David B.

Yoffie, Wal-Mart, 2005 (Harvard Business

School, rev: April 14, 2005):

Wal-Mart Priorities:

Problem Areas: Wal-Mart management will have to

address issues of store format, human capital and
technology deployment.

Store Format: Wal-Mart will continue to

introduce supercenters in order to meet the growing
demand for one-stop, family shopping (1).

Human Capital: Wal-Mart will sustain their

reputation for low pay and heavy reliance on part-time
and temporary help in order to cut expenses on
benefits packages (2).

Technology Deployment: By implementing RFID

chips, Wal-Mart will eventually reduce shrinkage and
other forms of loss by up to 6%. This process would be
very costly and time-consuming (2).

Alternatives:

Store Format: Wal-Mart could introduce more

neighborhood markets, rather than supercenters, and
target their products according to each individual
market. A neighborhood market occupies a smaller
footprint (approx. 45,000 sq. feet). This alternative is
feasible given financial, production, marketing and
managerial constraints (1).

Pros: Opening neighborhood markets could

cut costs and could give Wal-Mart more expansion
opportunities in urban locations.

Cons: Neighborhood markets employ fewer

associates and do not offer specialty shops.

Human Capital: Wal-Mart could implement

incentive programs. Also, it would be beneficial for
Wal-Mart to expand their community outreach
programs so that the companys public image remains
favorable. This alternative is feasible given production,
marketing and managerial constraints. Incentive
programs, however, would require a small cost (2).

Pros: Wal-Mart will face more gentle

public criticism.

Cons: A small cost is associated with

incentive programs.
 Technology Deployment: Wal-Mart could place
shoplifting signage through each store. In addition,
incentive programs could help reduce employee
pilferage. This alternative is feasible given production
and managerial constraints, however, financial and
marketing constraints would be effected (2).

Pros: Signage and incentive programs will

reduce shrinkage and are less costly than RFID chips.

Cons: Wal-Mart employees could

potentially be liable for making false stealing
accusations.

Recommendations:

Store Format: Wal-Mart management should

implement neighborhood markets rather than
supercenters in order to significantly cut costs,
increase profit and expand into more urban locations.
Neighborhood markets (45,000 sq. ft.) occupy a much
smaller footprint than supercenters (185,000 sq. ft.)
and over seven years (1998-2004) the numbers of
Wal-Mart neighborhood markets have significantly
increased from 0 to 64. Also, even though
neighborhood markets offer a limited variety of
specialty shops, the products would be offered in
accordance to the individual target markets.
 Human Capital: Implementing incentive
programs and expanding Wal-Marts community
outreach programs are recommended in order to build
public image and raise employee moral and
performance. According to Exhibit 3, Wal-Mart
Performance as a whole has decreased by 1% from
2002 to 2004. These tactics would require a small cost
in addition to management participation.

Technology Deployment: Placing shoplifting

signage throughout Wal-Mart stores and offering
employee incentives is recommended in order to
reduce shrinkage and other forms of loss. Since RFID
chips are very costly and time-consuming, it would be
beneficial to implement these marketing tactics. Wal-
Mart employees could potentially be liable for making
false stealing accusations, however, by having store
greeters check receipts as customers exit, this liability
could be limited.

Wal-Mart International:

Problem Area:

In efforts to expand into foreign markets, Wal-Mart

neglected to adapt to local markets, and in some
cases forced their culture on certain regions too
quickly (4). From 2002 until 2004, Wal-Marts
international segment has struggled. The companys
operating income increased by only 18.6% in 2004,
where as in 2003 there was an increase of 57.2%. Wal-
Marts international segment also only generated a
total of $47,572 in sales in 2004. This is very
insignificant compared to Wal-Marts domestic store
segment total net sales of $174,220 (7).

A1. Wal-Mart shipped an entire warehouse on a

barge when it moved into Indonesia.

B1. When moving into Germany, Wal-Mart

faced an entrenched position of discounters, supplier
inflexibility and trade union strength. German
consumers were more concerned about price rather
than having their bags packed (4).

Alternatives:

An alternative to this international problem area

could be for Wal-Mart veterans to use the same idea
and concepts in Indonesia and Germany as they did in
Japan. This alternative is feasible given production and
managerial constraints, however, financial and
marketing constraints would be effected (2).

Pros: Wal-Mart will gain international brand

awareness, growth and profits.
 Cons: Market research can be very time-
consuming and costly to implement.

Recommendations:

Exploring the same concepts in Indonesia and

Germany as Wal-Mart veterans did in Japan is
recommended because Wal-Mart had much success
when they entered Japan and partnered with an
already well-known brand called Seiyu. Company
veterans took the time to explore the logistics,
operations, sales and marketing, and finances with
Seiyu management. This study allowed Wal-Mart to be
very successful in Japan, generating a $4.79trn gross
domestic profit within that particular market.

Wal-Marts Competitors:

Problem Area: Target, Home Depot and

Sears/Kmart are relatively close behind Wal-Mart in
total revenues. Large retailers are merging
(Sears/Kmart) and causing a closer competitive race
to becoming the largest U.S. retailer- a position that
Wal-Mart must maintain. Wal-Mart must continue to
push on the boundaries of business in the future.

Question: Will there ever be an end point to

pushing these boundaries of business?
 Alternatives:

Wal-Mart could continue to take advantage of its

global reach to help propel the company through
upcoming years.

Pros: Wal-Mart will gain global territories and

will remain superior to their competition.

Cons: There may eventually be a limit to global

expansion for any company.

Recommendations:

Taking advantage of global reach is recommended

in order for Wal-Mart to remain successful. The
company is the only one among its competitors who
extended their reach further than the U.S. Wal-Mart
must continue to gain market share and increase net
sales to remain on top. With increased inventories
over a two-year time span, Wal-Mart management
must strategize new ways to market their products. In
addition, the companys overall long-term debt will
continue to increase if they cannot generate more
revenue. A company like Wal-Mart, whose brand
image revolves around everyday low prices, is forced
to just keep expanding into new markets because
changing their image could lead to failure.