Rough Draft Team Developed Strategic Audit Wal-Mart Executive Summary 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 with 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, banks and some even offered a food court of restaurants. WalMart’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, “WalMart officially became the world’s largest company based on its $245 billion in sales” (Wheelen & Hunger, 731). 1 Rough Draft Team Developed Strategic Audit Wal-Mart’s winning strategy in the United States was based on selling brand products at low cost while still offering the customer a quality product. 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: (all dollar amounts are in millions) Total revenue - $315, 654 Net income - $11,231 Total assets - $138,187 Total liabilities - $48,826 Total shareholder’s equity - $53,171 (According to the 2006 consolidated balance sheets Total Liablilites and shareholders equity equaled $138,187 not just total shareholders equity as previously shown) Wal-Mart Strategic Audit I. Current Situation 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 2 Rough Draft Team Developed Strategic Audit 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.) 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 3 Rough Draft Team Developed Strategic Audit 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. 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 II. Strategic Managers 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 4 Rough Draft Team Developed Strategic Audit 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 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 III. EXTERNAL ENVIRONMENT: OPPORTUNITIES AND THREAT (SWOT) 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) 5 Rough Draft Team Developed Strategic Audit 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) 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) IV. Internal Environment 6 Rough Draft Team Developed Strategic Audit 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. 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) 7 Rough Draft Team Developed Strategic Audit 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) 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) 8 Rough Draft Team Developed Strategic Audit V. Analysis of Strategic Factors A. Situational Analysis 1. Strengths International brand name. Financial position. 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. Only Example from Home Depot discussion follows this point……. The executive summary team should develop a plan for all the following. I have provided templates for EFAS, IFAS, and SFAS. 9 Rough Draft Team Developed Strategic Audit I think we should also provide financial data from the 2006 report. I can handle this part after the executive summary is done. Please feel free to add to or take away from anything above. Rusty. B. Review of Current Mission and Objectives Current mission is appropriate. Can attempt to increase the 5 years objectives. VI. Strategic Alternatives and Recommended Strategy A. Strategic Alternatives Adopt a friendlier corporate attitude and image o Pro. Improved customer service o Pro. Business growth o Pro. Stronger relationships with its suppliers and customers o Con. The negative image tarnishes their moral and ethical image o Con. Popular image is that Wal-Mart comes to town and “locally-owned retailers shrivel up and die” (Parnell, 2008). http://findarticles.com/p/articles/mi_hb6698/is_2_73/ai_n29445904/pg_3/?tag =mantle_skin;content Temporarily placed Ease into foreign and domestic markets instead of barging in o Pro. Create a more positive corporate image by not devouring every business in sight 10 Rough Draft Team Developed Strategic Audit o Pro. Creates an image with integrity o Pro. Customer loyalty o Pro. Increase friendlier competition o Con. Creates ill-will among smaller businesses o Con. Viewed as a bully corporation Expansion o Pro. Provides a new source of tax revenue for the community o Pro. Creates more jobs o Pro. Promotes community expansion and individuals who will patronize from other communities o Pro. Opportunities for employee growth in the organization o Con. Associates may receive unjust wages due to the compensation of lower cost products o Con. Purchasing practices require most suppliers to manufacture goods in third world countries o Con. Reduces the value on competing businesses 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. VII. Implementation 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. 11 Rough Draft Team Developed Strategic Audit VII. Evaluation and Control Monitor test markets during early expansion phase. Utilize opportunities to increase technology and usage of RFID. Closely monitor impact of new store openings. EFAS (External Factor Analysis Summary) Key External Factors Weight Rating Weighted Score Comments Opportunities European expansion .10 3 0.30 Large developed market with relative political stability South American expansion .20 4 0.80 DIFM market .20 4 0.80 Large market, relative high degree of political turmoil 1% of sales to women in 1960 up to 11% in 2005. Threats Strong U.S. competition .20 2 0.40 Changing demographics Economic uncertainty .10 .20 3 1 0.30 0.20 TOTAL SCORES 1.00 Steel import tariffs form European Union Domestic recession, lower discretionary spending, increasing unemployment 2.80 IFAS (Internal Factor Analysis Summary) Key Internal Factors Weight Rating Weighted Score Comments Strengths Brand Name .20 5 1.00 Most recognized home improvement brand Financial position .20 4 0.80 Market leadership .15 4 0.60 Good balance sheet and operating income Number 1 U.S and Mexico Home improvement Weaknesses Military style leadership .10 1 0.10 12 Culture of fear Rough Draft Team Developed Strategic Audit Workforce makeup Competition Centralized control .15 .15 .05 TOTAL SCORES 1.00 2 3 3 0.30 0.45 0.15 Customer satisfaction Market saturation Does not allow for entrepreneurial suggestions 3.40 SFAS (Strategic Factor Analysis Summary) Key Strategic Factors Brand Name (S) Finance (S) South American expansion (O) Leadership (W) Workforce Makeup (W) Economy (T) Competition (T) TOTAL SCORES Weight Rating .20 .20 .15 5 4 2 .10 .05 .15 .15 1 3 2 2 1.00 Weighted Duration Score S I 1.00 X X 0.80 X X 0.30 X 0.10 0.15 0.30 0.30 2.95 13 X X X X X X X X Comments L X X X X X X X