Presented By Samantha Akkad, Tina Chelune, Christina Coppola, Serina Lacey and Amanda Sentelle
BMGT495-7380 University of Maryland; University College Professor Christian Berger November 22, 2011
2
Table of Contents Company Background 3 Vision & Mission Statement 3 Industry Analysis 4 Competitive Analysis 5 Financial Analysis 6 SWOT & QSPM Analysis 6 Strategy Recommendation 7 Action Plan 9 Conclusion 10 Appendix One- External Factor Evaluation Matrix for Walmart 11 Appendix Two- Internal Factor Evaluation Matrix for Walmart 12 Appendix Three- Walmarts Competitive Profile Matrix (CPM) 13 Appendix Four- Financial Ratios 2010 Fiscal Year 14 Appendix Five- Walmart SWOT Matrix 15 Appendix Six- Porter Five Forces Model 16 Appendix Seven-Action Plan 17 References 18
3
Company Background Wal-Mart was founded in 1962 by Sam Walton with the first store opening in Rogers, Arkansas. Incorporated on October 31, 1969 and became publicly traded in 1972. What Sam Walton set out to accomplish when opening the first Wal-Mart store in 1962 was to save people money and to help them live better. Wal-Mart serves customers more than 200 million times per week at over 9,800 retail outlets located in 28 countries (Walmart, 2011). Retail outlets offer a wide variety of products, with stores having over 30 departments of general merchandise and full service grocery outlets. This has made Wal-Mart a leader in the general merchandise industry as well as a top competitor in the grocery industry. Vision & Mission Statement The mission statement of Wal-Mart reflects the purpose that Sam Walton set out to accomplish in 1962. Wal-Marts mission statement is simple and straight forward: Saving people money to help them live better was the goal that Sam Walton envisioned when he opened the doors to the first Walmart
. This focus drives everything we do at Walmart. And, for the
millions of customers who shop in our stores around the world each week, it means they can trust that our brand means we have everyday low prices. (Walmart, 2011). According to essential components of a mission statement, there are minor changes that could be made to enhance the current mission statement. Below is the enhanced mission statement, followed by reasons for some of the changes recommended. To save people money so they can live better by becoming a one-stop shop for all their needs. Improving customers shopping experience with up-to-date technology while reinvesting our profits for future growth and prosperity. Creating inspired employees and 4
offering a wide variety of quality products at low prices; all while being environmentally friendly and supporting the communities we are located in. Wal-Marts current mission statement is simple and mentions nothing about what is sold or offered to customers. An improvement would be: by becoming a one-stop shop for all their needs. Wal-Mart addresses nothing about technology but should include improving customers shopping experience with up-to-date technology. Once more, Wal-Marts mission statement lacks concerns for growth and profitability; so another change is: reinvesting our profits for future growth and prosperity. Wal-Marts mission statement lacks concern for public image, so the following is proposed: all while being environmentally friendly and supporting the communities we are located in. The company does not currently have a vision statement, but the mission statement can effectively guide employee behavior and decision making to integrate company values into all aspects of the business. Industry Analysis Wal-Mart has many internal and external factors that are key to being successful. The three important opportunities effecting Walmart are to increase online sales, open new stores/supercenters and offer a wider variety of items. Without opening new stores, Wal-Mart stands to lose market share. Increased demand for lower prices and product variety has driven consumers to internet shopping. Wal-Mart needs to focus on marketing to these customers in order to retain business from consumers not visiting retail stores. Wal-Mart also needs to focus on converting regular stores to supercenters to provide more product variety. Some threats that Wal-Mart faces: fierce competition from competitors. Increases in raw material prices pose a threat to Wal-Mart as products rise in price if raw materials increase. Wal-Mart faces the threat of government intervention in trade. This could affect the relationship with suppliers and cause 5
higher prices if tariffs are imposed. Depressed economies have caused lower consumer spending. With less spending, consumers are substituting brand name products with cheaper products. The external factor evaluation for Wal-Mart shows that strategists need to focus on many of the opportunities that could increase sales and need to be aware and manage external threats. There are also internal factors that help executives make the best decisions about projects. First, the income and sales figures increasing is a central factor. Without increased revenues, the company will not have funding to expand or convert outlets into superstores. The strong global supply chain that Wal-Mart has is also vital; without these relationships Wal-Mart would not be able to provide low priced products. Limited access to international markets is a weakness that Wal-Mart faces because currently most of the market share is centered in the US. Another weakness is high turnover rate of employees which causes gaps in customer service and loss of customers. High inventory levels cause large amounts of cash to be tied up, which prevents expansion. Therefore, Wal-Mart has many strengths and weaknesses that can help strategists plan for current and future business ventures. Competitive Analysis The Porter Five Forces model indicates several areas of high level concern. Rivalry among competing firms, potential for substitute products, and bargaining power of consumers are all high. Entry of new competitors is an area of lesser concern due to high barriers entering the industry. Suppliers are a midlevel concern due to competition and risk when dealing with suppliers abroad. Upon studying the competitive profile matrix, Wal-Mart has the highest weighted score when compared to competitors. Wal-Mart leads the way in the most important factors, including advertising and global expansion. Target is a large competitor that should be 6
followed closely. In product quality, Target appears to be the highest, but Wal-Mart has the best score in market share (See Appendix 3). Financial Analysis Many of Wal-Marts financial ratios can forecast the companys future performance. (See Appendix 4). The quick and current ratios show some concern that Wal-Mart will not be able to meet all short term obligations. With low ratios in these areas the company shows that it cannot meet short term obligations without depending on constant sales of inventories. The assets and liabilities to net worth ratios show that while Wal-Mart is only slightly higher than desired, it could put the companys creditors at risk in a situation where sales fall. The assets to sales ratio shows that Wal-Mart is moving their inventory at a normal speed compared to the industry average. Low percentage in the accounts payable to sales ratio shows Wal-Mart is not using suppliers to finance operations. With low return numbers in the profitability ratios, Wal-Mart is not in a position to handle downturns in sales without running the risk of financial trouble. Overall, Wal-Marts financials and ratios show the company has increased profits over the last ten years, there is still work needed to improve their financial position. If these changes are not made, any recessionary periods could cause Wal-Mart to breakdown financially and default on payments. Wal-Mart needs to develop new strategies to increase sales. SWOT & QSPM Analysis Wal-Mart represents powerful retail brand as noted in the SWOT Analysis in Appendix Five. Their strong brand presence, customer loyalty, and drive to expand globally can help the company to grow. Because Wal-Mart is trying to obtain an international presence, the focus on improving their internal weaknesses so that opportunities do not bypass them is vital. To do this, 7
increasing the online presence should offset their high inventory. Wal-Mart could penetrate the international market with their discount retail chain. Wal-Mart can take advantage of their strengths in order to reduce the impact of external threats. The company could use their brand image and low prices to market to different segments of consumers. They could look at backward integration to get even lower prices on goods for its customers. As a part of the WT strategy, they could look into products that are being made in the U.S. to provide more jobs to Americans and to avoid unethical labor laws abroad. Lastly, they could offer those living in small towns better jobs and benefits in order to gain their approval of entering their community with new retail outlets. According to the QSPM analysis, Wal-Mart should focus on backward integration in order to better control their suppliers. By doing so, Wal-Mart could reduce the cost of producing goods to consumers. Consumers will get more for their money as reduced manufacturing costs reflect prices in stores. Also, Wal-Mart can use backward integration in order to build relationships with suppliers who manufacture higher quality goods. Consumers today want low prices, but also want quality products that will last. Strategy Recommendation For Wal-Mart to maintain its title as a retail leader, it must constantly develop and implement new strategies to address present and future obstacles. CNN Money recently stated that Wal-Marts, chief rival Target has been beating Wal-Marts prices on some groceries and household products (Kavilanz, 2011). This intense competition illustrates the need for Wal- Mart to develop alternative strategies, in areas of integration, intensity, and diversification. Integration strategies allow Wal-Mart to gain capable suppliers, acquire mergers and acquisitions, and remain competitive amongst their rivals. Wal-Mart should consider both 8
backward integration and a horizontal integration. A backward integration allows Wal-Mart to increase control of the firms suppliers. This benefits the organization by reducing costs, increasing quality, and gaining greater control of suppliers. Horizontal integration allows Wal- Mart to benefit from mergers and acquisitions. Wal-Mart can benefit from intensive strategies through the use of market penetration, market development, and product development. Wal-Mart has an edge over its competitors through market penetration by running marketing ads and offering discounts or rollbacks. Market development can benefit Wal-Mart through entrance into emerging markets. Lastly, Wal- Mart can focus its effort in product development to increase the quality of its products. Next, Wal-Mart should consider related and unrelated diversification to continue its mission to be a one-stop-shop for customers. These approaches allow Wal-Mart to remain competitive by offering a wider variety of products, brands, and services. A greater variety of options available in one location offers convenience to customers and increases revenues. Strategy selection must be based on the incorporation of several factors. The financial analysis gives a picture that Wal-Mart should better position itself to address financial obligations and work to increase sales. This is supported by the fact that, Wal-Mart has struggled with seven straight quarters of sales declines in its stores. (Kavilanz, 2011) Thus, when determining a strategy, the organization must consider its financial flexibility and the effects it faces in sales from the economic recession. Wal-Mart can benefit from opportunities such as increasing online shopping, opening new stores and supercenters, and offering a wide variety of products. Therefore, Wal-Mart should focus on further expansion of its online shopping and greater entrance into new markets. Wal-Marts products can be enhanced through greater availability with online shopping. The 9
website currently offers over, 1,000,000 products, plus easy-to-use music downloads, and one hour photo service. (Walmart, 2011) Wal-Mart should seek opportunities for mergers and acquisitions with retailers in markets such as India or China. Wal-Mart has only 352 retail units in China and 9 in India. (Walmart, 2011) This is minimal when compared to over 30,000 locations in the US. Wal-Mart must utilize strategies of horizontal and backward integration, market development, and product development. The objective is to offer a variety of low priced consumer goods to global markets, both in store and online, and reduce dependence on only a few markets areas. Action Plan Wal-Mart will continue to refine the e-commerce website by adding products daily, as well as include new services like online books and movies. The forecasted sales from these services range from $25 to $45 billion. Wal-Mart should invest in training managers to be sent overseas to work with international suppliers. This would bridge the gap in communication with leadership and provide greater efficiency, decreases in excess inventory, and increased profits. These profits are achieved by clearer communication, less error in product development, reduced manufacturing costs, and hands on information about production processes (Zager, 2009). These changes have a combined net profit of over $10.5 billion dollars and should take about three years from application to evaluation. The risks include the costs of making new online products and services available, and the threat of increased taxes and tariffs. The plan is to mitigate these risks first by ensuring R&D provides detailed information about the potential profits from adding the new products and services. By conducting thorough research on the countrys business standards and confirming that the benefits outweigh the costs, additional risks will be minimized. Building a good rapport with manufacturing countries and their management will avoid risks. To 10
determine the timeline of events, task assignments, specific metrics, risk and risk mitigation please refer to Appendix Seven. Conclusion While developing a strategic plan to address Wal-Marts objectives for the future, several factors must be considered. These include financial constraints, growing competition, economic downturn, and growing threats of government interventions in trade. Despite this, the organization must work to seize opportunities in the areas of online shopping, new global stores and supercenters, and offering an increased variety of products online. Therefore, collaboration of the two strategies of backward integration and related diversification of products must be used. The related diversification strategy allows Wal-Mart to provide more services and products on their website which increases on-line sales. Similarly, backward integration, allows Wal- Mart to develop stronger relationships with suppliers in an effort to reduce costs. 11
Appendix One External Factor Evaluation Matrix for Walmart Key External Factors Weight Rating Weighted Score Opportunities 1. Increase online shopping .10 3 .3 2. Economic conditions cause greater demand for low priced products .07 2 .14 3. Increased use of mobile/social marketing to increase purchasing by consumers .05 2 .10 4. Growth plan to open new supercenters in US & abroad .10 4 .40 5. Conversion of regular stores into Supercenters .08 3 .24 6. Wide variety of products available to consumers .10 3 .3 7. Decline in consumer loyalty to one store for needs based purchases .05 2 .10
Threats 8. Increased competition from online retailers .07 4 .28 9. Product substitution .05 2 .10 10. Economic Downtown-lower consumer spending .07 2 .14 11. Raw material increases can cause product price increases .07 3 .21 12. Government regulations on trade/importing .04 2 .08 13. Political problems in foreign governments .04 2 .08 14. Currency Fluctuation .04 2 .08 15. Consumer opposition to opening new stores in small towns .07 1 .07
Total 1.0 2.62
12
Appendix Two Internal Factor Evaluation Matrix for Walmart Key Internal Factors Weight Rating Weighted Score Strengths 1. Powerful Retail Brand .08 4 .32 2. Diverse Workforce .05 3 .15 3. Competitive Benefits Package .05 4 .20 4. Provide thousands with first job/skills training each year .03 3 .09 5. 75% of store managers were promoted from within .05 3 .15 6. Sales and Net Income increased over past 10 years .10 4 .40 7. Strong buyback program for stock with over 1 million shares being purchased back each year .07 4 .28 8. Strong Global Supply Chain .09 4 .36
Weaknesses 9. High levels of inventory .07 1 .07 10. Sell products manufactured in countries with unethical labor laws .04 2 .08 11. Strong consumer dislike for putting smaller community retailers out of business .05 1 .05 12. Many part time staff not receiving benefits .04 2 .08 13. Standardized approach for each country .04 1 .04 14. Sensitive to government trade regulations .06 1 .06 15. Limited access to international markets .09 1 .09 16. High employee turnover rates .09 1 .09
Total 1.0 2.51
13
Appendix Three Walmarts Competitive Profile Matrix (CPM)
Appendix Four Financial Ratios 2010 Fiscal Year Ratios Walmart Industry Quick Ratio .2 .7 Current Ratio .9 2.9 Current Liabilities to Net Worth 31.2% 34.9% Total Liabilities to Net Worth 59.9% 53.7% Fixed Assets to Net Worth 82.5% 26.1% Collection Period Days 4 Days 4.8 Days Sales to Inventory Ratio 11.62 5.1 Assets to Sales Ratio 42.8% 45.2% Sales to Net Working Capital 64.00 5.1 Accounts Payable to Sales Ratio 7.9% 4.9% Return on Sales Ratio 4.0% 2.2% Return on Assets Ratio 9.4% 5.3% Return on Net Worth Ratio 24.8% 9.3% (Forbes.com, 2011)
15
Appendix Five SWOT Matrix Strengths Weaknesses 1.Powerful Retail Brand 1. High levels of inventory 2. Diverse Workforce 2. Sell products manufactured in countries w/ unethical labor laws 3. Competitive Benefit Package 3. Putting smaller retailers out of business 4. Provides thousands of jobs 4. Standardized approach and skills training 5. 75% of store managers 5. Sensitive to government promoted from within trade regulations 6. Sales & Net Income 6. Limited access to int'l increased over past 10 yrs. Markets 7. Strong global supply chain 7. High employee turnover rate
Opportunities SO Strategies WO Strategies 1. Increase online shopping 1. Mergers and acquisitions 1. Increase online presence to offset high inventory 2. Demand for low price 2. Use social media to increase 2. Open new stores products brand image and loyalty globally 3. Increased use of social 3. Use benefit package to marketing to reach consumers facilitate growth in market 4. Growth plan for supercenters in U.S. and abroad 5. Conversion of regular stores into supercenters 6. Wide variety of products 7. Decline in consumer loyalty to one store for necessities
Threats ST Strategies WT Strategies 1. Increased competition from 1. Use brand and "rollback" 1. Manufacture more in online retailers to bring in customers the U.S. 2. Product substitution 2. Use backward integration 2. Create a more sound to reduce costs market globally 3. Economic downturn-lower 3. Supply jobs to small towns consumer spending to gain loyalty to brand 4. Raw material increase can cause product price increase 5. Political problems in foreign governments 6. Currency fluctuation 7. Opposition of new stores in small Towns 16
Appendix Six Porter Five Forces Model
Rivalry among competing firms
Potential entry of new competitors: We should always be on the lookout for new companies entering the market. Barriers to this industry are low due to many on-line stores that can reach out to a very broad audience. Some on-line grocery stores deliver directly to peoples homes which can be a potential threat to Wal-Mart. Potential development of substitute products: Although Wal-Mart has cheaper products, we can easily have items substituted by other stores; therefore, potential threat of substitutes is relatively high. Wal-Mart offers name brand clothing in our stores for less than other retail stores. In contrast, many retail stores are now offering rewards to shop. Consumers may just substitute Wal-Marts prices to get the rewards from other stores. Bargaining power of consumers: This is very high because of the current state of the economy. Consumers are shopping around more in hopes to find the same items for less. Consumers can easily compare item pricing on-line or from their phone. This can hurt store loyalty but the consumer wants the best prices available to them. Bargaining power of suppliers: Wal-Mart should be working hand in hand with their suppliers in an effort to benefit both Wal-Mart and the supplier. Wal-Mart can shop around for suppliers who meet their standards, but this may not be easy to come by especially since they need many different suppliers due to their wide variety of merchandising. 17
Appendix Seven Action Plan Metrics Related Diversification (Expanding Online Shopping Services) Sales over 18 month period should range from $25,000,000 to $450,000,000 Industry averages on similar sales during the same 18 month period Backward Integration Supply costs decrease 10% in first year Reduce error in product development to 2% Reduced manufacturing costs by 9% Overall product price decrease 6% Excess inventory decrease by 11% Risks & Corresponding Risk Mitigation Plan Risks Costs of making new online products/services available Threat of increase taxes and tariffs for moving management overseas Corresponding Risk Mitigation Plan Ensure R&Ds projected profits for adding new products/services outweigh costs Conduct thorough research on the countries business standards for such a move of American workers and ensuring benefits outweigh the costs, as well as build good rapport with manufacturing countries and leaders
Year 1 Year 2 Year 3 R&D to start on new online services and find requirements for sending Management overseas (18 m.)
Seek contracts with publishers and movie studios to offer books and movies online. (18 m.)
HR to hire/select employees to work with suppliers overseas and determine whether to contract training or create it (1 yr.). Web designers post new products/ services online (18 m.) Begin training overseas management (18 m.)
HR to relocate management to global suppliers (1 y.) Finance measures growth to forecasts and reports to CEO (1yr.) 18
References Fish Info & Services Co.Ltd, (2011). Wal-Mart / Wal-Mart Stores, Inc. Supermarket - Headquarter. Retrieved from http://fis.com/fis/companies/details.asp?l=e&company_id=154597 Forbes.com (2011). Walmart Stock Report. Retrieved from http://finapps.forbes.com/finapps/jsp/finance/compinfo/FinancialIndustrial.jsp?tkr=wmt& period=qtr Kavilanz, P. (2011).CNN Money. Walmart: Our shoppers are running out of money Retrieved from http://money.cnn.com/2011/04/27/news/companies/walmart_ceo_consumers_under_pres sure/index.htm Kavilanz, P. (2011).CNN Money. Walmarts ready to do battle. Retrieved from http://money.cnn.com/2011/04/11/news/companies/walmart_prices_products_changes/in dex.htm?iid=EAL Rapid Business Intelligence Success. (2008). Examples of Vision Statements. Retrieved from http://www.rapid-business-intelligence-success.com/examples-of-vision-statements.html Target.com (2011). Creating Diversity. Retrieved from http://sites.target.com/site/en/company/page.jsp?contentId=WCMP04-031762 Walmart (2011). Corporate Facts Sheet. Retrieved from http://walmartstores.com/pressroom/factsheets/ WalMart Corporate (2011). About us. Retrieved from https://walmartstores.com/AboutUs/ Walmartstores.com (2008). 2008 Annual Report. Retrieved from http://walmartstores.com/sites/annualreport/2008/docs/wal_mart_annual_report_2008.pdf 19
Zager, Marsha. (7 Oct 2009). For The Children's Place, Complexity Is Child's Play. Apparel: Technology and Business Insight. Retrieved from http://apparel.edgl.com/news/For-The- Children-s-Place,-Complexity-Is-Child-s-Play63004