Make your own free website on Tripod.com

Henry Wu's Career Advancement Portfolio

Work Samples

Home
Work Samples
Extracurricular Activities
Managerial Competence Essay
My Resume
Academic Course List

CASE 8

Wal-Mart: Planning for Superstore Competition

Wal-Mart, first opened in 1962 by Sam Walton in Rogers, Arkansas, has become the largest retailer in the world, with over 4,600 store locations and approximately 1.25 million associates worldwide. Despite the death of Sam Walton in 1992, Wal-Mart continues to be successful, reaching record annual sales of $244.5 billion and earnings of $8.0 billion in fiscal 2003. (1) Maintaining this phenomenal growth presents an important challenge to Wal-Mart’s current leadership.

 

 

Carrying on Sam Walton’s Legacy

In his 1990 letter to Wal-Mart stockholders, then CEO David Glass laid out the company’s philosophy: “We approach this new exciting decade of the ’90s much as we did in the ’80s—focused on only two main objectives, (a) providing the customers what they want, when they want it, all at a value, and (b) treating each other as we would hope to be treated, acknowledging our total dependency on our associate-partners to sustain our success.” (2) Following in Sam Walton’s footsteps, Glass believed that the traditional format of organization, employee commitment, cost control, carefully planned locations for new stores, and paying attention to customer needs and desires would enable Wal-Mart to enjoy continued success.

Wal-Mart grew by paying careful attention to its market niche of customers who were looking for quality at a bargain price. Customers did not have to wait for a sale to realize savings. Many of its stores were located in smaller towns, primarily throughout the South and Midwest. As Glass looked ahead at the 1990s he recognized the opportunities and threats that confronted Wal-Mart. While the traditional geographical markets served by Wal-Mart were not saturated, growth in these areas was limited. Any strategy to achieve continuing growth would have to include expansion into additional geographical regions. Glass recognized that continued growth might also have to include new product lines and higher-priced products to allow existing stores to achieve year-to-year sales growth.

In 1993, the company added the 91-store Pace Membership Warehouse chain, which it had purchased from Kmart. (3) Competition was increasing as smaller regional chains such as Costco and Price Club merged and opened stores in many of the same markets as Wal-Mart. (4) The company began to experiment with one-stop shopping in 1987, when it opened Hypermart* USA, a Wal-Mart/supermarket combination. Experimentation with different retailing formats continued in subsequent years.

Wal-Mart is now made up of five retail divisions and five specialty divisions.  The retail divisions include: Wal-Mart Stores, SAM’s Clubs (membership warehouse clubs), Neighborhood Markets (selling groceries, pharmaceuticals, and general merchandise), International Division, and Walmart.com (an online version of the neighborhood Wal-Mart store). Three of the specialty divisions Tire & Lube Express, Wal-Mart Optical, and Wal-Mart Pharmacy are commonly operated in conjunction with the Wal-Mart Stores and Supercenters and SAM’S Club outlets. (5)

Wal-Mart subscribes to the corporate policy “buy American whenever possible.”  Nonetheless, it has a global procurement system that enables it to effectively coordinate its entire worldwide supply chain and to share its buying power and merchandise network with all its operations throughout the world. (6) The company has set up an extensive inventory control procedure based on a satellite communication system that links all stores with the Bentonville, Arkansas headquarters. The satellite system is also used to transmit messages from headquarters, training materials, and communications between stores, and can even be used to track the company’s delivery trucks. In addition, Wal-Mart has an online system that links the company’s computer systems with its suppliers. Because of its use of innovative technology, Wal-Mart has gained a competitive advantage in the speed with which it delivers goods to its customers.

While each new Wal-Mart brings in new jobs, it can also bring detrimental effects to the community as well. A 1991 Wall Street Journal article noted that many small retailers are forced to close after Wal-Mart opens nearby. (7) In one Wisconsin town, even J.C. Penny lost 50 percent of its Christmas sales and closed down when Wal-Mart opened up. In an Iowa town, four clothing and shoe stores, a hardware store, a drug store, and a dime store all went out of business. In 1994, the voters in Greenfield, Massachusetts, forced Wal-Mart to withdraw its building plans by using a few simple rules of engagement. It also had to give up plans to build in Bath, Maine; Simi Valley, California; and two towns in Pennsylvania. Vermont successfully resisted all Wal-Mart plans to locate in that state.

Even Wal-Mart’s “Bring it home to the USA” buying program produced controversy when an NBC news program found clothing that had been made abroad hanging on racks under a “Made in the USA” sign in 11 Wal-Mart stores. In addition, the program showed a tape of children sewing at a Wal-Mart supplier’s factory in Bangladesh. Wal-Mart insisted that its supplier was obeying local labor laws, which allowed 14-year-olds to work. A company official had also paid a surprise visit to the factory and had not found any problems. Then CEO David Glass stated: “I can’t tell you today that illegal child labor hasn’t happened someplace, somewhere. All we can do is try our best to prevent it.” (8)

 Meanwhile, Wal-Mart began considering international expansion. In March 1994, the company bought 122 Canadian Woolco stores, formerly owned by Woolworth Corp., the largest single purchase Wal-Mart had made. (9) This international expansion continued, and in 2003, Wal-Mart’s international division was the second largest with respect to sales and earnings. The almost 1,200 international locations had $41 billion in sales and an operating profit of $2 billion. (10)

 

 

 

Sam’s Cultural Legacy

Wal-Mart’s success is built upon its culture. Rob Walton, the company’s current Chairman of the Board, says: “Although Wal-Mart has grown large, we still focus daily on the culture and values established by my father, Sam Walton.” (11) Sam Walton founded and built Wal-Mart around three basic beliefs: Respect for the Individual, Service to Our Customers, and Striving for Excellence. Wal-Mart’s slogan that “our people make the difference” reflects the company’s respect for and commitment to its associates (employees). Diversity is also highly valued. Wal-Mart’s philosophy of customer service emphasizes the lowest possible prices along with the best possible service to each and every customer. Lee Scott, Wal-Mart Stores’ current President and CEO, observes: “Sam was never satisfied that prices were as low as they needed to be or that our product’s quality was as high as they deserved he believed in the concept of striving for excellence before it became a fashionable concept.” (12)

Three critical elements in Wal-Mart’s approach to customer service are the Sundown Rule, the Ten Foot Rule, and Every Day Low Prices. The Sundown Rule means Wal-Mart sets a standard of accomplishing tasks in the same day that the need arises in short, responding to requests by sundown on the day it receives them. The Ten Foot Rule promises that if an employee comes within ten feet of a customer, the employee must look the customer in the eye and ask if the person would like to be helped. Every Day Low Prices is another important operating philosophy. Wal-Mart believes that by lowering markup, they will earn more because of increased volume, thereby bringing consumers added value for the dollar everyday. (13)

While Wal-Mart has enjoyed phenomenal success, there is no guarantee that it will continue in the future. As the company’s 2003 Annual Report points out, preserving and advancing the Every Day Low Prices concept and helping thousands of new associates to embrace the customer-centered Wal-Mart culture are essential for the company to continue growing. (14)

Review Questions

 

1.      What are Wal-Mart’s key objectives?

Wal-Mart’s key objectives include respect for the individual, service to customers, and striving for excellence.

2.      How have Wal-Mart’s managerial philosophies and principles enabled it to pursue these key objectives?
Wal-Mart’s philosophies and principles have enabled it to pursue their key objectives.  Wal-Mart’s slogan that “our people make the difference” shows how important the individual worker is to them.  Their philosophy of maintaining the highest customer service is shown with their three critical elements of the “sundown rule,” the “ten-foot rule,” and the “everyday low prices” rule.  Trying to lower prices everyday will increase the volume of sales, as well as bring added value for the consumers.

3.      How do planning and controlling seem to be linked at Wal-Mart?
The top managers at Wal-Mart have planned and controlled everything to manage to stay ahead of the competition.  Controlling when and where the company adds new stores is key to their success.  Preserving their values help thousands of new associates to embrace the Wal-Mart culture and helps the company continue to grow. This is made possible through planning ahead and controlling all aspects of the company.

 

You Do the Research

1.      Explain how the various elements of Sam Walton’s cultural legacy contribute to the company’s ethical orientation.
Sam Walton’s elements of the traditional format of an organization, employee commitment, cost control, carefully planned locations for new stores, and attention to customer needs and desires enable them to enjoy continued success.  Today’s managers at Wal-Mart continue to follow in Sam’s philosophies and that is why they continue to be successful.esirestention to customer needs an organization, employee commitment, cost control, carefully planned locations for new st

2.      Sam Walton’s 1992 book Made in America identifies ten key factors in building a business. These factors are identified on the company’s Web site, http://www.walmartstores.com. How do these factors relate to Wal-Mart’s culture and success?
Sam’s rules include helping out your associates which means more than giving them a paycheck.  Telling them you appreciate them and giving them a voice in the company relate to the culture and success of Wal-Mart.  This rule ties in with respect for the individual.  Another rule of exceeding customer expectations is met with Wal-Mart’s policy of customer service.  Providing beyond what is necessary is crucial to the success of a business.

 

 

Case Endnotes:

1.      It’s My Wal-Mart: 2003 Annual Report, 1-2.

2.      “Wal-Mart Picks Up the PACE,” Business Week, November 15, 1993: 45.

3.      Ibid.

4.      Zellner, Wendy. “Warehouse Clubs Butt Heads - and Reach for the Ice Pack,” Business Week, April 19, 1993: 68.

5.      Wal-Mart homepage, http://www.walmartstores.com.

6.      2003 Annual Report, op. cit., 3.

7.      Marsh, Barbara. “Merchants Mobilize to Battle Wal-Mart in a Small Community,” Wall Street Journal, June 5, 1991: A1.

8.      Saporito, Bill. “David Glass Won’t Crack Under Fire,” Fortune, February 8, 1993: 75, 78.

9.      Symonds, William C. “Invasion of the Retail Snatchers, “Business Week, May 9, 1994: 72-73.

10.  2003 Annual Report, op. cit., 2 and 7.

11.  2003 Annual Report, op. cit., 5.

12.  Wal-Mart homepage, op. cit.

13.  Wal-Mart homepage, op. cit.

14.  2003 Annual Report, op. cit., 9.

 

Humanities Core Essay

University Studies: Drama in the Business world