Wal-Mart Case

Wal-Mart International Case

Introduction

In 1993, Wal-Mart had become AmericaÐŽ¦s leading retailer, with net sales of $67 billion from its Wal-Mart stores, SamÐŽ¦s Clubs, and Wal-Mart Supercenters. The Company had grown at a rate of 25% per year since 1990, and it was clear that to continue at its current rate of growth, Wal-Mart would have to seriously consider continuing its recent international expansion.

During 1992, Wal-Mart had entered into a joint venture with CIFRA, MexicoÐŽ¦s largest retailer, which currently operated 24 stores in Mexico and had plans to open 70 new stores by 1995. The Company had also recently completed the acquisition of 122 Woolco department stores in Canada. Each of these expansions had presented unique challenges for Wal-Mart to adapt its operations to suit local market demands, but Wal-Mart had successfully risen to the challenge. Given the CompanyÐŽ¦s successful track record, it seemed logical to continue to expand internationally.

If Wal-Mart didnÐŽ¦t expand internationally, David Glass, Wal-MartÐŽ¦s CEO, felt that companies would start to come to the US and increase competitive pressures domestically. International expansion would drive growth and help in maintaining Wal-MartÐŽ¦s dominant domestic position. Namely, entrance into foreign markets would force competitors to focus on their primary markets. If Wal-Mart planned to maintain its dominant position in the U.S., international expansion would not only drive growth, but it would also keep potential competitors trying to operate stores in their home markets rather than expanding into the U.S.

Wal-Mart

Company Background:

Sam Walton began his retail career working at J.C. Penney while in college and later leased a Ben Franklin franchised dime store in Newport, Arkansas (1945). In 1950, he relocated to Bentonville and opened a Walton Five and Dime. By 1962, Walton owned 15 Ben Franklin stores under the Walton Give and Dime name. Walton felt that big supermarkets would eventually destroy the smaller, traditional five and dimes and in 1962, Walton opened his own supermarket discount store. Eight years later, the Company was trading on Wall Street and had 30 stores.

Wal-MartÐŽ¦s growth accelerated greatly during the 1970s. The Company aggressively marketed itself to middle class shoppers by advertising ÐŽ§Everyday Low Prices.ЎЁ Walton motivated his employees by implementing a stock participation program that allowed all employees to purchase stock at discounted prices. This created an employee ownership that helped Walton to advance the CompanyÐŽ¦s emphasis on controlling costs and providing excellent customer service. Additionally, Wal-Mart established highly automated distribution centers and implemented a computerized inventory system, which allowed the Company to cut costs and speed up checkout.

In 1988, Sam Walton stepped down as CEO of Wal-Mart due to health reasons and David Glass assumed the management of the Company. Since then, Wal-Mart had acquired its own distribution division and had begun to expand internationally.

By 1993, Wal-Mart had five divisions: Wal-Mart Stores, Wal-Mart Supercenters, SamÐŽ¦s Clubs, McLane Company, and Wal-Mart International.

1. Wal-Mart Stores represented the lionÐŽ¦s share of company sales and were the nationÐŽ¦s largest discount chain. They accounted for approximately 75% of the CompanyÐŽ¦s profit.

2. Wal-Mart Supercenters were the companyÐŽ¦s fastest growing division and included Supercenters, Hypermarts, and BudÐŽ¦s Warehouse. This segment provided the CompanyÐŽ¦s primary growth vehicle going forward, with units combining 110,000 square foot discount stores with 40,000 square foot grocery and 20,000 square foot strip mall merchandise.

3. SamÐŽ¦s Clubs typically ran at 100,000 square feet and accounted for approximately 23% of total company sales and 14% of profits in 1993.

4. McLane Company was acquired by Wal-Mart in 1990 and comprised the worldÐŽ¦s largest food and nonfood distributor. In addition to supplying Wal-MartÐŽ¦s divisions, McLane also distributed to more than 25,000 convenience store and food service retailers.

5. Wal-Mart International was created in 1990 to address globalization and represented a critical growth vehicle as Wal-Mart sprawled across the nation's borders into the international market.

There was not just one explanation for Wal-MartÐŽ¦s success and outstanding performance among retailers. It was a combination of strong management, culture, and strategy that had made Wal-Mart one of the most powerful retailers in the world. Wal-MartÐŽ¦s entire economics, reward systems and corporate culture focused on growing overall profits and sales, and the strategy seemed to be working. Sales had grown at more than a 25% compound annual rate since 1990, making significant performance improvement a challenge.

Despite this challenge, Wal-Mart had a five-pronged growth strategy in place. The first driver of growth through 1997 was expected to be the Supercenters, which were projected to contribute to 50% of the CompanyÐŽ¦s sales growth through 1997. New store growth would follow Supercenter growth, with Wal-Mart adding an average of 156 stores per year in the U.S. International development was expected to continue, with international stores growing to 13% of the worldwide store total by 1997. The emphasis on SamÐŽ¦s Club membership stores was decreasing, and Wal-Mart was focusing on boosting sales at existing stores rather than spreading out the chain. Finally, Wal-Mart was attempting to realize each of its storeÐŽ¦s potential by utilizing the CompanyÐŽ¦s strength in technology. By tracking consumer-buying patterns in different stores, Wal-Mart was ÐŽ§localizing the mixЎЁ and tailoring store inventory and service to local markets.

Wal-MartÐŽ¦s Financial Performance

By 1993, Wal-Mart Stores Inc. had established a proven record of financial performance. Over its twenty-year history, Wal-Mart had achieved a return on equity of 33% and sales growth of 25%. The company had experienced sales increases from $16 billion in 1987 to $67 billion in 1993 while earnings went from $628 million to $2.3 billion over the same period. The firm had also built a market capitalization of $57.5 billion and sales per square foot of nearly $300 (as compared to an industry average of $210). Exhibit 1 details the companyÐŽ¦s financial performance