Business Strategy Analysis of Wal-Mart Sam Walton, a leader with an innovative vision, started his own company and

made it into the leader in discount retailing that it is today. Through his savvy, and sometimes unusual, business practices, he and his associates led the company forward for thirty years. Today, four years after his death, the company is still growing steadily. Wal-Mart executives continue to rely on many of the traditional goals and philosophies that Sam's legacy left behind, while simultaneously keeping one step ahead of the ever-changing technology and methods of today's fast-paced business environment. The organization has faced, and is still facing, a significant amount of controversy over several different issues; however, none of these have done much more than scrape the exterior of this gigantic operation. The future also looks bright for Wal-Mart, especially if it is able to strike a comfortable balance between increasing its profits and recognizing its social and ethical responsibilities. Why is Wal-Mart so Successful? Is it Good Strategy or Good Strategy Implementation? -- In 1962, when Sam Walton opened the first Wal-Mart store in Rogers, Arkansas, no one could have ever predicted the enormous success this small-town merchant would have. Sam Walton's talent for discount retailing not only made Wal-Mart the world's largest retailer, but also the world's number one retailer in sales. Indeed, Wal-Mart was named "Retailer of the Decade" by Discount Store News in 1989, and on several occasions has been included in Fortune's list of the "10 most admired corporations." Even with Walton's death (after a two-year battle with bone cancer) in 1992, Wal-Mart's sales continue to grow significantly. The Wal-Mart Philosophy -- Wal-Mart is successful not only because it makes sound strategic management decisions, but also for its innovative implementation of those strategic decisions. Regarded by many as the entrepreneur of the century, Walton had a reputation for caring about his customers, his employees (or "associates" as he referred to them), and the community. In order to maintain its market position in the discount retail business, Wal-Mart executives continue to adhere to the management guidelines Sam developed. Walton was a man of simple tastes and took a keen interest in people. He believed in three guiding principles: 1. Customer value and service; 2. Partnership with its associates; 3. Community involvement (The Story of WalMart, 1995). The Customer -- The word "always" can be seen in virtually all of Wal-Mart's literature. One of Walton's deepest beliefs was that the customer is always right, and his stores are still driven by this philosophy. When questioned about Wal-Mart's secrets of success, Walton has been quoted as saying, "It has to do with our desire to exceed our customers' expectations every hour of every day" (Wal-Mart Annual Report, 1994, p. 5). The Associates -- Walton's greatest accomplishment was his ability to empower, enrich, and train his employees (Longo, 1994). He believed in listening to employees and challenging them to come up with ideas and suggestions to make the company better. At each of the Wal-Mart stores, signs are displayed which read, "Our People Make the Difference." Associates regularly make suggestions for cutting costs through their "Yes We Can Sam" program. The sum of the savings generated by the associates actually paid for the construction of a new store in Texas (The story of Wal-Mart, 1995). One of Wal-Mart's goals was to provide its employees with the appropriate tools to do their jobs efficiently. The technology was not used as a means of replacing existing employees, but to provide them with a means to succeed in the retail market (Thompson & Strickland, 1995).

The Community -- Wal-Mart's popularity can be linked to its hometown identity. Walton believed that every customer should be greeted upon entering a store, and that each store should be a reflection of the values of its customers and its community. Wal-Mart is involved in many community outreach programs and has launched several national efforts through industrial development grants. What are the Key Features of Wal-Mart's Approach to Implementing the Strategy Put Together by Sam Walton -- The key features of Wal-Mart's approach to implementing the strategy put together by Sam Walton emphasizes building solid working relationships with both suppliers and employees, being aware and taking notice of the most intricate details in store layouts and merchandising techniques, capitalizing on every cost saving opportunity, and creating a high performance spirit. This strategic formula is used to provide customers access to quality goods, to make these goods available when and where customers want them, to develop a cost structure that enables competitive pricing, and to build and maintain a reputation for absolute trustworthiness (Stalk, Evan, & Shulman, 1992). Wal-Mart stores operate according to their "Everyday Low Price" philosophy. Wal-Mart has emerged as the industry leader because it has been better at containing its costs which has allowed it to pass on the savings to its customers. Wal -Mart has become a capabilities competitor. It continues to improve upon its key business processes, managing them centrally and investing in them heavily for the long term payback. Wal-Mart has been regarded as an industry leader in "testing, adapting, and applying a wide range of cutting-edge merchandising approaches" (Thompson & Strickland, 1995, p. 860). Walton proved to be a visionary leader and was known for his ability to quickly learn from his competitors' successes and failures. In fact, the founder of Kmart once claimed that Walton "not only copied our concepts, he strengthened them. Sam just took the ball and ran with it" (Thompson & Strickland, 1995, p. 859). Wal-Mart has invested heavily in its unique cross-docking inventory system. Cross docking has enabled Wal-Mart to achieve economies of scale which reduces its costs of sales. With this system, goods are continuously delivered to stores within 48 hours and often without having to inventory them. Lower prices also eliminate the expense of frequent sales promotions and sales are more predictable. Cross docking gives the individual managers more control at the store level. A company owned transportation system also assists Wal-Mart in shipping goods from warehouse to store in less than 48 hours. This allows Wal-Mart to replenish the shelves 4 times faster than its competition. Wal-Mart owns the largest and most sophisticated computer system in the private sector. It uses a MPP (massively parallel processor) computer system to track stock and movement which keeps it abreast of fast changes in the market (Daugherty, 1993). Information related to sales and inventory is disseminated via its advanced satellite communications system. Wal-Mart has leveraged its volume buying power with its suppliers. It negotiates the best prices from its vendors and expects commitments of quality merchandise (Thompson & Strickland, 1995). The purchasing agents of Wal-Mart are very focused people. "Their highest priority is making sure everybody at all times in all cases knows who's in charge, and it's Wal-Mart" (Vance & Scott, 1995, p. 32). "Even though Wal-Mart was tough in negotiating for absolute rock-bottom prices, the company worked closely with suppliers to develop mutual respect and to forge long-

term partnerships that benefited both parties" (Thompson & Strickland, 1995, p. 866). Wal-Mart built an automated reordering system linking computers between Procter & Gamble ("P&G") and its stores and distribution centers. The computer system sends a signal from a store to P&G identifying an item low in stock. It then sends a resupply order, via satellite, to the nearest P&G factory, which then ships the item to a Wal-Mart distribution center or directly to the store. This interaction between Wal-Mart and P&G is a win-win proposition because with better coordination, P&G can lower its costs and pass some of the savings on to Wal-Mart. Sam Walton received national attention through his "Buy America" policy. Through this plan, Wal-Mart encourages its buyers and merchandise managers to stock stores with American-made products. In a 1993 annual report management stated the "program demonstrates a longstanding Wal-Mart commitment to our customers that we will buy American-made products whenever we can if those products deliver the same quality and affordability as their foreignmade counterparts" (Thompson & Strickland, 1995, p. 868). Environmental concerns are important to Wal-Mart. A prototype store was opened in Lawrence, Kansas, which was designed to be environmentally friendly. The store contains environmental education and recycling centers (Slezak, 1993). Wal-Mart has also adopted the low cost theme for its facilities. All offices, including the corporate headquarters, are built economically and furnished simply. To conserve energy, temperature controls are connected via computer to headquarters. Through these programs, Wal-Mart shows its concern for the community. Wal-Mart has been led from the top but run from the bottom, a strategy developed by Sam Walton and carried on by a small group of senior executives led by CEO David Glass. Although recent growth has led Wal-Mart to add more management layers, senior executives strive to maintain its unique culture. This culture, described as "one part Southern Baptist evangelism, one part University of Arkansas Razorback teamwork, and one part IBM hardware" has worked to Wal-Mart's advantage (Saporito, 1994, p. 62). Just how Successful is Wal-Mart? -- A forecast (see Appendix A) of Wal-Mart's income for the period 1995-2000, considering increases of 30.6% in Net Sales, 27.7% in Operating Expenses, and 52.3% in Interest Debt (a level which is below Wal -Mart's historically compounded growth rate of 55.6%) indicates that the company should continue to report gains each year until 2000. Growth on Sales -- According to most analysts and company projections, sales should approximate $115 billion by 1996, representing an increase of 30.6% as compared to 1995. If the company continues at this pace, sales should reach $334 billion by the year 2000. The growth on sales that Wal-Mart reported during the 1980s and the beginning of the 1990s will be difficult to repeat, especially considering the ever-changing marketplace in which it competes. In an interview, Bill Fields, President of the Stores Division, said "Wal -Mart is now seeing price pressure from companies that once assiduously avoided taking it on. These include specialty retailers such as Limited, category killers like Home Depot and Circuit City, and catalog companies like Spiegel. I think everybody prices off of Wal-Mart. You've got Limited reaching levels we'd thought they'd never get to. The result is that everyday low prices are getting lower" (Saporito, 1994, p. 66). In addition, the baby-boomers are reaching their peak earnings years, when financial and personal priorities change. Thus, savings, not spending, will likely take precedence because most baby-boomers are approaching retirement.

Debt Position -- Based on Wal-Mart's position in 1994, which was considered a year of expansion for the company, (Wal-Mart added 103 new discount stores, 38 "Supercenters", 163 warehouse clubs, and 94,000 new associates) interest debt increased 52.3%. The cost paid by Wal-Mart to finance property plants and equipment forced the company to increase long term debt by 4.6 times during the period 1991-1995. Long term debt for 1995 is $7.9 billion. If WalMart continues its expansion plans based on more debt acquisition at 1994 levels, the company may not attain forecasted gains by as early as 1998. Operating Expenses -- Operating expenses will be a key strategic issue for Wal-Mart in order to maintain its position in the market. The challenge is how to run more stores with less operating expenses. According to Bill Fields, ". . . the goal is to increase sales per square foot and drive operating costs down yet another notch" (Saporito, 1994, p. 66). Trends indicate that operating expenses have been growing at a rate of 27.7% in recent years. However, Wal-Mart should reap the benefits of its investments in high technology, and be able to operate more stores without increasing its expenses. Cost of Sales -- Cost of sales historically has been equal to the level of sales. If the company continues to take advantage of its buying power, Wal-Mart can expect to lower its cost of sales. Wal-Mart's future will depend on how well the company manages its expansion plans. For the coming years, the company will need to justify its expansion plans with consistent growth in sales, in order to offset the increases in debt interest and operating expenses. What Problems are Ahead for Wal-Mart? What Risks? -- Throughout the 1980s, Wal-Mart's strategic intent was to unseat industry leaders Sears and Kmart, and become the largest retailer in the U.S. Wal-Mart accomplished this goal in 1991. But Wal-Mart's current strong competitive position and its past rapid growth performance can't guarantee that the company will remain as the industry leader or maintain its strong business position in the future. Carol Farmer, a retail consultant, told the Wall Street Journal that, "One little bad thing can wipe out lots of good things" (Trimble, 1990, p. 267). Every move in its business operation ought to be well thought-out and executed. Wal-Mart needs to address two major areas in order to maintain or to capture an even stronger long term business position: 1) Single-business strategy -- Wal-Mart's success is mainly based on its concentration of a single-business strategy. This strategy has achieved enviable success over the last three decades without relying upon diversification to sustain its growth and competitive advantages. Given its current position in the industry, Wal-Mart may want to continue its single-business strategy and to push hard to maintain and increase market share. However, there is risk in this strategy, because concentration on a single-business strategy is similar to "putting all of a firm's eggs in one industry basket" (Thompson & Strickland, 1995, p. 187). In other words, if the retail industry stagnates due to an economic downturn, Wal-Mart might have difficulty achieving past profit performance. Also, if Wal-Mart continues to follow Sam Walton's vision of expansion, Wal-Mart will reach its peak in the very near future. When it does, its growth will start to slow down and the company will need to turn its strategic attention to diversification for future growth. 2) Social responsibility -- Retail stores can compete on several bases: service, price, exclusivity, quality, and fashion. Wal-Mart has been extremely successful in competing in the retail industry by combining service, price, and quality. However, other merchants may object to Wal-Mart's

entry into their community. Because of its ability to out-price smaller competitors, Wal-Mart's stores threaten smaller neighborhood stores which can only survive if they offer merchandise or services unavailable anywhere else. This makes it very hard for small businesses, such as "mom-and-pop" enterprises, to survive. They, therefore, fight to keep Wal-Mart from entering their locales. Numerous studies conducted in different states both support and criticize Wal-Mart (Verdisco, 1994). Nevertheless, Wal-Mart did drive local merchants out of business when it opened up stores in the same neighborhood. As a result, more and more rural communities are waging war against Wal-Mart's entrance into their market. Besides protesting and signing petitions to attempt to stop Wal-Mart's entry into their community, the opposition's efforts can even be found on The Internet. Gig Harbor, a small town in Washington, recently started a World Wide Web page entitled "Us Against the Wal." The town's neighborhood association promised that they "will fight them [Wal-Mart] tooth and nail" (PNA/Island Aerie Internet Productions, 1995/1996). The increasing opposition indicates that the road ahead for Wal-Mart may not be as smooth as Wal-Mart's annual report would entail. This requires Wal-Mart to rethink its expansion strategy since it would not be profitable to operate in an unfriendly community. How Big Will Wal-Mart be in Five Years if all Continues to go Well? -- Before he died, Sam Walton expressed his belief that by the year 2000 Wal-Mart should be able to double the number of stores to about 3,000 and to reach sales of $125 billion annually. Walton predicted that the four biggest sources of growth potential would be the following: 1. expanding into states where it had no stores; 2. continuing to saturate its current markets with new stores; 3. perfecting the Supercenter format to expand Wal-Mart's retailing reach into the grocery and supermarket arena -- a market with annual sales of about $375 billion; 4. moving into international markets (Thompson & Strickland, 1995). Wal-Mart Supercenters represent leveraging on customer loyalty and procurement muscle in order to create a new domestic growth vehicle for the company. With few locations left in the U.S. to put a new Sam's Club or traditional Wal -Mart, the Supercenter division has emerged as the domestic vehicle for taking Wal-Mart to $100 billion in sales. Before the Supercenter, Walton experimented with a massive "Hypermart", encompassing more than 230,000 square feet in size. The idea failed. Customers complained that the produce was not fresh or well-presented and that it was difficult to find things in a store so big that inventory clerks had to wear roller skates. One of Walton's philosophies was that traveling on the road to success required failing at times. As a result of the unsuccessful experiment, Walton launched a revised concept: the Supercenter, a combination discount and grocery store that was smaller than the Hypermart. The Supercenter was intended to give Wal-Mart improved drawing power in its existing markets by providing a one-stop shopping destination. Supercenters would have the full array of general merchandise found in traditional Wal-Mart stores, as well as a full-scale supermarket, delicatessen, fresh bakery, and other specialty shops like hair salons, portrait studios, dry cleaners, and optical wear departments. Supercenters would measure 125,000 to 150,000 square feet, and target locations where sales per store of $30 to $50 million annually were feasible. Walton's prediction was right on target. The Supercenter division more than doubled in size during 1993, then doubled again in 1994. Supercenters, once thought of as risky because of slim profit margins on the food side, will most likely make Wal-Mart the nation's largest grocery retailer within the next five to seven years (Longo, 1994).

Expanding overseas, Wal-Mart moved into the international market in 1991 through a jointventure partnership with CIFRA S.A. de C.V., Mexico's leading retailer. Since then the company has entered Canada, Hong Kong, mainland China, Puerto Rico, Argentina, and Brazil. The WalMart International Division was officially formed in 1994 to manage the company's international growth. By the year 2000, analysts expect Wal-Mart to be a huge international retailer, with numerous locations in South America, Europe, and Asia. Conclusion -- The ever-changing market presents continuing challenges to retailers. First and foremost, retailers must recognize the strong implications of a "buyers' market" (Lewison, 1994). Customers are being offered a wide choice of shopping experiences, but no one operation can capture them all. Therefore, it is incumbent upon management to define their target market and direct their energies toward solving that specific market's problems. Technology, demographics, consumer attitudes, and the advent of a global economy are all conspiring to rewrite the rules for success. Success in the next decade will depend upon the level of understanding retailers have about the new values, expectations, and needs of the customer. If Wal-Mart continues its customer-driven culture, it should remain a retail industry leader well into the next century.

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On November 27, 2006, Wal -Mart Stores, Inc (Wal -Mart), the world's largest retailer, and Bharti Enterprises Ltd. (Bharti), a leading business group in India, signed a Memorandum of Understanding (MoU) to explore business opportunities in the Indian retail industry. This joint venture marked the entry of Wal -Mart into the Indian retailing industry. According to Sunil B. Mittal (Mittal), chairman and managing director, Bharti, "The joint venture with equal stakes will operate in areas where the government allows foreign investment in retail like cash -and-carry and logistics. The retail shops will be owned by Bharti Enterprises under the Wal -Mart franchise. The idea is to give In dians the lowest price everyday." Many analysts opined that both the parties in the venture had their own strengths and would complement each other. Viswanathan Vasudevan, an equity analyst at the Singapore -based Aquarius Investment Advisors Pte, said, " It's a great fit for Wal -Mart as Bharti knows the rules of the game and will save Wal -Mart a lot of time and energy to overcome the system. For Bharti, you can't get a better partner than Wal -Mart in retail." Gajendra Nagpal, director, Unicorn Investments, said, "This joint venture is a winning combination. Wal -Mart's logistics skill and Bharti's execution capability will create a potent force in the Indian market." This franchise strategy with Bharti was a deviation from Wal -Mart's usual way of entering countries. This was because the policy restrictions on foreign direct investment (FDI) in the Indian retail sector. As part of the agreement, Bharti was expected to pay a royalty between 2 percent and 3 percent of sales to Wal -Mart for using the latter's brand name. The Bharti Wal-Mart joint venture was expected to open its stores in India from August 2007. Though the parties did not disclose the financials of the deal, according to retail industry sources, the Bharti -Wal-Mart venture would make an initia l investment of US$ 100 million, which could further increase to US$ 1.46 billion. Wal -Mart had reportedly brought in two veteran executives, Andy Guttery and Lance Rettig, to implement its operations in India under the joint venture. Wal -Mart had also rop ed in Raj Jain, Emerging markets president & CEO, Wal-Mart, to head the cash -and-carry business in India.

The retail industry in India is estimated at about US$ 300 billion and is expected to grow to US$ 427 billion in 2010 and US$ 637 billion in 2015. Mo reover, only 3 percent of the Indian retail industry was in the organized sector. Foreign retailers were keen to enter India's rapidly growing retail market. However, the government had permitted retailers of single brand products to own a majority stake i n a joint venture with a local partner (with prior government permission). Retailers of multi -brands were only permitted to operate through franchises and licencees, or a cash -and-carry wholesale model. The biggest competitor for Bharti -Wal-Mart was expected to be Reliance Retail, the retail wing of Reliance, which had planned to establish 10,000 stores by 2010. It had already opened 11 pilot stores under the "Reliance Fresh" format in Hyderabad. Even Pantaloon Retail, the retail arm of the Future Group was expected to give stiff competition as it had a first -mover advantage. Kishore Biyani, CEO, Future Group, said, "Our strength is that we understand the Indian consumer better than Wal -Mart and we also have a window of opportunity and the first -mover advantage. For instance, we will have 100 Big Bazaars across India by the time the first store (of Bharati -Wal-Mart) opens its doors here." A few other Indian retailers felt that the entry of foreign retail giants like Wal -Mart, Carrefour SA and Tesco Plc (Tesco) would result in Indian retailers learning some of the best international practices in retailing. However, analysts noted that the success of the joint venture would depend on how successful Wal -Mart is in building a cost efficient supply chain and sourcing network so that the cost savings are passed on the end consumer through its trademark "every day low price" strategy. Some experts felt that Wal -Mart may find it difficult to achieve economies of scale in items such as personal consumer products and may be able to achieve more success in fruits and vegetables as there was still scope for disintermediation. Some also cited the fact that Wal -Mart's business model was not successful in all foreign markets. For example, Wal -Mart had withdrawn its ret ail operations in Germany and South Korea. But in the short term, the Bharti -Wal-Mart joint venture was confronted with problems due to the opposition by the Left parties as they insisted that the government should look into the matter to stop the "backdo or entry"of Wal -Mart into India. These parties opposed the joint

venture stating that foreign direct investment in retail trade was not allowed under the existing policy and that it would impact the vast number of unorganized retailers, domestic manufacturers, and farmers in India.

Will it succeed in india

Wal-Mart recently announced that much of the mega-retailer's future growth will come from
expanding internationally , especially in emerging markets such as India and China. That's

risky business. Last year, Wal-Mart had to close up shop in South Korea and Germany. In fact, less than a third of international retail expansions succeed, according to the consulting firm Bain & Co. If Wal-Mart in India were anything like Wal-Mart in the United States, there are some obvious reasons why its operations just wouldn't fly: Lack of huge parking lots. Americans tend to go to Wal-Mart once a week and buy a ton of stuff. Hauling the loot home requires cars and parking lots. In India, expansive parking lots don't exist, and it's unlikely that Wal-Mart could find enough land to build one in India's dense cities. (And Wal-Mart would have to target urbanites; the rural folk are too poor.) Lack of cars. Most Indians don't have cars, much less ones with capacious trunks to hold a week's worth of purchases. Instead they walk or bike to a nearby corner shop or o pen-air market, and make small purchases on a nearly daily basis. Plus, vegetable sellers wheel their carts through neighborhoods (sort of like ice-cream trucks in the United States), so an Indian homemaker often doesn't even have to leave her doorstep to get the ingredients for that evening's dinner. Lack of large fridges. Buying a week's worth of fruit, veggies, and milk won't work because Indians lack American-sized refrigerators to store large quantities of perishable foods. Plus, electricity in many places is sporadic. Protests from mom-and-pop grocers. In a nation with a tiny shop or kiosk on every corner, Wal Mart would easily invoke the wrath of small-business owners, just as it has in small-town America. Granted, if Wal-Mart adopts a different business model in emerging markets, it could succeed. Competition could even make Indian -owned stores provide better customer service. So, I'll remain open-minded to the idea of Wal-Mart in India.

Wal marts vision for India

Though Wal-Mart has been sourcing merchandise from India for many years now, it is only now that public attention has turned towards it. The reason obviously lies in our proposed wholesale cash-and-carry venture that we plan to undertake with Bharti. With Wal-Marts global experience and supply chain expertise, it has much to bring to India. An ally of small retailers: the JV will sell quality merchandise directly to retailersbig and small, including mom-and-pop or kirana stores. The purpose is to establish an efficient supply chain linking farmers and small manufacturerswho have limited infrastructure or distribution strengthdirectly with retailers, thereby maximising value for all. Together with

back-end infrastructure, this will minimise wastage, particularly of fresh foods and vegetables. By taking advantage of the efficiencies such a supply chain will provide, small retailers will be able to derive significant business benefits which will enable them to compete more effectively with large retailers that cant be expected to extend their reach into every nook and cranny. Building bridges with Indias farmers: Indias retail industry is currently hampered by a fragmented and inefficient supply chain system that involves multiple intermediaries and immense wastage in transportation and storage. Huge quantities of fresh fruits and vegetables are lost due to the lack of a cold chain infrastructure. While inefficiencies drive up consumer prices, the farmer continues to suffer from extremely low realisations. Our JV will establish backward linkages with the farmer, giving him better prices and an assured market. This is a key goal. Help develop and grow local suppliers: One of the key reasons for Wal-Marts international success is localisation. We carry local products from local suppliers that appeal to local tastes, local needs and local fashions. As a wholesale cash-and-carry business, our endeavour will be to work with and develop local suppliers and create local beneficiaries along the supply chain. Many of our suppliers in India have already created their own success stories and established global quality, scale and standards. Wal-Mart is one of the top two retail companies that source Indian products. In 2006, Wal-Mart directly sourced approximately $600 million in goods from suppliers in India. We are also looking at leveraging our global scale to transform more Indian suppliers into exporters by offering them access to our global markets. Provide quality jobs to Indias unskilled workforce: we will make significant investments in training workers. The key to Wal-Marts success as an employer is the opportunities for career advancement; more than three-fourths of our US store managers started in hourly positions and worked their way up. We expect to provide direct and indirect jobs to thousands of Indians. Reduce the consumers cost of living: Worldwide, our business philosophy for our retail operations is that when we increase our efficiency, we pass those savings on to our customers. We would follow the same business model in India for our JV. Through our efficiencies, we hope that big and small retailers will derive significant benefits for their businesses that they will pass on to their consumers, thus reducing the cost of living for low and middle-income consumers and raising their quality of life. Worldwide, Wal-Mart is renowned for its efficiency and expertise in logistics, supply chain management and sourcing. Our aim is to replicate those global best practices in India, and thus help small retailers turn competitive, farmers realise better prices and small manufacturers achieve entrepreneurial success. We are committed to making a beneficial impact on stakeholders at both the production and consumption end in this fast expanding economy.