for our associates (9) and, as such, be able to deliver high return to our stakeholders (5), year after year. As a global company, we continue to be socially responsible to our environment (8) and to provide equal opportunity for all individuals (7). We will continue to offer the highest quality products at the lowest price (6) to strive to be the best in the retail industry. 1. 2. 3. 4. 5. 6. 7. 8. 9. Customer Products or services Markets Technology Concern for survival, profitability, growth Philosophy Self-concept Concern for public image Concern for employees

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D.

External Audit

CPM Competitive Profile Matrix

Critical Success Factors Advertising Service / Product Quality Price Management Financial Position Customer Loyalty Product Lines Market Share Customer Service Technology Employees Global Expansion Total

Weight 0.10 0.09 0.10 0.03 0.09 0.10 0.10 0.06 0.09 0.10 0.05 0.09 1.00

Walmart Weighte Rating d Score 4 3 4 3 4 4 4 4 2 4 2 4 0.40 0.27 0.40 0.09 0.36 0.40 0.40 0.24 0.18 0.40 0.10 0.36 3.60

Target Weighte Rating d Score 3 4 2 2 2 2 3 3 3 3 2 1 0.30 0.36 0.20 0.06 0.18 0.20 0.30 0.18 0.27 0.30 0.10 0.09 2.54

Costco Weighted Rating Score 2 2 3 1 3 3 2 2 4 2 3 2 0.20 0.18 0.30 0.03 0.27 0.30 0.20 0.12 0.36 0.20 0.15 0.18 2.49

1. 2. 3. 4. 5. 6. 7. 8.

Opportunities Asian market has been untapped by mass retailers Not too many mass retailers in European markets Demand for buying in bulk to save money is high Competitors have not tapped into many available markets overseas Expected increase in retail sales among low priced stores Many large retailers have had several stores closed permanently High entry barriers for a company to open too many stores quickly Due to weak economy and job cutbacks and lay-offs, many consumers are switching to substitute products such as private label products Threats Tense competition between retailers by offering low everyday prices Weak economic conditions causing many to cut back on large item products Unemployment is increasing causing cutback in buying brand-name products Increase in fuel cost could impact the purchasing power of the consumer Increase in fuel cost could cause suppliers to raise their prices Consumer confidence is lower due to decline in U.S. economy Costco is gaining market share by having higher sales against Sams Club by approximately US$30 billion

1. 2. 3. 4. 5. 6. 7.

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External Factor Evaluation (EFE) Matrix Key External Factors Opportunities 1. Asian market has been untapped by mass retailers 2. Not too many mass retailers in European markets 3. Demand for buying in bulk to save money is high 4. Competitors have not tapped into many available markets overseas 5. Expected increase in retail sales among low priced stores 6. Many large retailers have had several stores closed permanently 7. High entry barriers for a company to open too many stores quickly 8. Due to weak economy and job cutbacks and lay-offs, many consumers are switching to substitute products such as private label products Threats 1. Tense competition between retailers by offering low everyday prices 2. Weak economic conditions causing many to cut back on large item products 3. Unemployment is increasing causing cutback in buying brand-name products 4. Increase in fuel cost could impact the purchasing power of the consumer 5. Increase in fuel cost could cause suppliers to raise their prices 6. Consumer confidence is lower due to decline in U.S. economy 7. Costco is gaining market share by having higher sales against Sam's Club by approximately US$30 billion 8. Target for false or bogus law suits related to labor and general liability law suits Total 0.05 0.04 0.08 0.07 0.08 0.09 0.04 0.07 4 4 3 2 3 2 4 4 0.2 0.16 0.24 0.14 0.24 0.18 0.16 0.28 Weight Rating Weighted Score

0.08 0.07 0.06 0.08 0.06 0.05 0.04 0.04 1.00

3 4 4 3 3 3 2 2

0.24 0.28 0.24 0.24 0.18 0.15 0.08 0.08 3.09

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Positioning Map
Number of Stores (High)

Walmart

Costco Target
Narrow Price Competitive Wide Price Competitive

Number of Stores (Low)

E.

Internal Audit
Strengths 1. Walmart has a well-mixed balance of products (consumable, perishable and durable goods such as electronics) 2. The international segment grew by 10 percent 3. One of the largest corporations in the U.S., so enjoys an economy of scale 4. Currently has around 3,615 stores in the international market 5. Walmart leads the industry in information technology and logistics system 6. Strong brand image in the U.S. 7. Walmarts sales contributes approximately 0.4 percent to the total Gross Domestic Product 8. Continuously has had sales increases of US$30 billion each year, for the last 3 years 9. For the last 3 years, has had increase in net income by more than US$400 million 10. Strong in-house programs for employee training and benefits

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Weaknesses 1. 2. 3. 4. 5. 6. Heavy reliance on information technology for order processing and distribution Easy target for various law suits including violating the labor laws such as benefits for part-time workers, discrimination, pay, and promotion Heavily concentrated in consumer products Some of online services such as music download and one-hour photo has not been very successful as of yet Depends heavily on imported low cost products from China and other similar countries Quick ratio of 0.3 is below industry average

Financial Ratio Analysis (October 2009) Growth Rates % Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Price Ratios Current P/E Ratio P/E Ratio 5-Year High P/E Ratio 5-Year Low Price/Sales Ratio Price/Book Value Price/Cash Flow Ratio Profit Margins % Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) 5Yr PreTax Margin (5-Year Avg.) 5Yr Net Profit Margin (5-Year Avg.) Financial Condition Debt/Equity Ratio Current Ratio Quick Ratio Interest Coverage Walmart -1.40 0.80 1.40 9.41 8.39 21.42 Walmart 15.4 NA NA 0.50 3.01 9.80 Walmart 24.3 5.2 3.4 23.4 5.4 3.6 Walmart 0.68 0.9 0.3 12.1 Industry -1.50 -1.50 1.70 9.17 7.53 20.58 Industry 16.6 6.2 1.5 0.50 2.90 10.20 Industry 24.3 5.0 3.2 23.7 5.3 3.5 Industry 0.68 1.1 0.4 33.3 S&P 500 -5.20 -10.20 27.10 13.14 12.59 11.83 S&P 500 27.3 15.1 2.9 2.08 3.41 13.10 S&P 500 37.9 9.6 6.7 37.8 16.6 11.5 S&P 500 1.12 1.5 1.2 27.3

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Leverage Ratio Book Value/Share Adapted from www.moneycentral.msn.com Avg P/E 01/09 01/08 01/07 01/06 01/05 01/04 01/03 01/02 01/01 01/00 16.40 14.80 16.00 17.60 22.30 26.90 31.10 36.30 37.50 40.60 Debt/ Equity 0.65 0.69 0.63 0.73 0.63 0.61 0.64 0.62 0.71 Price/ Sales 0.46 0.55 0.57 0.62 0.79 0.91 0.92 1.31 1.32 1.47 Return on Equity (%) 20.3 19.9 19.8 21.5 21.2 20.3 19.8 18.4 20.1

2.5 17.37

2.5 17.92

3.6 21.66

Price/ Book 2.83 3.12 3.20 3.61 4.49 5.32 5.32 7.61 8.10 9.45 Return on Assets (%) 8.1 7.9 8.0 8.3 8.7 8.4 8.2 7.7 8.1 7.9

Net Profit Margin (%) 3.3 3.4 3.5 3.7 3.7 3.4 3.4 3.1 3.3 3.3 Interest Coverage 10.4 10.4 11.3 13.2 14.6 15.1 12.6 8.6 8.2 9.9

Book Value/ Share 01/09 01/08 01/07 01/06 01/05 01/04 01/03 01/02 01/01 $16.63 $16.26 $14.91 $12.77 $11.67 $10.12 $8.98 $7.88 $7.01

01/00 $5.80 0.85 21.6 Adapted from www.moneycentral.msn.com

F.

SWOT Strategies
Strengths 1. Walmart has a wellmixed balance of products (consumable, perishable and durable goods such as electronics) Weaknesses 1. Heavy reliance on information technology for order processing and distribution 2. Easy target for various law suits including

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2. The international segment grew by 10 percent 3. One of the largest corporations in the U.S., so enjoys an economy of scale 4. Currently has around 3,615 stores in the international market 5. Walmart leads the industry in information technology and logistics system 6. Strong brand image in the U.S. 7. Walmarts sales contributes approximately 0.4 percent to the total Gross Domestic Product 8. Continuously has had sales increases of US$30 billion each year, for the last 3 years 9. For the last 3 years, has had increase in net income by more than US$400 million 10. Strong in-house programs for employee training and benefits Opportunities 1. Asian market has been untapped by mass retailers 2. Not too many mass retailers in European markets 3. Demand for bulk buying to save money is high 4. Competitors have not tapped into many available markets overseas 5. Expected increase in retail sales among low priced stores 6. Many large retailers have had several stores closed permanently S-O Strategies 1. Due to economic downturn and Walmarts wide selection and low pricing, they can expect increase in sales (S6, S7, O3, O5) 2. Add additional stores in international market where the company has brand recognition and can take advantage of economy of scale ( S2, S3, O1, O2)

violating the labor laws such as benefits for parttime workers, discrimination, pay, and promotion 3. Heavily concentrated in consumer products 4. Some of online services such as music download and one-hour photo has not been very successful as of yet 5. Depends heavily on imported low cost products from China and other similar countries

W-O Strategies 1. Use suppliers other than those in China for better cost leadership strategies in producing private label products (W5, O8)

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7. High entry barriers for a company to open too many stores quickly 8. Due to weak economy and job cutbacks and layoffs, many consumers are switching to substitute products such as private label products Threats 1. Tense competition between retailers by offering low everyday prices 2. Weak economic conditions causing many to cut back on large item products 3. Unemployment is increasing causing cutback in buying brandname products 4. Increase in fuel cost could impact the purchasing power of the consumer 5. Increase in fuel cost could cause suppliers to raise their prices 6. Consumer confidence is lower due to decline in U.S. economy 7. Costco is gaining market share by having higher sales against Sams Club by approximately US$30 billion 8. Target for false or bogus law suits related to labor and general liability law suits S-T Strategies 1. Add more distribution centers causing further cut back in transportation costs. 2. Create backward vertical integration by acquiring small manufacturers for high demand products (S3, S9, T5, T7) W-T Strategies 1. Create a compliance assurance team for matters related to labor laws, compliance, and other liability-related issues (W2, T8)

G.

SPACE Matrix

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FS
Conservative
7 6 5 4 3 2 1

Aggressive

CA

IS
-7 -6 -5 -4 -3 -2 -1 -1 -2 -3 -4 -5 -6 1 2 3 4 5 6 7

Defensive

-7

Competitive

ES
Financial Stability (FS) Return on Investment Leverage Liquidity Working Capital Cash Flow Financial Stability (FS) Average Competitive Stability (CA) Market Share Product Quality Customer Loyalty Competitions Capacity Utilization Technological Know-How Competitive Stability (CA) Average 6 5 4 5 6 5.2 Environmental Stability (ES) Unemployment Technological Changes Price Elasticity of Demand Competitive Pressure Barriers to Entry Environmental Stability (ES) Average Industry Stability (IS) Growth Potential Financial Stability Ease of Market Entry Resource Utilization Profit Potential Industry Stability (IS) Average -4 -2 -3 -4 -1 -2.8

-1 -3 -5 -4 -6 -3.8

4 3 5 3 6 4.2

Y-axis: FS + ES = 5.2 + (-2.8) = 2.4 X-axis: CA + IS = (-3.8) + (4.2) = 0.4

H.

Grand Strategy Matrix

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Rapid Market Growth Quadrant II Quadrant I

Weak Competitive Position

Strong Competitive Position

Quadrant III

Slow Market Growth

Quadrant IV

1. 2. 3. 4. 5. 6. 7.

Market Development Market Penetration Product Development Forward Integration Backward Integration Horizontal Integration Related Diversification

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I.

The Internal-External (IE) Matrix

The IFE Total Weighted Score Strong 3.0 to 4.0 I Average 2.0 to 2.99 II Weak 1.0 to 1.99 III

High 3.0 to 3.99

Walmart Stores, Inc.

IV

IV

VI

The EFE Total Weighted Score

Medium 2.0 to 2.99 VII VIII IX

Low 1.0 to 1.99

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J.

QSPM
Open 10 additional Superstores in the U.S AS TAS 1 1 2 2 3 4 2 3 0.05 0.04 0.16 0.14 0.24 0.36 0.08 0.21 Open 5 new Supercstores in Asian and European Market 0 TAS 4 4 4 4 2 2 1 1 0.2 0.16 0.32 0.28 0.16 0.18 0.04 0.07

Key Factors Opportunities 1. Asian market has been untapped by mass retailers 2. Not too many mass retailers in European markets 3. Demand for buying in bulk to save money is high 4. Competitors have not tapped into many available markets overseas 5. Expected increase in retail sales among low priced stores 6. Many large retailers have had several stores closed permanently 7. High entry barriers for a company to open too many stores quickly 8. Due to weak economy and job cutbacks and lay-offs, many consumers are switching to substitute products such as private label products Threats 1. Tense competition between retailers by offering low everyday prices 2. Weak economic conditions causing many to cut back on large item products 3. Unemployment is increasing causing cutback in buying brand-name products 4. Increase in fuel cost could impact the purchasing power of the consumer 5. Increase in fuel cost could cause suppliers to raise their prices 6. Consumer confidence is lower due to decline in U.S. economy 7. Costco is gaining market share by having higher sales against Sam's Club by approximately US$30 billion 8. Target for false or bogus law suits related to labor and general liability law suits

Weight 0.05 0.04 0.08 0.07 0.08 0.09 0.04 0.07

0.08 0.07 0.06 0.08 0.06 0.05 0.04 0.04

3 4 3 --2 4 -----

0.24 0.28 0.18 --0.12 0.2 -----

1 1 1 --1 1 -----

0.08 0.07 0.06 --0.06 0.05 -----

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TOTAL Strengths 1. Walmart has a well-mixed balance of products (consumable, perishable and durable goods such as electronics) 2. The international segment grew by 10 percent 3. One of the largest corporations in the U.S., so enjoys an economy of scale 4. Currently has around 3,615 stores in the international market 5. Walmart leads the industry in information technology and logistics system 6. Strong brand image in the U.S. 7. Walmart's sales contributes approximately 0.4 percent to the total Gross Domestic Product 8. Continuously has had sales increases of US$30 billion each year, for the last 3 years 9. For the last 3 years, has had increase in net income by more than US$400 million 10. Strong in-house programs for employee training and benefits Weaknesses 1. Heavy reliance on information technology for order processing and distribution 2. Easy target for various law suits including violating the labor laws such as benefits for part-time workers, discrimination, pay, and promotion 3. Heavily concentrated in consumer products 4. Some of online services such as music download and one-hour photo has not been very successful as of yet 5. Depends heavily on imported low cost products from China and other similar countries SUBTOTAL SUM TOTAL ATTRACTIVENESS SCORE

1.00 0.08 2

2.3 0.16 3

1.73 0.24

0.07 0.07 0.05 0.07 0.09 0.04 0.08 0.07 0.03

1 3 1 --3 ----4 ---

0.07 0.21 0.05 --0.27 ----0.28 ---

4 1 3 --1 ----3 ---

0.28 0.07 0.15 --0.09 ----0.21 ---

0.06 0.05

2 3

0.12 0.15

1 1

0.06 0.05

0.08 0.06

-----

-----

-----

-----

0.1

0.2

0.1

1.00

1.51 3.81

1.25 2.98

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K.

Recommendations

1. Build additional 10 Superstores in the U.S. in markets that economically are not doing well and demand for low-priced consumer products are high. Approximate start-up cost of US$15 million each, total of US$150 million. 2. Spread expansion of the new stores within the next 3 years.

L.

EPS/EBIT Analysis
US$ Amount Needed: 150M Stock Price: US$54.63 Tax Rate: 34% Interest Rate: 5% # Shares Outstanding: 487,222,000

EBIT Interest EBT Taxes EAT # Shares EPS

Common Stock Financing Recession Normal Boom $300,000,00 $600,000,00 $1,000,000,00 0 0 0 0 0 0 300,000,000 600,000,000 1,000,000,000 102,000,000 204,000,000 340,000,000 198,000,000 396,000,000 660,000,000 489,967,744 0.40 489,967,744 0.81 489,967,744 1.35

Recession $300,000,00 0 7,500,000 292,500,000 99,450,000 193,050,000 487,222,000 0.40

Debt Financing Normal Boom $600,000,00 0 $1,000,000,000 7,500,000 7,500,000 592,500,000 992,500,000 201,450,000 337,450,000 391,050,000 655,050,000 487,222,000 0.80 487,222,000 1.34

EBIT Interest EBT Taxes EAT # Shares EPS

70 Percent Stock - 30 Percent Debt Recession Normal Boom $300,000,00 $600,000,00 $1,000,000,00 0 0 0 6,000,000 6,000,000 6,000,000 294,000,000 594,000,000 994,000,000 99,960,000 201,960,000 337,960,000 194,040,000 392,040,000 656,040,000 489,144,021 0.40 489,144,021 0.80 489,144,021 1.34

70 Percent Debt - 30 Percent Stock Recession Normal Boom $300,000,00 $600,000,00 0 0 $1,000,000,000 1,500,000 1,500,000 1,500,000 298,500,000 598,500,000 998,500,000 101,490,000 203,490,000 339,490,000 197,010,000 395,010,000 659,010,000 488,045,723 0.40 488,045,723 0.81 488,045,723 1.35

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M.

Epilogue

In October 2009, the company announced that their profits are up after cutting prices further on products such as brand-name electronics. Their strategy now is to capture new consumers and try keeping them as they may enter back into the job market. Due to economic downturn, Walmart is planning a major price cut for the Holiday season, hoping to increase its sales and market share further. In late 2009, the company opened several stores in the United States in areas such as Chicago, Phoenix, and New Jersey (2 Superstores), and in Canada. Each new store occupies approximately over 120,000 sq. ft of space, adds over 500 new jobs and as a promotion, contributes thousands of dollars to local communities and charities. They also are improving the design on some of their older stores and improving a few with the latest generation of high efficiencies such as using water to heat and cool the building.

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