Case 22

WAL-MART STORES, INC.(1998): RAPID GROWTH IN THE 1990s

I. CASE ABSTRACT

Wal-Mart Stores, Inc., in 1998, with corporate headquarters in

Bentonville, Arkansas, was not only the nations largest discount
department store chain but also had surpassed Sears, Roebuck & Company
as the largest retail organization in sales volume in the United
States. The firm operated stores under a variety of names and retail
formats including: Wal-Mart, discount department stores; SAMS Clubs,
wholesale and retail membership warehouses; and Supercenters, large
combination general merchandise and grocery stores. In the
international division, it operated stores in Canada, Mexico,
Argentina, Brazil, Germany and China. The McLane Company, a support
division with over 36,000 customers, was the nations largest
distributor of food and merchandise to convenience stores and selected
Wal-Marts, SAMS Clubs, and Supercenters. On January 31, 1998, Wal-Mart
operated 2,421 Wal-Mart stores, 483 SAMS Club stores, and 502
Supercenters, which totaled 3,406 stores.

A major concern was Wal-Marts spectacular growth and the dominance of

the firm in the market. The firm was perceived to be in the accelerated
development or growth stage of the institutional life cycle in which
sales are increasing rapidly, profits are high, new stores are being
opened, existing stores are being refurbished, the product line is
being reevaluated, service offerings are being upgraded, automation is
being introduced to store operation, and better management controls are
being developed. What makes this situation unique is that the discount
department store industry was perceived as being at maturity. The
industry faced increased competition, leveling of sales, moderate
profits by surviving firms, over-stored markets, and more complex
operations problems than previously.

Another concern: what of Wal-Mart without Sam Walton? A new president

and chief executive officer was in place. Management claimed:
"Theres no transition to make because the principles and the basic
values [Sam Walton] used in founding this company were so sound and so
universally accepted." Senior management felt that the firm could
continue to maintain its blistering growth pace by "outmaneuvering the
competition with innovative retailing concepts."

Reality was somewhat different, however. Sales were no longer

increasing each year in the 20% to 30% range as in the 1980s and early
1990s. In Fiscal Year (FY) 1996 to FY 1997, sales increased only
12.4%. Sales for FY 1990 were $32,601,000,000 and increased to
$117,958,000,000. The increase was $85,357,000,000 (or 261.8%). The
stores were 3,406 (almost double) and 1,721 for FY 1997 and FY 1990,
respectively. The growth as a percentage slowed because base sales
were so large. In FY 1997, Kmart had sales of $32,183,000 and sales of
$32,070,000 in FY 1990. Kmart sales decreased by <$113,000,000> while
Wal-Mart sales increased by $85,357,000,000 for the eight FYs (1990-
1997).
_______________
Copyright 1999 by Thomas L. Wheelen and J. David Hunger. Reprinted by
our permission only for the 7th Editions of (1) Strategic Management and
Business Policy and (2) Cases in Strategic Management.

22-1
 Case 22
Wal-Mart Stores, Inc. (1998)

Decision Date: 1998 1997 FY Sales: $117,958,000,000

1997 FY Net Income: $3,526,000,000

(1995 Fiscal Year [FY] was from February 1, 1995 to January 31, 1996)

II. CASE ISSUES AND SUBJECTS

Retailing/Discount Department Growth Strategies

Store Industry Distinctive Competencies
Industry Analysis Nations Largest Retailer and
Executive Succession Largest Discount Store Chain
Corporate Culture Impact of Founder
Competitive Strategy New Strategic Management Team
Strategy Formulation Competitive Advantage
Mission and Objectives Target Markets
Marketing Strategies Market Segmentation
Environmental Scanning "Green" Marketing
Human Resources Strategy Mature Industry
Executive Leadership Stages of Development
Evaluation and Control Strategy Implementation
Strategic Groups Organizational Life Cycle
Concentration vs. Diversification

22-2
III. STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS
(see Figure 1.5 on pages 20 and 21)
Strategy Evaluation &
Strategy Formulation
Implementation Control

Review MBO
Performance

Governance

Alternatives
Corporate

& Mission
Strategic
Strategic

Strategic
External
Posture

Internal
Factors

Factors

Factors
1A 1B 2 3 4 5A 5B 6 7 8

O O O O O O O O O O
O = Emphasized in Case X = Covered in Case

IV. CASE OBJECTIVES

1. To discuss Wal-Marts successful growth strategies and

performance over the past decade.

2. To discuss Wal-Marts entry into new retailing formats

(superstores, SAMS Club). Can these new retailing formats be as
successful as the companys discount store format?

3. To discuss the concept of "green" marketing and its impact on

customers and suppliers. How does "green" marketing relate to
social responsibility?

4. To discuss the phrase, "The Wal-Mart Way" and how it relates

to Wal-Marts strategic management.

5. To discuss Sam Waltons philosophy and its impact upon

corporate culture and daily company activities.
To discuss how long this culture will continue after his
death.

6. To review how Wal-Mart succeeded in its objective to become

the nations number one retailer.

7. To discuss what strategies Wal-Mart has in place to achieve

this objective, and/or to suggest some new strategies to achieve
this objective.

8. To discuss how Wal-Mart can sustain its growth strategies

while maintaining its financial position.

9. To evaluate how successful Wal-Marts strategic management has

been in a maturing industry with intense competition.

10. To evaluate Wal-Marts marketing strategies.

11. The case author provided the following six teaching

objectives:

To show how the marketing concept is interpreted and applied

in retailing and how and why an organization becomes marketing
orientated.
 To show what role leadership plays in establishing direction
in a given corporate culture.

To emphasize the need to identify market segments and then to

design an appropriate retailing mix to meet consumer needs and
wants of an identified target market.

To dramatize the importance of developing a marketing strategy

which will allow the firm to survive and grow in a dynamic
external environment.

To discuss the static versus dynamic nature of the external

multidimensional environment.

To do financial analysis of a high-yield organization.

V. SUGGESTED CLASSROOM APPROACHES TO THE CASE

1. We provide you with two mass merchandising (discount chain stores)

and one department store retailer. The mass merchandising (discount
chain store) retailing cases are:

Case 21 - Kmart Corporation (1998)

Case 22 - Wal-Mart Stores, Inc. (1998)

The department store retailing case is:

Case 23 - Nordstrom, Inc., 1998

Each of the three cases is a complete, stand-alone strategic

management case.

2. If you assign both the Wal-Mart and Kmart cases, we suggest

that you assign the Wal-Mart case first since it includes more
information about the issues facing the discount store industry.

3. This is an excellent case that can be used any time in the

course. The students are all familiar with discount stores. We
suggest placing this case toward the middle of your course.

4. We would suggest that you require the students to do library

research on retailing - issues and changes.

This industry research helps frame the environment for this

case.

The case still works very effectively without this research.

The research just enhances the students learning experience.

5. This case works very well as a written individual case

analysis or exam.

6. This is an excellent case for a team presentation.

7. We have asked students in our classes to state on a 5-point

scale which retail store offers 1) lowest price, 2) best quality for
the price, 3) best designed stores, 4) best customer service, and 5)
 best selection of merchandise. We will normally list five companies
such as Kmart, Sears, Wal-Mart, Target, and a couple of local
chains. We are trying to determine the quality image of each firm.

We have been surprised by the very negative image that Kmart

has with students.

8. The case author provided the following teaching suggestions:

This case can be used to demonstrate the importance of marketing

strategy in an established retail organization which was faced with
a dynamic environment, had record sales and profit growth, benefited
from entrepreneurial leadership, and had a unique expansion
strategy. The case can show how an organization in an accelerated
development stage refines its merchandising and operating methods to
sustain its growth. Class discussion could begin by discussing the
implementation of the marketing concept in retailing. The topic can
be introduced by inviting students to suggest the need for corporate
mission, purpose, goals, and objectives to be the basis of
developing marketing/retailing strategies to allow the firm to grow
in a multi-dimensional changing external environment. Supplementary
discussion could focus on the need to define a target market and to
develop an appropriate retailing mix which would create long-run
competitive advantage for the organization. Students can be asked
to speculate on who shops in some of the stores in their market area
using demographic, geographic, psychographic, and behavioristic
variables.

SUGGESTION FOR DAILY CLASS PARTICIPATION

We have found it is difficult to get quality daily participation

from our students. We suggest the following:

1. Have the class members prepare--individually or as a team--(a)

EFAS, IFAS, and SFAS or (b) just a SFAS for the assigned case.

*We have 1 or 2 individual students of a team bring their EFAS,

IFAS, and SFAS or just their SFAS on a transparency. We have
found in this 75-minute class that SFAS alone as a transparency
works most effectively.

2. We compare the students work with that of the team or

individual students making the presentation to the class.

*We also discuss how the WEIGHTS and RATING were developed and
the Weighted Score for the case under discussion.

3. We ask each student at the beginning of the class to write down

his/her Total Weighted Score for the case under discussion and
pass it in.

*You can use the results to call on students, whose scores seem
to be out of line with the case.

**It allows for a discussion of the Total Weighted Score as

his/her overall evaluation of how the management of the company
is managing the companys internal and external environment.
 ***We ask the students whether they would buy stock in this
company. Then the Total Weighted Score seems to have real
meaning.

VI. DISCUSSION QUESTIONS

1. What are the strengths and weaknesses of Wal-Mart?

2. What are the opportunities and threats facing Wal-Mart?

3. What are the strategic factors facing Wal-Mart?

4. Does Wal-Mart have any core competencies? If 'yes,' what are

they?

5. Does Wal-Mart have a distinctive competency? If 'yes,' what is

it?

6. Discuss Porters industry analysis forces and how each force

pertains to Wal-Mart.

7. What was the late Sam Waltons philosophy of management?

Can his philosophy of management be sustained by his successors?

8. What role will telecommunications (Internet, shopping on TV)

have in the retail industry?

9. Explain why you feel that Wal-Mart was so successful in the

retailing industry in the 1980s and 1990s.

10. What is the competitive environment of the retail industry in

the 1990s? Is it different from that of the 1980s? What will it be
in the twenty-first century?

11. Why was Wal-Marts management so successful in the 1990s when

so many retailers were in financial trouble?

12. Describe Wal-Marts growth strategies. Will these strategies

still be effective in the future?

13. What is your image of a Wal-Mart store? How does it differ

from your image of Kmart or Sears stores?

14. Describe Wal-Marts human resources management strategies.

15. Discuss the role of market segmentation in Wal-Marts strategic

management. (Please be specific.)

16. Discuss the role of "green" marketing in Wal-Marts social

responsibility strategy.
Do you feel a company should support such environmental
issues?
Would your opinion change if it cost the company profits to
support such endeavors?

17. The case author provided five additional discussion questions and
answers. See Section VII - Case Authors Teaching Note - Discussion
Questions and Answers.
VII. CASE AUTHORS TEACHING NOTE by James W. Camerius*

A. CASE OVERVIEW - This was presented earlier in Section I -

Case Abstract.

B. TEACHING OBJECTIVES - This was presented earlier in Section IV -

Case Objectives. The last 5 objectives (11-15) were provided by
the case author.

C. TEACHING SUGGESTIONS - This was presented earlier in Section

V - Suggested Classroom Approaches To The Case.

*Reprinted by permission of the author.

D.FINANCIAL PERFORMANCE - Data is available in the case to dramatize

the performance measures of (1) Asset Turnover (asset management), (2)
Profit Margin (margin management), and (3) Financial Leverage (debt
management). Data in the case can also be used to measure the
liquidity of the organization. The Strategic Profit Model, as shown
with normative ratios in Exhibit TN 1, is a useful vehicle for
analyzing the financial performance of firms of this type. Figures
are considered normative for in-store retailing.

Exhibit TN 1: Strategic Profit Model with Normative Ratios After Taxes

Net Profit x Net Sales = Net Profit x Total Assets = Net Profit
Net Sales Total Assets Total Assets Net Worth Net Worth
3-5% 3-4 X 8-10% 1.5 - 2.5 X 15-20%
Profit Asset Return on Financial Return on
Margin Turnover Assets Leverage Net Worth

E. ANALYSIS OF THE COMPETITIVE ENVIRONMENT - Industry analysts had

labeled the 1980s as an era of economic uncertainty for retailers.
There were mergers, acquisitions by domestic and foreign firms,
failures and discontinued operations. Servicing of debt became a
major issue. Many of the largest retail organizations either
suffered sales declines or posted marginal sales gains. The United
States had entered a major recession in the business cycle.
Students can be asked how this turbulent external environment
affects retailing activity in the marketplace.

The following issues could be discussed in analyzing strategic

groups: (1) Intra industry competition; Wal-Mart compared to other
discount department stores like Kmart, Target, Shopko, or Ames; (2)
Inter industry competition; Wal-Mart compared to department stores
like Macys Dillards, Dayton-Hudson, or any of the Federated
Department Stores, Inc.s divisions; (3) Cross industry
competition; Wal-Mart compared with specialty retailers like The
Gap, Tandy and Sound Warehouse.

Students could be asked to contribute their own experiences and

also be invited to discuss how, on a direct and indirect basis,
 Wal-Mart competes with retail firms operating supermarkets,
department specialty stores, and other mass merchandise
organizations like Toys R Us as "category killers" which so
dominate a merchandise line in a single category at such good
prices that the competition is destroyed.

F. DISCUSSION QUESTIONS AND ANSWERS

1. Identify and evaluate the marketing strategies that Wal-Mart

pursued to maintain its growth and marketing leadership
position. What factors should a firm consider in the
development of its marketing strategy?
A marketing strategy can be defined as selecting and analyzing a
target market (the group of people whom the organizations wants
to reach) and creating and maintaining an appropriate marketing
mix (product, distribution, promotion, and price) that will
satisfy those people. In retailing, this mix is often
interpreted to mean financial planning, location, the
merchandise buying and handling process, pricing merchandise,
promotion, store design and atmosphere and servicing the retail
customer. In the development of an appropriate retail mix,
management should follow an environmental orientation which
would allow it to adapt to external forces in the environment.

The following programs or strategies which can be considered

market-based are a part of the Wal-Mart retail mix:

(1) The development of a human relation/human resource base

corporate culture linked to the satisfaction of consumer
needs and wants in the marketplace. The team spirit,
employees as "associates," training programs, Saturday
morning meetings, stock ownership, and profit-sharing
programs are part of this plan.

(2) Market segmentation/target market positioning strategy

of operating a discount store in small communities, offering
name-brand merchandise at "everyday low prices" and offering
friendly service.

(3) Market dominance strategy of first opening a

distribution center, dominating a market area with Wal-Mart
stores, and then growing by expanding to contiguous areas.

(4) Offering a wide variety of general merchandise to the

customer in 36 different departments with specialty centers
at some locations.

(5) Developing a competitive differential advantage by being

able to "strike a delicate balance needed to convince [people
that Wal-Mart] prices were low without making people feel
that its stores
were too cheap." People greeters, paper sacks, warm colors,
and wide aisles were considered part of this strategy.

(6) Liberal refund and exchange policies as part of a

"Satisfaction Guaranteed" program.

(7) Corporate programs such as developing new retail formats

like SAMS Clubs and Supercenters.
 (8) Programs to emphasize contemporary social issues like
the Buy American Program and Green Marketing.

(9) Power-based programs to establish Wal-Mart as a leader

in its channel of distribution.

(10) Inventory control system which links stores with

distribution center and the staff at corporate headquarters.
2. Discuss the importance of changes in the external environment
to an organization like Wal-Mart.

The external environment of retailing organizations is

traditionally thought of in terms of political, legal,
regulatory, societal, economic, competitive, and technological
influences. These influences surround buyers in the marketplace
and the retailing strategist as the retailing mix is developed.
The retailing mix is typically thought of as controllable. The
environment is usually perceived by management as uncontrollable
and constantly changing. Change must be accepted by management
as it is in the legacy of Sam Walton.

A number of changes had taken place in the external environment

of Wal-Mart. The country was in an economic recession in the
early 1990s. Despite the fact that the company continued to grow
in terms of sales volume, profitability, and physical size, the
discount department store industry was perceived to be in the
maturity stage of the institutional life cycle.

In terms of market served, the Wal-Mart focus was on small towns

and cities. One question that might be explored is the
acceptability of the firm in other market areas like suburban
and inner city. An industry analyst had questioned, "Will Wal-
Mart take over the world?" The price-sensitive shopper seemed
to be everywhere. Wal-Mart continued to expand in contiguous
trading areas and into larger urban areas such as Dallas and
Phoenix.

Wal-Mart senior management should develop a model which

incorporates the components of strategic planning: (1) a
statement of purpose or mission for the firm; (2) specific goals
and objectives for Wal-Mart and its divisions; and (3) specific
retail strategies that will enable the firm to reach its
objectives and fulfill its mission.

3. What conclusion can be drawn from a review of Wal-Marts

financial performance from 1986 to 1997? From this review, what
can you conclude about the financial future of the firm?

The Strategic Profit Model (SPM) shown earlier in Exhibit TN 1

is a useful vehicle for analyzing the financial performance of
retail firms like Wal-Mart. It dramatizes the performance
imperative in retailing, a defensible return on net worth.
Strategic Profit Model ratios for Wal-Mart Stores, Inc., for the
years 1986-1997 are reviewed in Exhibit TN 2.

In a financial profile of leading retailers developed in the

Distribution Research Program at the University of Oklahoma,
strategic profit model ratios for discount department stores
 revealed the following results in a recent study: Profit Margin,
2.6%; Asset Turnover, 2.5%; Return On Assets, 6.5%; Leverage,
2.6%; and Return On Net Worth, 16.8%.

The high-performance measures in retailing show that Wal-Mart

Stores is a high-performance retailer with return on net worth
significantly greater than the industry average and other
normative figures. A review of the SPM financial analysis
suggests that return on assets is above industry averages.
Sales have also grown significantly greater than industry
averages. Sales which increase at a decreasing rate are
characteristic of the maturity stage of the retail institutional
life cycle.

Exhibit TN 2:
Wal-Mart Stores, Inc.
Selected Strategic Profit Model Ratios: 1997-1986

Fiscal Profit Asset Return On Financial Return On

Year Margin Turnover Assets Leverage Net Worth

Year (%) (x) (%) (x) (%)

1997 02.9 x 2.60 = 08.5 x 2.45 = 19.8

1996 02.9 x 2.65 = 07.9 x 2.31 = 19.2

1995 02.9 x 2.49 = 07.3 x 2.54 = 18.6

1994 03.2 x 2.51 = 08.1 x 2.58 = 21.0

1993 03.4 x 2.55 = 08.8 x 2.46 = 21.7

1992 03.6 x 2.70 = 09.7 x 2.35 = 22.7

1991 04.0 x 2.86 = 11.3 x 2.12 = 24.1

1990 04.0 x 3.15 = 13.1 x 2.07 = 27.1

1989 04.0 x 3.25 = 13.2 x 2.11 = 27.8

1988 03.9 x 3.11 = 12.2 x 2.27 = 27.8

1987 03.8 x 2.94 = 11.1 x 2.40 = 26.7

1986 03.9 x 2.72 = 10.5 x 2.42 = 25.6

4. Speculate on how much impact the absence of Samuel Walton will

have on the forward momentum of the organization. What steps
have been or should be taken by management to continue Mr. Sams
formula for success?
 The case points out that much of the forward momentum of Wal-
Mart had come from the entrepreneurial spirit of Samuel Moore
Walton. Mr. Sam was the Chairman of the Board of Directors and
corporate representative. David Glass, as the new President and
Chief Executive Officer, suggests when approached on the
departure of Mr. Sam: "Theres no transition to make because
this company is so sound and so universally accepted. As for
the future, theres more opportunity ahead of us than behind
us."

A number of programs might be introduced to perpetuate the

enthusiastic and exciting leadership that Mr. Sam brought to the
organization:

1) Capture his philosophy in any way possible: on film, in

books, in articles, in a painting to hang in every store;

2) Introduce leadership programs which would emphasize continuing

the Mr. Sam philosophy in the company;

3) Develop Mr. Sam as a symbol or idea as opposed to an

individual;

4) Perpetuate in the firm all the ideas that Mr. Sam stood for,
like his homespun humor, life style, or morality.

5) Continue to encourage the human reactions and human resource,

bottom-up style of management in the firm.

In this question the instructor may wish to introduce the

concept of organizational culture by discussing or assigning
library research on other corporate leaders like Henry Ford.
F.W. Woolworth, Marshall Field, Richard W. Sears, and more
recently Eugene Ferkauf at E.J. Korvette discount stores, Mary
Kay Ash at Mary Kay Cosmetics, and Richard M. Devos and Jay Van
Andel of Amway. Harry Cunningham was credited as providing much
leadership in the growth stage of Kmart.

5. What evidence is there to suggest that the marketing concept

was understood and applied to Wal-Mart?

According to the marketing concept, a firm should try to provide

products and services that satisfy customers needs through a
coordinated set of activities that also allows the organization
to achieve its goals.

Evidence of an appreciation and application of the marketing

concept is found in annual reports of the firm and in management
comments and actions. The 1990 Annual Report of Wal-Mart
Stores, Inc. suggested that corporate and marketing strategies
in the 1990s would be based upon a set of two main objectives
which had guided the firm through its growth years in the decade
of the 1980s. The customer was featured in the first objective,
"Customers would be provided what they want, when they want it,
and at value." The second objective emphasized the team spirit,
"Treating each other as we would hope to be treated . . .
dependency on our Associate Partners to sustain our success."
The objective was to grow to a truly nationwide retailer in
sales and earnings.
 At another point in the case, it was noted that stores were
expected to "provide the customer with a clean, pleasant and
friendly shopping experience." Some have suggested that it was
many of the little things that set Wal-Mart apart from the
competition and made it an example of the application of the
marketing concept. The "people greeter", wide aisles, employee
vests for recognition, warm interior decor and exterior colors,
and the use of brown paper sacks rather than plastic were
considered examples of the "customer first" attitude.

Since customer satisfaction is the major aim of the marketing

concept, the "Satisfaction Guaranteed Refund and Exchange
Program" could be interpreted as also part of the application of
the marketing concept. The comments made by Glass also reflect
the concept: "Well be fine as long as we never lose our
responsiveness to the consumer."

VIII. STUDENT STRATEGIC AUDIT / STUDENT PAPER

I. CURRENT SITUATION

A. Performance: Wal-Mart is the largest retailer and discount store

chain in the United States. Its combination of low prices and
excellent customer satisfaction continue to lead the way and
insure growth. Rapid growth occurred in the 1990s in sales,
profits, and stores.

Net Number
FY Sales Income of Stores
(amounts in millions)

1997 $117,958 $3,526 3,406

1996 104,859 3,056 3,054
1995 94,749 2,740

B. Strategic Posture:

Mission: The mission can be implied from the case - to be the

number-one retailer by providing the customer selection and
quality for value given.

Objectives:

1. To provide customers with what they want, when they

want it, and with value.

2. To develop and maintain team spirit with its

employees.

3. To remain the number-one retailer and discount chain.

4. To pursue growth while maintaining growth in sales

and profits. Profits will not be sacrificed for growth.

5. To be the very best in our business.

 5. To have the store provide the customer with a clean,
pleasant, and friendly shopping experience.

Strategies:

1. They include new store openings, expansion to more

states, upgrading and remodeling of existing stores, and
opening of new distribution centers.

2. All these concepts point toward concentration through

horizontal growth for Wal-Mart. To the extent that new
product mixes are being offered in new store formats, it
could be concentric diversification.

Policies:

1. To sell products that are environmentally friendly

(green marketing policy).

2. To offer satisfaction guaranteed or refund or exchange

policy.

3. To provide quality, value, selection and low price.

4. To do things "the Wal-Mart Way."

5. To use HRM policies to win employees to the corporate

culture.

II. CORPORATE GOVERNANCE

A. Board of Directors: Fourteen members.

Four internal members:
S. Robson Walton, Chairman
David D. Glass, CEO, President
Donald G. Soderquist, Vice-Chairman and COO
Paul R. Carter, Executive Vice President of Wal-Mart Realty
Ten outside members
No cited stock ownership
Partnership management

B. Top Management: Once again, David Glass is the only person

mentioned under top management. He is hard-driving and most
likely the best candidate to succeed Sam Walton. It appears
that management is very active and that they actively regulate
the company, but they subscribe to a broad approach that
involves everyone while creating the desired results.

III. EXTERNAL ENVIRONMENT (EFAS see EXHIBIT 1)

A. Societal Environment

Opportunities
International expansion by retailers.
One-stop shopping center for convenience.
Consumers desire for value for dollars spent.
Growing trend to buy American.
Green merchandise entering the system.
 Threats
Slow growth that might hurt overall sales.
The trend of foreign investors to buy U.S. retail stores.

B. Task Environment

Opportunities
Many of the retail stores have declared bankruptcy and
created a larger consumer base.
Some states have not been marketed in (currently 35 out of
50 states have Wal-Marts).
Excellent distribution centers provide an advantage over
other corporations.
The industry is becoming smaller and Wal-Mart remains the
leader in size.

Threats
New retail formats including superstores and warehouse
retailing.
Factory outlets that offer drastic price reductions.
Specialized stores that have achieved merchandise dominance
in their product categories.
Possibility of industry maturity.

IV. INTERNAL ENVIRONMENT (IFAS see EXHIBIT 2)

A. Corporate Environment
Stage III corporation.
Stores are located around a major warehouse (about 6 hours
away).
Decentralized operational decision making occurs at the
stores; centralized strategy choice is made at the corporate
level.

B. Corporate Culture
A fast-growing company, Wal-Mart relies heavily on its
employees for company success.
HRM is a high priority at Wal-Mart.
Each employee contributes to the Wal-Mart store and
community.
Quality and customer satisfaction are priorities.

C. Corporate Resources

1. Marketing - Strengths:
Large-scale ad campaigns.
Environmentally sound products and U.S.-made products
(this follows current U.S. societal trends).
Brand names.
Idea that the customer matters.
Sales of $307 per square foot (1996) vs. $192 for Kmart.
International expansion and growth of SAMS Club and
Supercenters.

Weaknesses - None that can be seen.

2. Finance - Strengths:
Increasing sales that can easily contend with the
amount of debt being used. Long-term debt is low for this
industry.
Thirty-five years of record sales and profits.
Ninety-nine quarters of growth in sales and profits
before the first decline in profits, but the whole year
up.

FY 1997 FY 1996 FY 1995

Net Profit 2.9% 2.9% 2.9%
Return on Assets 8.5% 7.9% 7.3%
Asset Turnover 2.60 2.65 2.49

Weaknesses:
Long-term obligations for leases are much too high.
Current assets appears to be low for such a large
corporation.

3. Research and Development - It was not mentioned.

However, it can be implied that Wal-Mart pays close
attention to societal trends and consumer preferences.
There is tremendous research of competitors and their
strategies in order to learn from their mistakes.
Wal-mart keeps a close check on demographics of its
consumers.

4. Operations - Strengths: -
Excellent service with discount prices.
Excellent up-to-date computer system for everyday
operations and inventory control.
Policy of dealing only with top officials of producers
to ensure price and quality.
FY 1997 - 2,421 Wal-Mart stores, 483 SAMS Clubs, 502
Supercenters, for a total of 3,406 stores.

Weaknesses: - None.

5. Human Resource Management - Strengths:

Corporate policy dedicated to improving employee
involvement and expertise.
Seminars and training programs to ensure quality in
employee performance.
Special awards for employee performance.
Employees (associates) encouraged to ask management
questions and offer suggestions.

Weaknesses:
May create an atmosphere where employees think they
have all the answers or can do anything they desire.

6. Information Systems - Strengths:

Most sophisticated inventory control system in
retailing.
Helps Wal-Mart react faster to trends.
Computer links between stores and general offices ensure
accurate and timely merchandise replenishment.

Weaknesses:
 Sometimes it takes longer for the clerk to run the
item over the scanner ten times than it would to just type
the amount in the register.

V. ANALYSIS OF STRATEGIC FACTORS (SFAS see EXHIBIT 3)

VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY

A. Strategic Alternatives

1. Maintain Current Strategy (Horizontal Growth)

Pro: Create a larger market share. Already being

implemented by top management. Target states and
countries currently not serviced. Also, add new store
formats as existing stores saturate their markets.

Con: Requires more debt load.

2. Growth Through Concentric Diversification. Purchase a

food store chain.

Pro: Already have excellent experience in large-scale,

consumer-orientated operations. Does not react heavily
to business cycles.

Con: Expensive. Not clear whether Wal-Mart can financially

acquire a chain.

3. No Growth. Maintain current operations.

Pro: Not expensive. Sales continue to increase even without

new stores. Most competitors are struggling and would
not pose a serious threat.

Con: Not expanding to markets that are easily accessible.

Possibly let market share be absorbed by smaller
competitors and then not able to retrieve it.

B. Recommended Strategy

Continuing with the current strategy of horizontal growth is

the best alternative for Wal-Mart. The industry is
experiencing hard times and yet Wal-Mart is staying well ahead
of any competition. In order to ensure future success and to
meet the corporations objective, Wal-Mart must keep on
growing.

VII. IMPLEMENTATION

The implementation process has already been started by Wal-Mart.

Top management has created a special team to study the targeted
areas and the trends that apply to those consumers. Continuing
with complete and timely reports on sales, they can further
generate excellent revenues in new states.
VIII. EVALUATION AND CONTROL

Wal-Mart already is a leader in the industry for control and

timeliness. All it has to do is continue with periodic management
evaluations and rely on its computer-generated data.
IX. EFAS, IFAS and SFAS EXHIBITS

Exhibit 1
EFAS (External Factor Analysis Summary)

WEIGHTED
EXTERNAL STRATEGIC FACTORS WEIGHT RATING SCORE
Opportunities:
Intense competition .20 5 1.00

Societal trend toward excellent marketing .20 5 1.00

research

Industry trend toward large-scale .15 4 .60

retailing and new store formats

Societal trend toward environmental .05 4 .20

products and American-made products

International expansion .15 4 .60

Threats:
Industry maturity .15 4 .60

Slow growth economy .10 4 .40

TOTAL SCORES 1.00 4.40

 IX. IFAS, EFAS and SFAS EXHIBITS

Exhibit 2
IFAS (Internal Factor Analysis Summary)

WEIGHTED
INTERNAL STRATEGIC FACTORS WEIGHT RATING SCORE
Strengths:
Marketing - strong name recognition of programs .20 4 .80
and marketing research (low price with high
quality)

Managed Growth - (Strategic Management) .10 5 .50

Distribution/Information/Inventory control .15 5 .75

systems

Largest retail and department store (in sales) .10 5 .50

HRM policies / Corporate culture .15 5 .75

Excellent management teams and operations .10 4 .40

International expansion .10 4 .40

Weaknesses:
Loss of Sam Walton .10 4 .40

TOTAL SCORES 1.00

IX. SFAS, EFAS and IFAS EXHIBITS

Exhibit 3
SFAS (Strategic Factor Analysis Summary)

WEIGHTED
KEY STRATEGIC FACTORS WEIGHT RATING SCORE

Intense competition .15 5 .75

New store formats .10 4 .40

Largest retail and department store .05 4 .20

Excellent management team .10 4 .40

Managed Growth .15 5 .75

Marketing - Strong name recognition .05 4 .20

Distribution/Information/Inventory control .10 5 .50

system

HRM policies / Corporate culture .10 5 .50

International expansion .10 4 .40

Maturing industry .10 4 .40

TOTAL SCORES 1.00