Industry Four-Mass Merchandising

CASE 19
Wal-Mart Stores, Inc.:
UNDER ATTACK (2006)
James W. Camerius and J. David Hunger
I am asked often what my father, Sam Walton, who founded Wal-Mart in 1962, would think of our Company today. There is no
doubt he'd be proud of our success and the 1.8 million associates who serve our customers every day. He also would be proud
that we remain true to the fundamenta l principles of leadership and business that he was so instrumental in establishing. I
ROB WALTON, CHAIRMAN OF THE BOARD WAL-MART STORES, INC.

REFLEGING ON HIS TENURE SINCE 2000 AS CHIEF EXECUTIVE OFFICER, LEE SCOTT, President and
CEO of Wal-Mart Stores, Inc., was struck not only by how successful the company had been
in terms of growth and financial performance, but also by how much the firm had come un-
der attack for its business practices. On the positive side, the company had received much
acclaim for its ability to carry out Sam Walton's vision. Its policy of"everyday low prices"
had enab led it to dominate U.S. retailing. In 1999, Discount Store News honored Wal-
Mart as "Retailer of the Century." In 2000, Fortune magazine named it as one of the " 100
Best Places to Work. " By 2002, Wal-Mart officially became the world's largest company
based on its $245 billion in sales-three times the size of France's Carrefour, the second largest
retailer in the world. Research revealed that 82% of American households made at least one
purchase at Wal-Mart annually. By 2003, not only did it lead the Fortune 500, Wal-Mart also
sat atop Fortune's list of most admired companies. Economists giddily referred to the "Wal-
Mart effect" in which the company's low prices had forced competitors to keep their prices
low as well, thus suppressing inflation and increasing U.S. productivity year after year. For ex-
ample, one study found that a new Wal-Mart store causes competitors' prices to drop 7%-13%
for goods such as toothpaste, shampoo, aspirin, and laundry detergent five years after Wal-
Mart entered a city. Another study revealed that "big box" retailers, like Wal-Mart, offered
households $.25 back for every dollar spent on groceries, or around $450 a year on average. 2
By 2006, Wal-Mart's net sales had increased 9.5% over 2005 to a record $312.4 billion
for the fiscal year ending January 31, 2006. At the same time, net income had risen 9.4% to a
record $11.2 billion and earnings per share had grown from $2.4 1 in 2005 to $2.68 in 2006.

This case was prepared by Professor J. David Hunger of St. John's University (MN) and Iowa State University and
Professor James W. Camerius of Northern Michigan University. Copyright© 2006 by J. David Hunger. The copyright
holder is solely responsible for the case content. Reprint permjssion is solely granted to the publisher, Prentice Hall ,
For SMBP- 11th and 12th Editions (and the International version of this book) and Cases in Strategic Management
and Business Policy -II th and 12th Editions by the copyright holder, J. David Hunger. Any other publication of the
case (translation, any form of electronic or other media) or sale (any form of partnership) to another publisher will be
in violation of copyright law, unless J. David Hunger has granted additional written reprint permission. Reprinted by
permission.
19-1
 SECTION D Industry Four--Mass Merchandising

EXHIBIT 1
Eleven-Year Financial Summary: Wai-Mart Stores, Inc. (Dollar amounts in millions except per share data)

Fiscal Year Ending January 31 2006 2005 2004

1. Operating Results
Net sales $312,427 $285,222 $256,329
Net sales increase 9.5 % 11.3% 11.6%
Comparative store sales increase in the United States<1l 3% 3% 4%
Cost of sales $240,39 1 $2 19,793 $198,747
Operating, selling, general and administrative expenses 56,733 51 ,248 44,909
Interest expense, net 1,172 986 832
Effective tax rate 33.4% 34.7% 36. 1%
Income from continuing operations 11 ,231 10,267 8,861
Net income $ 11 ,231 $ 10,267 $9,054
Per share of common stock:
Income from continuing operations, diluted $2.68 $2.41 $2.03
Net income, diluted 2.68 2 41 2.07
Dividends 0.60 0.52 0.36
2. Financial Position
Current assets of continuing operations $43,824 $38,854 $34,421
Inventories 32 ,191 29,762 26,612
Property, equipment and capital lease assets, net 79,290 68,118 59,023
Total assets of continuing operations 138, 187 120,1 54 105,405
Current liabilities of continuing operations 48,826 43,182 37 ,840
Long-term debt 26,429 20,087 17,102
Long-term obligations under capital leases 3,742 3,171 2,997
Shareholders' equity 53,171 49,396 43,623
3. Financial Ratios
Current ratio 0.9 0.9 0.9
Return on assets<2l 8.91 % 9.3 % 9.2%
Return on shareholders' equity(3) 22.5 % 22.6% 21.3 %
4. Other Year-End Data
Di scount stores in the United States 1,209 1,353 1,478
Supercenters in the United States 1,980 I ,713 1,471
SAM'S CLUBs in the United States 567 551 538
Neighborhood Markets in the United States 100 85 64
Units outside the United States 2,285 1,587 1,355

( 1) Comparative store sales are con sidered to be sales at stores that were open as of February 2 of the prior fiscal year and have not been
expanded or relocated since that date.
(2) Income from continuing operations before minority interest divided by average total assets.
(3) Income from continuing operations before minority interest divided by average shareholders' equity.

SOURCE: Wal-Mart Stores, Inc., 2005 Annual Report, p. 18.

(See Exhibits 1-4 for Wal-Mart's financial reports.) Scott was pleased with strong interna-
tional sales in Argentina, Mexico, and Brazil and with the fact that the company had more than
6,100 stores worldwide. As of January 31, 2006, Wal-Mart was operating 2,285 international
stores, buying products from 70 countries, and doing 20% of its business outside the United
States. (See Exhibit 5 for the number of stores by country.) With its purchase of the retail op-
erations of Sonae in Brazil and a majority interest of Seiyu in Japan, Wai-Mart added 537 new
international stores and 50,000 new associates (employees). Its recent purchase of a majority
 CASE 19 \Val-Man Stores. Inc.

EXHIBIT 1
(Continued)

2003 2002 2001 2000 1999 1998 1997 1996

$229,616 $204,011 $180,787 $156,249 $ 130,522 $112,005 $99,627 $89,051

12.6% 12.8% 15.7% 19.7% 16.5% 12.4% 11.9% 13.7%
5% 6% 5% 8% 9% 6% 5% 4%
$178,299 $159,097 $ 140,720 $121,825 $ 102,490 $88,163 $78,897 $70,485
39,983 35,147 30,822 26,025 21 ,778 18,831 16,437 14,547
927 1,183 1,196 840 598 716 807 863
35 .2% 36.2% 36.5% 36.8% 37.4% 37.0% 36.8% 36.8%
$7,818 $6,448 $6,087 $5,394 $4,240 $3,424 $2,978 $2,689
7.955 6,592 6,235 5,324 4,397 3,504 3,042 2,737

$ 1.76 $ 1.44 $ 1.36 $ 1.21 $0.95 $0.76 $0.65 $ 0.58

1.79 1.47 1.39 1.19 0.98 0.77 0.66 0.59
0.30 0.28 0.24 0.20 0. 16 0.14 _QJJ_ 0.10

$29,543 $26,615 $25,344 $23,478 $20,064 $18,589 $17,385 $16,779

24,401 22,053 20,987 19,296 16,361 16,005 15,556 15,667
51 ,374 45 ,248 40,461 35,533 25,600 23,237 19,935 18,554
92,900 81,549 76,231 68,983 48,513 44,221 38,571 36,62 1
32,225 26,795 28,366 25,525 16,155 13,930 10,432 10,944
16,597 15,676 12,489 13,653 6,887 7,169 7,685 8,483
3,000 3,044 3,152 3,000 2,697 2,480 2,304 2,089
39,461 35,192 31,407 25,878 21 ,141 18,519 __ll,_lll 14,757

0.9 1.0 0.9 0.9 1.2 1.3 1.7 1.5

9.2% 8.4% 8.6% 9.8% 9.5% 8.5 % 8.0% 7.9%
20.9% 19.4% 21.3 % 22.9% 21.4% 19.2% 18.7% 19.6%

1,568 1,647 1,736 1,801 1,869 1,921 1,960 1,995

1,258 1,066 888 721 564 441 344 239
525 500 475 463 451 443 436 433
49 31 19 7 4
1,272 1,154 1,054 991 703 589 314 276

interest in CARHCO in Central America added stores in Costa Rica, El Salvador, Guatemala,
Honduras, and Nicaragua-thus increasing the number of countries outside the United States
in which Wal-Mart operated from 10 to 15. Of the almost 600 stores management planned to
open during the 2007 fiscal year (February 1, 2006, to January 31, 2007), more than a third
would be outside the United States)
There was a negative side, however, to the Wa1-Mart story. The company's stock price had
fallen from $56.98 on January 31 , 2002 to $46.11 on January 31 , 2006. Given the company's
 SECT I0 N D Industry Four-Mass Merchandising

EXHIBIT 2
Consolidated Statements of Income: Wai-Mart Stores, Inc. (Dollar amounts in millions except per share data)

Fiscal Year Ending January 31 2006 2005 2004

Revenues:
Net sales $312,427 $285,222 $256,329
Other income, net 3,227 2,910 2,352
Total revenue 315,654 288,132 258,6 I
Costs and expenses:
Cost of sales 240,391 210,793 198.74-
Operating, selling, general and administrative expenses 56,733 51,248 44,909
Operating Income 18,530 26,091 15.025
Interest:
Debt 1, 171 934 729
Capital leases 249 253 26-
Interest income (248) (201) (164 ,
Interest, net 1,172 986 832
Income from continuing operations before income
taxes and minority interest 17,358 25,105 14, 193
Provision for Income taxes:
Current 5,932 5,326 4,94 1
Deferred (129) 263 IT
5,803 5 589 5,11
Income from continuing operations before minority interest 11 ,555 10,516 9,0T
Minority interest (324) {249} {214 1
Income from continuing operations II ,231 10,267 8,86 1
Income from discontinued operation, net of tax 193
Net Income $11 ,231 $10,267 $9,054
Basic net income per common share:
Income from continuing operations $2.68 $2.41 $2.03
Income from discontinued operation 0.05
Basic net income per common share $2.68 $2.41 $2.0
Diluted net income per common share:
Income from continuing operations $2.68 $ 2.41 $ 2.03
Income from discontinued operations 0.04
Diluted net income per common share $2.68 $ 2.41 $2.07
Weighted-average number of common shares:
Basic 4, 183 4,259 4,363
Diluted 4,188 4 266 4,373
Dividends per common share $0.60 $0.52 $0. 36

........... .......
SOURCE: Wal-Mart Stores, Inc., 2006 Annual Report, p. 30.

continuous growth in sales and earnings, this was a strange development. One analyst com-
mented that an investor who had bought Wal-Mart shares on the first day of trading in 2001 and
held them throughAprilll, 2005, would have seen the investment decline by 9.9% ! In contra t.
over the same period, Costco Wholesale, Target, and J.C. Penney saw their stock prices climb
12.4%, 49.6%, and 367%, respectively. According to this analyst, the stock's lackluster perfor-
mance over the previous five years was explained by competition getting tougher and growth
prospects getting smaller. Once Wal-Mart had successfully expanded into every small and mid-
sized city in the United States where competition was typically weak, further growth required
 CASE 19 \Val-Mart Store~. Inc.

EXHIBIT 3
Consolidated Balance Sheets: Wai-Mart Stores, Inc. (Dollar amounts in millions except per share data)

Fiscal Year Ending January 31 2006 2005

Assets
Current assets:
Cash and cash equivalents $6,414 $ 5.488
Recei vables 2,662 1,715
Inventories 32, 191 29,762
Prepaid expenses and other 2,557 1,889
Total current assets 43,824 38,854
Property and equipment, at cost:
Land 16,643 14,472
Buildings and improvements 56,163 46,574
Fixtures and equipment 22,750 21,461
Transportation equipment 1,746 I 530
Property and equipment, at cost 97,302 84,037
Less accumulated depreciation 21,427 18,637
Property and equipment, net 75,875 65,400
Property under capital lease:
Property under capital lease 5,578 4,556
Less accumulated amortization 2,163 1,838
Property under capital lease, net 3,415 2,718
Goodwill 12,188 10,803
Other assets and deferred charges 2,885 2 379
Total assets $138,187 $120,154
Liabilities and shareholders' equity
Current liabilities: $3,754 $3,812
Commercial paper 25,373 21 ,987
Accounts payable 13,465 12,120
Accrued liabilities 1,340 1,281
Long-term debt due within one year 4,595 3,759
Obligations under capital leases due within one year 299 223
Total current liabilities 48,826 43,182
Long-term debt 26,429 20,087
Long-term obligations under capital leases 3,742 3,171
Deferred income taxes and other 4,552 2,978
Minority interest 1,467 1,340
Commitments and contingencies
Shareholders' equity:
Preferred stock ($0.10 par value: 100 shares authorized, none issued)
Common stock ($0.1 0 par value: 11,000 shares authorized, 4,165 and 4,234 417 423
issued and outstanding at January 31 , 2006 and January 31, 2005 , respectively)
Capital in excess of par value 2,596 2,425
Accumulated other comprehensive income 1,053 2,694
Retained earnings 49,105 43,854
Total shareholders' equity 53 ,171 49,396
Total liabilities and shareholder's equity $138,187 $ 120,154

SOURCE: Wal-Mart Stores, Inc., 2006 Annual Report, p. 3/.

 SECT I 0 N D Industry Four-Mass Merchandising

EXHIBIT 4
Consolidated Statements of Cash Flows: Wai-Mart Stores, Inc. (Dollar amounts in millions except per share data

Fiscal Year Ending January 31 2006 2005

Cash flows from operating activities
Income from continuing operations $ 11,231 $ 10,267
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,717 4,264
Deferred income taxes ( 129) 263
Other operating activities 620 378
Changes in certain assets and liabilities, net of effects of acquisitions:
Decrease (increase) in accounts receivable (456) (304)
Increase in inventories (1,733) (2,494)
Increase in accounts payable 2,390 1,694
Increase in accrued liabilities 993 976
Net cash provided by operating activities of continuing operations 17,633 15,044
Net cash provided by operating activities of discontinued operations
Net cash provided by operating activities 17,633 15,044
Cash flows from investing activities
Payments for property and equipment ( 14,563) ( 12,893)
Investment in international operations, net of cash acquired (601) (315)
Proceeds from the disposal of fixed assets 1,049 953
Proceeds from the sale of McLane
Other investing activities {682 {962
Net cash used in investing activities of continuing operations (14, 183) ( 12,351 )
Net cash used in investing activities of discontinued operations
Net cash used in investing activities {14,1832 {12,3512 ·- -
Cash flows from financing activities
Increase (decrease) in commercial paper (704) 544
Proceeds from issuance of long-term debt 7,691 5,832
Purchase of company stock (3,580) (4,549)
Dividends paid (2,511) (2,214) (1.5 n
Payment of long-term debt (2,724) (2, 131 ) (3.5.! :
Payment of capital lease obligations (245) (204) (30.'
Other financing activities {3492 113 1:.
Net cash used in financing activities {2,4222 {2,6092 {5.563
Effect of exchange rate changes on cash {!022 205 r
Net increase in cash and cash equivalents 926 289 2.-W :
Cash and cash equivalents at beginning of year 5,488 5,199 2.75
Cash and cash equivalents at end of year $ 6,414 $ 5,488 $5 . 194
Supplemental disclosure of cash flow information
Income tax paid $5,962 $ 5,593 $4,53
Interest paid 1,390 1,163 1.024
Capital lease obligations incurred 286 377 252

SOURCE: Wai-Mart Stores, Inc., 2006 Annual Report, p. 33.

 CASE 19 Wai-Man Stores. Inc.

EXHIBIT 5
Fiscal 2006 End-of- Neighborhood
Year Store Count: Country Discount Stores Supercenters SAM's Clubs Markets
Wai-Mart Stores, Inc.
January 31, 2006 Argentina 0 11 0 0
Brazil 255 23 15 2
Canada 272 0 6 0
China 0 51 3 2
Germany 0 88 0 0
Japan 2 96 0 300
South Korea 0 16 0 0
Mexico 599 105 70 0
Puerto Rico 9 5 9 31
United Kingdom 294 21 0 0
United States 1,209 1,980 567 100
TOTAL 2,640 2,396 670 435

SOURCE: Wal-Mart Stores, Inc., 2006 Annual Report, p. 51.

entering large cities and other countries where other discount mass merchandisers, such as Target
and Carrefour, were already established. To increase sales, Wal-Mart's management added a
series of new retailing concepts. The replacement of traditional discount stores with Wal-Mart
Supercenters containing groceries in addition to dry goods led to higher sales, but also to the lower
profit margins inherent in the grocery business. Sam's Club's sales growth was good, but far
less than that of other Wal-Mart stores. International expansion required acquisition and the
conversion of stores to the Wal-Mart system-often expensive, difficult, and time consuming.
Investors were not as excited about a business growing at 11 % to 13% annually instead of the
20% or more they had come to expect. 4
The company has been increasingly criticized for the very management practices that had
made it so successful. Its low prices, wide selection, and courteous service generated high sales
and profits, but its stores tended to drive local "mom and pop" stores out of business, espe-
cially in small towns . The United Food and Commercial Workers union contended that the
only reason the company could offer such low prices was that Wal-Mart underpaid its work-
ers and offered them substandard benefits. Wal-Mart's almost legendary hard stance with sup-
pliers was being portrayed as an abuse of power. Lawsuits alleging discrimination against
women and underage workers operating dangerous machinery, among other examples, added
to the firm's public relations problem. It appeared that the company had become a lightning
rod for any and all criticism against big business.

Wai-Mart: A Maturing Organization

Genesis of an Idea
Sam Walton started his retail career in 1940 as a management trainee with the J.C. Penney Co.
in Des Moines, Iowa. He was impressed with the Penney method of doing business and later
modeled the Wal-Mart chain on "The Penney Idea" as reviewed in Exhibit 6. The Penney
Company found strength in calling employees "associates" rather than clerks. Penney's,
founded in Kemerer, Wyoming, in 1902, located stores on the main streets of small towns and
cities throughout the United States.
 SECTION D lndu~try Four-Mass Merchandising

EXHIBIT 6
The Penney Idea I. To serve the public, as nearly as we can, to its complete satisfaction.
(1913) 2. To expect for the service we render a fair remuneration and not all the profit the traffic
will bear.
3. To do all in our power to pack the customer's dollar full of value, quality, and satisfaction.
4. To continue to train ourselves and our associates so that the service we give will be more
and more intelligently performed.
5. To improve constantly the human factor in our business.
6. To reward men and women in our organization through participation in what the business
produces.
7. To test our every policy, method, and act in this way: "Does it square with what is right and
just?"

SOURCE: V. H. Trimble, Sam Walton: The Inside Story of America's Richest Man (New York: Dutton, 1990).

Following service in the U.S. Army during World War II, Sam Walton acquired a B~
Franklin variety store franchise in Newport, Arkansas. He operated this store successfully \\
his brother, James L. "Bud" Walton (1921-1995), until losing the lease in 1950.
The early retail stores owned by Sam Walton in Newport and Bentonville, Arkansas.
later in other small towns in adjoining southern states, were variety store operations. They \\c
relatively small operations of 6,000 square feet, were located on "main streets," and displa_ c
merchandise on plain wooden tables and counters. Operated under the Ben Franklin name - ~
supplied by Butler Brothers of Chicago and St. Louis, they were characterized by a limited pD--
line, low gross margins, high merchandise turnover, and concentration on return on investme-·
The firm, operating under the Walton 5 & 10 name with 15 stores, was the largest Ben FranL
franchisee in the country in 1962. The variety stores were phased out by 1976 to allow the co:-:-
pany to concentrate on the growth of Wal-Mart discount department stores.

Foundations of Growth
The original Wal-Mart discount concept was not a unique idea. Sam Walton became co -
vinced in the late 1950s that discounting would transform retailing. He traveled extensi\·e._
in New England, the cradle of "off-pricing." After he had visited just about every discoume-
in the United States, he tried to interest Butler Brothers executives in the discount store con-
cept. The first Kmart, as a "conveniently located one-stop shopping unit where custome.
could buy a wide variety of quality merchandise at discount prices," had just opened in Garde
City, Michigan. Walton 's strategy was to operate a similar discount store in a small communit_.
In that setting, he would offer name-brand merchandise at low prices and would add friendl_
service. Butler Brothers executives rejected the idea. Undeterred, Walton opened the fir·
"Wal-Mart Discount City" in late 1962 in Rogers, Arkansas.
Wal-Mart stores sold nationally advertised, well-known-brand merchandise at low price 1r
austere surroundings. As corporate policy, Wal-Mart cheerfully gave refunds, credits, and rru"
checks. Management conceived the firm as a "discount department store chain offering a wid
variety of general merchandise to the customer." Early emphasis was placed on opportunistic pur-
chases of merchandise from whatever sources were available. Health and beauty aids (H&BA
were heavily emphasized in the product line, and "stacking it high" was the manner of merchan-
dise presentation. By the end of 1979, there were 276 Wal-Mart stores located in 11 states.
The firm developed an aggressive expansion strategy. New stores were located prim aril~
in communities of 5,000 to 25,000 in population. The stores' sizes ranged from 30,000 lt,
60,000 square feet, with 45,000 being the average. The firm also expanded by locating store
 CASE 19 \Val-Man Stores. Inc.

in contiguous geographic areas. When its discount operations came to dominate a market area,
it moved to an adjoining area. Whereas other retailers built warehouses to serve existing out-
lets, Wal-Mart built the distribution center first and then spotted stores all around it, pooling
advertising and distribution overhead. Most stores were less than a six-hour drive from one of
the company 's warehouses. The first major distribution center, a 390,000-square-foot facility,
opened in Searcy, Arkansas, outside Bentonville in 1978.

Becoming National
At the beginning of 1991, the firm had 1,573 Wal-Mart stores in 35 states, with expansion
planned for adjacent states. Wal-Mart had become the largest retailer and the largest discount
department store in the United States. By 2006, Wal-Mart had 1,200 discount stores, 1,980 su-
percenters, 567 Sam's Clubs, and 100 neighborhood markets throughout all 50 states.
As a national discount department store chain, Wal-Mart Stores, Inc., offered a wide va-
riety of general merchandise to the customer. The stores were designed to offer one-stop shop-
ping with 40 departments that included family apparel, health and beauty aids, household
needs, electronics, toys, fabric and crafts, automotive supplies, lawn and patio, jewelry, and
shoes. A pharmacy, automotive supply and service center, garden center, or snack bar were also
operated at certain locations. The firm operated its stores with "everyday low prices" as op-
posed to putting heavy emphasis on special promotions that called for multiple newspaper ad-
vertising circulars. Stores were expected to "provide the customer with a clean, pleasant, and
friendly shopping experience."
Although Wal-Mart carried much the same merchandise, offered similar prices, and oper-
ated stores that looked much like the competition, there were many differences. In the typical
Wal-Mart store, employees wore blue vests to identify themselves, aisles were wide, apparel
departments were carpeted in warm colors, store employees followed customers to their cars
to pick up their shopping carts, and the customer was welcomed at the door by a "people
greeter" who gave directions and struck up conversation. In some cases, merchandise was
bagged in brown paper sacks rather than plastic bags because customers seemed to prefer
them. The "Wal-Mart" and the slogan "Always Low Prices" on the front of the store served to
identify the firm. Yellow smiley faces were used on in-store displays along with the slogan
"Watch for Falling Prices." In consumer studies it was determined that the chain was particu-
larly adept at striking the delicate balance needed to convince customers its prices were low
without making people feel that its stores were too cheap. In many ways, competitors like
Kmart sought to emulate Wal-Mart by introducing people greeters, by upgrading interiors, by
developing new logos and signage, and by introducing new inventory response systems.
A "satisfaction guaranteed" refund and exchange policy was introduced to allow cus-
tomers to be confident of Wal-Mart's merchandise and quality. Technological advancements
such as scanner cash registers, handheld computers for the ordering of merchandise, and com-
puter linkages of stores with the general office and distribution centers improved communica-
tions and merchandise replenishment. Each store was encouraged to initiate programs that
would make it an integral part of the community in which it operated. Associates were encour-
aged to "maintain the highest standards of honesty, morality, and business ethics" in dealing
with the public.

Becoming International
Realizing that there were only so many opportunities for growth within the borders of the
United States, Wal-Mart's management embarked on international expansion. It opened its
first international store in 1991 when it opened a Sam's Club in Mexico City. Two years later,
Wal-Mart International was created to oversee growing global opportunities.
 SECT I0 N D [ndustry Four---Mass Merchandising

By 2006, Wal-Mart Stores, Inc., of Bentonville, Arkansas, operated mass merchanu

retail stores under a variety of names and retail formats, including 2,460 supercenter :
United States, Mexico, Brazil, Germany, the United Kingdom (ASDA), Argentina, South K
and Puerto Rico; 1,500 general merchandise stores in the United States, Canada, Puerto Ri
United Kingdom, and Brazil; 930 food and drug stores in Japan, the United Kingdom, Brazi:.
United States, Mexico, Puerto Rico, and China; 189 bodegas in Mexico and Brazil; 670
Clubs in the United States, Mexico, Brazil, Canada, China, and Puerto Rico; 63 George -
Suburbia apparel stores in the United Kingdom and Mexico; 33 soft discount stores in Br:
and Mexico; 10 Maxxi cash and carry stores in Brazil; and 286 Yips restaurants in Me:x ~
Of these, 2,285 were international stores located outside the United States. Wal-Mart ha ~
ther total or majority ownership of its international store operations, except for a joint ven·
in China.

The Sam Walton Spirit

Much of the success of Wal-Mart was attributed to the entrepreneurial spirit of its fou n~.
and past Chairman of the Board, Samuel Moore Walton (1918-1992). Many considered h~
one of the most influential retailers of the century. Sam Walton, or "Mr. Sam," as some :v
ferred to him, traced his down-to-earth, old-fashioned, homespun, evangelical way ·
growing up in rural Oklahoma, Missouri, and Arkansas. Although he appeared to be remar.. -
ably unconcerned about his roots, some suggested that it was his simple belief in hard wor·
and ambition that had "unlocked countless doors and showered upon him, his customer
and his employees ... the fruits of ... years of labor in building [this] highly succes fu
company."
"Our goal has always been in our business to be the very best," Sam Walton said in an in-
terview, "and, along with that, we believe that in order to do that, you've got to make a go~
situation and put the interests of your associates first. If we really do that consistently, the} ir.
turn will cause ... our business to be successful, which is what we've talked about and e. -
poused and practiced." "The reason for our success," he said, "is our people and the way tha;
they ' re treated and the way they feel about their company." Many have suggested that it wa
this "people first" philosophy that guided the company through the challenges and setback.
of its early years and allowed it to maintain its consistent record of growth and expansion in
later years.
A unique, enthusiastic, and positive individual, Sam Walton was "just your basic
home-spun billionaire," a columnist once suggested. "Mr. Sam is a life-long small-town
resident who didn't change much as he got richer than his neighbors," he noted. Walton
had tremendous energy, enjoyed bird hunting with his dogs, and flew a corporate plan e.
When the company was much smaller, he could boast that he personally visited every Wal-
Mart store at least once a year. A store visit usually included Walton leading Wal-Mart
cheers that began, "Give me a W, give me an A .... " To many employees, he had the air of
a fiery Baptist preacher. Paul R. Carter, a Wal-Mart Executive Vice President, was quoted
as saying, "Mr. Walton has a calling." He became the richest man in America, and by 1991
had created a personal fortune for his family in excess of $21 billion . Fifteen years later,
despite a division of wealth, five family members still controlled around 40% of the Wai-
Mart common stock and were ranked among the top ten richest individuals in the United
States. 5
In late 1989 Sam Walton was diagnosed as having multiple myeloma, or cancer of the
bone marrow. Nevertheless, he remained active in the firm as Chairman of the Board until his
death in 1992.
 CASE 19 Wai-Mart Stores, Inc.

Corporate Governance
Board of Directors
Exhibit 7 lists the 13 members of Wal-Mart's Board of Directors who were elected at the
June 2, 2006, annual shareholders' meeting. Four were affiliated with the company in some
manner: (1) S. Robson Walton, Chairman ofthe Board and son of the founder; (2) David D.
Glass, Chairman, Executive Committee and CEO from 1988 to 2000; (3) Jim C. Walton,
CEO of Arvest Bank Group and son of the founder; and (4) H . Lee Scott, current President
and CEO. Jim Walton had been appointed to the Board September 30, 2005, to replace his
older brother, John Walton , who had died in an aircraft accident. The nine other members
of the Board were officially considered "independent," as defined by the New York Stock
Exchange. In term s of minority membership, the Board was composed of three women,
two African Americans, and two Hispanic Americans. The Board was organized into five
committees: the Audit Committee; the Compensation, Nominating, and Governance
Committee (CNGC); the Executive Committee (EC); the Stock Option Committee
(SOC); and the Strategic Planning and Finance Committee (SPFC). The Audit and CNGC
committees were composed solely of independent directors, as required by the New York
Stock Exchange.

EXHIBIT 7
2006 Board of Aida M. Alvarez, 56 H. Lee Scott, 57
Directors: Wai-Mart Former Public Finance YP, First Boston & President & CEO, Wai-Mart
Stores. Inc. Bear Stearns Director since 1999
Former member of President Clinton's Cabinet Jack C. Shewmaker, 68
Director since 2006 President, J-COM Consulting & Retired
James W. Breyer, 44 Wal-Mart Exec
Managing Partner, Accel Partners Director since 1977
Director since 2001 Jim C. Walton, 58
M. Michele Burns, 48 Chair & CEO, Arvest Bank Group
Exec YP & CFO, Marsh & McLennan Director since September 28, 2005
Consulting Co. S. Robson Walton, 61
Director since 2003 Chairman, Wal-Mart
James J. Cash, Ph.D., 58 Director since 1978
Retired Professor, Harvard Business School Christopher J. Williams, 48
Director since 2006 Chair & CEO, Williams Capital Group
Douglas N. Daft, 63 Investment Bank
Retired Chair & CEO, Coca-Cola Co. Director since 2004
Director since 2005 Linda S.Wolf, 58
David D. Glass, 70 Former Chair & CEO, Leo Burnett
Past-President & CEO, Wai-Mart Worldwide
Director since 1977 Director since 2005
Roland A. Hernandez, 48
Retired Chair & CEO, Telemundo Group
Director since 1998

SOURCE: Wai-Mart Stores, In c. , Notice of2006 Annual Shareholders ' Meeting, pp. 5-0.
 5 ECT I 0 N D Industry Four~Mass Merchandising

Non-management directors received $60,000 as an annual retainer plus $140,000 \\ ~

Wal-Mart shares on their election to the Board. Those serving as committee chairs addiu -
received $15,000 to $25,000 for their service. Each non-management director was requir
the Board to own within five years from election to the Board an amount of shares equal t
times the annual retainer for the year in which the director was originally elected to the B
The Board had four regular meetings and three telephone meetings during fiscal 2006. Corr
tee meetings were in addition to the regular Board meetings. Each director attended at ,
75 % of the Board and committee meetings on which he or she served. The Board typical)_
pointed one of the non-management directors to serve as Presiding Director of any executi\ e
sions of the non-management and independent directors.
Although the officers and directors as a group owned less than 1% of total h..:-
S. Robson Walton and Jim C. Walton, by virtue of their being two of the five man.,= =
members of the family's Walton Enterprises, LLC, represented the Walton family and e; ·';:- -
tively controlled close to 41 % of the shares outstanding.

Top Management and Organization Structure

Exhibit 8 lists the 25 corporate officers. Lee Scott was only the third CEO in the entire h
tory of Wal-Mart when he was elected to the position in January 2000. Its first CEO.
Walton, had built the company from the ground up. During the 12 years that David Gla - · ·- _
previous CEO, held the position, sales grew from $16 billion to $165 billion. Lee Scott.
been personally recruited by David Glass 21 years before, from a Springdale, Arkan
trucking company, to come to Wal-Mart as the manager of the truck fleet. In his years at \\. -
Mart, Glass had driven the company to a new level of growth in both domestic and intern -
tiona! markets and continued to be active on the firm 's board of directors as Chairman of· _
Executive Committee. Prior to his appointment as President and CEO, Lee Scott had sef\
as Vice Chairman and Chief Operation Officer (COO), Executive Vice-President, and Pre -
dent and CEO of the Wai-Mart Stores unit.
On January 31, 2006, Wal-Mart Stores, Inc. , was structured into three business uni·
Wal-Mart Stores USA, Sam's Club, and Wal-Mart International. The Wal-Mart Stores ur..-
had 3,289locations and included the company's supercenters, discount stores, and Neig -
borhood Markets in the United States, as well as walmart.com. The Sam's Club unit h., ..
567 locations and included the warehouse membership clubs in the United States plu
samsclub.com. Wal-Mart International had 2,285 locations in 10 countries. The Intern .... -
tional total was increased through the February 2006 purchase of majority control l,:
CARHCO with 360 locations in five Central American countries. (See Exhibit 9 for bu 1-
ness unit data.)
In September 2005, John Menzer, President and CEO of Wal-Mart International , anG
Mike Duke, President and CEO of Wal-Mart Stores, USA, were promoted to Vice Chairman
positions within the company and effectively traded places. Menzer was given respon s ibi li~
not only for Wal-Mart Stores USA, but also for the divisions responsible for real estate, logi -
tics, information services, benefits, global procurement, financial services, store planning, and
strategic planning. Eduardo Castro-Wright, Executive Vice President and COO of Wal-Man
Stores USA, was promoted to President and CEO of that unit. He was responsible for opera-
tions, merchandising, marketing, specialty divisions, and new business development in the
Wal-Mart Stores, Supercenters, and Neighborhood Markets in the United States. Duke took
over leadership of Wai-Mart International, the company 's fastest-growing unit. According to
CEO Lee Scott, Duke's experience heading Wal-Mart's largest operating unit in the United
States coupled with his previous experience as head of the company 's logistics operation
made him uniquely qualified to manage Wai-Mart's International unit. Doug McMillon con-
tinued as President and CEO of the Sam's Club business unit.
 CASE 19 Wai-Mart Stor~s. Inc.

EXHIBIT 8
2006 Corporate Eduardo Castro-Wright Craig R. Herkert
Officers: Wai-Mart Exec VP, President & CEO Wai-Mart Stores Exec VP, President & CEO, The Americas
Stores, Inc. Division U.S. Wal-Mart International
M. Susan Chambers Charles M. Holley, Jr.
Exec VP People Division Sr VP Finance
Patricia A. Curran Thomas D. Hyde
Exec VP, Store Operations Wal-Mart Stores Exec VP & Corporate Secretary
Division U.S. Lawrence V. Jackson
Douglas J. Degn Exec VP, President & CEO
Exec VP, Food, Consumables, Hard lines Global Procurement
Wai-Mart Stores Division U.S. Gregory L. Johnston
Linda M. Dillman Exec VP, Club Operations Sam's Club
Exec VP C. Douglas McMillon
Risk Mgmt & Benefits Administration Exec VP, President & CEO Sam's Club
Johnnie Dobbs John B. Menzer
Exec V Logistics & Supply Chain Vice Chairman Responsible for U.S.
Michael T. Duke Thomas M. Schoewe
Vice Chairman Exec VP & Chief Financial Officer
Responsible for Wai-Mart International
H. Lee Scott
Joseph J. Fitzsimmons President and Chief Executive Officer
Sr VP Treasurer
Gregory E. Spragg
John E. Fleming Exec VP, Merchandising & Replenishment
Exec VP & Chief Marketing Officer Sam's Club
Wal-Mart Stores Division U.S.
S. Robson Walton
Rollin L. Ford Chairman of the Board
Exec VP & Chief Information Officer
Claire A. Watts
David D. Glass Exec VP, Product Development, Apparel &
Chairman of the Executive Committee Home Merchandising, Wal-Mart Stores
Board of Directors Division U.S.
Mark D. Goodman Eric S. Zorn
Exec VP, Marketing, Membership & Exec VP Wal-Mart Realty
£-commerce SAM'S CLUB

SOURCE: Wal-Mart Stores, Inc., 2006 Annual Report, p. 52.

EXHIBIT 9
Business Unit 2006 2005 2004
Performance:
Sales Op. Income Sales Op. Income Sales Op. Income
Wai-Mart Stores, Inc.
(Dollar amounts Wal-Mart $209,910 $15,324 $191,826 $14,163 $174,220 $12,916
in millions) Stores U.S.
Sam's Club 39,798 1,385 37,119 1,280 34,537 1,126
Wai-Mart 62,719 3,330 56,277 2,988 47,572 2,370
International
Total $3 12,427 $20,039 $285,222 $18,431 $256,329 $16,4 12

...................
SOURCE: Wai-Mart Stores, In c. , 2006 Annual Report, pp. 22- 25.
 SECT I 0 N D Industry l'our-Mass Merchandising

Competitive Environment
Wai-Mart management was aware that its business operations on a national and internau
level were subject to a number of factors outside of its control. Any one, or a combinatio_ .
these factors could materially affect the financial performance of the firm. These facto!'
eluded the costs of goods, the cost of electricity and other energy requirements, compet: ·
pressures, inflation, consumer debt levels, interest rate levels , and unemployment le' e
They also included currency exchange fluctuations, trade restrictions, changes in tariff
freight rates, and other capital market and economic conditions.
Industry analysts labeled the decades since 1980 as an era of economic uncertainty for re-
tailers. Although the United States had experienced one of the longest periods of economic e -
pansion in its history during this period, increased competitive pressures, sluggish con urr:~
spending, an energy crisis leading to higher fuel prices, lack of worldwide economic gro'' ·
and the terrorist events of September 11 , 2001, converged to create a very challenging er. -
ronment for all retailers at the beginning of the 21st century.
Many retail enterprises confronted heavy competitive pressure by restructuring. Sears''
one example. Sears, Roebuck and Company, based in Chicago, became a more focused retai.e·
by divesting itself of Allstate Insurance Company and its real estate subsidiaries. In 1993. e
company announced it would close 118 unprofitable stores and discontinue the unprofitab e
Sears general merchandise catalog. It eliminated 50,000 jobs and began a $4 billion, five-ye -
remodeling plan for its remaining multiline department stores. After unsuccessfully expen-
menting with an "everyday low-price" strategy, management chose to realign its merchandi . ._
strategy to meet the needs of middle-market customers, who were primarily women, by foc u -
ing on product lines in apparel, home, and automotive. The new focus on apparel was sup pone'""
with the advenising campaign "The Softer Side of Sears." A later companywide campaig::
broadened the appeal: "The many sides of Sears fit the many sides of your life." Sears com-
pleted its return to its retailing roots by selling off its ownership in Dean Witter Financial Ser-
vices, Discover Card, Coldwell Banker Real Estate, and Sears mortgage banking operation
In 1999, Sears refocused its marketing strategy with a new program that was designed to com-
municate a stronger whole-house and event message. A new advertising campaign introduced
the slogan "The good life at a great price. Guaranteed." In 2000, a new store format was intro-
duced that concentrated on five focal areas: appliances, home fashions, tools, kids, and elec-
tronics. Other departments, including men 's and women 's apparel, assumed a support role in
these stores. In 2001, Sears developed another plan to reposition and restructure its core busi-
ness: the full-line stores. Alan J. Lacy, Chairman and CEO, announced that this strategy would
position Sears in the retail marketplace as "not a department store, not a discount store, but a
broad-line retailer with outstanding credit and service capabilities." Sears' sales increased
slightly from $39.4 billion in 1999 to $41.1 billion in 2003, but its net income fluctuated from
$1.5 billion in 1999 to $735 million in 2001 to $3.4 billion in 2003. The lack of a consistent
strategy and marketing image continued until Sears was purchased by Kmart in 2005. It was
subsequently merged with Kmart to form a new firm, the Sears Holdings Corporation.
The discount department store industry by 2006 had changed in a number of ways and was
thought by many analysts to have reached maturity. Several formerly successful firms such as
E. J. Korvette, W. T. Grant, Atlantic Mills, Arlans, Federals, Zayre, Heck's, and Ames had de-
clared bankruptcy and as a result either liquidated or reorganized. Venture announced liquidation
in early 1998. Firms such as Target and Shopko began carrying more fashionable merchandise in
more attractive facilities and shifted their emphasis to more national markets. Specialty retailers,
such as Toys "R" Us, Pier 1 Imports, and Oshman's, had matured and were no longer making big
inroads in toys, home furnishings, and sporting goods. The "superstores" of drug and food chains
were rapidly discounting increasing amounts of general merchandise. Some firms, such as May
Department Stores Company with Caldor and Venture and Woolworth Corporation with Woo leo,
 CASE 19 \Val-Mart Store,_ Inc.

had withdrawn from the field by either selling their discount divisions or closing them down en-
tirely. Woolworth 's remaining 122 Woolco stores in Canada were sold to Wal-Mart in 1994. All
remaining Woolworth variety stores in the United States were closed in 1997.
Several new retail formats had emerged in the marketplace to challenge the traditional dis-
count department store format The superstore, a 100,000 to 300,000-square-foot operation,
combined a large supermarket with a discount general-merchandise store. Originally a European
retailing concept, these outlets where known as "malls without walls." Kmart's Super Kmart,
Target's SuperTarget, and Wal-Mart's Supercenters were examples of this trend toward large op-
erations. Warehouse retailing, which involved some combination of warehouse and showroom
facilities, used warehouse principles to reduce operating expenses and thereby offer discount
prices as a primary customer appeaL Home Depot combined the traditional hardware store and
lumberyard with a self-service home improvement center to become the largest home center op-
erator in the nation.
Some retailers responded to changes in the marketplace by selling goods at price levels
20%-60% below regular retail prices. These off-price operations appeared as two general
types : (1) factory outlet stores, such as Burlington Coat Factory Warehouse, Bass Shoes, and
Manhattan's Brand Name Fashion Outlet, and (2) independents, such as Loehmann's, T J.
Maxx, Marshall's, and Clothestime, which bought seconds, overages, closeouts, or leftover
goods from manufacturers and other retailers. Other retailers chose to dominate a product clas-
sification. Some super specialists, such as Sock Appeal, Little Piggie, Ltd. , and Sock Market,
offered a single narrowly defined classification of merchandise with an extensive assortment
of brands, colors, and sizes. Others, as niche specialists, such as Kids Foot Locker and Champs
Sports, a division of Foot Locker, Inc. (formerly Woolworth Corporation), targeted an identi-
fied market with carefully selected merchandise and appropriately designed stores.
Some retailers, such as Silk Greenhouse (silk plants and flowers), Office Depot (office
supplies and equipment), Home Depot (home improvement), and Toys "R" Us (toys), were
called "category killers" because they had achieved merchandise dominance in their respec-
tive product categories. Stores such as The Limited, Limited Express, Victoria's Secret, and
Banana Republic became mini-department specialists by showcasing new lines and acces-
sories alongside traditional merchandise lines. The amount of specialization necessary to be a
"category killer" could, however, lead to problems. Toys "R" Us, for example, made most of
its sales during the Christmas season and was lucky to make break-even during the rest of the
year. Wal-Mart, however, could expand its toy department during the Christmas season and
then reduce it in favor of lawn and garden sales during the rest of the year. Once Wal-Mart tar-
geted toys for merchandising emphasis during the Christmas season, Toys "R" Us could not
keep up with Wal-Mart's vast selection at lower prices and was forced into bankruptcy in 2005.
Kohl's Corporation, a firm founded in 1962 in Menominee Falls, Wisconsin, operated
family-focused, value-oriented department stores in 43 states as of June, 2006. The company's
stores averaged 86,500 square feet in size and were typically located near but not within shop-
ping malls. Kohl's offered moderately priced national brand-name apparel, shoes, accessories,
and home products targeted to middle-income consumers in suburban areas with convenient
parking. During the period 1992 and 2006, the Kohl's operation grew from 76 to 749 stores with
its sales increasing from $1.1 billion in 1992 to $13.4 billion in 2006. With a quality image some-
where between J. C. Penney and Target, Kohl's earned $842 million in net income in 2006.
Kmart Corporation, headquartered in Troy, Michigan, celebrated in 1987 the 25th anniver-
sary of its first Kmart store. At that time, it was the world's largest and most successful discount
department store chain with sales of $25.6 billion. By 1990, Wal-Mart's sales of $32.6 billion
surpassed Kmart's $32.1 billion and Kmart fell to second place in U.S. discount stores. By
2001, Kmart operated 2,114 stores and had sales of$36,151 mmion but had fallen to third place
behind Wal-Mart and Target In contrast, Wal-Mart's sales had risen to $217,799 million in
2001. Kmart was perceived by many industry analysts and consumers in several independent
19-16 SECTION D Industry Four-Mass Merchandising

studies as a laggard. In the same studies, Wal-Mart was perceived as the industry leader. e ~
though, according to the Wall Street Journal, "They carry much the same merchandise. ot:~
prices that are pennies apart and operate stores that look almost exactly alike." The newspa
noted, "Even their names are similar." The original Kmart concept of a "conveniently locat
one-stop shopping unit where customers could buy a wide variety of quality merchandi e
discount prices," had lost its competitive edge in a changing market. As one analyst noted
an industry newsletter: "They had done so well for the past 20 years without paying attent1
to market changes, now they have to." Kmart changed strategic direction a number of tim
under different CEOs, but was unable to find a profitable niche in the increasingly competiti ~
discount retailing industry. The firm suffered net losses in 1993, 1995, 1996, 2000, and 2~
Following its extraordinary 2001loss of $2.4 billion, Kmart filed for bankruptcy under Cha"-
ter 11 of the federal bankruptcy laws on January 22, 2002. The firm continued to operate as ~
ongoing business while reorganizing. Costs were cut and marginal stores were either sold o ·
for cash or closed. In March 2005, key investors in Kmart acquired Sears, Roebuck and Com-
pany and merged Kmart and Sears into the Sears Holdings Corporation. The management c
Sears Holdings hoped to reduce costs of both Sears and Kmart by finding economies of scale
in combining supply chains, IT, finance, legal, and human resources functions. During 200.:- .
management closed 12 more Kmart stores and conve1ted 48 Kmart stores into Sears stores. B~
2006, Kmart had 1,479 stores in 49 states, Puerto Rico, and the Virgin Islands. Its stores were
organized into Big Kmart stores (84,000-120,000 square feet), Kmart Super Center
(140,000-190,000 square feet), and traditional Kmart stores (80,000-11 0,000 square feet). For
2005, its first year of operation, Sears Holdings earned $858 million on $55 billion in sales.
Target Corporation was originally a discount unit of Dayton-Hudson, a respected depart-
ment store chain headquartered in Minneapolis, Minnesota. The success of the Target unit led
management to rename the company Target and to sell its department stores in 2004. By June
2006, Target had 1,418 stores in 4 7 states and 159 SuperTarget Stores in 21 states. Target"
management viewed the company as an upscale discounter that provided high-quality, fash-
ionable merchandise at attractive prices in clean, spacious, and guest-friendly stores. In 2003.
2004, and 2005 (years ending end-January of the following year), Target's sales were
$42.0 billion, $46.8 billion, and $52.6 billion, respectively. During the same period, net earn-
ings (not counting the sale of its department stores) were $1.6 billion, $1.9 billion, and $2.4 bil-
lion , respectively. Target's same-store sales (not including new or acquired stores) increased
5.6% in 2005 (year ending January 28, 2006) from the year earlier. As the nation's second
largest retail chain, Target has become the nation's second largest retailer by successfully es-
tablishing itself in the upscale discount market niche. About 45% of Target's merchandise con-
sisted of discretionary items, such as furniture, electonics, sporting goods, entertainment, and
apparel-areas when trends and fashion were important and margins were wider, compared to
only 30% for Wal-Mart, estimated Jeffrey Klinefelter, retail analyst at Piper Jaffray.6 Wal-Mart
was known as the relentless cost-cutter, but Target was the trendier place to shop and save. This
upscale image coupled with management's traditional excellence in running quality department
stores gave Target a competive advantage when competing against Wal-Mart in urban areas.
Some retailers, such as Kmart, had initially focused on appealing to professional, middle-
class consumers who lived in suburban areas and who were likely to be price sensitive. Over
time, Kmart attracted more working-class customers. Target went after an upscale consumer.
Some firms, such as Fleet Farm and Pamida, served the rural consumer, whereas firms like
Value City and Ames Department Stores chose to serve the urban consumer.
In rural communities Wal-Mart's success often came at the expense of established local mer-
chants and units of regional discount store chains. Hardware stores, family department stores,
building supply outlets, and stores featuring fabrics, sporting goods, and shoes were among the
first to either close or relocate elsewhere. Regional discount retailers in the Sunbelt states, such
as Roses, Howard's, T.G.& Y., and Duckwall-ALCO, which had once enjoyed solid sales and
 CASE 19 Wal-Mart Stores. Inc.

earnings, were forced to reposition themselves by renovating stores, opening bigger and more
modern units, and re-merchandising. In many cases, stores such as Coast-to-Coast and Ben
Franklin closed on a Wal-Mart announcement that it was planning to build in a specific commu-
nity. "Just the word that Wal-Mart was coming made some stores close up," indicated one local
newspaper editor. Ames Department Stores, Inc. , which sought bankruptcy protection in 2001,
announced in the summer of 2002 that it would close all237 of its stores and liquidate inventory.

Domestic Strategies and Programs

Domestic strategies and programs at Wal-Mart were based on a set of two priorities that had
guided the firm through its growth years . In the first priority, the customer was featured:
"Customers would be provided with what they want, when they want it, all at a value." In the
second, team spirit was emphasized: "Treating each other as we would hope to be treated, ac-
knowledging our total dependency on our Associate-partners to sustain our success." The
growth strategy included aggressive plans for new store openings; expansion to additional
states; upgrading, relocating, refurbishing, and remodeling existing stores; and opening new
distribution centers. For Wal-Mart management, the 1990s were considered an era in which
the firm grew to become a truly nationwide retailer operating in all 50 states.
During the 1980s, Wal-Mart developed a number of new retail formats. The first Sam's Club
opened in Oklahoma City, Oklahoma, in 1983. The wholesale club was an idea that had been de-
veloped by other firms earlier, but that found its greatest success and growth in acceptability at
Wal-Mart. Sam's Clubs featured a vast array of product categories with limited selection of
brand and model; cash-and-carry business with limited hours ; large (100,000-square-foot), bare-
bones facilities; rock-bottom wholesale prices; and minimal promotion. The limited member-
ship plan permitted wholesale members who bought membership and others who usually paid a
percentage above the ticket price of the merchandise. A revision in merchandising strategy re-
sulted in fewer items in the inventory mix, with more emphasis on lower prices. A later acquisi-
tion of 100 PACE warehouse clubs, which were converted into Sam's Clubs, increased that
division 's units by more than one-third. A new Sam's Club format was introduced with the open-
ing of a 154,000-square-foot store in 2001 in East Plano, Texas. The store featured an expanded
product line with emphasis on fresh food, an open layout, a cafe, and an Internet kiosk where
customers were invited to shop at the www.sams.com Web site. A new Sam's Club slogan, "It's
a Big Deal!" referred to the size of the facility and the features of the prototype store.
Wal-Mart Supercenters were large combination stores. They were first opened in 1988 as
Hypermarket*USA, a 222,000-square-foot superstore that combined a full general merchandise dis-
count store with a large full-line grocery supermarket, a food court of restaurants, and other service
businesses, such as banks or videotape rental stores. A scaled-down version ofHypermarket*USA
was called Wal-Mart Supercenter and was similar in merchandise offerings, but with about
180,000 to 200,000 square feet of space. The company proceeded slowly with these plans and later
suspended its plans for building any more hypermarkets in favor of the Supercenter concept.
Wal-Mart also tested a new concept called the Neighborhood Market in a number of lo-
cations in Arkansas. Identified by the company as "small-marts," these green-and-white stores
were stocked with fresh fruits and vegetables, a drive-up pharmacy, a 24-hour photo shop, and
a selection of classic Wal-Mart hard goods. Management elected to move slowly on this con-
cept, planning to open no more than 10 a year. The goal was to ring the Superstores with these
smaller stores to attract customers who were in hurry and wanted only a few items.
The McLane Company, Inc., a provider of retail and grocery distribution services for re-
tail stores, was acquired by Wal-Mart in 199 LIt was never considered a major segment of the
total Wal-Mart operation and was divested in 2003.
Several programs were launched in Wal-Mart stores to highlight popular social causes.
The "Buy American" program was a Wal-Mart retail program initiated in 1985. The theme
SECT I0 N D Industry Four-Mass Merchandising

was "Bring It Home to the USA," and its purpose was to communicate Wal-Mart's suppo:-:
American manufacturing. In the program, the firm directed substantial influence to enc
age manufacturers to produce goods in the United States rather than import them fro m ·
countries. Vendors were attracted into the program by encouraging manufacturers to in!r
the process by contacting the company directly with proposals to sell goods that were m
in the United States. Buyers also targeted specific import items in their assortments on a _ ·~
by-state basis to encourage domestic manufacturing. According to Haim Dabah, presiden·
Gitano Group, Inc., a maker of fashion discount clothing that previously imported 95 o/c or
clothing and now made about 20% of its products in the United States: "Wal-Mart let i·
known loud and clear that if you're going to grow with them, you sure better have some pr ~­
ucts made in the U.S.A." Farris Fashion, Inc. (flannel shirts), Roadmaster Corporation (exe--
cise bicycles), Flanders Industries, Inc. (lawn chairs), and Magic Chef (microwave OYe
were examples of vendors that chose to participate in the program. From the Wal-Mart sta.'C -
point, the "Buy American" program centered around value-producing and selling qual _
merchandise at a competitive price. The promotion included television advertisements fe -
turing factory workers, a soaring American eagle, and the slogan "We buy American whe ~­
ever we can, so you can too." Prominent in-store signage and store circulars were al
included. One store poster read: "Success Stories-These items, formerly imported, are nc
being purchased by Wal-Mart in the U.S.A."
Wal-Mart was one of the first retailers to embrace the concept of "green" marketing. Th
program offered shoppers the option of purchasing products that were better for the environ-
ment in three respects: manufacturing, use, and disposal. It was introduced through full-pag::
advertisements in the Wall Street Journal and USA Today. In-store sign age identified tho.~
products that were environmentally safe. As Wal-Mart executives saw it, "Customers are con-
cerned about the quality of land, air, and water, and would like the opportunity to do some-
thing positive." To initiate the program, 7,000 vendors were notified that Wal-Mart had ::
corporate concern for the environment and asked for their support in a variety of ways. Wal-
Mart television advertising showed children on swings, fields of grain blowing in the wind.
and roses. Green and white store signs, printed on recycled paper, marked products or pack-
aging that had been developed or redesigned to be more environmentally sound.
The Wal-Mart private brand program began with the "01' Roy" brand, the private-label
dog food named for Sam Walton's favorite hunting companion. Introduced to Wal-Mart store
in 1982 as a low-price alterative to national brands, 01' Roy became the biggest seller of all
dog-food brands in the United States. "We are a (national) brand-oriented company first.··
noted Bob Connolly, Executive Vice President of Merchandising of Wal-Mart. "But we also
use private label to fill value or pricing voids that, for whatever reason, the brands left behind.··
Wal-Mart's private-label program included thousands of products that had brand names , such
as Sam's Choice, Great Value, Equate, and Spring Valley.
Wal-Mart was the largest clothing seller in the world. Although most of the sales of it
clothing business were in basics such as socks, underwear, tee-shirts, and blue jeans, the firm
developed a 100-member development team to begin to focus its clothing lines on fashion and
style in all sizes. Claire Watts was hired from Limited, Inc., to become the first Director of Prod-
uct Development. The company also made a significant investment in technology so that all the
factors of the development process, from design to production, were coordinated online among
Wal-Mart, its suppliers, and factories. Rather than wait for suppliers to bring products to Wal-
Mart, merchandise teams traveled to Europe four times a year to visit trendy boutiques and fash-
ion shows and bring back racks of clothes to be evaluated at corporate headquarters on the basis
of quality, fashion, and style. In 2002, Wal-Mart introduced a contemporary brand nationwide
called George. George, a stylish line of clothing for women and men, had been sold exclusively
for 10 years in England's ASDA supermarkets, which Wal-Mart acquired in 1999. Although the
 CASE 19 Wal-Mart Stores. Inc. 19-19

George brand was profitable, it was never as successful as management had hoped. In 2005,
management put increased emphasis on apparel and music offerings. In an attempt to upgrade
its image, the company placed ads featuring women's clothing in Vogue magazine.
In 2000, according to DSR Marketing Systems, Wal-Mart became the largest retailer of gro-
ceries in the United States, surpassing traditional grocery retailers such as Cincinnati,
Ohio-based Kroger, Boise, Idaho-based Albertson's, and Pleasanton, California-based Safeway.
Wal-Mart had become the channel commander in the distribution of many brand-name
items. As the nation's largest retailer and in many geographic areas the dominant distributor, it
exerted considerable influence in negotiation for the best price, delivery terms, promotion al-
lowances, and continuity of supply. Many of these benefits could be passed on to consumers in
the form of quality name-brand items available at lower-than-competitive prices. As a matter of
corporate policy, management often insisted on doing business only with producers' top sales ex-
ecutives rather than going through a manufacturer 's representative. Wai-Mart had been accused
of threatening to buy from other producers if firms refused to sell directly to it. In the ensuing
power struggle, Wal-Mart executives refused to talk about the controversial policy or admit that
it existed. As a representative of an industry association representing a group of sales agencies
representatives suggested, "In the Southwest, Wal-Mart's the only show in town." An industry
analyst added, "They' re extremely aggressive. Their approach has always been to give the cus-
tomer the benefit of a corporate saving. That builds up customer loyalty and market share."
Another key factor in the mix was an inventory control system that was recognized as the
most sophisticated in retailing. A high-speed computer system linked virtually all the stores to
headquarters and the company's distribution centers. It electronically logged every item sold
at the checkout counter, automatically kept the warehouses informed of merchandise to be or-
dered, and directed the flow of goods to the stores and even to the proper shelves. Most impor-
tantly for management, it helped detect sales trends quickly and sped up market reaction time
substantially. According to Bob Connolly, Executive Vice President of Merchandising, "Wal-
Mart has used the data gathered by technology to make more inventory available in the key
items that customers want most, while reducing inventories overall." In April 2004, Wal-Mart
began a pilot test in 150 stores and Sam's Clubs locations in the Dallas, Texas, area to test the
use of radio frequency identification (RFID) to track items through the distribution channel.
The new technology resulted in a 16% reduction of out-of-stocks and a threefold increase in
replenishing out-of-stock items. RFID was being expanded to nearly 1,000 stores and clubs in
2006 and from 300 suppliers to more than 600 by 2007.
Hired by Wal-Mart in 1978 to help build an information technology system, Randy Mott
and colleagues developed a network of computerized distribution centers in the 1980s that
made it simple to open and manage new stores efficiently. Promoted to Chief Information Of-
ficer in the early 1990s, Mott persuaded managemement to invest in a "data warehouse" that ·
would allow the company to collect and sift customer information to analyze buying trends.
The resulting information could indicate which flavor of Pop-Tart sold best at a particular
store. Since this concept was new to the industry, it gave the company another significant com-
petitive advantage. From Wal-Mart, Mott moved to Dell and then to Hewlett-Packard to im-
prove their information systems.?
At the beginning of2000, Wal-Mart set up a separate company for its Web site, with plans
to go public. Wal-Mart.com, Inc. , based in Palo Alto, California, was jointly owned by Wal-Mart
and Accel Partners, a Silicon Valley venture-capital firm. The site included a wide range of prod-
ucts and services that ranged from shampoo to clothing to lawn mowers, as well as airline, ho-
tel, and rental car bookings. After launching and then closing a Sam 's Club Web site, Wal-Mart
reopened the site in mid-June 2000, with an emphasis on upscale items such as jewelry, house-
wares, and electronics and full product lines for small business owners. SamsClub.com was op-
erated by Wal-Mart from the company's Bentonville, Arkansas, headquarters.
 SECT I 0 N D Industry Four-Mass Merchandising

International Strategies and Programs

In 1994, Wal-Mart entered the Canadian market with the acquisition of 122 Woolco discour.·
stores from Woolwmth Corporation. When acquired, the Woolco stores were losing million
dollars annually, but operations became profitable within three years. By the end of 2001. th
company had 196 Wal-Mart discount stores in Canada. The company's operations in Canad...
were considered as a model for Wal-Mart's expansion into other international markets. By 200o
the number had grown to 272 discount stores and six Sam's Clubs. With a 35 % share of th
Canadian discount and department store market, Wal-Mart was the largest retailer in that co una:
With a tender offer for shares and mergers of joint ventures in Mexico, the company .r
1997 acquired a controlling interest in Cifra, Mexico's largest retailer. Cifra, later identifi ed~
Wal-Mart de Mexico, operated stores with a variety of concepts in every region of Mexice
ranging from the nation's largest chain of sit-down restaurants to a softline department store
Retail analysts noted that the initial venture involved many costly mistakes. Time after time 1·
sold the wrong products, including tennis balls that wouldn't bounce in high-altitude Mexic
City. Large parking lots at some stores made access difficult as many people arrived by bu_
By 2006, Wal-Mart (known as Walmex) operated 599 stores (composed of 187 Bodega! .
16 Mi Bodegas, 1 Mi Bodega Express, 1 Mercamus, 53 Suburbias, 55 Superamas, an~
286 Yips stores), 105 Supercenters, and 70 Sam's Clubs in Mexico for a total of 774 outlet .
compared to just 551 outlets in 2002. The company had grown to dominate Mexico's retai:
market with its model of rapid expansion and low prices.
When Wai-Mart entered Argentina in 1995, it also initially faced challenges adapting its
U.S.-based retail mix and store layouts to the local culture. Although globalization and U.
cultural influences had swept through the country in the early 1990s, the Argentine market did
not accept U.S. cuts of meat, bright-colored cosmetics, and jewelry that gave prominent place-
ment to emeralds, sapphires, and diamonds, since most Argentine women preferred wearing
gold and silver. The first stores even had hardware departments full of tools wired for 110-volt
electric power; the standard throughout Argentina was 220. Compounding the challenges w ~
a store layout that featured narrow aisles; stores appeared crowded and dirty. In 2006, Wal-
Mart operated 11 Supercenters in Argentina, the same number as in 2002.
Wal-Mart's management concluded that Brazil offered great opportunities for Wal-Man
because it had the fifth largest population in the world and a population that had a tendency to
follow U.S. cultural cues. Although financial data were not broken out on South American op-
erations, retail analysts cited the accounts of Wal-Mart's Brazilian partner, Lojas Americana
SA, to suggest that Wal-Mart lost $100 million in start-up costs for the initial 16 stores. Cu -
tomer acceptance ofWal-Mart stores was mixed. In Canada and Mexico, many customers had
been familiar with the company from cross-border shopping trips. In contrast, many Brazilian
customers were not familiar with the Wal-Mart name. In addition, local Brazilian markets were
already dominated by savvy local and foreign competitors, such as Grupo Pao de Acucar SA
of Brazil and Carrefour SA of France. Wal-Mart's insistence on doing things "the Wal-Mart
way" initially alienated many local suppliers and employees. The country's continuing eco-
nomic problems also presented a challenge. Realizing that it needed to take another approach
to growth, management made two acquisitions. The first was Bompreco S. A. Supermercado
do Nordeste, a chain of 118 hypermarkets, supermarkets, and mini-markets in Northern Brazil
that was purchased in February 2004. The second was Sonae Distribuicao, a retail operation
in Southern Brazil consisting of 139 hypermarkets, supermarkets, and warehouse units pur-
chased in December 2005. By 2006, Wal-Mart operated 255 discount stores, 23 Supercenters.
I 5 Sam's Clubs, and 2 Neighborhood Markets in Brazil for a total of 295 outlets compared to
only 12 Supercenters and 8 Sam's Clubs in 2002.
Wal-Mart entered the European market by acquiring three retail chains. Because of com-
plex local regulations, management felt it would be easier for Wal-Mart to buy existing stores
 CASE 1 9 \Val-Mart Stores, Inc.

in Europe than to build new ones. The response in Europe to Wal-Mart's entry was immediate and
dramatic. Competitors scrambled to match Wal-Mart's low prices, long hours, and friendly ser-
vice. Some firms combined to strengthen their operations. For example, France's Carrefour SA
chain of hypermarkets combined forces with competitor Promodes in a $16.5 billion deal. In
2002, Carrefour dominated the European market with three leading formats: hypermarket, super-
market, and hard discount (small food stores with low prices). It was the world 's second-largest
retailer, with more than 9,200 stores not only in Europe, but in Latin America and Asia as well.
In 2005, Carrefour's sales rose 2.5% from the previous year to 74.5 billion euros. Although net
income felll6% to 1.44 billion euros ($1.72 billion) during the same period, the exclusion of one-
time charges showed a 1.2% increase in profits to 1.81 euros ($2.15 billion). Carrefour's man-
agement planned to invest 10 billion euros ($11.9 billion) to open 100 new hypermarkets in 2006
and a total of 1,000 new stores during 2006-2008. The planned growth in hypermarkets was more
than twice the average annual number of openings between 2000 and 2004. Carrefour's manage-
ment expected that its growth strategy would increase sales by 10% by 2008.8
Wal-Mart moved into Germany at the end of 1997 by acquiring 21 stores from hypermar-
ket operator Wertkauf. Also as part of its expansion efforts in Germany, Wal-Mart acquired
74 stores that were a part of the Interspar chain. Soon after the takeover, Wal-Mart quickly
filled the top management positions with U.S. expatriates. Within weeks ofthe purchase, most
of the top German managers left the company. Management also discovered that these stores
were either cramped, unattractive, or poorly located and needed to be entirely renovated. All
of these German stores were identified with the Wal-Mart name and restocked with a new and
revamped selection of merchandise. In response to local laws that forced early store closings
and forbade Sunday sales, the company simply opened stores earlier, to allow shopping to be-
gin at 7 AM. In January 2000, the company launched its first big "rollback" by cutting prices
on several hundred items by up to 23%. Germany was well populated with discounters such as
Aldi and Lidl, which ran no-frills, cheap supermarkets. These discounters responded fiercely
to price challenge by cutting their prices by up to 25%. As a result, price cuts did not have a
dramatic impact on sales. Wal-Mart's store count dropped from 95 Supercenters in 2002 to 88
in 2006, less than 20% of rival Kaufland 's stores. Wal-Mart's grocery market share never ex-
ceeded 2% of Germany's food sales. In a country where local discounters dominated, the
leader was Aldi , which boasted a 19% market share through its 4,000 stores. According to in-
dustry analysts, Wal-Mart was in a difficult position because it needed more stores to adver-
tise efficiently and exert purchasing power. Despite Wal-Mart's lackluster performance in
Germany, management remained committed to serving this market.9
Wal-Mart acquired ASDA, Britain's third largest supermarket group, for $10.8 billion in
July 1999. With its own price rollbacks, people greeter, "permanently low prices," and even
"smiley" faces, ASDA had emulated Wal-Mart's store culture for many years. Based in Leeds,
England, the firm had 232 stores in England, Scotland, and Wales. Although the culture and
pricing strategies of the two companies were nearly identical, there were differences, primarily
the size and product mix of the stores. The average Wal-Mart Supercenter was 180,000 square
feet in size and had about 30% of its sales in groceries. In contrast, the average ASDA store had
only 65,000 square feet and did 60% of sales in grocery items. By 2006, Wal-Mart operated
294 discount stores (composed of 236 ASDA stores, 10 George stores, 5 ASDA Living, and
43 ASDA small stores) and 21 Supercenters in the United Kingdom. Although ASDA was still
second in the U.K. market with a 16.6% share, its sales were stagnating while its rivals J Sains-
bury (16.2% share) and market leader Tesco (30.4% share) were slowly increasing their share
of the market. British executives hoped to revitalize the U.K. operations sometime in 2007. 10
Wal-Mart's initial effort to enter China fell apart in 1996, when Wal-Mart and Thailand's
Charoen Pokphand Group terminated an 18-month old joint venture because of management
differences. Wai-Mart decided to consolidate its operations with five stores in the Hong Kong
border city of Shenzhen, one in Dalian, and another in Kunming. Analysts concluded that the
 SECT I0 N D Industry Four-Mas~ Merchandising

company was taking a low-profile approach because of possible competitive response and go -
ernment restrictions. Beijing restricted the operations of foreign retailers in China, requinr>=
them, for instance, to have government-backed partners. In Shenzhen, it limited the number ··
stores Wal-Mart could open. Wal-Mart soon found another joint venture partner and continueu
its growth. In 2006, Wal-Mart'sjoint venture operated 51 Supercenters, 3 Sam 's Clubs. an
2 Neighborhood Markets. This was a significant increase in China from 2002, when the com-
pany operated only 15 Supercenters, three Sam's Clubs, and one Neighborhood Market. \\'a.-
Mart corporate management has targeted China, long a major supplier of its products, as a ke.
market for international store growth. Management planned to open 20 additional store !!"
China during 2006.11
During December 2005, Wal-Mart purchased a majority interest in Seiyu, a retailer 1
Japan selling apparel, general merchandise, and food in 398 stores. 2005 was the fourtl'
straight year Seiyu operated at a loss. Seiyu, Japan's fourth-largest retailer, had struggled un-
successfully to adopt Wal-Mart's marketing strategy since 2002 when Wal-Mart acquired .,.
6% stake. Wal-Mart management was hopeful that its investment would lead to eventual u -
cess in an important market. "This market has a lot of promise and because of that we are pa-
tiently investing both management as well as capital, and we expect to get a return on that oYer
time," reported Jeff McAllister, COO of Wal-Mart's Japanese operations. 12
In February 2006, Wal-Mart acquired majority control of the Central American Retai:
Holding Company, known as CARHCO. With this purchase, Wal-Mart obtained more than
360 supermarkets and other stores in Costa Rica, El Salvador, Guatemala, Honduras , and
Nicaragua. CARHCO's 2005 sales were about $2.2 billion.
On May 22, 2006, management announced that Wal-Mart was withdrawing from South
Korea by selling all 16 of its outlets to Shinsegae, a local retailer for $882 million. In leaving
Korea, Wal-Martjoined Carrefour, Nokia, Nestle, and Google--other firms that had also failed
to adjust to South Korean tastes. According to financial analyst Na Hong Seok, "Wal-Mart i_
a typical example of a global giant who has failed to localize its operations in South Korea. It
failed to read what South Korean housewives want when they go shopping." Analysts com-
mented that both Wal-Mart and Carrefour had not opened stores quickly enough to build the
sales needed for supply chain economies.
The international expansion accelerated management's plans for the development of Wal-
Mart as a global brand along the lines of Coca-Cola, Disney, and McDonald's. "We are a global
brand name," said Bobby Martin, an early President of the International Division of Wal-Mart.
"To customers everywhere it means low cost, best value, greatest selection of quality merchan-
dise and highest standards of customer service," he noted. Some changes were mandated in Wal-
Mart's international operations to meet local tastes and intense competitive conditions. "We·re
building companies out there," said Martin. "That's like starting Wai-Mart all over again in
South America or Indonesia or China." Although stores in different international markets would
coordinate purchasing to gain leverage with suppliers, developing new technology and planning
overall strategy was being done from Wal-Mart headquarters in Bentonville, Arkansas.

Human Resources and Corporate Culture

One principle that distinguished Wal-Mart was the unusual depth of employee involvement in
company affairs. The corporation emphasized human resource management. Employees of
Wal-Mart were called "associates," a name borrowed from Sam Walton 's early association
with the J. C. Penney Co. Input was encouraged at meetings at the store and corporate levels.
The firm hired employees locally and provided training programs, and through a "Letter to
the President" program, management encouraged employees to ask questions and made
words such as "we," "us," and "our" a part of the corporate language. A number of special
 CASE 19 \Val-Mart Stores, Inc.

award programs recognized individual, department, and division achievement. Stock owner-
ship and profit-sharing programs were introduced as part of a "partnership" concept.
The corporate culture was recognized by the editors of the trade publication Mass Market
Retailers, when it recognized all 275 ,000 associates collectively as the "Mass Market Retail-
ers of the Year." "The Wal-Mart associate," the editors noted, "has come to symbolize all that
is right with the American worker, particularly in the retailing environment and most particu-
larly at Wal-Mart." The "store within a store" concept, as a Wal-Mart corporate policy, trained
individuals to be merchants by being responsible for the performance of their own departments
as if they were running their own businesses. Seminars and training programs afforded them
opportunities to grow within the company. "People development is not just a good 'program'
for any growing company but a must to secure our future, " was how Suzanne Allford, Vice
President of the Wal-Mart People Division, explained the firm's decentralized approach tore-
tail management development.
"The Wal-Mart Way" was a phase used by management to summarize the firm's uncon-
ventional approach to business and to the development of its corporate culture. As noted in a
report referring to a recent development program: "We stepped outside our retailing world to
examine the best managed companies in the United States in an effort to determine the funda-
mentals of their success and to 'benchmark' our own performances. The name 'Total Quality
Management' (TQM) was used to identify this vehicle for proliferating the very best things we
do while incorporating the new ideas our people have that will assure our future ." In 1999,
Discount Store News honored Wal-Mart Stores, Inc. , as "Retailer of the Century," with a com-
memorative 200-page issue of the magazine.
In many ways, Wal-Mart's corporate culture was a reflection of the values of its founder,
Sam Walton, in its emphasis on everyday low prices, corporate growth, concern for people, and
loyalty to the company. According to Chairman David Glass, "Sam has been gone for anum-
ber of years now, but he's still alive and well in this company to a great extent. There's not a
day that goes by that I don ' t hear conversations around here about what Sam would do or how
he felt about something." An unrelenting focus on cost-cutting led to a continual search to
eliminate operating inefficiencies, high pressure on suppliers to reduce costs and provide "just
in time" deliveries, and frugal employee benefits. For example, even when CEO Lee Scott and
CFO Tom Schoewe went on a business trip they were expected to share hotel rooms. "Sharing
rooms is a very symbolic part of what we do," explained Scott.1 4
The company's cultural roots in Bentonville, Arkansas, have been considered by some to
be both a key strength and a serious weakness. Management's southern, rural, conservative val-
ues provided it a competitive advantage when expanding into small and mid-sized towns
throughout America, but created some problems when Wal-Mart expanded into larger cities and
other countries. For example, urban shoppers often preferred more fashionable merchandise
than what Wal-Mart usually stocked. Brand Keys' 2006 study of top brands revealed that Wal-
Mart was behind Target for the second consecutive year. According to Robert Passikoff, Presi-
dent of Brand Keys, "Target means style at accessible pricing. Wal-Mart hasn't reached that
point." In addition, Wal-Mart was the last major pharmacy chain to stock the "Plan B" morning-
after birth control pill and only did so after it lost a lawsuit brought by three Boston women.
Nevertheless, the company continued to keep its "conscientious objector" policy, which al-
lowed employees who didn ' t feel comfortable di spensing the drugs to refer customers else-
where. Wal-Mart's non-union stance was acceptable to rural southern communities, but created
growing antagonism when the firm added stores in the urban Midwest and northeastern United
States and in Canada. A key part of its low-cost competitive strategy, the company's non-union
labor costs were 20% Jess than at unionized supermarkets. Management had also forced suppli-
ers to hide magazine covers the company considered "racy" and refused to stock music or com-
puter games with mature ratings. Nevertheless, most locations offered inexpensive firearms as
part of their sporting goods offerings. The strong emphasis on Wal-Mart values offended some
 5 ECT I 0 N D Industry Four-Mas~ Merchandising

employees with different backgrounds. For example, many of the Canadian employee
Mart's discount store in Jonquiere, Quebec, stood silently through the mandatory \\.o -
cheer each morning. Employee Sylvie Lavoie explained, "It's not a song. It's a militru: ~
I found it to be degrading."

Financial Situation
By most financial measures, Wal-Mart was in excellent financial shape and far ahead of 1
mestic rivals. Its net sales had steadily increased from $89.1 billion in 1996 to $204 bilh
2002 to $312.4 billion in 2006. Net income had followed a similar growth path from $2.7 b:
in 1996 to $6.6 billion in 2002 to $11.2 billion in 2006. Wal-Mart's diluted earnings per shar~
creased from $.59 in 1996 to $1.47 in 2002 to $2.68 in 2006. According to CEO Scott, "Corr:.
ative store [same store] sales in the U.S. rose a healthy 3.4%" from 2005 to 2006. By compan
net sales and earnings of Target, its closest rival, were only $52.6 billion and $2.4 billion, re IX_-
tively, in the 2005 fiscal year ending January 28, 2006. The merger of Sears and Kmart into e -
Holdings Corporation resulted in a $55 billion (in sales) company with a net income of $85 ~ -
lion for the 2005 fiscal year ending January 2006. (See Exhibits 1, 2, 3, and 4).
During 2006, management purchased $3.6 billion of Wal-Mart common stock under
share repurchase program and paid dividends of $2.5 billion. During that year, it also i _ :::
$7.7 billion in long-term debt, repaid $2.7 billion of long-term debt, and funded a net deere
in commercial paper of $704 million. Total corporate assets of continuing operations increa.:,
from $36,621 million in 1996 to $81,549 million in 2002 to $138,187 million in 2006. Re ru:-
on assets was 7.9% in 1996, 8.4% in 2002, and 8.9% in 2006. One of management's objecti'e
was to have operating income grow faster than net sales. In fiscal year 2006, however, over...
operating income increased by only 8.4% over 2005, compared to a net sales increase of 9. <
Compared to fiscal 2005, the Wal-Mart Stores USA unit experienced an 8.4% increase in op-
erating income and a 9.4% increase in net sales in fiscal2006. During the same period, Sam·
Club had an 8.2% increase in operating income and a 7.2% increase in net sales. At the sam
time, the international business unit generated 11.4% increases in both sales and operatin=
income.
Wal-Mart's sales for the first quarter of its 2007 fiscal year ending April 30, 2006, were
$79.6 billion, an increase of 12.3% over the same quarter a year earlier. The firm's net income
rose to $2.62 billion from $2.46 billion the year before. This 6% increase in profits was better
than expected by industry analysts, who also noted Target's 12% first-quarter profit increa e.
Of special concern to management was the behavior of the company 's stock. Contrary to
the upward direction of the firm's sales and profits, the price of Wal-Mart's stock had fallen
from $56.98 on January 31,2002, to $46.11 on January 31,2006. Even though the board of
directors had both repurchased stock and raised dividends per share from $0.52 in 2005 to
$0.60 in 2006, the stock failed to respond. When the board further raised dividends to $0.67 per
share on March 2, 2006 for the 2007 fiscal year, the stock price fell 11.7% to $45.06 on the
New York Stock Exchange.

Challenges to Continued Growth

Wal-Mart's management faced significant challenges in 2006--challenges that could signifi-
cantly affect the achievement of its growth objectives. The company was being condemned for
business practices ranging from low pay and stingy health care benefits to exporting jobs and
destroying small businesses. Wal-Mart was also the subject of litigation, including a class action
discrimination suit representing 1.6 million current and former female employees who accused
the firm of systematic underpayment and lack of promotion. In addition, filmmaker Robert
 CASE 19 Wal-Mart Store,, Inc.

Greenwald premiered a scathing documentary in November 2005 titled Wal-Mart: The High
Cost of Low Prices. The movie was filled with ex-employees who trashed the company. One ac-
tivist group, "Wake Up Wal-Mart," which was started in April 2005 by the United Food and
Commercial Workers union, gained 115,000 members and aired TV ads to tout the new movie.
"Wal-Mart Watch," another activist group, leaked an internal memo to The New York Times in
October 2005 from Wal-Mart's Executive Vice President for Benefits to Wal-Mart's Board of
Directors. The memo stated that 46% of the children ofWal-Mart workers were uninsured or on
Medicaid and that Wal-Mart's health plan required such high out-of-pocket payments that the
number of employees hit by a very costly illness "almost certainly would end up declaring bank-
ruptcy." The memo proposed that Wal-Mart rewrite job descriptions to involve more physical
activity, in part to "dissuade unhealthy people from coming to work at Wal-Mart." 19
The resulting uproar over Wal-Mart's health benefits led to the Democrat-controlled leg-
islature in Maryland passing a bill on January 12, 2006, requiring any employer with more than
10,000 employees to spend at least 8% of its payroll on health care for its workers . If it spent
less, the firm must give the difference to Maryland's Medicaid program. The law was charac-
terized as "the Wal-Mart bill" because Wal-Mart was the only company in Maryland affected.
It was noted that as the nation's largest private-sector employer, Wal-Mart provided health in-
surance to fewer than half of its 1.3 million workers. The new law had been supported by
unions who claimed that around 30 states were also considering such legislation. Nevettheless,
the bill may be illegal because it could violate the federal Employment Retirement Income
Security Act, which gave Congress the sole authority to regulate employee benefits.2o
Wai-Mart's reputation took another hit when Wal-Mart's No. 2 executive and Vice Chair-
man of its Board of Directors, Tom Coughlin, admitted to misappropriating company funds
and pleaded guilty to five counts of fraud and one count of tax evasion. Previously, he had
served as President and CEO of Wal-Mart Stores and Sam 's Club. Coughlin was forced to
leave Wal-Mart's board in March 2005 . After an internal investigation, two other Wal-Mart
employees were fired for financial improprieties.2 1
In 2003, a raid on 60 Wal-Mart stores in 21 states led to the arrests of 245 illegal workers.
The company paid $11 million in March 2005 without admitting guilt. In November 2005 , fed-
eral agents arrested more than 120 workers on immigration violations at the construction site
of a Wal-Mart distribution center. Wal-Mart's management argued that those arrested were em-
ployees of a subcontractor and that Wal-Mart has contracts with subcontractors requiring them
to follow all federal , state, and locallaws. 22
Even though the company required that its suppliers certify that their factories complied
with Wal-Mart's workplace standards, Jim Lynn , a Wal-Mart executive, found that these re-
ports were routinely falsified in Honduras. When, as part of his job of checking on suppliers in
Central and South America, the executive visited the Glory Garments factory near San Dedro
Sula, Honduras, he found a facility "that didn 't have potable drinking water, that had no toilet
paper in the restrooms, and where the fire exits were padlocked. They did pregnancy testing
on the women , and if it came back positive, [the women] were terminated." He also discovered
that contrary to Wal-Mart's stated policy, factories received at least three-day advance notifi-
cation of factory-certification visits-enough time to clean up the facilities . After notifying top
management about this situation, Lynn was accused of violating company policies and fired.
The case of James Lynn v. Wal-Mart was filed in an Arkansas state court in 2005. To its credit,
Wal-Mart's management worked to rectify the problems raised by Lynn . Acording to Beth
Keck, Wal-Mart's Director of International Affairs, the factories inspected by Lynn were either
remedied or terminated as suppliers. Keck acknowledged that outside groups were still not per-
mitted to conduct authorized inspections of their own, though she added that this was a policy
that Wal-Mart was working toward.23 She further reported in a February 13, 2006, news re-
lease: "In 2005 , Wal-Mart audited on average 35 supplier factories a day or 13,600. We in-
creased the number of unannounced audits to 20 percent."24
SECT I 0 N D Industry Four-l\las' Men.:handising

In general, Wal-Mart's management was not in favor of the unionization of its ton.
Keeping labor costs down was key to "everyday low prices." Supermarket rivals paying un:
wages of $10 an hour and paying most health benefit costs were at a competitive disadvant.:.,
to Wal-Mart's Supercenters, where employees earned around $8 and hour and paid a hig. ~
proportion of their health costs. According to an article appearing in The Nation, "During ·- .
hiring process, many workers say they have had to sign forms agreeing that they would not ~.:.:-­
port any effort to unionize the store, a clear violation of federal law." Although none of W -
Mart's U.S. employees were unionized, Wal-Mart had been a defendant in 28 complaints inJ
one year (2002) brought by the U.S. National Labor Relations Board citing anti-union actiYit.:c
such as threats, interrogations, or disciplining. Critics contended that the company moved quic •
to block organizing. For example, when a majority of meat cutters at a store in Jackson d .!
Texas, voted to organize, the company closed its butcher departments at Jackson and other star;
When Wal-Mart's store in Jonquiere, Quebec, was certified by the Quebec government a l!.
only unionized Wal-Mart in North America in August 2004, Wal-Mart simply closed the stcr.
and left the area. Interestingly, a union certification election two months earlier had been \'Ote_
down 53 % to 47 %. After that union defeat, a group ofWal-Mart managers gathered just ot:.~­
side the front door to celebrate for the TV cameras and taunt union supporters as they left tt-~
store. Many employees who had voted against the union were so appalled by management
actions that they switched sides. Interestingly, a 2006 study reported by New England Con sul·-
ing Group found that 60% of union members had visited a Wal-Mart in the past month ver u.
57% of all shoppers. According to Tom Hayes, a principal in the consulting group, Wal-Ma:-
had more unionized shoppers than any other retailer-double the number for Sears and 40
more than Target. Explained Hays, "The savings are too much to resist."
Even though a recent survey found that only 8% of adults were openly hostile toward W<L-
Mart, there was some indication that the company's customers were no longer pleased with the
company. Based on interviews conducted in 2003 by Service Industry Research Systems, cu -
tamer ratings of the staff in terms of courtesy and friendliness dropped more than 20% sin e
1999. The ratings had fallen to slightly below the industry average, which itself had droppe.:.
during the same period.
Opponents of "big box" retail stores were battling Wai-Mart in an increasing number of
locations across the country. In 2004, the ethnically mixed Los Angeles suburb of Englewood
voted to stop the building of a new Wal-Mart store, partly in the widespread belief that Wal-
Mart destroyed local shopkeepers. One person attacked the company as "a modern-day plan-
tation. " A major real estate developer dropped plans to include Wal-Mart in a proposed Ne\\
York City shopping mall in 2005 because of intense opposition from labor unions, neighbor-
hood retailers, and city officials concerned about the effect the store would have on competi-
tors. This would have been Wal-Mart's first New York City location. The company's decision
to build a store in Jefferson , Wisconsin , in 2004 created a major battle among its residents . The
formation of the Coalition for a Better Jefferson opposing Wal-Mart led to the launch of the
pro-Wal-Mart Coalition for the Best Jefferson , headed by 69-year-old Charlotte Goers- Nevin.
Goers-Nevin contended: "The number one complaint of the older people is they don ' t have a
place to shop. Wal-Mart was going to be a good tax base for us , and it was going to be nice for
the older people." Even though the town 's aldermen voted against annexing the land needed
for the new store, the controversy divided the city and led to a recall election against the alder-
man most against Wal-Mart's entry into town.32
In their enthusiasm to attack the company, anti-Wal-Mart interest groups sometimes used
extreme measures. In December 2005, for example, the union-supported Wake Up Wal-Mart
released a TV ad accusing Wal-Mart of violating religious values, supported by a letter from
religious leaders attacking the company for paying low wages and offering poor benefits. The
letter declared, "Jesus would not embrace Wal-Mart's values of greed and profits at any cost."
The campaign was soon jokingly referred to in the media as "Where would Jesus shop?"33
 CASE 1 9 Wal-Mwt Swres, Inc.

By 2006, Wal-Mart's management was beginning to feel as if they were living in a punch-
ing bag. It appeared the company was being treated as a scapegoat for any big business wrong-
doing and blamed for all of society's ills. It could be argued, for example, that low wages and
benefits were typical for the retailing industry as a whole, not just Wal-Mart. Target, Kmart,
and other mass merchandisers could be equally criticized for weakening downtowns, extract-
ing public subsidies, and selling clothes made in sweatshops in developing nations. Even
though Costco faced a class-action lawsuit alleging systematic discrimination against women,
it never received the publicity Wal-Mart lawsuits generated.34 In an interview with Business
Week, Scott referred to comments made by a visiting CEO to Wal-Mart executives: "There isn't
anything you are faced with, from a class action to the rest of the stuff, that we're not dealing
with. The only difference is that yours is played out on the front page of the paper, and you
never read about ours."3 5 In response to the criticism that Wal-Mart's pay and benefits were
too low, CEO Scott countered that people were continuing to apply for Wai-Mart jobs. He
stated in Wal-Mart's 2006 Annual Report: "At a store opening this year just outside Chicago,
we received more than 25 ,000 applications for just 325 jobs."

Corporate Initiatives
To counter social criticism of the company and to regain control of its growth strategy, Wal-
Mart management introduced a series of new programs.

Social Initiatives
Throughout its history, Wai-Mart has tried to be a good corporate citizen in those towns where
it had facilities. When Hurricane Katrina ravaged America's Gulf Coast, Wal-Mart had its
truckers haul $3 million of supplies to the area, arriving in many cases days before the Fed-
eral Emergency Management Agency (FEMA). The company also contributed $17 million in
cash to relief efforts. Its long-praised efficiency was demonstrated when it reopened all but 13
of its affected stores by September 16, 2005-just three weeks after the storm. By then the
company had located 97 % of the employees displaced by the storm and offered them jobs at
any Wal-Mart operation in the country. Thanks to the ability of Jason Jackson , Wal-Mart's Di-
rector of Business Continuity, who was able to plot the likely path of the storm, management
was able to get the stores in the zone fully stocked with water, flashlights , batteries, and
canned food . The result was a public relations success for the company.36
During October 2005, Wal-Mart offered $8.5 million worth of grants from its "Safe
Neighborhood Heroes" program to recognize the efforts of hometown fire, police, rescue, and
emergency medical service teams with direct financial contributions. "As a community, we
must Jean on each other to help those we serve," explained Betsy Reithemeyer, head of Wai-
Mart & Sam's Club Foundation.37 In addition, management announced in April 2006 that it
planned to build more than 50 stores in struggling urban areas during the next two years. CEO
Lee stated that the stores would generate between 15,000 and 25 ,000 new jobs in neighbor-
hoods with high crime or unemployment rates, on sites that are environmentally contaminated,
or in vacant buildings or malls in need of renovation.
Responding to criticism of its health care coverage, Wal-Mart's management introduced a
"Value Plan." The new benefits plan offered health coverage to its employees at premiums rang-
ing from $11 to $65 a month. The first three doctors' visits and three prescriptions were mostly
paid by the company with only nominal payments needed by the employee. It did, however,
contain fairly high deductibles, but the company offered tax-free health savings accounts to help
employees pay out-of-pocket expenses up to the deductible amount. Wal-Mart also added health
clinics to its stores to provide health care access to its associates and the local community.38
 SECT I 0 N D lndu~try Four Mass Merchandising

To deflect some of the criticism the company had been receiving regarding discriminat.
against women and minorities, management for the first time made public in April 2006 ·"'
data it had been providing the U.S. Equal Opportunity Employment Commission each ~e
The report stated that 32% of the 1.34 million Wal-Mart U.S. employees were minoritie . . -
norities were 21 % of managers, 20% of professionals, and 33% of sales workers. Women -~­
counted for 60% of the workforce, 39% of managers, and 75 % of sales workers.39
Wal-Mart management realized that it had to do better in terms of dealing with its m _
stakeholders. Consequently, in February 2006, it established a new position of Senior Dire '
of Stakeholder Engagement According to the posted job description, the new position was to ~­
pOlt to Wal-Matt's Vice President for Corporate Strategy and "will play a critical role in helpu =
the company ... create a new model of business engagement that uses market-based change
create societal value." Explained spokesperson Sarah Clark, "We're trying to centralize our [ -
cial responsibility] efforts."40 In March 2006, management announced that it planned to hire
Director of Global Ethics. The director's job was to manage the company's Global Ethics Oft!
that had been established in 2004 and to ensure that the retailer 's code of conduct was being :l"-
plied across all its operations throughout the world. The person hired would lead the compan_.
global ethics strategy and oversee ethics-related infrastructure, administration, and training.
In its quest for efficiency and low costs, Wal-Mart had inadvertently helped the en virc~­
ment when management decided in the early 1990s that much of the packaging being used!::_
its suppliers was unnecessary. In one example, it told Wal-Mart suppliers to ship deodoran·
without their paperboard containers. Charles Fishman, in his book The Wal-Mart Effect, star
"It's a perfect Wal-Mart moment-the company used its insight and its muscle to help chan: e
the world. Millions of trees were not cut down, acres of cardboard were not manufactured on~_
to be discarded, and one billion of deodorant boxes didn't end up in landfills each year. If
unseen, all unnoticed , and all good." 4 1 Once they realized that business practice could
aligned with environmental needs, Wal-Mart's management expanded this program to pri\'are-
label toys and other goods. In an October 24, 2005, presentation by CEO Lee Scott, he pre-
sented Wai-Mart's new environmental objectives: (1) to be supplied 100% by renewable
energy, (2) to create zero waste, and (3) to sell products that sustain our resources and enn-
ronment. Wanting to reduce the fuel usage of its trucking fleet, he added: "We will increa:,e
our fleet efficiency by 25 % over the next three years and double it within ten years." Throug
improvements in technology, Scott stated that management intended to eliminate 30% of th
energy used in Wal-Mart stores. Through a new process called "sandwich balers," at 99 sam·
Clubs and 548 Wal-Mart stores, the company was recycling plastic it used to throw away.

Growth Initiatives
Realizing that Target was its strongest U.S. competitor in discount mass merchandising, Wal-
Mart's management felt in 2005 that it needed to overhaul its merchandise mix , stores, anu
image to go after higher-margin, discretionary sales. Greater emphasis was to be placed Or!
more fashionable merchandise and more attractive advertisements. It wanted to entice ir
style-conscious customers who went to Wal-Mart to buy food and the basics, but avoided the
fashion and home furnishings departments. Management worked to reduce clutter on the Wal-
Mart sales floor. Less merchandise was to be stacked at the ends of the aisles. More room wa
to be allowed between apparel racks. Apparel areas were to receive imitation hardwood floor
to suggest more upscale goods. More emphasis was to be placed on the George clothing line
originally created in the United Kingdom by the ASDA retail chain . According to CEO Scon.
the goal was not to ignore its current customers, but to offer additional goods not current!)
available to Wal-Mart shoppers. Said Scott: "The first thing you have to do is make sure you
have the assortment that is broad enough that includes the customer's tastes and styles. That"
where you end up with the new LCD TV, 400-thread-count sheets, and with more fashion .'- ~2
 CASE 19 Wal-Ma.tt Stores, Inc.

One example of the company's new upscale emphasis was management's decision in April
2006 to double its selection of organic foods in its Supercenters.
In 2003, Wal-Mart broke tradition by opening new stores in a New York City suburban
shopping mall and in a Los Angeles mall where a Macy 's store had once operated. For the ftrst
time, Wal-Mart built its own addition to a regional mall near San Diego. The company was ac-
tually being welcomed in cities such as Los Angeles and Portland, Oregon, where its stores'
presence helped to revive fading shopping malls that served primarily minority shoppers. Al-
though the shopping mall didn't fit the discounters ' traditional model of single-story units sur-
rounded by acres offree parking, it was the only way large retailers could find enough space in
urban locations. Target Corporation, in contrast, had been locating its stores in shopping malls
for 25 years. A report by Goldman, Sachs & Company estimated that Target's mall stores could
grow from 30 in 2003 to 150 by 2012. Real estate analysts calculated that the higher logistical
costs of a mall location would be offset by higher store traffic and more sales per square foot. 43
Wal-Mart's management has long wanted to add financial services to its mix of offerings.
Its attempt to purchase an Oklahoma bank in 1999 was thwarted, as was its 2005 attempt to
buy a California industrial loan corporation (ILC). Wal-Mart Stores' application to the Federal
Deposit Insurance Corporation to charter a bank drew 1,550 mostly negative comments. Most
of the negative comments stressed the dangers of an unregulated commercial company own-
ing a federally insured bank. In 2005, Wal-Mart allowed 300 local and community banks to
operate branches in more than 1,000 stores on long-term leases. Opponents feared that Wal-
Mart might put its own banks in stores and thus devastate community banks. "If they get their
hands on an ILC and get into financial trouble, they could swamp the FDIC fund, and we could
have a repeat of the savings and loan collapse," stated Camden Fine, CEO of the Independent
Community Bankers of America. 44

Recent Events
During the summer of 2006, Wal-Mart continued to be in the news. Just a few months after
announcing that the company was closing its stores in South Korea, management announced
that Wai-Mart was also withdrawing from Germany. The sale of its 85 hypermarkets to rival
Metro AG resulted in a $863 million pretax loss for the firm. The pullout left the company
with only one European operation, ASDA, Britain's second largest supermarket chain.
In a surprise decision, management decided to agree to allow officials from China's state-
run union to unionize employees in Wal-Mart's 60 retail stores in China. This amazed most in-
dustry analysts because of Wal-Mart's history and because most foreign firms did not have
unions in China. According to Jonathan Dong, company spokesman, it was up to the employ-
ees at each store to decide if they wished to join the union. As of August 11, 2006, six of the
60 stores had unionized.45
On August 8, 2006, Wal-Mart management announced that it was raising starting pay at
about a third of its U.S. stores by an average of 6%. It was also introducing wage caps for the
first time on each type of job in all stores. This announcement came just two weeks after
Chicago 's City Council passed an ordinance in July 2006 requiring all retail stores with floor
space over 90,000 square feet ("big box" stores) to pay a "living wage" and provide a mini-
mum amount for benefits. 46
On August 15, 2006 Wal-Mart's management announced that quarterly profits had declined
for the first time in I 0 years. Higher gasoline prices and the closing of German operations were
blamed for a 26% decline in second-quarter profit. Net income fell to $2.1 billion from $2.8 bil-
lion a year earlier. With the price of gasoline averaging $2.92 per gallon, up 33% from 2005 , Wal-
Mart's customers were making fewer trips to the store, but spending more each visit. Net sales
for the second quarter of fiscal year 2007 (ending July 31, 2006) were $84.5 billion, an increase
 SECTION D Indu,try Four----Mass Merchandising

of 11.3% over the second quarter of fiscal 2006. Quarterly income from continuing opera
was up 4.6% versus a year earlier to nearly $3 billion. The second-quarter profit decline re L ·~
in Wal-Mart's shares falling $.55 to $44.55 at the close of business on August 15, 2006.

What Next?
H. Lee Scott would never forget his first meeting with Sam Walton. "How old are youT \\ -
ton asked the then 30-year-old Scott, who had just taken a job managing Wal-Mart's true
fleet. "Do you think you can do this job?" asked Walton. When Scott said yes, Walton agre
and said, "I reckon you can." More than 20 years later, as Wai-Mart's CEO, Scott faced h
toughest challenge yet: keeping the world's biggest retailer on its phenomenal roll and del' -
ering the huge sales and earnings increases that investors had come to expect from Wal- l.m
over the years-all while deflecting increasing criticism of his company's business practice
Analysts had correctly projected that Wai-Mart would surpass General Motors to be ranl.e~
number one in revenue on the Fortune 500 list in 2000. The combination of growth and .,_._-
quisition had caused revenue increases every year. Increasing profits followed higher sale
How could this be continued if Wal-Mart's management allowed costs to increase and e~­
vice to lag?
Wai-Mart Stores, Inc., revolutionized American retailing with its focus on low costs, hig
customer service, and everyday low pricing to drive sales. Although the company had suffere~
through some years of lagging performance, it experienced big gains from its move into the
grocery business with one-stop Supercenters and into international markets with acquisition .
joint ventures, and new ventures. To keep it all going and growing was a major challenge. A.
the largest retailer and firm in the world, the company and its leadership were challenged tc
find new areas to continue to grow sales and profits into the future. Lee Scott knew that an am-
bitious expansion program was called for to allow the company to meet these objectives, both
at home and abroad. The company also needed a strong program to pre-empt its social critic .
instead of always being on the defensive. At the same time, Scott realized that Wal-Mart could
not allow itself to emphasize social over business objectives.

N 0 T ES
1. "Letter to Shareholders," 2006 Annual Report, Wal-Mart Stores,
Inc., p. i.
2. J. Unseem, "One Nation under Wai-Mart," Fortune (March 3,
2003), pp. 65-78; A. Bianco and W. Zellner, "Is Wal-Mart Too
Powerful?" Business Week (October 6, 2003), pp. 100-110;
"Opening Up the Big Box," Economist (February 25, 2006), p. 80.
3. Letter to Shareholders, 2006 Annual Report, pp. 12- 13.
4. R. Walberg, "Can Wal-Mart's PR Campaign Save Its Stock?"
Street Patrol (April 14, 2005).
5. "The Top Ten," Forbes (October I0, 2005), p. I00 and " Holdings
of Major Shareholders," Notice of 2006 Annual Shareholders '
Meeting (April 14, 2006), p. 26.
6. L. Grant, "Wal-Mart Sets Sights on Target While Keeping Core
Customers," USA Today (August 5, 2005), pp. IB and 2B.
7. P. Burrows, "Stopping the Sprawl at HP," Business Week
(May 29, 2006), pp. 54-56.
8. J. Loades-Carter, "Carrefour to Open 1,000 New Stores as Prof-
its Fall," Financial Times (March 9, 2006).
9. J. Ewing, "Wal-Mart: Local Pipsqueak," Business Week
(April 11 , 2005), p. 54.
10. S. Goldstein, "Wai-Mart's U.K. Market Share Eases:·
Market Watch (March 9, 2006).
11. "Wal-Mart to Hire Up to 150,000 in China," St. Cloud Times
(March 21, 2006), p. 6A.
12. S. Izumi , "Wal-Mart Sets $lb in Rescue for Seiyu," Rewers
(November 2, 2005).
13. C. Sang-Hun, "Wal-Mart Selling Stores and Leaving South
Korea," International Herald Tribune (May 23, 2006).
14. D. Faber, "With a Small-Town Culture, Wal-Mart Dominates:·
CNBC (November I0, 2004).
15. "Wal-Mart Tries to Create Hip Image," St. Cloud Times
(February 21, 2006), p. 6A.
16. A. Bianco and W. Zellner, " Is Wai-Mart Too Powerful ?"
Business Week (October 6, 2003), pp. 100-110.
17. A. Bianco, "No Union, Please, We' re Wal-Mart," Business Week
(February 13, 2006), p. 80.
18. L. Scott, "To Our Shareholders, Associates, and Customers,"
2006 Annual Report, Wal-Mart Corporation, p. 12.
19. D. McGinn, "Wai-Mart Hits the Wall ," Newsweek (Novem-
ber 14, 2005), pp. 42-44.