Rough Draft Team Developed Strategic Audit
Wal-Mart was founded in 1962 by a man named Samuel Moore Walton. He was considered “one of the most influential retailers of the century” (Wheelen & Hunger, 740). Sam
Walton started his retail career in management in 1940 with J.C. Penney Co. His training and hard work at J.C. Penney Co. led him to his great Wal-Mart idea. He decided that small town populations would welcome, and make profitable, large discount shopping stores. When Sam
Walton created Wal-Mart in 1962, he declared that three policy goals would define his business:
“respect for the individual, service to customers, and striving for excellence”
(Walmartstores.com). Wal-Mart stores “sold nationally advertised, well-known-brand merchandise at low prices in austere surroundings” (Wheelen & Hunger, 738). The 1970’s marked significant growth for Wal-Mart. The Company opened its first Wal-Mart Distribution
Center as well as the Wal-Mart Home Office. By the end of 1979, there were 276 Wal-Mart stores in 11 states and in 1991, the firm had 1,573 stores in 35 states to include the international market. Wal-Mart sales growth continued into the 1980s. Wal-Mart was divided into three business segments: Wal-Mart stores, Sam’s Clubs, and the International Division. In 1983 the company opened its first three Sam's Wholesale Clubs and began its expansion into bigger city markets. Wal-Mart Supercenters were large combination stores that included a full-line grocery center, a general merchandise discount store, and other service businesses to include banks as well as a food court of restaurants. Wal-Mart’s international expansion accelerated management’s plans for expansion and notoriety. In 2000, Fortune magazine named it as one of the “100 Best Places to Work” and in 2002, “Wal-Mart officially became the world’s largest company based on its $245 billion in sales” (Wheelen & Hunger, 731).
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Rough Draft Team Developed Strategic Audit
Wal-Mart’s winning strategy in the United States was based on selling brand products at low cost. Wal-Mart is in the business of selling everything customers need in their everyday lives. This includes the consumer goods listed above as well as food-service items. Wal-Mart took pride in its Domestic strategies and programs that were based on a set of two priorities: 1)
“Customers would be provided with what they want, when they want it, all at a value”. 2)
“Treating each other as we would hope to be treated, acknowledging our total dependency on our
Associate-partners to sustain our success” (Wheelen & Hunger, 747).
In the year ending January 31, 2006, Wal-Mart’s financials reflected the following:

Total revenue - $315, 654

Net income - $11,231

Total assets - $138,187

Total liabilities - $48,826
 Total shareholder’s equity - $138,187
A. Current Performance
Wal-Mart (WM) is divided into three business segments: Wal-Mart Stores, Sam's Club, and the International Division. In 2002, “WM officially became the world’s largest company based on its $245 billion in sales” (Wheelen and Hunger 19-1). As of January 31, 2006, the company had over 6,100 stores worldwide, bought products from 70 countries, and 20% of its business was generated outside of the United States (Wheelen and Hunger 19-2).
1.
2006 fiscal year sales of $312.4 billion, a 9.5% year over year increase.
2.
$11.2 billion net income, up 9.4% to $2.68 per share.
3.
Stock price of $46.11, down from $56.98 on January 31, 2002. (Likely due to better competition and future expected growth slowdown.)
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Rough Draft Team Developed Strategic Audit
B. Strategic Position
1.
Mission
Wal-Mart Stores, Inc. is a global retailer committed to improving the standard of living for our customers throughout the world.
–2006 Annual Report
2 . Objectives

Comparative store sales is a measure which indicates the performance of our existing stores by measuring the growth in sales for such stores for a particular period over the corresponding period in the prior year.

Operating income growth greater than net sales growth has long been a measure of success for us.

Inventory growth at a rate less than that of net sales is a key measure of our efficiency.

With an asset base as large as ours, we are focused on continuing to make certain our assets are productive. It is important for us to sustain our return on assets.
--2006 Annual Report
3. Policies

We earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices (“EDLP”) while fostering a culture that rewards and embraces mutual respect, integrity and diversity. Putting Our
Customers First.

EDLP is our pricing philosophy under which we price items at a low price every day so that our customers trust that our prices will not change erratically under frequent promotional activity.
 Our focus for SAM’S CLUB is to provide exceptional value on brand-name merchandise at “members only” prices for both business and personal use.
Internationally, we operate with similar philosophies.
–2006 Annual Report
4 . Strategies

We have developed several initiatives to help mitigate this pressure and to grow comparable store sales through becoming more relevant to the customer by creating a better store shopping experience, continual improvement in product assortment and an aggressive store upgrade program to be instituted over the next 18 months.
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Rough Draft Team Developed Strategic Audit

Our expansion programs consist of opening new units, converting discount stores to supercenters, relocations that result in more square footage, as well as expansions of existing stores.
 Sam’s Club - We believe that a greater focus on providing a quality in-club experience for our members will improve overall sales, including sales in these categories.

International – A shift in the mix of products sold toward general merchandise categories which carry a higher margin.
--2006 Annual Report
A. Board of Directors

Thirteen members, four affiliated with the company, nine independent, three women, two
African Americans, two Hispanic Americans.

Chairman of the Board, S. Robson Walton (son of founder.)
B. Top Management

Eduardo Castro-Wright Executive Vice President, President and Chief Executive Officer,
Wal-Mart Stores Division U.S.

M. Susan Chambers Executive Vice President, People Division

Patricia A. Curran Executive Vice President, Store Operations, Wal-Mart Stores Division
U.S.

Douglas J. Degn Executive Vice President, Food, Consumables, and Hardlines, Wal-Mart
Stores Division U.S.

Linda M. Dillman Executive Vice President, Risk Management and Benefits
Administration

Johnnie Dobbs Executive Vice President, Logistics and Supply Chain

Michael T. Duke Vice Chairman, Responsible for Wal-Mart International

Joseph J. Fitzsimmons Senior Vice President, Treasurer

John E. Fleming Executive Vice President, Chief Marketing Officer, Wal-Mart Stores
Division U.S.

Rollin L. Ford Executive Vice President and Chief Information Officer

David D. Glass Chairman of the Executive Committee of the Board of Directors

Mark D. Goodman Executive Vice President, Marketing, Membership and E-commerce,
SAM’S CLUB

Craig R. Herkert Executive Vice President, President and Chief Executive Officer, The
Americas, Wal-Mart International

Charles M. Holley, Jr. Senior Vice President, Finance
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Rough Draft Team Developed Strategic Audit

Thomas D. Hyde Executive Vice President and Corporate Secretary

Lawrence V. Jackson Executive Vice President, President and Chief Executive Officer,
Global Procurement

Gregory L. Johnston Executive Vice President, Club Operations, SAM’S CLUB

C. Douglas McMillon Executive Vice President, President and Chief Executive Officer,
SAM’S CLUB

John B. Menzer Vice Chairman, Responsible for U.S.

Thomas M. Schoewe Executive Vice President and Chief Financial Officer

H. Lee Scott, Jr. President and Chief Executive Officer

Gregory E. Spragg Executive Vice President, Merchandising and Replenishment, SAM’S
CLUB

S. Robson Walton Chairman of the Board of Directors

Claire A. Watts Executive Vice President, Product Development, Apparel and Home
Merchandising, Wal-Mart Stores Division U.S.

Eric S. Zorn Executive Vice President, Wal-Mart Realty
--2006 Annual Report
A.
Natural Environment

Raw materials availability.(O)

Land availability. (O)

Electricity usage. (T)

Oil and Gas usage. (T)

Water scarcity. (T)

Hazardous waste storage, transportation and disposal. (T?)
B.
Societal Economy
1.
Economic

Interest rate increases may signal end of economic expansion (T).

Economic deterioration may mean more frugal shopping habits. (O)

Increasing commodity costs. (T)

Increasing transportation costs. (T)

Currency fluctuations. (T)

Slowing national economy (T)
2.
Technology

Increased usage of RFID for inventory management. (O)

Internet presence allows for customer options. (O)

Information technology increasingly important. (O)
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Rough Draft Team Developed Strategic Audit
3.
Political-Legal

Regional trade pacts are making free trade available between countries. (O)

Differing laws between countries may evoke compliance issues. (T)

Potential unionization of workforce. (T)

The Company is involved in a number of legal proceedings. In accordance with
Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies,” the Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company’s consolidated financial statements. (T)
--2006 Annual Report

The Company is a defendant in numerous cases containing class action allegations in which the plaintiffs have brought claims under the Fair Labor Standards Act
(“FLSA”), corresponding state statutes, or other laws. (T)
--2006 Annual Report
4.
Sociocultural

Aging U.S. demographics. (O)

Slowing U.S. population growth. (T)

Wal-Mart seen as a reason for closing of mom and pop stores. (T)

International cultural differences. (T)

Green environmental movement. (O)
C.
Task Environment

United States market saturation. (T)

Expansion into Europe, China, South America, Canada, and Mexico. (O)

Rivalry High. Target, Sears, K-Mart (T)

Chance of new entrants low. (O)

Purchasing power high. (O)

Substitute power high. (T)

Government regulations power medium. (T)
A.
Corporate Structure

Three business units, Wal-Mart Stores USA, Sam’s Club, and Wal-Mart International
(Wheelen and Hunger 19-12). (S) o Wal-Mart Stores unit had 3,289 locations and included the company’s supercenters, discount stores, Neighborhood Markets in the US, and walmart.com.
6

Rough Draft Team Developed Strategic Audit o Sam’s Club unit had 567 locations and included the warehouse membership clubs in the US plus samsclub.com. o Wal-Mart International had 2,285 locations in 10 countries. The International total was increased in February 2006 by purchasing a majority control of
CARHCO with 360 locations in five Central American countries.
(Wheelen and Hunger 19-12)
B.
Corporate Culture

In-depth employee involvement in company affairs. (S)

Trained employees to be merchants by being responsible for the performance of their own departments. (S)
 Reflection of the founder’s values. (S)

Conservative values create some problems when expanding to larger cities. (W)

Non-Union stance is viewed unfavorably is some areas. (W)
 Offered $8.5 million worth of grants from its “Safe Neighborhood Heroes” program to recognize emergency professionals (S)
 Donated $3 million in supplies when Hurricane Katrina devastated America’s Gulf
Coast (S)
C.
Corporate Resources
1.
Marketing

Advertising costs are expensed as incurred and were $1.6 billion in 2006. Advertising costs consist primarily of print and television advertisements.
--2006 Annual Report

Buy American campaign. (S)

Green marketing offers the option of buying products which were better for environment. (S)

Offers quality brand names at lower-than-competitive prices. (S)
(Wheelen and Hunger 19-19)
 Introduced a “Value Plan” benefits plan to its employees at premiums ranging from
$11 to $65 a month. (S)
2.
Finance

$312.6 billion in annual sales. (S)

$11.2 billion net income. (S)

$2.68 earnings per share. (S)

8.9% return on assets. (S)
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Rough Draft Team Developed Strategic Audit

11.4% increase in sales and operating income for the international business. (S)
(Wheelen and Hunger 19-24)
3.
R&D

More involved with the development side. (W)

Focusing on expansion and development of already established business model. (W)
4.
Operations

Wal-Mart USA. We are intent on driving comparative store sales by being relevant to our broad customer base and by improving our cost structure and inventory flow to strengthen return on investment. (S)
 Sam’s Club. We remain committed to serving the needs of our members – where pennies matter – by leveraging productivity improvements and lowering expenses, so that we can provide the products and services they want at the lowest prices in the industry. (S)

Wal-Mart International. Our approach to ensuring continued profitable growth includes three dimensions – new markets with multiple formats, new store growth in existing markets and increasing sales at existing stores. (S)
--2006 Annual Report
5.
Human Resources

Employees are called associates. (S)

Employee stock ownership and profit-sharing program. (S)

Decentralized approach to retail management development. (S)

Utilizes the Total Quality Management approach. (S)

Discourages unionization. (W)
(Wheelen and Hunger 19-23)
6.
Information Systems

Leader in RFID technology. (S)

Good internet presence. (S)

Utilizes satellite communications, data centers, and handheld devices. (S)
A.
Situational Analysis
1.
Strengths

International brand name.

Financial position.
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Rough Draft Team Developed Strategic Audit

Market leadership.
2.
Weaknesses

Market saturation.

Public opinion.

Adjustment to cultural differences after entering a foreign market.

Supplier alienation.

Past employee discrimination.

Employee health benefits.

International supplier employee violations.
3.
Opportunities

International expansion.

Environmental leadership.
 Worker’s rights leadership.

Community involvement.

Social initiatives.
4.
Threats

Strong U.S. competition.

Changing demographics.

Economic uncertainty.

Current litigation.

Employee unionization.
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Rough Draft Team Developed Strategic Audit
B.
Review of Current Mission and Objectives

Current mission is appropriate.

Can attempt to increase the 5 years objectives.
A.
Strategic Alternatives

Acquisition of a mid tear player such as Menards or 84 Lumber.
o Pro. Market expansion in a saturated market.
o Con. Costs

More aggressive expansion into South America.
o Pro. Core business growth.
o Con. Cultural differences.

Product expansion.
o Pro. Diversification o Con. Floor space must increase or it will become too crowded.
B.
Recommended Strategy

Aggressive expansion into South America.
o Utilize Mexico experience and capitalize on lessons learned.
o Open in most stable countries first.
o Recommend entering Brazilian market first, it can relate to U.S. culture.

Home Depot must continue to improve customer service or risk losing its customers.
The company should leverage its balance sheet for immediate expansion into South
America. The company should open a comprehensive training center in Brazil and find the best local management executives.

Monitor test markets during early expansion phase.

Utilize opportunities to increase technology and usage of RFID.

Closely monitor impact of new store openings.
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Rough Draft Team Developed Strategic Audit
Key External Factors
Opportunities
European expansion
South American expansion
DIFM market
Threats
Strong U.S. competition
Changing demographics
Economic uncertainty
TOTAL SCORES
Weight Rating Weighted
Score
.10 3 0.30
Comments
Large developed market with relative political stability
.20 4
.20
.20
.10
.20
1.00
4
2
3
1
0.80
0.80
0.40
0.30
0.20
2.80
Large market, relative high degree of political turmoil
1% of sales to women in
1960 up to 11% in 2005.
Steel import tariffs form
European Union
Domestic recession, lower discretionary spending, increasing unemployment
Key Internal Factors Weight Rating Weighted
Score
Comments
Strengths
Brand Name
Financial position
Market leadership
Weaknesses
Military style leadership
Workforce makeup
Competition
Centralized control
TOTAL SCORES
.20 5
.20 4
.15 4
.10 1
.15 2
.15 3
.05 3
1.00
1.00
0.80
0.60
0.10
0.30
0.45
0.15
3.40
Most recognized home improvement brand
Good balance sheet and operating income
Number 1 U.S and Mexico
Home improvement
Culture of fear
Customer satisfaction
Market saturation
Does not allow for entrepreneurial suggestions
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Rough Draft Team Developed Strategic Audit
Key Strategic Factors Weight Rating Weighted Comments
Brand Name (S)
Score L
.20 5 1.00 X X X
Finance (S)
South American expansion (O)
.20 4 0.80 X X X
.15 2 0.30 X X
Leadership (W) .10 1 0.10 X X X
Workforce Makeup (W) .05 3 0.15 X X X
Economy (T)
Competition (T)
.15
.15
2
2
0.30
0.30
X
X
X
X
X
X
TOTAL SCORES 1.00
2.95
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