2-Strategy Planning
For this discussion, you will explore the relationship between financial analysis and strategic analysis in a review of the case study Walmart, Inc. in 2018: The World’s Biggest Retailer Faces New Challenges (from your textbook). In addition, read: Chapter 2, “Putting Performance Analysis into Practice.”
A case study is a puzzle to be solved, so before reading and answering the specific questions, develop your proposed solution by following these five steps:
- Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course area which apply to the situation described in the case study.
- Record the facts from the case study which are relevant to the principles and concepts of the course area issues. The case may have extraneous information not relevant to the current course area. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
- Describe in detail the actions that would address or correct the situation.
- Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
- Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions, but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
In an original post, present a well-written answer and diagnosis for the following case study questions:
- How well is Walmart performing relative to its competitors?
- From (a) the financial data and (b) what we know about Walmart’s businesses, can we identify the sources of Walmart’s inferior performance?
- How are Walmart’s shareholders and stakeholders affected by the performance?
- What can Walmart’s management do to close the performance gap?
Embed course material concepts, principles, and theories (require supporting citations) in your initial response along with at least one scholarly, peer-reviewed journal article.Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references. Use Saudi Electronic University academic writing standards and APA style guidelines.
Walmart, Inc. in 2018:
The World’s Biggest
Retailer Faces New
Challenges
In 2018, Walmart was not only the world’s biggest retailer, it was also the world’s big-
gest company in terms of revenue—a position it had first attained in 2000 and had held
for most of the intervening years.
Since going public in 1972, Walmart’s record of growth and profitability was remark-
able. Between 1972 and 2009, its average annual sales growth was 22% and its return
on equity had not fallen below 20%.
Yet, sustaining Walmart’s phenomenal record of growth and profitability was
proving to be an ever more daunting challenge. As Walmart continued to expand
its range of goods and services—into groceries, fashion clothing, music downloads,
online prescription drugs, financial services, and health clinics—it was forced to com-
pete on a broader front. While Walmart could seldom be beaten on price, it faced
competitors that were more stylish (T.J.Maxx), more quality-focused (Whole Foods),
more service-oriented (Lowe’s, Best Buy), and more focused in terms of product
range. In its traditional area of discount retailing, Target was an increasingly for-
midable competitor, while in warehouse clubs, its Sam’s Clubs ran a poor second
to Costco.
However, all these competitive threats were trivial compared to that posed by
online retailing—and, specifically that posed by the world’s emerging retail colossus:
Amazon. During 2017, the turf battle between the two became increasingly acute:
while Walmart expanded its online operations, Amazon shocked the retail world with
its acquisition of Whole Food Markets. In December 2017, the company announced
that it was changing its name from Wal-Mart Stores Inc. to Walmart Inc. reflecting
“the company’s growing emphasis on serving customers seamlessly however they
want to shop: in stores, online, on their mobile device, or through pickup and
delivery.”1
Competition was not the only external threat that Walmart had to deal with. Its
growth had made “The Beast of Bentonville” a bigger target for environmentalists,
antiglobalization activists, women’s and children’s rights advocates, small-business rep-
resentatives, and organized labor, which had long sought to unionize Walmart’s 2.2 mil-
lion employees. In response, Walmart had become increasingly engaged in social and
environmental responsibility, corporate ethics, and government relations—all of which
meant greater involvement of top management with government agencies, external
interest groups, and the media.
These headwinds were reflected in Walmart’s financial performance. During its five
most recent financial years (2014–18), annual sales growth had averaged just 1.3% and
return on equity had dipped below 20% (see Table 1).
Case 6
This case was prepared by Robert M. Grant. ©2019 Robert M. Grant.
Case 6 WalmaRT, INC. IN 2018: The WoRld’s BIggesT ReTaIleR FaCes NeW ChalleNges 429
Walmart’s success had rested heavily upon its ability to combine huge scale with
speed and responsiveness. Walmart’s increasing size and complexity—including its
presence in 29 countries of the world—threatened this agility. One component of this
agility was its short chain of command and close relationship between top management
TABLE 1 Walmart Inc.: Financial data 2005–18 year ended January 31 ($billion unless
otherwise stated)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Net sales 285 312 345 375 401 405 419 444 469 476 486 478 481 495
Net sales increase (%) 11.3 9.5 11.7 8.6 7.2 1.0 4.4 5.9 5.0 1.6 2.0 −1.6 0.6 2.9
Gross margin (%) 22.8 23.1 23.5 24.1 24.3 24.9 24.8 24.5 24.3 24.3 24.3 32.8 33.2 32.7
SG&Aa expense as
% of sales
18.0 18.2 18.5 19.1 19.4 19.7 19.4 19.2 19.0 19.3 19.4 20.3 21.0 21.4
Interest, net 0.9 1.2 1.6 1.8 1.9 1.9 2.0 2.1 2.1 2.2 2.3 2.4 2.2 2.1
Income taxes 5.6 5.8 6.2 6.9 7.1 7.4 7.5 7.9 8.8 8.1 8.0 6.5 6.2 4.6
Operating income 17.3 18.7 20.5 22 22.8 24 25.5 26.5 27.7 26.9 27.1 24.1 22.7 22.1
Net income 10.3 11.2 11.3 12.7 13.4 14.4 16.9 16.3 17.0 16.0 16.4 15.0 14.2 10.5
Current assets 38.9 43.8 47.6 47.6 48.8 48.8 52.0 54.9 58.8 61.2 63.3 54.3 57.6 59.6
Inventories 29.8 32.2 33.7 35.2 34.5 32.7 36.4 40.7 43.8 44.9 45.1 44.4 43.0 43.7
Property and
equipment
68.1 79.3 88.4 97.0 95.7 102 105 110 113.0 117.9 116.7 116.5 114.1 114.8
Total assets 119.8 138.0 152.2 164.3 163.0 170.0 181.0 193.6 200.1 204.5 203.5 199.6 199.9 204.5
Current liabilities 43.2 48.8 52.2 58.5 55.3 56.8 58.6 62.3 67.2 69.3 65.3 66.0 66.9 78.5
Long-term debtb 23.3 30.1 30.7 33.4 34.5 39.5 43.7 47.0 41.4 44.6 43.7 40.3 36.0 30.0
Shareholders’ equity 49.4 53.2 61.6 64.6 65.3 70.5 68.5 71.3 76.3 76.3 81.4 80.2 87.0 77.0
Current ratio 0.9 0.9 0.9 0.8 0.9 0.8 0.9 0.9 0.9 0.9 1.0 0.8 0.9 0.8
Return on assetsc (%) 9.3 8.9 8.8 8.5 8.4 8.7 9.3 8.4 9.1 8.2 8.4 12.6 7.2 5.1
Return on equityd (%) 22.6 22.5 22.0 21.0 21.2 21.2 24.6 22.8 23.0 21.0 20.8 18.8 16.3 13.6
Other data (units)
US storese 3702 3856 4022 4141 4258 4314 4418 4479 4625 4835 5163 5229 5332 5358
International storesf 1587 2285 2757 3121 3615 4099 4587 5287 5783 6107 6290 6299 6363 6360
Employees (millions) 1.6 1.8 2.1 1.9 2.1 2.1 2.1 2.2 2.2 2.2 2.2 2.2 2.3 2.3
Notes:
aSG&A: sales, general, and administrative.
bIncluding long-term lease obligations.
cNet income before minority interest/average assets.
dNet income/average shareholders’ equity.
eIncludes US Sam’s Club outlets.
fIncludes overseas Sam’s Club outlets.
Source: Walmart Inc. 10-K reports.
430 Cases To aCComPaNY CoNTemPoRaRY sTRaTegY aNalYsIs
and individual store managers. Walmart’s Saturday-morning meeting at its Bentonville
HQ, once described as “the pulse of our culture,” was progressively downgraded bet-
ween 2008 and 2015.2
Given these challenges, could Walmart’s outstanding retailing capabilities sustain its
outstanding performance in a retail sector that had always been brutally competitive,
but was now being torn apart by online giants such as Amazon and Alibaba?
History of Walmart
Discount stores—large retail outlets offering a broad range of products—began appear-
ing in the United States after World War II. Conventional wisdom held that cities with at
least 100,000 inhabitants were needed to support a discount store. Sam Walton believed
that, with low enough prices, discount stores could be viable in smaller communities:
“Our strategy was to put good-sized stores into little one-horse towns that everyone
else was ignoring.”3 His first Walmart opened in 1962; by 1970, there were 30 Walmarts
across Arkansas, Oklahoma, and Missouri.
Distribution was a problem for Walmart:
Here we were in the boondocks, so we didn’t have distributors falling over themselves
to serve us like our competitors in larger towns. Our only alternative was to build our
own distribution centers so that we could buy in volume at attractive prices and store
the merchandise.4
Walmart’s expansion strategy involved entering new areas by building a few stores
that were served initially from a nearby distribution center. Once a critical mass of
stores had been established, Walmart would build a new distribution center. By 1995,
Walmart was in all 50 states and was competing in major conurbations as well as in
smaller towns.5
Different Store Formats
Sam Walton experimented continually with alternative retail formats—this continued
under subsequent CEOs:
● Sam’s warehouse clubs were wholesale outlets which required membership:
they offered products in multipacks and catering-size packs with minimal
customer service.
● Supercenters were large-format stores (averaging a floor space of 178,000
square feet, compared with 105,000 square feet for a Walmart discount store
and 129,000 square feet for a Sam’s Club). They combined a discount store with
a grocery supermarket, plus other specialty units such as an eyeglass store,
hair salon, dry cleaners, and photo lab. They were open 24 hours a day, seven
days a week.
● Neighborhood Markets were supermarkets with an average floor space of
42,000 square feet.
● Walmart Express convenience stores of about 12,000 square feet were
launched in 2013; however, in January 2016, Walmart closed all 102 of its
Express stores.
Case 6 WalmaRT, INC. IN 2018: The WoRld’s BIggesT ReTaIleR FaCes NeW ChalleNges 431
● Walmart also built a substantial online business through its websites www.
walmart.com and www.samsclub.com. A key feature of Walmart’s online
strategy was its integration of web-based transactions with its physical store
network. In 2016–17, Walmart acquired additional e-commerce companies
namely: Jet.com (general merchandise), Hayneedle.com (home furnishings),
Shoes.com, Moosejaw (outdoor apparel and gear), ModCloth (women’s
apparel), and Bonobos (men’s apparel).
International Expansion
Walmart’s international expansion began in 1991 with a joint venture with Mexico’s
largest retailer, Cifra SA, to open discount stores and Sam’s Clubs. By 2000, Walmart had
entered six overseas countries. Table 2 summarizes Walmart’s international development.
Walmart’s overseas expansion followed no standard pattern: it might enter through
greenfield entry, through joint venture, or by acquisition. Unlike the globally standard-
ized approach of retailers such as IKEA and H&M, Walmart adapted its strategy to
each country’s consumer habits, infrastructure, competitive situation, and regulatory
environment. Its overseas operations have met with varying degrees of success. In
the adjacent countries of Mexico and Canada, Walmart was highly successful. Walmart
withdrew from Germany and South Korea after sustaining heavy losses and, in March
2018, it was negotiating the sale of its Brazilian stores. Walmart’s subsidiaries in UK and
Japan, Asda and Seiyu, have each found profitability elusive.6
China represents Walmart’s greatest international success outside of North America.
In 2018, China accounted for 20% of Walmart’s retail square footage outside the
United States. It was also the lead country for Walmart’s online operations. Through
an alliance with JD.com, Walmart offers a guaranteed one-hour fresh grocery delivery
service through a network of mini-warehouses.7
TABLE 2 Walmart stores by country, January 2015 and January 2018
Country
No of stores
Notes2018 2015
US 5358 5163 In 2018 these comprised 3,561 Supercenters, 400 discount
stores, 597 Sam’s Clubs, 800 Neighborhood Markets, and
other small formats
Canada 410 394 Entered in 1994 by acquiring 120 Woolco stores from
Woolworth and converting them into Walmart discount stores
Mexico 2358 2290 In 1991 formed JVa with Cifra. Chains include Walmart,
Bodegas, Suburbia, VIPS, and Mercamas. In 2000, Walmart
acquired 51% of Cifra and took control of the JV. Walmart
Mexico is the country’s biggest retailer
Central America 778 690 Acquired CARHCO, a subsidiary of Royal Ahold in 2005 with
stores throughout Central America
Argentina 106 105 Entered 1995: greenfield venture
Brazil 465 557 Entered 1995: JV with Lojas Americana, includes Todo Dia,
Bompreço, and Sonae stores
(Continues)