Case Study Analysis: Wal-Mart Stores, Inc.

Group 2
Casas, Karl Vincent
Marias, John Danwil
Parducho, Ralph Ehdscel
Ramilo, Hazel Elaine
Velayo, Kristian Roi

EMGT101 A32

The Company: Wal-Mart Stores, Inc.

Wal-Mart Stores, Inc. is an American multinational retail corporation that runs chains of large
discount department stores and warehouse stores. Originated and established at Bentonville,
Arkansas as a franchise of a Ben Franklin Store and renewed its name to Waltons Five and
Dime after no renewal agreement was made. It was founded by Sam Walton alongside with his
wife, Helen, and brother, Bud Walton, in 1945. His focus was on selling products at low prices
to get higher-volume sales at a lower profit margin. He experienced setbacks, because the lease
price and branch purchase were unusually high, but he was able to find lower-cost suppliers
than the ones used by other stores. He passed on the savings in the product pricing . [1] Because
of this unique idea, the sales of his franchise increased 45 percent for the first year equivalent
to $1.38 million in 2014 monetary revenue value and furthermore increased the next year
resulting to $1.69 million. After 5 years, the franchise gained an equivalent of $2.48 million in
revenue.

Ben Franklin Franchise in Vermont

Waltons Five and Dime in Bentonville, Arkansas

After the establishment of Waltons Five and Dime Store, on July 2, 1962, he opened the first
Wal-Mart Discount City Store located at Walnut Street in Rogers, Arkansas. It is occupied by
hardware stores and an antique mall as of now. Within its first five years of operations, the
company expanded to 24 stores across Arkansas and reached $12.46 million in sales. And on
1968, Wal-Mart reached outside of Arkansas as it opened its first branches in Sikeston, Missouri
and Claremore, Oklahoma. As of last year, the company is the worlds second largest public
corporation, according to the Fortune Global 500 list in 2013, the biggest private employer in
the world with over two million employees, and is the largest retailer in the world. Wal-Mart
remains a family-owned business, as the company is controlled by the Walton family, who own
over 50 percent of Wal-Mart. It is also one of the most valuable companies in the world.

Wal-Marts logo through the years

Problem Statement
Fierce resistance of residents of local communities against Wal-Mart stores which is
due to adverse effects on existing retailers, impact from placement of stores, and predatory
pricing that aim to monopolize the retail industry.

An example of predatory pricing at Wal-Mart is shown at the

left where folders are priced 15 cents (US Dollar) or an
equivalent of PhP 6.4 (Philippine Peso) which should be around
25 cents (US Dollar) on standard US market.

Objective
The study aims to determine factors that aid in increasing resistance of local communities
against Wal-Mart. It also aims to formulate a course of action that will lessen anti-Wal-Mart
banning campaigns and to increase positive feedback in the presence of Wal-Mart in local
communities to improve market share and consumer loyalty.

Areas of Consideration
Wal-Marts entry into a new market has a strongly negative effect on existing retailers.
Supermarkets and discount variety stores are the most adversely affected, suffering sales
declines of 10 to 40% after Wal-Mart opens.
A study of Chicago in 2009 shows that businesses within one mile of a Wal-Mart Supercenter
have a 25% chance of shuttering in the first year, and a 40% chance of shuttering by the second
year, when compared with stores farther than one mile from the Supercenter.
Local businesses keep more money in the community. A 2009 study of the differential impact of
locally-owned businesses shows that while big-box stores only recirculate 16% of revenues into
the community, locally-owned businesses recirculate twice as much.
Anti-Trust Laws
The United States Antitrust laws seek to prohibit anticompetitive behavior and unfair business
practices while encouraging competition in the marketplace. As a result of the fear that
monopolies dominated the market in the late 1800s, the Sherman Antitrust Act was passed in
1890, and, though it has been expanded and amended by subsequent legislation, still forms the
basis of most antitrust law today.

Predatory Pricing & Bidding: Predatory pricing occurs when companies price their products or
services below cost with the purpose of removing competitors from the market. Predatory
bidding, a variation on predatory pricing, occurs when a company bids up the price of raw
materials or other inputs to prevent competing companies from acquiring needed materials.
Both of these predatory schemes are per se violations, however the courts use a two part
test to determine whether they have occurred: (1) the violating company's production costs
must be higher than the market price of the good or service and (2) there must be a "dangerous
probability" that the violating company will recover the loss from above-cost materials or other
inputs.
Facts (2012):

Amazingly, 96 percent of all Americans now live within 20 miles of a Wal-Mart.

The number of "independent retailers" in the United States declined by 60,000 between
1992 and 2007.
Today, Wal-Mart has five times the sales of the second largest U.S. retailer (Costco)

SWOT Analysis
Strengths

Companys strong advocacy of selling products at a very low price which results in loyal
customers.
Cost advantages over competitors due to effective supply chain management.
Numerous and flexible source of sales/revenues as it already has four retail divisions
(Walmart stores, supercenters, Sams Club and neighborhood markets)
There is already a growing market share in other countries.
Company also operates in pharmaceutical industry, petroleum industry, Tire and Lube
Express and photo processing centers which increases market share and profi t potential.
High financial power and stability
Competitive advantage in economies of scale in procurement, advertising and distribution

Weaknesses

Annual labor turnover rates are high.

Poor labor relations due to wage issues and anti-union policy
Bad publicity in local communities due to corporate bully tag
Failure to do research and adapt to other countries culture, laws and regulations
behind competitors in e commerce

Opportunities

Expansion to other developing countries and new domestic areas

Acquisition of competitors and smaller retail companies to increase market share and
reduce competitors
Participate in joint ventures that will increase market share
Enter new sectors or industries that will improve companies market share and profit
potential

Threats

Lawsuits filed regarding discrimination against women

Resistance of local communities to Wal-Marts entry because of unfair practices in pricing
Labor unions claim of increasing wages and benefits in Wal-Mart and pressure of
unionization of labor force
Disagreement with domestic suppliers in the pricing of products that can lead to more
cheaper and low quality imported products
Defiance of markets in other countries like Germany because of Wal -Marts practices in
pricing that are considered illegal there

Porter 5 Forces Analysis

Threats of new entrants (LOW)

It is always possible to have new entrants, but they will need to have huge amount of capital in
order to compete with Wal-Mart. This is because Wal-Mart is already well established and has a
huge financial power. There are more than a thousand Wal-Mart stores around the world which
makes it harder for new firms to compete with Wal-mart.

Intensity of Rivalry (MODERATE)

The rivalry between Wal-Mart and its direct competitors, namely Target, K-Mart, Costco, and
Dollar General, remains moderate because of Wal-Marts capability to expand its operations and
products. Wal-mart is capable of matching the prices of any of its competitors.

Bargaining power of suppliers (LOW)

Since Wal-Mart sells variety of goods, it has many suppliers. Suppliers offer favorable payment
terms, discounts, and priority delivery dates in order to maintain its relationship with Wal -Mart.
In this case, Wal-Mart has the bargaining power of customers over its suppli ers.

Bargaining power of customers (LOW)

Since Wal-Mart is not monopolistic, there are substitute goods that are present in competitors.
It is the size of its stores and the wide variety of quality goods that allows it to be preferred by
customers.

Threats from substitute products (LOW)

Other competitors offer a lot of substitutes but these are more expensive than the goods sold in
Wal-Mart

Alternative Courses of Action

Engage in talks with local government and small privately owned retail stores and
other businesses to have agreements concerning price levels, area of Walmart store to
be put up and distance of location of the store to be put up from other retail stores and
other businesses.
Acquire the small companies and retail stores via buyout. Give these small businesses
space in the area.
Limit the number of discount stores in each states of America and also in other
countries.
Improve their public relations in a community on television, radio, web site, and
advertising. In addition, donate to non-profit organizations in the community.
Target different customers.
Arrange different kinds of merchandise as to those in local small businesses.
Do research about the community and the local people and businesses.
Patronize local suppliers (e.g., local farmers that produce fruits and vegetables) in the
community.

Alternative 1
Engage in talks with local government and small privately owned retail stores and
other businesses to have agreements concerning price levels, area of Wal-Mart store to
be put up and distance of location of the store to be put up from other retail stores and
other businesses.
PROs
-

Wal-Mart will reduce the issue about dominating the local retailing business in a local
environment.

With possible agreements in the pricing system, Wal-Mart may still possibly have the same
amount of sales before the agreement and can incur a higher profit if prices go up.
Fewer costs will be incurred if the area of store to be built is restricted.

CONs
-

Wal-Mart will lose customers due to the distance from other stores. Wal-Mart gets their
buyers by driving customers away from the local retail store established in that area.
Wal-Marts sales might decrease if the agreement with the government about the size of
the store that will be built is smaller than usual. Fewer goods will be sold and fewer
inventories will be kept.
Wal-Marts sales might decrease because of the competition and agreement in the pricing
of the goods to be sold to consumers.
Wal-Marts main goal which is to dominate the entire retail industry within the area they
cover may not be as strong as in the past.

Alternative 2
Acquire the small businesses and retail stores via buyout. Give these small businesses
space in the area.
PROs
-

Wal-Mart will not be accused of driving the local retail stores out of business.
This transaction is profitable for the small businesses in the local community and
relationship of Wal-Mart with them will improve.
Purchasing the small companies is an investment that can bring fresh ideas and new source
of revenues.
Wal-Mart will dominate market share and increase its profit potential.
Proper placing of Wal-Mart and small businesses gives its nearby competitors an equitable
fair distribution of market demand.

CONs
-

Purchasing the small companies is a risky investment that can turn out to be a bad business
decision.
The opportunity cost is high. Money could have been spent for other beneficial
transactions.

Alternative 3
Limit the number of discount stores in each states of America, also in other countries.
PROs
-

The investment that they would use in putting up another store will instead be used
as an investment in penetrating other markets, since one of their main goals is to
branch out into new sectors of retail.
Instead of expanding, they can contribute and participate in different charitable
events. They will be recognized and they will regain their good reputation as a
retailing entity.

CONs
-

In limiting the stores to be put up worldwide, Wal-Marts rate of recognition in other

countries will be sluggish. The consumers in the other countries are used to buy in
their local stores and also, people are resistive to changes.
Wal-Mart will have decrease in sales and market share potential.

Alternative 4
Improve their public relations in a community on television, radio, web site, and
advertising. In addition, donate to non-profit organizations in the community.
PROs
-

Wal-Mart will create good relations to the small businesses and the local people.

It will reduce the Wal-Mart banning campaigns making it easier for them to operate
business.
-

Increase in number of customers due for having a good image in the community.
Charitable donations will lower down their tax.

CONs
-

Increase in the amount of cost because of aggressive advertising.

Some of the charities may be fraudsters. The money will be wasted for it will not be
used for good cause.

Alternative 5
Target different customers.
PROs
-

This will enable other type of businesses in continuing operations even after Walmart is
established in an area.
Equal distribution of customer demand will ensure other businesses to remain stable.
Relations with local businesses will improve.

CONs
-

Variation in customer demand decreases the type of products and services that
Walmart will provide.

Unstable market and consumer rates due to the variations in demand.

Market share will decrease because some products will not be offered.

Sales will decline due to constraints in goods to be provided.

Alternative 6
Arrange different kinds of merchandise as to those in local small businesses.
PROs
-

Both Wal-Mart and local businesses can sell their merchandise accordingly.

They will form a good image in the community because the locals will not consider Wal Mart as a "destroyer" of small firms.

CONs
-

They will have fewer sales because of the competition.

Other companies may take advantage and beat Wal-Mart in their market.

Buyers might lose loyalty in Wal-Mart and get more attracted if the competitors have
higher quality products.

Alternative 7
Do research about the community and the local people and businesses.
PROs
-

Researching will help Wal-Mart understand local preferences, which in itself can result in
better sales.
It will also help in preserving the culture of the customers in that community.
Better relationship with local residents and increasing consumer loyalty.

CONs
-

Wal-mart may have to eliminate or add more products that will suit the customers culture
and preference.
Research and development may be very expensive and time consuming. There is also no
assurance that the result will be feasible.

Alternative 8
Patronize local suppliers (e.g., local farmers that produce fruits and vegetables) in the
community.
PROs
-

Local suppliers can be more reactive during times of high demand.

Selling local products also helps in promoting a closer relationship with customers.
Wal-Mart will improve public relations because other smaller retail stores are not driven
out of business.
It lets small businesses support each other directly, and can help build new relationships for
marketing.
This will result to faster production and delivery which reduces warehousing costs

CONs
-

Local suppliers can have difficulty keeping up with demand

There will be less access to specialized materials that may not be available locally

Decision Matrix
Factors
Weight
Alternative
Alternative
Alternative
Alternative
Alternative
Alternative
Alternative
Alternative

1
2
3
4
5
6
7
8

Ease of
Implementation (%)
20
18
14
16
15
13
12
16
15

Cost of
Implementation (%)
40
32
16
33
23
27
32
28
30

Attainment of
Objective (%)
40
40
24
28
27
29
26
30
28

TOTAL
(%)
100
90
54
77
65
69
70
74
73

A1: Engage in talks with local government and small privately owned retail stores and other
businesses to have possible agreements concerning price levels, area and distance.
A2: Acquire the small companies and retail stores via buyout and give them space in the area.
A3: Limit the number of discount stores in each states of America, also in other countries.
A4: Improve their public relations in a community on television, radio, web site, and
advertising. In addition, donate to non-profit organizations in the community.
A5: Target different customers.
A6: Arrange different kinds of merchandise as to those in local small businesses.
A7: Do research about the community and the local people and businesses.
A8: Patronize local suppliers (e.g., local farmers that produce fruits and vegetables) in the
community.

Conclusion and Recommendation

Wal-Mart Stores Inc. is the largest retail company in the United States and has been ranked before
as the number one on the Fortune 500 Index by Fortune Magazine. It has introduced a strategy that
lowers the prices of goods to the point that consumer will buy just because it is cheap and very
affordable. Wal-Mart faces a number of threats and these threats come from its intended
consumers and target market. Its image is scarred because of alleged monopoly-like practices, poor
relations with its employees and not so generous charitable acts.

Fierce resistance of residents of local communities against the presence of Wal -Mart stores is a
huge problem because it will affect the behavior of the potential consumers. Bad public relations
will be a negative reputation for the company and might affect the results of its operations if the
intended market no longer wants a Wal-Mart store nearby their houses. Wal-Mart needs a lot of
improvement in different matters, but solving this main problem will make the attainment of the
objective satisfied.
The researchers have arrived at a solution of Wal-Marts problem by using a decision matrix. Three
main factors are considered which are: ease of implementation, cost of implementation and
attainment of objectives. The decision matrix provided the researchers the alternative course of
action with the highest score according to the criteria that are based on the attainment of the
objective formulated and according to the constraints needed to be considered by a business entity
like Wal-Mart. The resulting course of action is for Wal-Mart to engage in talks with local
government and small privately owned retail stores and other businesses to have agreements
concerning price levels, area of a Wal-Mart store to be put up, and the distance of the store from
the location of other retail stores and other businesses.
With this bold solution, majority of Wal-Marts issues will gradually be solved since it covers a large
scope of their problem and it will help foster closer ties with the local community. It can be better
for the long term because as time passes by, there will come a point that all the communities might
call for the banning of Walmart and this will greatly affect their goal to increase market share and
globalize their brand image in a negative manner. Making amends with the communities will pave
way for easier entry and better overall interaction with the intended consumers. This will help
improve a scarred image and promote economic growth in communities that do not want a
monopolized retail industry in their area. This can also mean a growth and stability for Wal -Mart as
they will strive to adapt to challenges of competition, improvement of product quality, better
treatment of employees, and reducing their overreliance to predatory pricing.

References:
[1] Richard S. Tedlow (July 23, 2001). "Sa m Walton: Great From the Start HBS Working Knowledge"
[2] Srikanth Parachuri, Joel A.C. Baum, and David Potere. The Wal -Mart Effect: Wave of Destruction or Creative
Destruction? Economic Geography 85.2 (2009): 209-236.
[3] Kenneth E. Stone, Georgeanne Artz, and Albery Myles. The Economic Impact of Wal -Mart Supercenters on
Existing Businesses in Mississippi. Mississippi University Extension Service. 2002.
[4] Julie Davis, David Merriman, Lucia Samayoa, Brian Flanagan,Ron Baiman, and Joe Per sky. The Impact of an
Urban Wal-Mart Store on Area Businesses: An Evaluation of One Chicago Neighborhoods Experience, Center for
Urban Research and Learning, Loyola University. December 2009, pg 17
[5] Thinking Outside the Box: A report on independent merchants and the New Orleans economy, September,
2009. The Urban Conservancy in partnership with Civic Economics.
http://theeconomiccollapseblog.com/archives/is-wal-mart-destroying-america-20-facts-about-wal-mart-that-willabsolutely-shock-you
http://www.acc.com/legalresources/quickcounsel/auslar.cfm
http://makingchangeatwalmart.org/small -businesses/