Walmart Stores, Inc.

– 2009
Case Notes Prepared by: Dr. Mernoush Banton
Case Authors: Amit J. Shah and Michael L. Monahanat

A. Case Abstract

Walmart Stores, Inc. (www.walmart.com) is a comprehensive strategic management

case that includes the company’s fiscal year-end January 31, 2009 financial
statements, competitor information and more. The case time setting is the year
2009. Sufficient internal and external data are provided to enable students to
evaluate current strategies and recommend a three-year strategic plan for the
company. Headquartered in Newport in the U.S. state of Arkansas, Walmart Stores,
Inc. is traded on the New York Stock Exchange under ticker symbol WMT.

B. Vision Statement (proposed)

Providing quality products at everyday low prices.

C. Mission Statement (Proposed)

Customers are our first responsibility (1). We are inspired by providing our
customers the best value products and services with guaranteed satisfaction
worldwide (2, 3, 4).

We strive to create a friendly and flexible work environment for our associates (9)
and, as such, be able to deliver high return to our stakeholders (5), year after year.
As a global company, we continue to be socially responsible to our environment (8)
and to provide equal opportunity for all individuals (7). We will continue to offer the
highest quality products at the lowest price (6) to strive to be the best in the retail
industry.

1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, growth
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

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D. External Audit

CPM – Competitive Profile Matrix

Walmart Target Costco

Critical Success Weighted Weighted Weighted
Factors Weight Rating Score Rating Score Rating Score
Advertising 0.10 4 0.40 3 0.30 2 0.20
Service / Product
Quality 0.09 3 0.27 4 0.36 2 0.18
Price 0.10 4 0.40 2 0.20 3 0.30
Management 0.03 3 0.09 2 0.06 1 0.03
Financial Position 0.09 4 0.36 2 0.18 3 0.27
Customer Loyalty 0.10 4 0.40 2 0.20 3 0.30
Product Lines 0.10 4 0.40 3 0.30 2 0.20
Market Share 0.06 4 0.24 3 0.18 2 0.12
Customer Service 0.09 2 0.18 3 0.27 4 0.36
Technology 0.10 4 0.40 3 0.30 2 0.20
Employees 0.05 2 0.10 2 0.10 3 0.15
Global Expansion 0.09 4 0.36 1 0.09 2 0.18
Total 1.00 3.60 2.54 2.49

Opportunities
1. Asian market has been untapped by mass retailers
2. Not too many mass retailers in European markets
3. Demand for buying in bulk to save money is high
4. Competitors have not tapped into many available markets overseas
5. Expected increase in retail sales among low priced stores
6. Many large retailers have had several stores closed permanently
7. High entry barriers for a company to open too many stores quickly
8. Due to weak economy and job cutbacks and lay-offs, many consumers are
switching to substitute products such as private label products

Threats
1. Tense competition between retailers by offering low everyday prices
2. Weak economic conditions causing many to cut back on large item products
3. Unemployment is increasing causing cutback in buying brand-name products
4. Increase in fuel cost could impact the purchasing power of the consumer
5. Increase in fuel cost could cause suppliers to raise their prices
6. Consumer confidence is lower due to decline in U.S. economy
7. Costco is gaining market share by having higher sales against Sam’s Club by
approximately US$30 billion

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External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted

Score
Opportunities
1. Asian market has been untapped by 0.05 4 0.2
mass retailers
2. Not too many mass retailers in European 0.04 4 0.16
markets
3. Demand for buying in bulk to save 0.08 3 0.24
money is high
4. Competitors have not tapped into many 0.07 2 0.14
available markets overseas
5. Expected increase in retail sales among 0.08 3 0.24
low priced stores
6. Many large retailers have had several 0.09 2 0.18
stores closed permanently
7. High entry barriers for a company to 0.04 4 0.16
open too many stores quickly
8. Due to weak economy and job cutbacks 0.07 4 0.28
and lay-offs, many consumers are
switching to substitute products such as
private label products
Threats
1. Tense competition between retailers by 0.08 3 0.24
offering low everyday prices
2. Weak economic conditions causing many 0.07 4 0.28
to cut back on large item products
3. Unemployment is increasing causing 0.06 4 0.24
cutback in buying brand-name products
4. Increase in fuel cost could impact the 0.08 3 0.24
purchasing power of the consumer
5. Increase in fuel cost could cause 0.06 3 0.18
suppliers to raise their prices
6. Consumer confidence is lower due to 0.05 3 0.15
decline in U.S. economy
7. Costco is gaining market share by having 0.04 2 0.08
higher sales against Sam's Club by
approximately US$30 billion
8. Target for false or bogus law suits 0.04 2 0.08
related to labor and general liability law
suits
Total 1.00 3.09

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 Positioning Map

Number of
Stores (High)

Walmart

Costco
Target

Narrow Price Wide Price

Competitive Competitive

Number of
Stores (Low)

E. Internal Audit

Strengths

1. Walmart has a well-mixed balance of products (consumable, perishable and

durable goods such as electronics)
2. The international segment grew by 10 percent
3. One of the largest corporations in the U.S., so enjoys an economy of scale
4. Currently has around 3,615 stores in the international market
5. Walmart leads the industry in information technology and logistics system
6. Strong brand image in the U.S.
7. Walmart’s sales contributes approximately 0.4 percent to the total Gross
Domestic Product
8. Continuously has had sales increases of US$30 billion each year, for the last 3
years
9. For the last 3 years, has had increase in net income by more than US$400
million
10. Strong in-house programs for employee training and benefits

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 Weaknesses

1. Heavy reliance on information technology for order processing and distribution

2. Easy target for various law suits including violating the labor laws such as
benefits for part-time workers, discrimination, pay, and promotion
3. Heavily concentrated in consumer products
4. Some of online services such as music download and one-hour photo has not
been very successful as of yet
5. Depends heavily on imported low cost products from China and other similar
countries
6. Quick ratio of 0.3 is below industry average

Financial Ratio Analysis (October 2009)

Growth Rates % Walmart Industry S&P 500

Sales (Qtr vs year ago qtr) -1.40 -1.50 -5.20
Net Income (YTD vs YTD) 0.80 -1.50 -10.20
Net Income (Qtr vs year ago qtr) 1.40 1.70 27.10
Sales (5-Year Annual Avg.) 9.41 9.17 13.14
Net Income (5-Year Annual Avg.) 8.39 7.53 12.59
Dividends (5-Year Annual Avg.) 21.42 20.58 11.83

Price Ratios Walmart Industry S&P 500

Current P/E Ratio 15.4 16.6 27.3
P/E Ratio 5-Year High NA 6.2 15.1
P/E Ratio 5-Year Low NA 1.5 2.9
Price/Sales Ratio 0.50 0.50 2.08
Price/Book Value 3.01 2.90 3.41
Price/Cash Flow Ratio 9.80 10.20 13.10

Profit Margins % Walmart Industry S&P 500

Gross Margin 24.3 24.3 37.9
Pre-Tax Margin 5.2 5.0 9.6
Net Profit Margin 3.4 3.2 6.7
5Yr Gross Margin (5-Year Avg.) 23.4 23.7 37.8
5Yr PreTax Margin (5-Year Avg.) 5.4 5.3 16.6
5Yr Net Profit Margin (5-Year Avg.) 3.6 3.5 11.5

Financial Condition Walmart Industry S&P 500

Debt/Equity Ratio 0.68 0.68 1.12
Current Ratio 0.9 1.1 1.5
Quick Ratio 0.3 0.4 1.2

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Interest Coverage 12.1 33.3 27.3
Leverage Ratio 2.5 2.5 3.6
Book Value/Share 17.37 17.92 21.66
Adapted from www.moneycentral.msn.com

Net Profit
Avg P/E Price/ Sales Price/ Book
Margin (%)
01/09 16.40 0.46 2.83 3.3
01/08 14.80 0.55 3.12 3.4
01/07 16.00 0.57 3.20 3.5
01/06 17.60 0.62 3.61 3.7
01/05 22.30 0.79 4.49 3.7
01/04 26.90 0.91 5.32 3.4
01/03 31.10 0.92 5.32 3.4
01/02 36.30 1.31 7.61 3.1
01/01 37.50 1.32 8.10 3.3
01/00 40.60 1.47 9.45 3.3

Book Value/ Debt/ Return on Return on Interest

Share Equity Equity (%) Assets (%) Coverage
01/09 $16.63 0.65 20.3 8.1 10.4
01/08 $16.26 0.69 19.9 7.9 10.4
01/07 $14.91 0.63 19.8 8.0 11.3
01/06 $12.77 0.73 21.5 8.3 13.2
01/05 $11.67 0.63 21.2 8.7 14.6
01/04 $10.12 0.61 20.3 8.4 15.1
01/03 $8.98 0.64 19.8 8.2 12.6
01/02 $7.88 0.62 18.4 7.7 8.6
01/01 $7.01 0.71 20.1 8.1 8.2
01/00 $5.80 0.85 21.6 7.9 9.9
Adapted from www.moneycentral.msn.com

F. SWOT Strategies

Strengths
1. Walmart has a well-
mixed balance of
products (consumable,
perishable and durable
Weaknesses
1. Heavy reliance on
information technology
for order processing and
distribution

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 goods such as 2. Easy target for various
electronics) law suits including
2. The international violating the labor laws
segment grew by 10 such as benefits for part-
percent time workers,
3. One of the largest discrimination, pay, and
corporations in the U.S., promotion
so enjoys an economy of 3. Heavily concentrated in
scale consumer products
4. Currently has around 4. Some of online services
3,615 stores in the such as music download
international market and one-hour photo has
5. Walmart leads the not been very successful
industry in information as of yet
technology and logistics 5. Depends heavily on
system imported low cost
6. Strong brand image in products from China and
the U.S. other similar countries
7. Walmart’s sales
contributes
approximately 0.4
percent to the total Gross
Domestic Product
8. Continuously has had
sales increases of US$30
billion each year, for the
last 3 years
9. For the last 3 years, has
had increase in net
income by more than
US$400 million
10. Strong in-house
programs for employee
training and benefits

Opportunities S-O Strategies W-O Strategies

1. Asian market has been 1. Due to economic 1. Use suppliers other than
untapped by mass downturn and Walmart’s those in China for better
retailers wide selection and low cost leadership strategies
2. Not too many mass pricing, they can expect in producing private label
retailers in European increase in sales (S6, S7, products (W5, O8)
markets O3, O5)
3. Demand for bulk buying 2. Add additional stores in
to save money is high international market
4. Competitors have not where the company has
tapped into many brand recognition and
available markets can take advantage of
overseas economy of scale ( S2,
5. Expected increase in S3, O1, O2)
retail sales among low
priced stores
6. Many large retailers have

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 had several stores closed
permanently
7. High entry barriers for a
company to open too
many stores quickly
8. Due to weak economy
and job cutbacks and lay-
offs, many consumers
are switching to
substitute products such
as private label products

Threats S-T Strategies W-T Strategies

1. Tense competition 1. Add more distribution 1. Create a compliance
between retailers by centers causing further assurance team for
offering low everyday cut back in transportation matters related to labor
prices costs. laws, compliance, and
2. Weak economic 2. Create backward vertical other liability-related
conditions causing many integration by acquiring issues (W2, T8)
to cut back on large item small manufacturers for
products high demand products
3. Unemployment is (S3, S9, T5, T7)
increasing causing
cutback in buying brand-
name products
4. Increase in fuel cost
could impact the
purchasing power of the
consumer
5. Increase in fuel cost
could cause suppliers to
raise their prices
6. Consumer confidence is
lower due to decline in
U.S. economy
7. Costco is gaining market
share by having higher
sales against Sam’s Club
by approximately US$30
billion
8. Target for false or bogus
law suits related to labor
and general liability law
suits
G. SPACE Matrix

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 FS
Conservative 7 Aggressive

CA IS
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7

-1

-2

-3

-4

-5

-6

-7 Competitive
Defensive

ES
Financial Stability (FS) Environmental Stability (ES)
Return on Investment 6 Unemployment -4
Leverage 5 Technological Changes -2
Liquidity 4 Price Elasticity of Demand -3
Working Capital 5 Competitive Pressure -4
Cash Flow 6 Barriers to Entry -1

Financial Stability (FS) Average 5.2 Environmental Stability (ES) -2.8

Average

Competitive Stability (CA) Industry Stability (IS)

Market Share -1 Growth Potential 4
Product Quality -3 Financial Stability 3
Customer Loyalty -5 Ease of Market Entry 5
Competition’s Capacity Utilization -4 Resource Utilization 3
Technological Know-How -6 Profit Potential 6
Competitive Stability (CA) -3.8 Industry Stability (IS) Average 4.2
Average

Y-axis: FS + ES = 5.2 + (-2.8) = 2.4

X-axis: CA + IS = (-3.8) + (4.2) = 0.4
H. Grand Strategy Matrix

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 Rapid Market Growth
Quadrant I
Quadrant II

Strong
Weak
Competitive
Competitive
Position
Position

Quadrant IV
Quadrant III Slow Market Growth

1. Market Development
2. Market Penetration
3. Product Development
4. Forward Integration
5. Backward Integration
6. Horizontal Integration
7. Related Diversification

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 I. The Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong Average Weak

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
I II III

High
3.0 to
3.99 Walmart Stores,
Inc.

IV IV VI

The EFE
Total Medium
Weighted 2.0 to
Score 2.99

VII VIII IX

Low
1.0 to
1.99

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J. QSPM

Open 5 new
Open 10 Supercstores in
additional Asian and
Superstores in European
the U.S Market
Key Factors Weight AS TAS 0 TAS

Opportunities
1. Asian market has been untapped by 0.05 1 0.05 4 0.2
mass retailers
2. Not too many mass retailers in 0.04 1 0.04 4 0.16
European markets
3. Demand for buying in bulk to save 0.08 2 0.16 4 0.32
money is high
4. Competitors have not tapped into 0.07 2 0.14 4 0.28
many available markets overseas
5. Expected increase in retail sales 0.08 3 0.24 2 0.16
among low priced stores
6. Many large retailers have had 0.09 4 0.36 2 0.18
several stores closed permanently
7. High entry barriers for a company to 0.04 2 0.08 1 0.04
open too many stores quickly
8. Due to weak economy and job 0.07 3 0.21 1 0.07
cutbacks and lay-offs, many
consumers are switching to
substitute products such as private
label products
Threats
1. Tense competition between retailers 0.08 3 0.24 1 0.08
by offering low everyday prices
2. Weak economic conditions causing 0.07 4 0.28 1 0.07
many to cut back on large item
products
3. Unemployment is increasing causing 0.06 3 0.18 1 0.06
cutback in buying brand-name
products
4. Increase in fuel cost could impact 0.08 --- --- --- ---
the purchasing power of the
consumer
5. Increase in fuel cost could cause 0.06 2 0.12 1 0.06
suppliers to raise their prices
6. Consumer confidence is lower due to 0.05 4 0.2 1 0.05
decline in U.S. economy
7. Costco is gaining market share by 0.04 --- --- --- ---
having higher sales against Sam's
Club by approximately US$30 billion
8. Target for false or bogus law suits 0.04 --- --- --- ---
related to labor and general liability
law suits

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TOTAL 1.00 2.3 1.73
Strengths
1. Walmart has a well-mixed balance 0.08 2 0.16 3 0.24
of products (consumable, perishable
and durable goods such as
electronics)
2. The international segment grew by 0.07 1 0.07 4 0.28
10 percent
3. One of the largest corporations in 0.07 3 0.21 1 0.07
the U.S., so enjoys an economy of
scale
4. Currently has around 3,615 stores in 0.05 1 0.05 3 0.15
the international market
5. Walmart leads the industry in 0.07 --- --- --- ---
information technology and logistics
system
6. Strong brand image in the U.S. 0.09 3 0.27 1 0.09
7. Walmart's sales contributes 0.04 --- --- --- ---
approximately 0.4 percent to the
total Gross Domestic Product
8. Continuously has had sales 0.08 --- --- --- ---
increases of US$30 billion each year,
for the last 3 years
9. For the last 3 years, has had 0.07 4 0.28 3 0.21
increase in net income by more than
US$400 million
10. Strong in-house programs for 0.03 --- --- --- ---
employee training and benefits
Weaknesses
1. Heavy reliance on information 0.06 2 0.12 1 0.06
technology for order processing and
distribution
2. Easy target for various law suits 0.05 3 0.15 1 0.05
including violating the labor laws
such as benefits for part-time
workers, discrimination, pay, and
promotion
3. Heavily concentrated in consumer 0.08 --- --- --- ---
products
4. Some of online services such as 0.06 --- --- --- ---
music download and one-hour photo
has not been very successful as of
yet
5. Depends heavily on imported low 0.1 2 0.2 1 0.1
cost products from China and other
similar countries
SUBTOTAL 1.00 1.51 1.25
SUM TOTAL ATTRACTIVENESS 3.81 2.98

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 SCORE

K. Recommendations

1. Build additional 10 Superstores in the U.S. in markets that economically are not
doing well and demand for low-priced consumer products are high. Approximate
start-up cost of US$15 million each, total of US$150 million.
2. Spread expansion of the new stores within the next 3 years.

L. EPS/EBIT Analysis

US$ Amount Needed: 150M

Stock Price: US$54.63
Tax Rate: 34%
Interest Rate: 5%
# Shares Outstanding: 487,222,000

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom
$300,000,00 $600,000,00 $1,000,000,00 $300,000,00 $600,000,00
EBIT 0 0 0 0 0 $1,000,000,000
Interest 0 0 0 7,500,000 7,500,000 7,500,000
EBT 300,000,000 600,000,000 1,000,000,000 292,500,000 592,500,000 992,500,000
Taxes 102,000,000 204,000,000 340,000,000 99,450,000 201,450,000 337,450,000
EAT 198,000,000 396,000,000 660,000,000 193,050,000 391,050,000 655,050,000
#
Shares 489,967,744 489,967,744 489,967,744 487,222,000 487,222,000 487,222,000
EPS 0.40 0.81 1.35 0.40 0.80 1.34

70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent Stock

Recession Normal Boom Recession Normal Boom
$300,000,00 $600,000,00 $1,000,000,00 $300,000,00 $600,000,00
EBIT 0 0 0 0 0 $1,000,000,000
Interest 6,000,000 6,000,000 6,000,000 1,500,000 1,500,000 1,500,000
EBT 294,000,000 594,000,000 994,000,000 298,500,000 598,500,000 998,500,000
Taxes 99,960,000 201,960,000 337,960,000 101,490,000 203,490,000 339,490,000
EAT 194,040,000 392,040,000 656,040,000 197,010,000 395,010,000 659,010,000
#
Shares 489,144,021 489,144,021 489,144,021 488,045,723 488,045,723 488,045,723
EPS 0.40 0.80 1.34 0.40 0.81 1.35

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M. Epilogue

In October 2009, the company announced that their profits are up after cutting
prices further on products such as brand-name electronics. Their strategy now is to
capture new consumers and try keeping them as they may enter back into the job
market. Due to economic downturn, Walmart is planning a major price cut for the
Holiday season, hoping to increase its sales and market share further.

In late 2009, the company opened several stores in the United States in areas such
as Chicago, Phoenix, and New Jersey (2 Superstores), and in Canada. Each new
store occupies approximately over 120,000 sq. ft of space, adds over 500 new jobs
and as a promotion, contributes thousands of dollars to local communities and
charities. They also are improving the design on some of their older stores and
improving a few with the latest generation of high efficiencies such as using water to
heat and cool the building.

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