WALMART CASE STUDY

PLEASE READ AND ANSWER THE QUESTION AT THE END OF THIS CASE STUDY. BE SURE TO EXPLAIN YOUR ANSWER.

Sam Walton began his career in retailing as a J.C. Penney management trainee. He later leased a five-and-dime store in the rural community of Newport, Arkansas, in 1945. Five years later, he launched Walton 5 & 10, and by 1962, Walton owned fifteen Ben Franklin stores under the Walton name. Walton envisioned a rapid expansion of chain discount stores in small towns, a concept rejected by Ben Franklin. As a result, Sam and his brother James "Bud" Walton opened the first Wal-Mart Discount City in 1962. Wal-Mart Stores reached eighteen stores with sales of $44 million in 1970, and the company went public.

The company continued to avoid the competition by opening stores in small and midsized towns. The company amassed 276 of its own stores with annual sales in excess of $1 billion by 1980. Three years later, the first Sam's Wholesale Club was opened, touting a cash-and-carry, membership-only warehouse format. Rapid growth continued through the 1980s and 1990s.

Today, the Bentonville, Arkansas-based firm operates almost 7,000 storesabout 60 percent in the United Statesincluding traditional discount stores, supercenters that also sell groceries, and Sam's Wholesale Clubs, as well as some Internet sales. Wal-Mart has stores in all fifty states and is the leading retailer in Canada and Mexico (through its Wal-Mart de Mexico division). Wal-Mart also operates stores in Germany, Korea, Japan, and China, as well as other nations in Asia, Europe, and South America. The heirs of the late Sam Walton (Wal-Mart's founder) own about 38 percent of the company.

It is almost impossible to separate Wal-Mart from its founder. The flamboyant leader was known for his charismatic style, emphasis on customer service, and high esteem for Wal-Mart employees. In fact, Walton is responsible for the first widespread use of "associates," a term which connotes more respect for those who work for the large retailer. This commitment is seen in Wal-Mart's contribution of about 6 percent of each associate's salary to the company's profit sharing plan. Associates can take their share in cash or stock when they leave the company. It is not unusual for 20-year employees to accumulate $500,000 or more in company stock.

More than anything, however, Walton instilled a bias for action in managers and associates alike. Store change is constant, as opportunities for improvement were constantly being sought. Within each store, department managers act as entrepreneurs and are encouraged to innovate. CEO David

Glass continued Walton's commitment to cost control, innovation, greater emphasis on the upscale market, and a customer-centered culture until the top job was handed to Lee Scott in 2000. Following an incessant stream of criticism alleging such practices as unfair price competition and-employment discrimination, Scott launched a concerted effort in late 2004 to defend Wal-Mart's record, both as a successful retailer and a good corporate citizen. Wal-Mart is under constant pressure from environmental groups and organized labor, and defends itself against the most lawsuits of any firm in the United States.

Wal-Mart made an interesting move in 2006, lowering the prices of 300 generic prescription drugs to four dollars for a thirty-day supply. Continued growth effortsespecially in international marketsare anticipated. A smaller, neighborhood store format that carries both grocery and household items and sales of major appliances such as LCD televisions is also in the strategic mix.

Perspectives

• Zimmerlin, A., "Defending Wal-Mart," Wall Street Journal, 6 October 2004, B1, B10. CEO Lee Scott vigorously defends Wal-Mart against its critics and offers insight into the company's philosophy of business.
• Buckley, N., "Wal-Mart in offensive to boost image," Financial Times, 9 September 2004, 30. Wal-Mart has been the brunt of criticism alleging unfair business and labor practices. CEO Lee Scott announced that the company will embark on a concerted effort to put its story across.
• Stringer, K., "Wal-Mart's growth surge leaves dead stores behind," Wall Street Journal Online, 15 September 2004. Wal-Mart's success in many cities has resulted in moves to larger stores, often leaving "dead" ones that used to anchor strip malls unoccupied. This has created a growing problem for local economic developers.
• Sandoval, R., "Mexican retailers fight for survival against Wal-Mart," Dallas Morning News, 13 March

• 2004. Three large Mexican grocery chainsGigante, Comercial Mexicana, and Sorianaattempted to fuse their purchasing units to challenge Wal-Mart's clout, but Mexico's competition commission rejected their plan. The stores are appealing the decision.

• Culp, E., "Juggernaut Wal-Mart goes slow in Germany," Sunday Business (London), 26 September 2004, Germany is the only company in the world where Wal-Mart is not profitable. Strategists are speaking more of adapting Wal-Mart's offerings to German consumers in an effort to revive the company's ninety-two stores there.
• Dunn, J., and Vuong, A., "Growth of big-box retailers leads to increase in discrimination lawsuits," Tribune Business News, 21 September 2004. During the last decade, Costco, Home Depot, and Wal-Mart expanded vigorously and hired tens of thousands of hourly employees, many of whom later became managers. All three firms, however, have been the targets of class action lawsuits alleging race and sex discrimination.
• Lyons, J., "In Mexico, Wal-Mart is defying its critics," Wall Street Journal, 5 March 2007. Wal-Mart is performing well in Mexico. Like many of their rural American counterparts, Mexican shoppers are "more concerned

• about the cost of medicine and microwaves than the cultural incursions of a multinational corporation."

  Case questions

• 2. Does Wal-Mart's new neighborhood store format run counter to the cost-cutting emphasis that is at least partially responsible for the success of its traditional stores? Explain.