Walmart Case

Critical Issue

The critical issue is to develop new sources for future company growth.

Despite the fact that the company increased dividends every year since 1974 and returning significant value to its shareholders through a stock repurchase program, they still looked to Wal-Mart for significant growth. Through the years Wal-Mart managed to keep the same growth rate for sales and net income, but the nominal sales growth has been on decline since the 70s.

The estimates show that nearly 69% of the stock price is attributed to growth options rather than assets. This puts incredible pressure on the top executives at Wal-Mart to push for continuously rapid growth rate in order to preserve the market value of the company.

Wal-Mart's core business is of discounting general merchandise and food in the US but a glance at the US sales in Exhibit 1 shows stagnant sales of traditional discount stores in the 90s and declining number of stores. Industry expectations are at about 10% rate over the next ten years, which is not enough to sustain aggressive growth.

Wal-Mart needs new venues to grow or as CEO Lee Scott put it: "Our long-term strategy is to be where we're not".

In the 80s the core business was largely driven by innovations that created operational efficiencies, such as UPS scanning and point-of-sale systems. Starting in the 90s, new format grew rapidly; Supercenters followed the hypermarket format of Europe and blurred the lines between groceries and general merchandise stores. Wal-Mart added its first Supercenter in 1988 way ahead if its competitors. But in 2003 the Discount Stores still accounted for the largest number of Wal-Mart stores while 42% of the US population had access to Supercenter.

Another fast growing path in US is the warehouse clubs and the company introduced its own Sam's club in early 80s but for Wal-Mart it hasn't lived up to its promise and was lagging behind its rival - Costco.

Despite the sales of the neighborhood stores format were in high double digits, Wal-Mart was still very cautious to introduce it widely.

The international operation accounted for 32% of the total assets but brought only 17% of sales. Wal-Mart has started its geographic expansion in the early 90s but was still struggling in some of the countries: it exited Indonesia only a year after the entry, the operating income of Brazil, Argentina and China was negative, Germany brought deep loses and the Japan acquisition was still to produce sales (Exhibit12).

International retailing is an answer but as with its other venues, Wal-Mart still has to figure out what are the successful formats and strategy to compete. Its legacy has been low prices/high volume orientation with focus on small town living and rural areas. The company is yet to look for opportunities into newly vacant lifestyle regions like Inner city and Midscale subs, where Kmart was previously the dominant retailer.

Strengths

Wal-Mart is a powerful retail brand. In March 2003, Fortune ranked it as America's most admired and the world's largest company. With 1.4 million employees and $245 billion in sales, Wal-Mart had become the world's largest private employer.

The company has grown substantially over recent years, and has experienced