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Wall Mart Stores Inc: Case 22

Presented By: Md. Soheb Ahmed (EMBA 8th Batch #04)

Introduction
This case discusses:

Introduction to Wal-Mart
History of Wal-Mart Corporate Strategy

The Criticism and the Challenges


Wal-Marts PR strategy The Road ahead

Wal-Mart An Introduction
American public corporation that runs a chain of large, discount department stores World's largest public corporation by revenue Largest private employer in the world

Fourth largest utility or commercial employer


Largest grocery retailer in the United States ( 20% ) Largest toy seller in the United States ( 22% )

What is Wal-Mart
Worlds biggest retailer Sells Grocery & General Merchandise One Hour Photo Studio Pharmacy & Optical Centre Tire & Lube Express Gasoline station Fast Food Outlet Garden Centre Pet Shop Also feature hair and nail salons, a video rental store, a family fun center, a branch of a local bank

Wal-Mart at a Glance
Founded Headquarters - Arkansas, USA(1962) by Sam Walton - Bentonville, Arkansas, U.S.A.

Products
Revenue

- Discount Stores, Super centers,


Neighborhood Markets - US$ 374.5 billion (2007)

Net income
Total assets Total equity

- US$ 12.7 billion (2008)


- US$ 163.5 billion (2008) - US$ 64.6 billion (2008)

Slogans

- The Lowest Prices. Guaranteed!


- Save Money, Live Better - WE SELL FOR LESS every day!

Wal-Mart at a Glance (contd..)


List of Assets (2008) In U.S.A. Wal-Mart Discount Stores are 971 Wal-Mart Super centers are 2,447

Wal-Mart Neighborhood Markets are 132


Sams Clubs are 591

Internationally Stores outside U.S.A are 3121

History of Wal-Mart
Sam Walton - The man behind it all Born in a farmers family in Kingfisher,

Oklahoma on March 29, 1918


Graduated from the University of Missouri in 1940. First job at JC Penney at $ 75 a month Gave up job and opened his first store in Arkansas in 1950- Waltons 5 & dime 11 stores by 1962. Opened 1st Wal-Mart

At the opening, Walton stated,


"Each Wal-Mart store should reflect the values of its customers and support the vision they hold for their community."

History of Wal-Mart (contd..)


By 1969, Walton had established 18 Wal-Mart stores, reporting an annual sale of $44 million Focus on overseas expansion in 90s In 1998, Walton was included in Time Magazine's list of 100 most influential people of the 20th Century In 2000, H. Lee Scott became President and CEO, and WalMart's sales increased to $165 billion Sales increased from US $11.6 million in 1967 to US $315.3 billion in 2007

The Corporate Strategy


Sam Walton gave 3 policy goals to define Wal-Mart's business # Respect for the individual # Service to customers # Strive for excellence Waltons practices# Consistently stock the shelves with a wide range of goods at low prices # Keep the store open later than most other stores, especially during the Christmas season # Discount merchandising- Buy wholesale goods from the lowest priced supplier

- Pass on the savings to the customer

The Corporate Strategy (contd..)


Strategic Goals Three successful elements of strategy formulation and a fourth

element, where the strategy is implemented successfully


1. 2. 3.

Dominate the Retail Market wherever Wal-Mart has a presence Growth by expansion in the US and Internationally Create widespread name recognition and customer satisfaction with the Wal-Mart brand, and associate the retailer with the reputation of offering the best prices Branching out into new sectors of retailing such as pharmacies,

4.

automotive repair, and grocery sales

The Corporate Strategy (contd..)


Competitive StrategyDominate every sector where it does business Measure success in terms of sales and dominance over competitors (doesnt mind putting some of them out of business)

Sell goods at low process, outsell competitors, and to expand a typical Wal-Mart model is to build more stores, make existing stores bigger, and to expand into other sectors of retail
Company Mission- As Wal-Mart continues to grow into new areas and new mediums, our success will always be attributed to our culture. Whether you walk into a Wal-Mart store in your hometown or one across the country while you're on vacation, you can always be assured you're getting low prices and that genuine customer service you've come to expect from us. You'll feel at home in any department of any store...that's our culture

Business Model & strategies


Traditional components
Low cost-leadership strategy; Driving costs out of its supply chain; constantly implementing ways to operate more cost-efficiently Offering customers worldwide a broad range of merchandise at appealingly low price Opening stores in more and more places to serve an ever growing customer base

Newly adopted components


Commitment to protect environment and practice of green business activities Multiple store formats: Discount stores, Supercentres, Sams Club, Neighborhood markets Wide product selection and a mix of name brand and private -label merchandise

The Corporate Strategy (contd..)


Practices followedAggressive hospitality # Using door-greeters # Patriotic themes and displays in stores # Compels its staff to engage in morning cheers Affiliations with charities The United Way and Children's Miracle Network Sundown Rule All customer and supplier requests or queries must be reasonably answered within 24 hrs by all employees Ten Foot Rule Store employees must greet, smile, and attend to a customer in a store when within 10 feet of them

Relationship with suppliers


Scale of operation helps to bargain with suppliers to get the bottom prices Procurement personnel spend a lot of time with the vendors to understand the their cost structures and to get the minimum price in a win-win situation Encouraged its vendors to contribute ideas about how to make its store more attractive insofar as their products were concerned Vendors were encouraged to voice any problems in their relationship with Walmart and to become involved in in Walmarts future plan

Standards for Suppliers


Walmart has certain standard for suppliers in relation to wage and working condition Walmart has teams for direct control of factory audits and for monitoring factory compliances Conducts training for foreign supplies to ensure compliance and standards

Supply chain Management: Use of Cutting edge Technology


Probing, testing and then deploying the newest equipment, retailing techniques, computer software programes etc to increased productivity and drive costs down the company has sophisticated Information Technology and online capability for real-time access to detailed figures on most operations The company can track down the movements of goods through its entire value chain Walmart has data sharing systems and Retail Link System with 30,000 suppliers which allow them to avoid both stock outs and carrying access inventories, identifying slow-selling items to reduce costs Walmart has introduced Electronic Product Code (EPC) and Radiofrequency Identification (RFID) systems. With the help of EPC and RFID, the company can track movement of any items in real time The company has more than 88,000 associates engaged in logistics and information systems activities for effective and cost-supply-chain management

SWOT Analysis
Strength
- Efficient supply chain management - Targeted marketing - Service innovation and technology - Growth through adaptability. - E-tails continued development Least cost of packaging - strong penetration strategies Infrastructure (financial strength)

Weakness
- Poor public image - Late entrant in international market. - Unable to adapt to different countries - Ununionised & Strict labor laws - Were unable to handle media - High law suits against the company. - Low penetration in European union

Opportunity
- Many countries have Unorganized retail - Terrorism - Competitors

Threats

- Globalization (diminishing trade


barriers) - Cold Storage market - Increase in consumer purchasing - Power E-business

- Negative publicity
- International laws against anti dumping - Campaign against anti competitive practices

Strength in Supply Chain


Efficient consumer response

Vendor-Managed Inventory
Enterprise resource planning Customer relationship management Sales force automation

The Cookie begins to crumble

Criticism of Wal-Mart
Local communities Store openings At sites of archaeological relevance in Mexico

At American Indian burial grounds and a Civil War battle site in Tennessee

Economic Impact In a paper published in Farm

Foundation in 1997, Kenneth Stone, Professor of Economics at Iowa State University found that some small towns can lose almost half of their retail trade within ten years of a Wal-Mart store opening
Traditional Moms & Pops

forced out of business

Criticism of Wal-Mart
Pricing and Competition Issues
Sued by many competitors for intentional low pricing

(intentionally selling a product at low cost in order to drive


competitors out of the market)
Investigated by the Federal Competition Commission for

monopolistic practices
Retailer pressured suppliers to sell goods below cost or at

prices significantly less than those available to other stores


in 2003, the German High Court ruled that Wal-Mart's low cost

pricing strategy "undermined competition" and ordered WalMart to raise its prices
Wal-Mart sells all its stores in Germany

Criticism of Wal-Mart
Employee and labor relations:
Wal-Mart Associates don't earn enough to support a family
Sam Walton - "I pay low wages. I can take advantage of that. We're going to be successful, but the basis is a very low-wage, low-benefit model of employment.

Wal-Mart managers are judged, in part, based on their

ability to control payroll costs


Wal-Mart's 2006 Annual Report reported that the company

faced 57 wage and hour lawsuits


1.6 million women workers filed a lawsuit of gender

discrimination in 2004 - the largest nationwide civil lawsuit against a private company ever.

Criticism of Wal-Mart
Working conditions:
In 2000, Wal-Mart paid $50 million to settle a class-action suit

that asserted that 69,000 current and former Wal-Mart employees in Colorado had been forced to work off-the-clock
In December 2005, a California court ordered Wal-Mart to pay

$172 million in damages for failing to provide meal breaks to

nearly 116,000 hourly workers


On October 16, 2006, 200 workers at Wal-Mart Super Center,

Florida, walked out in protest against new store policies and

rallied outside the store, shouting "We want justice.


A report by Congressman Miller alleged that in ten percent of

Wal-Mart's stores, night-time employees were locked inside,

holding them prisoner.

Criticism of Wal-Mart

Criticism of Wal-Mart
Child labor violations and Illegal workers:
Internal Wal-Mart audit conducted in July 2000-

# 1,371 instances of minors working too late, during school hours, or for too many hours in a day

Wal-Mart agreed to pay $135,540 to settle child labor violation charges in January 2005

Wal-Mart has also been fined $205,650 for 1,436 violations of child labor

laws in Maine for the period 1995 to 1998


Health Insurance:
Wal-Mart reported in January 2006 that its health insurance only covers

43% of their employees. Wal-Mart had approximately 1.39 million US employees that time
President and CEO Lee Scott in 2005- "In some of our states, the public

program may actually be a better value - with relatively high income limits to qualify, and low premiums."

Criticism of Wal-Mart
Labor Union Opposition
Efforts of UFCW (United Food and

Commercial Workers Union) to interact with workers, foiled each time


In 2000, a small meat cutting

department successfully organized a union at a Wal-Mart store in Texas. Wal-Mart responded a week later by announcing the phase-out of its in-store

meat cutting company-wide.


Wal-Mart has issued "A Manager's Toolbox to Remaining

Union Free

Criticism of Wal-Mart
Taxes
The estimated total amount of federal assistance for which

Wal-Mart employees were eligible in 2004 was $2.5 billion


One 200-employee Wal-Mart store may cost federal

taxpayers $420,750 per year. This cost comes from the following, on average:

The Wal-Mart Reaction


Sam Walton launched the Buy American campaign in the 1980s.Agreed to pay 5% more for products made in US. In December 1992, in an interview with NBC program Dateline, CEO David Glass on non-American labor and low wages and child labor-We are equally dependent on American
factories and Buy American is still active

Not satisfied, NBC showed Made in USA labels being hung over merchandize bought from overseas in most of the WalMart stores. Glass said- Its some sort of a mistake at store level, and we dont
buy from any vendor that uses child labor.

During the interview, Glass is shown videos of child labor working in plants. What does Glass say?? We take care that we rely least on child labor

The Wal-Mart Reaction


No Comments, says Wal-Mart
Few weeks later, Glass returned for another interview, saying he wasnt prepared with the facts the last time. Fair enough, NBC says. Glass maintains there's no child labor in Bangladesh stores. NBC shows videos. Glass fumes, saying videos were doctored, and walks out. No more details revealed to the media. Another interview.same story Interview with 60 minutes (the most reputed news show in the USA) in 1994. Wal-Mart charged with impairing growth of small stores. Wal-Mart held its silence. On launch of Supercenters in mid-1990s, local officials responded vaguely to media queries and directed them to their annual reports.

The Wal-Mart Reaction


Even in the situations when PR couldve helped the company, the executives faltered. When Wal-Mart entered Canada in 1995, company officials seemed very unsure and dubious during a press meeting. Result - Newspapers carry out articles ridiculing the companys poor public relations-Short of substance, Circumspect, Executives skirt major questions. The National Organization for Women demonstrated in front of Wal-Mart stores, calling it Merchant of Shame, distributed cards reading Wal-Mart: Always Low Prices, But Who Pays? Protests begin to mushroom from every corner. Wal-Mart still holds its silence.

Not for long though

The Wal-Mart Reaction

For most of its 43 years, Wal-Mart has been notoriously tight-lipped.


A 2004 report prepared by McKinsey & Company for Wal-Mart found that 2% 8% of Wal-Mart consumers surveyed have ceased shopping at the chain because of "negative press they have heard. The sleeping giant has to be awakened and has to emerge with a defensive posture and a take-no-prisoners attitude. -Gail. F. baker, PR Expert, University of Florida I think they are going to have a tough time suddenly overcoming the perceptions of some people. It is going to be a tough sell on their part. - Larry Bevington, Chairman, Save our Community

The Wal-Mart Reaction


Wal-Mart does wake upBut is it too late??
For too long others have had free rein to say things about our company that just arent true. Weve decided its time to draw our own line in the sand.

- Lee Scott, CEO, Wal-Mart Inc. A DO or DIE situation for the giant retail chain To face the communication crisis, a PR team is put in place A PR campaign is launched in over 100 newspapers under CEO Lee Scott on January 13, 2004 Jay Allen, Senior VP, Corporate Affairs, said campaigns aimed at long term solution to improve the tarnished image. NOT a response to any specific charges raised recently. With newspapers including New York Times and Wall Street Journal among others, criticism on money wasted CEO issued an open letter in the ads stating that the company provides good jobs with excellent advancement opportunities.

The Wal-Mart Reaction


Wal-Marts Benefits Manager sent a letter to New York Times, ascertaining that the company provided health benefits to its employees. District Manager wrote a similar letter to The Salt Lake Tribune. CEO, Lee Scott, became the first Wal-Mart person to address the National Retailer Federation Trade Group, condemning the medias wide coverage on lawsuits against the company.
If our policies had been so bad, then the chain wouldnt have grown to this size, attracting such a large customer base.

Moving away from the low prices, company focussed on creating goodwill to restore its image. TV commercials showed employees giving testimonials about the benefits they get at the company

The Wal-Mart Reaction


Accelerating the image makeover, Wal-Mart increased its political donations to $1 million In an alliance with NPR (National Public Radio), Wal-Mart announced in radio shows about being a good employer and bringing job opportunities and quality goods and services to local communities Began offering scholarships for journalistic studies in about 10 universities all across the USA But despite all this, the problems didnt die. Lawsuits kept on increasing by the day, anti-Wal-Mart communities began to grow. Was Wal-Marts sheer size the main problem?? Wal-Marts very success may be working against it. Big empires are
hard to manage, and the public tends to mistrust institutions that get too mighty A brand analyst

The Wal-Mart Reaction


Wal-Mart recruited former presidential advisers, including Michael K. Deaver (Ronald Reagan's image-maker), and Leslie Dach (Bill Clinton's media consultant) to set up a rapidresponse PR team in Arkansas. Result- On January 13, 2005, millions of Americans opened their morning papers to find a full-page ad declaring, "WalMart is working for everyone," and signed by Lee Scott. Same morning, Lee Scott appeared on Good Morning America, Fox News, and CNBC Scott called the company's carefully orchestrated PR campaign "an outreach. BUT, Scott didn't pull it off. On-screen he was reserved and careful. His gaze was flat, his smile thin and forced. His lowkey manner in the face of critical allegations came off as dispassionate.

The Wal-Mart Reaction


Scott kept promising to tell the real story and provide the real facts. But from one interview to the next, it became clear that the retailer only wanted to tell part of the story and share certain facts When asked on Good Morning America how much Wal-Mart imports from China, Scott said he didn't know. ABSURD??...Coming from a company known for tracking practically everything, pretty much yes. Wal-Mart believed the cause of the bad image to be the lack of awareness among the public. So, it thought the image would automatically be restored if the facts were made available to the people. This resulted in the launch of a website, walmartfacts.com. Had links to all the labor policies, lawsuits, benefits to the employees and philanthropic activities undertaken by the company.

The Wal-Mart Reaction


Wal-Mart also bought paid search ads from Yahoo! and others A basic search on Yahoo! resulted in a sponsored link to the site walmartfacts.com saying, Who drives Wal-Mart? Want to know the facts? Go to walmartfacts.com Wal-Mart planned to create 100,000 new jobs in the United States in 2005 Promoted more than 9,000 people from hourly jobs to salaried management jobs and made sure that this deed was made known to the entire nation through advertisements in both TV and print media. But was the extensive PR campaign serving its purpose or was it adding on to the never ending woes of Wal-Mart??

Anti-Wal-Mart groups
Over the years, several groups had come up, to bring to light the facts the public didnt know about Wal-Mart Wake Up Wal-Mart - a union-backed campaign group affiliated with the UFCW, founded in April, 2005 The centerpiece of the organization is its website WakeupWalMart.com Exposes all the facts and problems which the website walmartfacts.com doesnt.

Wal-Mart Watch, formed in the spring of 2005, is a joint project of The Center for Community and Corporate Ethics, a non-profit organization studying the impact of large corporations on society

Anti-Wal-Mart groups

Wal-Mart: The High Cost of Low Price, a documentary film released in 2005, presents an unfavorable picture of WalMart's business practices through interviews with former employees, small business owners, and Wal-Mart executives. The movie has been seen by millions and has been highly acclaimed critically as well. New York Times had this to say - BREATHTAKING Wal-Mart came up with its own DVD film, defending its practices entitled Why Wal-Mart Works, and Why That Drives Some People C-R-A-Z-Y. But couldnt undo the magnitude of damage already done.

Ten Steps to Turn Around Wal-Mart


1.

Stop defending and start examining: You can't address what you don't acknowledge. Be prepared to accept responsibility, acknowledge difficult truths, and construct a plan for productive change. Begin a truly transparent process Fire your consultants: For years, Wal-Mart stayed clear of any form of PR, following Sam Waltons policy that its a waste of money. But when it did, it hired a rogue's gallery of spinmeisters who've worked for Reagan, Clinton, Kerry, and Bush. All they did was reinforce Wal-Marts defensive posture, collected fat checks, and tried to win debating points in the consumer culture Remember, consumers don't pay attention to all those fancy words. They go for fairness.

2.

Ten Steps to Turn Around Wal-Mart


3.

Leverage your size to help your 1.6 million employees in unexpected ways : Make Wal-Mart an employer of choice instead of the exhaust system of the American economy. Support the communities you do business in by using your infrastructure and helping local school districts pool their buying and save on textbooks and other merchandise. Talk to the unions : You've spent years fighting and villainizing them. Its time to think about the impossible: a solution that would let the unions in. Consumers wouldnt mind spending an extra penny, knowing its providing for health care for families.

4.

Ten Steps to Turn Around Wal-Mart


5.

Support mom and pops : Start helping mom and pops in some imaginative ways. For eg., start a referral network Let the customers know where they can find the stuff you are never going to store. You end up making two friends the local store and the customers.

6.

Expand your vendor base : Actively seek out small, innovative companies with exciting new products, and help them grow. Help the new entrepreneurs get stronger. Customers get bored by the same products on the shelf and they want to see you reach out to everyone.

Ten Steps to Turn Around Wal-Mart


7.

Stop treating your employees like commodities : Demonstrate your commitment to getting people out of the minimum wage sinkhole as quickly as possible. Encourage your employees in entrepreneurship. Take pride in how many employees start a new company each year. You lose employees but its great PR to lose good people for the right reason Open up your business : Become less impenetrable. Act like you have nothing to hide. Install factory-cams at your captive manufacturing plants around the world, so anyone can check out the conditions 24/7 on your website Let management and store personnel blog Talk to the reporters

8.

Ten Steps to Turn Around Wal-Mart


9.

Use your extended warranty marketing as a model for other new services : Dont give a chance to consumer advocates to raise a finger on the credibility of these policies. Offer discounts on future purchases, upon a single purchase above a certain amount. Kill the big holiday TV campaigns : You cant afford health care benefits but you can afford to pay over-priced celebrities to dance around the TV screen?? No one would believe that these celebrities shop at Wal-Mart. Instead, run advertising that shows how Wal-Mart democratizes the holiday for real people.

10.

Make Wal-Mart an admired company, instead of a feared one.

Thank You