Wal-Mart Questions to Be Answered in Depth - Assignment Example

 Wal-Mart Stores Inc. Table 0f Contents Table 0f Contents 1 2. WHAT INDUSTRY IS YOUR COMPANY IN? 4 A. WHAT ARE ITS SIC OR NAICS CODE(S)? 4 B. DESCRIBE IN BROAD TERMS WHAT PRODUCTS/SERVICES YOUR COMPANY PRODUCES. 4 3. GIVE A BRIEF DESCRIPTION OF THE COMPANY: 4 A. ITS PRODUCTS 4 B. LABOR FORCE 5 C. TECHNOLOGY 5 D. MATURITY OF EACH OF ITS MAJOR PRODUCTS (STAGE OF LIFE CYCLE) 5 E. MARKET CONCENTRATION (DEGREE OF COMPETITION) 6 F.MAJOR/MINOR COMPETITORS 6 G. EXTENT OF MARKET, (REGIONAL, NATIONAL, GLOBAL), ETC 7 H. QUALITY OF MANAGEMENT. 8 I. OTHERS YOU DEEM IMPORTANT 9 4. HOW DOES YOUR COMPANY COMPETE AND MAKE MONEY (PROFITS)? 9 A. WHAT IS ITS MARKETING STRATEGY 9 B. ITS PRICING STRATEGY? 10 C. ITS SALES STRATEGY? 10 D. ITS DISTRIBUTION STRATEGY? MANUFACTURER/ WHOLESALER/ BRICKS AND MORTAR; WHERE IS YOUR COMPANY IN THE CHAIN/CHANNEL? 10 E. HOW DOES IT ADD VALUE? PROVIDE RETURN TO STOCKHOLDERS? WHAT NICHE, IF ANY, DOES IT HAVE? 10 5. RECENT TRENDS IN SALES AND PROFITS. 11 A. Provide a table showing the past few years of total revenues, total profits, earnings per share, total expenses, profit margins and stock price for your company and each of its key competitors. 11 B. Also, show percent changes from previous year to get a feel for trends. You may want to break the totals into products or product groups. 12 6. HOW DOES YOUR COMPANY SET PRICES FOR ITS PRODUCTS AND SERVICES? 13 7. WHAT MARKET STRUCTURE DESCRIBES YOUR INDUSTRY? 13 A. HOW DO YOU KNOW? GIVE EVIDENCE TO SUPPORT. 13 B. WHO ARE KEY COMPETITORS? GIVE MARKET SHARES BY PRODUCT PERCENTAGES? 14 C. Discuss each of the following: 15 8. EVALUATE THE MANAGEMENT TEAM OF THE COMPANY. 17 A. Board of Directors. 17 B. CEO, President and Management team. 17 C. Employee incentives, compensation plans. 17 D. Who are the auditors? 18 E. Transparency of financial statements. 19 F. Personal Assessment. 19 9. LIST AND DESCRIBE THE DEMAND AND SUPPLY CONDITIONS FACING YOUR COMPANY FOR ONE OF ITS PRODUCTS. I.E. IDENTIFY KEY VARIABLES EXPLAINING THE DEMAND FUNCTION? FOR THE SUPPLY (COST) FUNCTION OF ITS PRODUCTS. 19 A. WHICH PRODUCT ARE YOU SELECTING? 19 B. IDENTIFY AND DISCUSS VARIABLES WHICH WOULD SHIFT DEMAND 19 C. IDENTIFY AND DISCUSS VARIABLES THAT WOULD SHIFT SUPPLY. 20 D. DRAW A DEMAND & A SUPPLY CURVE 20 E. ESTIMATE OR CALCULATE THE LIKELY ELASTICITY AT THE EXISTING PRICE AND QUANTITY FOR THE PRODUCT ON YOUR GRAPH 21 Reference 22 1. NAME OF COMPANY: Wal-Mart (WMT) Stores, Inc. 2. WHAT INDUSTRY IS YOUR COMPANY IN? A. WHAT ARE ITS SIC OR NAICS CODE(S)? The SIC Code of WMT is 5199 The NAICS Code of WMT is 421990 B. DESCRIBE IN BROAD TERMS WHAT PRODUCTS/SERVICES YOUR COMPANY PRODUCES. The retail chains of WMT sell a varied range of products that includes grocery, apparel, shoes, accessories, furniture, books, electronics, health & beauty, music, pharmacy, sports & fitness goods, toys etc. More precisely it acts as bridge between the consumer and the manufacturer. The stores of WMT can be defined as discount departmental store. The main task of WMT is to make shopping a memorable experience for the consumers. 3. GIVE A BRIEF DESCRIPTION OF THE COMPANY: A. ITS PRODUCTS WMT is a retail chain store. It is one of the most successful retail chain incorporation of US and the largest retail store. This largest retail store sells products of daily needs and consumer durable goods. B. LABOR FORCE The WMT is a global player but in US it has an indelible dominance. Data pertaining to 2007 have revealed that it had 1,900,000 employees with 3,414 stores in US (Current Issues in Economics: WalMart). C. TECHNOLOGY WMT operates in the retail business. The main task of WMT is to serve the consumer in the best possible way. It uses the most advanced technology in logistics. Initially WMT used the Electronic Data Interchange, the virtual document, to place their order and to receive shipping notices. Then it started a system called ‘Retail-link’. This system helped the suppliers to access the sales data and projection related to it (J. Mack Robinson College of Business. n.d.). To keep itself at par with the emerging demands and huge data needed to maintain it, a new technology called RFID has been introduced. It is a Radio Frequency Identification system. It is low cost technology and requires minimum human efforts to do tasks that ranges from billing to materials tracking and supply chain management (Angrish, S. n.d. ) D. MATURITY OF EACH OF ITS MAJOR PRODUCTS (STAGE OF LIFE CYCLE) WMT operates in the retail trade and it sells a wide range of products. Therefore analyzing its product life cycle is not possible but the life cycle stage of WMT can be analyzed. Since its inception it has been growing at a very higher rate. WMT expanded globally and it is going through its maturity stage. A diagram of the life cycle is given. WMT is a discount department and supermarket store. The life cycle shows that the departmental and the supermarket stores are in their maturity stage. Retail Life Cycle E. MARKET CONCENTRATION (DEGREE OF COMPETITION) The US retail market is densely populated with many retail chain stores and other individual retail stores. These retail stores are fully organized. The degree of competitions varies according to traditional and non-traditional stores or prices. The are a number of retail stores in US like WMT, Kmart, Target, Kroger Marketplace, King's Discount Stores, Ben Franklin Stores, Sears Grand, Big Lot, Bi-Mart, Duckwall-ALCO Retail Stores are prominent. Apart from these, there are also many independent & small scale department stores operating in the US retail market. Existence of a large number of retail market increases the degree of the competition. Recently growth in US retail sales has leaped by 1.6% in March 2010 (Hall C. n.d.). This growth has helped to reduce the competition level of US retail sector. F.MAJOR/MINOR COMPETITORS In US, the WMT is the largest retail chain and the highest revenue earner. The other big names include The Home Depot, Inc CVS Caremark, The Kroger Co, Costco Wholesale Corporation Target Corporation etc. In US the brand value of WMT is the highest with $129,809 million. A list of top five brands in US is given. Brand Value Ranking (US) (Source: Interbrand Design Forum) According to a latest report, WMT has captured 8.9% of the total US retail market (Morgan Stanley Retail Conference). G. EXTENT OF MARKET, (REGIONAL, NATIONAL, GLOBAL), ETC According to a report by Store.org, WMT is the highest revenue earning retail chain in the global retail market with $405,607,000 and the growth rate of 7% p.a(Stores.org n.d.). WMT has expanded globally. It is present in all the large retail market of the world like China, Brazil, Europe, etc. WMT operates a large number of stores around the world. A list of its stores around the world is given below. WMT Store list (source: annual report, 2009) The diagram shows the expansion of WMT. The major global markets of WMT are located in Mexico, UK, China, Brazil, Canada etc. The local market too comprises the US states like California, Alaska, Florida, Texas, Virginia, Illinois, Indiana, Alabama etc. Apart from these WMT is almost everywhere in the US. According the latest annual report of WMT there are 4258 stores in US including supercentres, discount stores, neighborhood market and Sam’s Club. H. QUALITY OF MANAGEMENT. According to the 2008 Fortune 500, WMT is the biggest corporation in terms of revenue. The founder of WMT, Sam Walton’s management style had been quite flexible. During his time the management of WMT was original. He ignored the other management styles and develops his distinct leadership. He used to visit each store to supervise the management. This management trend is followed by his son Rob Walton too. The management style focuses on customer satisfaction. Its management techniques are planned accordingly. I. OTHERS YOU DEEM IMPORTANT One of the best features of WMT is that is always follows the concept of green-market. This policy helps it to penetrate the global market very easily. As the management is totally focused on the people, the marketing concept of WMT is also focused on people and environment. This makes WMT more ethical on the morality ground. This is one of the most important features of WMT 4. HOW DOES YOUR COMPANY COMPETE AND MAKE MONEY (PROFITS)? A. WHAT IS ITS MARKETING STRATEGY The diagram below portrays the domestic marketing strategy of WMT. WMT believes that their marketing focuses on mainly five factors. These are customer focus, every day low price (EDLP), hands on action oriented culture, vendor squeeze, and operation efficiency. WMT Strategy (source: Swoboda et al. 2009 ) B. ITS PRICING STRATEGY? Pricing is the one of the important aspect of the WMT strategy. WMT focuses on the “every day low price’ to pull the customers. These retailers are mainly trusted to promote its sales. Besides this, WMT also offers discount to their selected customer and also issues credit cards to their customers at a lower rate. These credit cards are further availed by customers to get more discounts on WMT items C. ITS SALES STRATEGY? WMT’s sale strategy mainly focuses on the price. As already mentioned, WMT tries to promote its sales rather than its products. Customers can buy their product online from the WMT website. WMT always tries to value its customers and they have a tendency to develop a healthy relationship with their customer that helps to boost sales. D. ITS DISTRIBUTION STRATEGY? MANUFACTURER/ WHOLESALER/ BRICKS AND MORTAR; WHERE IS YOUR COMPANY IN THE CHAIN/CHANNEL? WMT is a retailer; therefore it is the final channel through which the products of manufacturers reach the final consumers. So it does not need to distribute the product but it requires products from the vast ranges of suppliers. E. HOW DOES IT ADD VALUE? PROVIDE RETURN TO STOCKHOLDERS? WHAT NICHE, IF ANY, DOES IT HAVE? WMT serves its customer with more than 8500 retail units in the world and in the fiscal year 2010, net sales was around $405 billion. “The Management believes return on investment (“ROI”) is a meaningful metric to share with investors because it helps investors assess how efficiently WMT is employing its assets” (WMT, annual report, 2009). The annual report calculation shows a decline of 19.6% to 19.3% in the ROI in 2009 as compared to 2008. 5. RECENT TRENDS IN SALES AND PROFITS. A. Provide a table showing the past few years of total revenues, total profits, earnings per share, total expenses, profit margins and stock price for your company and each of its key competitors. Financial Summary of WMT (source: annual report, 2009) The above table shows the financial position of WMT and the net income is found to be increasing gradually: a good sign for investors. Stock price & EPS (source: NYSE) This table shows that WMT is the highest in EPS as compared to other major competitors. B. Also, show percent changes from previous year to get a feel for trends. You may want to break the totals into products or product groups. Sale per Year Increase (source: annual report, 2009) The above table is showing last three years’ change in sales which is increasing at a good rate. 6. HOW DOES YOUR COMPANY SET PRICES FOR ITS PRODUCTS AND SERVICES? The main concept that WMT uses for setting the prices is ‘Every Day Low Prices’. It tries to keep prices as low as possible. It is not a manufacturing organization hence it is not concerned with the cost of product but the price that the suppliers provide. To avail the lowest price, it places its order in bulk and tries to get it directly from the manufacturer. After adjusting the price with other expenditures, like services, it sets the price. 7. WHAT MARKET STRUCTURE DESCRIBES YOUR INDUSTRY? A. HOW DO YOU KNOW? GIVE EVIDENCE TO SUPPORT. The global retail market is a perfect monopolistic competition market where large numbers of buyers and sellers are present in the existing market. But in case of WMT, with other big retailers, it seems to be an oligopoly market. The giant sized WMT rules the retail sector and the impact of the other small retailer is minimal. Therefore it can be claimed that WMT operates in the oligopoly market structure. To support this answer the HHI and the C4 ratio have been given. C4 ratio: According to the C4 ratio, if the market share by sales of four companies in an industry is close to 100 then it will be monopoly and vice versa. The calculation done below for HHI shows that the four largest companies’ market share is 92.1. It cannot be said that this is a monopoly market but it is definitely an oligopoly as few leaders rule over most of the market share. ii) HHI: To calculate HHI, the major market shares of the leaders have been taken and the total market share is found to be more that 90%. The result of HHI is 5413.849. The HHI number can range from zero to 10,000. Closeness to this number decides the degree of monopoly and vice versa. Hence the market structure of WMT is not a monopoly rather it is an oligopoly. B. WHO ARE KEY COMPETITORS? GIVE MARKET SHARES BY PRODUCT PERCENTAGES? The retail stores are engaged in selling multiple products. The discount stores like WMT, Target and Cosco offer products of daily needs, food, FMCG product etc. These products are supplied by different manufacturers. Hence these retail stores have market share not in terms of product manufactured but in terms of the sales generated. The table given above depicts the market shares of WMT along with its major competitors. C. Discuss each of the following: i) Homogeneity or Type of Differentiation. Being a retailer, WMT is not concerned with homogeneity.WMT is not a manufacturer. Its inventory includes a vast range of products purchased from different manufacturers and often similar products of different qualities differ in prices. ii) Number of Competitors. WMT is the largest retailer in the World. There are some competitors who compete with WMT in term of sale but their number is quite negligible, if we consider the market share. List of some competitors’ is given. Albertson's, lnc. Sears, Roebuck and Co. Target Corporation. Costco Companies, lnc. IGA lnc. The Kroger Co. Kmart Corporation. Safeway Inc. iii) Number of Buyers. WMT is the leader in the global retail market. The customer base of WMT is huge. WMT website claims that it serves customers and member more than 200 million times per week than any other retail chains (Wal-Mart. n.d.) iv) Product Quality Differences. WMT sells a wide range of products procured from different manufactures. Since it tries to keep the price as low as possible, the quality range of the products too varies from being low to medium. v) Ease of Entry or Exit for New Producers. In the retail sector, entry barrier is low because it is quite easy to set up a small retail store with low capital investment. To compete with large retailer like WMT requires huge capital investment. Moreover the new retailers have to keep their price low to compete with others. This is the most difficult barrier in this sector. Exit for the small retailers is easy as there is low capital investment but for the big retailers it is relatively difficult. vi) How good are Buyer Knowledge of Product Quality and Price? WMT’s sales revenue attests its popularity in the market. It is the highest sales revenue generating corporation in the world of retail market. ‘Every day low price’ policy has helped the company to attract and retain its customers. vii) Speed of Product Obsolescence. The inventory of WMT is filled with buyers’ preferences and the product which is in trend. The WMT does not have to worry about the obsolescence of the product as the products are chosen and analyzed before supplying. viii) Other Factors you Deem Important. One of the most important priorities of WMT is its relation with suppliers. To keep the prices low without compromising on quality, the choice and the relationship with the suppliers is very important. 8. EVALUATE THE MANAGEMENT TEAM OF THE COMPANY. A. Board of Directors. WMT’s board of directors (BOD) includes 16 members. B. CEO, President and Management team. C. Employee incentives, compensation plans. WMT is the highest employing corporation in the US. Nearly 1,900,000 employees work with WMT. Often WMT is criticized for low wages that it pays to their workers. But WMT has medical benefits for its employees. It also provides health insurance to its employees. According to the report by Business week, its health insurance covers 44% of its total employees. The table given below presents WMT’s expenditure on Medicaid. Medical expenditure of WMT for its employees (Hicks) D. Who are the auditors? WMT’s auditors committee includes names like James I. Cash, Jr., Roland A. Hernandez and Christopher J. Williams. E. Transparency of financial statements. Every year WMT publishes its annual report in ‘pdf’ form that includes all the financial reports of the company. It aims to inform the investors about the position of the company. F. Personal Assessment. The management team shows much efficiency in leading the growth of the company. Inspite of cultural differences in various global markets, the management team is responsible for the success of WMT in the world market. It handles all issues pertaining to employees and supply chain efficiently. 9. LIST AND DESCRIBE THE DEMAND AND SUPPLY CONDITIONS FACING YOUR COMPANY FOR ONE OF ITS PRODUCTS. I.E. IDENTIFY KEY VARIABLES EXPLAINING THE DEMAND FUNCTION? FOR THE SUPPLY (COST) FUNCTION OF ITS PRODUCTS. A. WHICH PRODUCT ARE YOU SELECTING? Selecting a WMT product is not possible because it is not a manufacturing organization. It provides services to the customers by selling products of different manufacturer. Service is the only product that WMT provides. B. IDENTIFY AND DISCUSS VARIABLES WHICH WOULD SHIFT DEMAND The demand of services from WMT depends on the requirements of the customers and other variables like purchasing power, per capita income of the customers. The demand curve is likewise influenced by these economic factors. C. IDENTIFY AND DISCUSS VARIABLES THAT WOULD SHIFT SUPPLY. Only after realizing the demand of products in the market, WMT fills up its inventory. So, the supply depends on the market demand of products. The availability of the supplier from which WMT gets its product is important for the supply curve. But since a number of suppliers are available, offering similar utility products of different brands to WMT, it does not have to think about it. D. DRAW A DEMAND & A SUPPLY CURVE WMT offers a basket of products mainly for the daily use of customers. Hence, demand and supply totally depends on the factors like purchasing power, per capita income, living standards and economic condition of the customers. Demand and Supply Curve WMT offers a large variety of products of different price ranges. Selecting the price of a particular product is not possible. The demand and supply depend on the economic condition of the people. Therefore, the price of the product depends on the demand curve. As the price shifts from P0 to P1 the demand curve also shifts from D0 to D1. E. ESTIMATE OR CALCULATE THE LIKELY ELASTICITY AT THE EXISTING PRICE AND QUANTITY FOR THE PRODUCT ON YOUR GRAPH Relatively Inelastic Demand Most of the inventory of WMT is full of products of daily use. Hence high change in price leads to less change in demand. There is less elasticity in the demand curve and this called ‘Relatively Inelastic Demand’. Reference Angrish, S. Chivukula, V. S. DeWitt, B. Patel, R. Shamsi, S. & Yellapragada, R. Novembre 30, 2005. Wal-Mart Case Study – RFID and Supply Chain Management. Retrieved May 8, 2010 from mason.gmu.edu/~ryellapr/walmart.doc. Hall, C. April 14, 2010. Pent-up demand showing up strong. Retrieved May 8, 2010 from http://ellisonchair.tamu.edu/2010/04/14/pent-up-demand-showing-up-strong/ Hicks, M.J. (No date). Does Wal-Mart Cause an Increase in Anti-Poverty Program Expenditures? Retrieved May 8, 2010 from http://www.ihsglobalinsight.com/publicDownload/genericContent/hicks-poverty.pdf. J. Mack Robinson College of Business, Georgia College University. (No date) Case Study: Wal-Mart vs. Kmart. Retrieved May 8, 2010 from gzheng.cis.gsu.edu/teaching/archive/cis2010su2005/materials/scm.doc. Saint Micheal College. (No date) Current Issues in Economics: WalMart. Retrieved May 8, 2010 from http://www.smcvt.edu/sharedmedia/Documents/Academics/economics/WalMart.pdf. Stores, May 2010. 2009 Hot 100 Retailer. Retrieved May 8, 2010 from http://www.stores.org/2009/Hot-100-Retailers.  Swoboda, B. Morschett, D. Rudolph, T. & Schnedlit, P. (2009). European Retail Research, Volume 23; Volume 2009. Gabler Verlag. Wal-Mart. (No date). Annual Report 2009 Retrieved May 8, 2010 from http://www1.gdufs.edu.cn/jwc/bestcourse/kecheng/43/%E4%BC%9A%E8%AE%A1%E5%AD%A6/5%20%E6%95%99%E5%AD%A6%E8%B5%84%E6%BA%90/%E9%99%84%E4%BB%B67%20annual%20report%20for%20walmart.pdf . Wal-Mart. (No date). Investors. Retrieved May 8, 2010 from http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-irhome Read More