WALMART CASE Group1 Finished Revised 3 PDF

Meike Albers 129030
Francesca Garbaty 123613
David Ehling 125277
Anja Reckermann 123745

30.05.2011
Ivander Laurentius Atmojo 2430243
Group 1
Table of content
Management Summary .................................................................................................................................... 4

Introduction ..................................................................................................................................................... 5
General Overview ............................................................................................................................................. 6
Wal-Mart...................................................................................................................................................... 6
Wal-Mart’ Vision and Mission Statement ................................................................................................ 7
Proposed Vision ....................................................................................................................................... 8
Proposed mission statement ................................................................................................................... 8
Value statement ...................................................................................................................................... 9
Competitive advantage .......................................................................................................................... 10
Objectives and Strategies ...................................................................................................................... 11
Opportunities and Threats ......................................................................................................................... 12
The External Analysis...................................................................................................................................... 12

DEPEST ....................................................................................................................................................... 12
Demographic factors ............................................................................................................................. 12
Economic factors: .................................................................................................................................. 13
Political factors: ..................................................................................................................................... 13
Ecological Factors .................................................................................................................................. 14
Social/Cultural Factors ........................................................................................................................... 14
Technological Factors ............................................................................................................................ 15
Porter’s Five Forces .................................................................................................................................... 15
Rivalry among competing businesses .................................................................................................... 16
Potential Entry of New Competitors ...................................................................................................... 16
Potential Development of Substitute Products ..................................................................................... 17
Bargaining Power of Suppliers ............................................................................................................... 17
Bargaining Power of Customers............................................................................................................. 17
External Factor Evaluation (EFE) Matrix ..................................................................................................... 18
Competitive Profile (CPM) Matrix .............................................................................................................. 21
Strengths and Weaknesses ........................................................................................................................ 22
The Internal Analysis ...................................................................................................................................... 23

Financial Performance Analysis.................................................................................................................. 23
Key Financial Ratios ............................................................................................................................... 23
Price Ratios ............................................................................................................................................ 23
Profit Margins ........................................................................................................................................ 24
2
Investment Returns ............................................................................................................................... 24
Management Efficiency ......................................................................................................................... 24
Growth & Profitability ........................................................................................................................... 24
Wal-Mart Revenue/Income compared with direct competitors ............................................................ 25
Value Chain Analysis .................................................................................................................................. 26
Internal Factor Evaluation (IFE) Matrix ...................................................................................................... 29
Problem statement .................................................................................................................................... 31
Models ........................................................................................................................................................... 32
SWOT Matrix .............................................................................................................................................. 32
Space Matrix .............................................................................................................................................. 35
Boston Consulting Group (BCG) Matrix ...................................................................................................... 37
Internal-External (IE) Matrix....................................................................................................................... 37
Grand Strategy Matrix................................................................................................................................ 38
The Value Disciplines Model Treacy and Wiersema ................................................................................... 39
New Strategies ............................................................................................................................................... 40

Pre-selection .............................................................................................................................................. 40
Selection of Strategies for the QSPM Matrix based on the costs of the alternative strategies .................. 41
Johnson and Scholes Suitability, Feasibility and Acceptability Model.................................................... 41
Evaluate strategies ..................................................................................................................................... 46
The Quantitative Strategic Planning (QSPM) Matrix .................................................................................. 47
Selected Strategies ......................................................................................................................................... 48

Specific strategy and Long term objectives ................................................................................................ 48
Comparison: Actual vs. New strategy ........................................................................................................ 48
Implementation and Expected Results ...................................................................................................... 49
3
Management Summary
This report analyses the company Wal-Mart and the retail industry and discusses possible new strategies
Wal-Mart could embark on. The final goal of this report was to develop one strategy for Wal-Mart that
enables the firm to increase its sales revenue and ensure continuous growth.
To analyze Wal-Mart’s internal position and the environment it operates in, the report started with a
thorough micro analysis as well as a macro analysis. The main findings were that Wal-Mart is by far market
leader in the industry, has a stable economic position with the ability to finance its endeavors with
company owned capital, and is able to offer the lowest prices in the industry, which is mainly due to their
superb value chain activities.
However, their costs saving measures are reaching a bottom line and realizing further savings is getting
more difficult. Other retailers, especially online retailers are still able to cut significant costs. This is
particularly dangerous for Wal-Mart which built its entire strategy and marketing around being cost leader
in the industry. Taking the external and internal data as input, alternative strategies were developed. From
these, the four most suitable strategies were analyzed in Johnson and Scholes Suitability, Feasibility,
Acceptability Model. The evaluation showed that- based on the economic environment, the resources
needed for each strategy, and the financial costs and expectations of each strategy- two strategies promise
to provide Wal-Mart with the highest success rate.
These two strategies were “Enter European market through a joint venture”, and “Backwards integration
through taking over the supplying function”. After evaluating these two strategies in a QSPM matrix, the
final strategy was determined based on the highest score: “Enter the European market through a joint
venture”.
The implementation stage shows up what the long-term objectives are and how they will be achieved. Wal-
Mart will enter the European market through a joint venture with Auchan, the French retail chain. In the
first 10 years, the business will open 50 new stores in Europe. A new company name for this joint venture
will be developed, both businesses will share risks and costs, and both businesses will invest capital and
resources. An additional positive side effect of this joint venture is that Wal-Mart can benefit from Auchan’s
knowledge of the French culture and business operations and products can be adapted to local needs
easier.
Later on, Wal-Mart can also use Auchan’s international network to enter other retail markets in Europe.
The idea of this collaboration is that Auchan paves the way for Wal-Mart into the European market and the
goal is to create brand awareness. The joint-venture will include opening 50 new stores; an investment of
$10 Billion is required and will be paid in 4 consecutive years. In return, this joint venture is expected to
increase Wal-Mart’s net income margin by 1.20% or $8 Billion by 2017.
4
Introduction
This workout is the exam-case of the IBMS6 Strategic Management module. It needs to be accomplished in
teamwork, whereat each member has to demonstrate his ability to work in a team. Furthermore, each
team member has to proof his ability to apply the theoretical knowledge learned during the lessons to this
case.
The assignment deals with the analysis of the Wal-Mart case (p. 293, “Strategic Management cases” by
Fred R. David) and includes a general overview about the company (including vision and mission
identification) as well as an internal- and external-analysis.
The internal analysis consists of an IFE-matrix and a financial analysis, which will provide detailed
information about Wal-Mart´s financial situation. Within the external analysis, several matrices will be used
for further analysis as appropriate. In addition, our group will recommend specific strategies and long-term
objectives. In this respect, a QSPM matrix will show possible feasible alternative strategies.
At the end of this workout, recommended strategies will be compared to the actual strategies planned by
Wal-Mart.
All data and facts used in this report refer to Wal-Mart´s state in 2009 as being published in their 2009
annual report.
5
General Overview
Wal-Mart
Wal-Mart is a public company, active in the retailing industry. It was founded by Sam Walton and his
brother J.L. (Bud) Walton in 1965, with the opening of the first Wal-Mart store in Rogers, Arkansas.
Nowadays, Wal-Mart owns 8,500 stores worldwide, employing more than 2million employees and
headquartered in Bentonville, Arkansas, United States. Since 2009, Mike Duke is CEO of the company.
Wal-Mart runs different chains, which have different main

target groups. The divisions of Wal-Mart are separated into
891 Wal-Mart discount stores, 2,612 discount centers, 602
Sam´s Clubs and 153 neighborhood markets. The discount
stores, neighborhood markets and superstores are mainly
targeting the broad customer base, whereby mostly low- and
middle-income customers make the majority of all
customers. These three divisions are mainly differentiating through size of the store, size of the city where
the store is resident and the number of employees.
The discount stores are mostly sized between 50,000 and 100,000 square feet, employing 220 employees in
average, while the superstores have 186,000 square feet in average and employ between 200 and 550
workers. The neighborhood markets have usually round about 40,000 square feet and employ between 80
and 100 people.
In addition to these three divisions, the Sam´s Club division is a membership-only business and has more
than 45 million registered members. It mainly offers groceries and general merchandises in large quantities.
One can say that the Sam´s Club segment found a niche market, because it is often used by owners of small
sized businesses. However, also non-members and private customers that want to try out the offers can
join the club by buying one-day memberships or paying surcharges as a percentage of the price of the
purchase.1
In 2009, Wal-Mart reported $404 billion of revenue and a net income of $13.6 billion. Since 2002 (except
for 2006) Wal-Mart was ranked number one on the Fortune 500 list (an annual list published by Fortune
magazine that ranks the top 500 U.S. corporations with the highest gross revenue).
Outside the U.S.-market, Wal-Mart is active in 14 countries, including 4,200 stores and 600,000 employees.
Especially the Mexican and Canadian market (1,200, respectively 318 brands) are important markets for
Wal-Mart.
1 http://en.wikipedia.org/wiki/Walmart
6
Wal-Mart’s Vision and Mission Statement
The vision- and mission statements of a company should provide different benefits. A vision statement
should answer the question “What do we want to become?” and should remind every employee of the
company about the overall goal of the company.
In this respect, the vision is also an important tool to remind the managers what they want to achieve and
in which direction they want the company to go to. A mission statement defines the organization's purpose
and primary objectives and should answer the question “What is our business?”.
Wal-Mart does not have an official mission- or vision statement. In spite of this, on their homepage, Wal-
Mart names the “Purpose” of their business, which was created by the founder of the company, Sam
Walton. This statement can be regarded as being similar to an actual mission statement:
“If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see
what it’s like to save and have a better life.”
In addition the statement “Saving People Money So They Can Live Better” can be found on the homepage,
which is kind of the short version of the previous statement and, at the same time, serves as one of their
main advertisement slogans. Although one could argue that these statements could also be the vision
statement of the company it gives more an overall idea of the company’s business instead of defining what
the company wants to become, even though it does not specifically answer the question “What is our
business?”, which is, according to Fred R David, the main question that needs to be answered by the
different components of a mission statement.2
In 2002, when the former Public Relations Coordinator of Wal-Mart, Kim Ellis, was asked how a mission
statement of Wal-Mart could be like, he stated that it would probably be ““To provide quality products at
an everyday low price and with extended customer service…always.” (Kim Ellis, 2002).
All three statements (the two from the homepage of Wal-Mart and the one of Kim Ellis) point at Wal-Mart
offering high quality products for low prices in order to make life of their customers more enjoyable. This is
very similar to their main advertisement slogans but not to an elaborated mission statement, wherefore
one has to say that both statements are not broad in scope or inspiring; they do not reveal that the firm is
environmentally responsible or is enduring.
In addition, they do not imply the 9 essential components of a mission statement, established by Fred R.
David, which are:
Customers – Who are the firm´s customers?
Products or services – What are the firm’s major products or services?
Markets – Geographically, where does the firm compete?
2
http://en.wikipedia.org/wiki/Walmart
7
Technology – Is the firm technologically current?
Concern for survival growth and profitability – Is the firm committed to growth and financial soundness?
Philosophy – What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
Self-concept – What is the firm´s distinctive competence or major advantage?
Concern for public image – Is the firm responsive to social, community, and environmental concerns?
Concern for employees – Are employees a valuable asset of the firm?3
The actual mission statement, obviously, does not state one of these nine aspects, wherefore Wal-Mart
should think about creating an official mission (and vision) statement, which meets the requirements of an
appropriate mission- or vision statement.
Proposed Vision
A proposed vision statement for Wal-Mart, which answers the question “What do we want to become?”
and reminds every employee of the company about the overall goal of the company could be:
“Our commitment is to become the leader in the retailing branch all around the world, which makes the life
of every customer more enjoyable by offering products with the highest quality standards for the lowest
price possible in combination with the best and most supportive service available.”
Proposed mission statement
The proposed mission statement for Wal-Mart should define the organization's purpose, primary objectives
and also answer the question “What is our business?” In addition it should stick to the previously
mentioned nine elements of an appropriate mission statement, established by Fred R. David. Bearing this in
mind, the proposed mission statement could be as following:
1. Our customers - We feel to have the obligation to satisfy our customers all around the world.
2. Our products - All products, in every store, no matter where it is located, maintain the same quality
standards to ensure that our customers get highest quality available.
3. Our markets - The world is our market and we will put all of our effort into staying the world market
leader in the retail business.
4. Our Technology - The nature of our business makes it indispensable to operate with the most current
technology available to increase the speed of our daily operations and to ensure that our customers receive
the best service available.
5. Our concern for financial soundness– A constantly ongoing strive for increasing growth- and profit rates
is the catalyzer of all our employee. In addition it gives an assurance to the shareholders that it is of highest
importance to us to put all efforts into our business.
3
Fred R. David, Strategic Management 13th Edition, p. 75
8
6. Our philosophy - It is our basic belief that every individual deserves respect and a fair treatment.
7. Our concept - Offering high-quality products for the lowest price possible enables us to obtain a
predominant position in the retail business.
8. Our community involvement - The highest concern of our foundations and charitable partners is to be a
role model in supporting all kinds of social, community and environmental projects through personal
engagement and donations.
9. Our employees - Every employee is a member of the Wal-Mart family and the most valuable asset of the
firm, no matter what kind of origin, race, gender, age or religious affiliation.
Value statement
The value statement represents the core principles, priorities and behaviors of an organization´s culture. 4
Wal-Mart has developed seven statements to describe how the Wal-Mart culture should be like. These
statements can be seen as the value statement of the company.
 Open Door Policy - Managers' doors are open to employees at all levels
 Sundown Rule - Answering employee, customer, and supplier questions on the same day the
questions are received
 Grass Roots Process - Capturing suggestions and ideas from the sales floor and front lines
 3 Basic Beliefs & Values - Respect for the Individual, Service to our Customers, Striving for
Excellence
 10-Feet Rule - Making eye contact, greeting, and offering help to customers who come within 10
feet
 Servant Leadership - Leaders are in service to their team
 Wal-Mart Cheer - An actual structured chant that was created by founder Sam Walton to lift
morale every morning
The elements of Wal-Mart´s value statement aim at establishing an employee-friendly working

environment, which makes working for the company enjoyable and motivating. Especially the open door
policy and the sundown rule encourage lower level employees to speak one´s mind and also to take
responsibilities. Also the “3 Basic Beliefs & Values” and the “10-Foot rule” are advantageous when it comes
to customer handling and service efforts. Management should focus on maintaining this attitude towards a
sound working atmosphere, because a lack in employee motivation or satisfaction could soon be displayed
through a bad service quality and in the end even to disappointed customers.
4
9
Competitive advantage
Wal-Mart’s competitive advantage is linked to their success which is

attributed to their culture. Wal-Mart states that wherever you go in Wal-
Mart you will experience the same “You’’ll feel home” because it is
everywhere the same design as well as the same philosophy.
Wal-Mart gains a competitive advantage through offering low prices (cost

advantage), especially in food distribution compared to Super Kmart and
super Target, their main competitor. Furthermore, they have the advantages of offering the best value (for
low cost products), the great selection of quality merchandise and the genuine, high standard customer
service.5
Additionally, Wal-Mart operates in 50 counties within the United States and in 14 international countries
and Puerto Rico6. In the US their discount stores amounted a number of 891 and supercenters a number of
2612. Internationally they are represented by 762 discount stores and 1064 supermarkets. These numbers
show that Wal-Mart has a competitive advantage through their discounted offers due to their widely
spread presence of divisions (discount stores, supercenters, Neighborhood, Sam’s Clubs). This gives them
an overall advantage of strategic global positioning where people will associate the name with the major
advantages mentioned above.
Wal-Mart invests a lot in information technology7which brings them to the advantage of being leader; in
logistics, distribution, and inventory control (having installed a computer network in 1970 which connected
all Wal-Mart stores and distribution centers). Furthermore they installed bar-code reader in all distribution
centers by the late 1980s which reduce the labor costs.8In the year 1990 Wal-Mart then introduced Retail
Link software which connects again its stores and distribution centers but this time with its suppliers to get
deliveries even more quickly9.
Additionally, Wal-Mart operates the world-largest private satellite communication system. Around the year
2005 Wal-Mart integrate Radio Frequency Identification10 which is a technology in which each individual
item receives a tag that can be read by a radio signal, thus facilitating tracking shipments, inventory and
sales. To conclude, the size and the high efficiency level result on the one hand from the lower cost Wal-
Mart offers compared to their competitors but alternatively, its expansion could have enabled Wal-Mart to
take advantage of economies of scale, reducing its costs in contrast to the competitors.11 The better
technology allowed Wal-Mart to grow and this grow has lowered it costs through economies of scale.
5
Fred R. David, Strategic Management 13th Edition, p.294, 302
6
Fred R. David, Strategic Management 13th Edition, p.298
7
Foster, Haltiwanger, and Krizan, 2006; Dorns, Jarmin, and Klimek, 2004
8
Vance and Scott, 1994
9
Fred R. David, Strategic Management 13th Edition, p.302
10
http://de.wikipedia.org/wiki/RFID; http://www.ecin.de/blog/node/313
11
Basker and Van (2007)
10
Objectives and Strategies
One of the objectives set out for 2010 was a growing operating income at a
faster rate than net sales. In addition, the opening of 715-785 new units
worldwide, including 140 supercentres, 25 neighbourhood markets and
500-600 Sam´s Clubs was a quite ambitious goal. However, the opening of
new stores will help Wal-Mart to increase its market share, especially in mid-
sized towns.
General Long term objectives of Wal-Mart are permanent growth by expansion in the United States and
internationally as well as continual adaptation to the market conditions and the strategies of competitors.
Furthermore, the opening of new stores in external markets should bring forward Wal-Mart´s effort of
expanding their international store quantity and increasing their international brand awareness.
Widespread name recognition and customer satisfaction shall be linked to the Wal-Mart brand.12
The main strategy of Wal-Mart is to use discount retailing and offering all products for the lowest prices
possible in combination with the best quality available for this price. On the one side, this cost leadership
strategy mostly creates satisfied customers, because they only have to pay low prices for their products,
and, on the other side, local competitors often cannot keep up with the low prices of Wal-Mart. Every Wal-
Mart store is expected from management to compete against its local competitors (which are often smaller
local stores) until the Wal-Mart store has gained significant control over the respective market. In practice
this often means, that either the Wal-Mart store or the other competing store(s) win over customer´s
standing, while the other one often has to be shut down. However, in most cases, Wal-Mart is very
successful with this strategy.
To push on their international expansion, Wal-Mart often makes use of corporate takeovers of a national
retailer to get into the specific markets. After the respective companies have been bought, Wal-Mart
reconstructs them into Wal-Mart stores. Even though this aggressive strategy is often successful (for
example in the Canadian market) the company experienced setbacks in some other markets. When trying
to enter the German market from 1997 on, Wal-Mart bought 50 “Wertkauf” stores (German supermarket
chain) and planned to convert them into Wal-Mart stores. But this effort was aborted in 2006, because of
destructive sales figure and Wal-Mart cancelled their mission of gaining ground in the German market.
This failure was mainly due to their mistake of not taking into consideration the specific characteristics of
the respective markets.13
12
http://managementhelp.org/plan_dec/str_plan/stmnts.htm
13
www.articlesbase.com/management-articles/marketing-management-in-walmart-1919747.html
11
Opportunities and Threats
Opportunities Threats
1. Trend towards Online Shopping 1. Fast changing technology (e.g. online shops)
2. Potential of European market 2. Fierce price competition in retail industry
3. Customers of higher income group 3. High bargaining power of customers
4. Trend towards "one stop shopping" experience 4. Instabilities due to external factors(e.g. unemployment)
5. Trend in sustainability awareness 5. Laws requiring more investment into employee benefits
Figure 1: Opportunities and Threats
The External Analysis
DEPEST
Development in the macro environment (DEPEST)
Macroeconomic factors according to the DEPEST method have great influence on the company returns.
Demographic factors
Several demographic factors can influence Wal-Mart´s returns. One example is the level of income of
customers within the different countries Wal-Mart is operating in. They offer low cost products with the
best value to the following three groups of shoppers for Wal-Mart stores14:
 The “brand aspirational – low income shoppers

 The “price sensitive affluent”, wealthier shoppers who love deals
 The “value-price shoppers”, folks who like low prices and cannot afford much more” 15
With the help of this classification, Wal-Mart can

locate their divisions properly so that it matches
customer’s expectations and fulfill their demands.
Another demographic constraint for Wal-Mart in
the next decades will be the aging population.
From year to year there exists a bigger amount of
older people who have special needs and
requirements that have to be fulfilled by a retailer. Wal-Mart has to adapt on the one hand their product
range but on the other hand also the shopping conditions their stores provide to older customers. By
special product offers or support activities for old customers they can attract this increasing customer
group and win them over. It would give them a competitive advantage. Additionally the size of families
within the US is growing. Right now the US market represents Wal-Mart´s most important one. Therefore it
is useful to know that the family sizes within this market are growing right now. 16
14
http://www.oppapers.com/essays/Walmart-Target-Groups/187060
15
Barbaro, 2007
16
http://findarticles.com/p/articles/mi_qn4188/is_20090121/ai_n31212055/
12
Wal-Mart can benefit from this development simply because they created exactly what those bigger
families need. “Supercenters” in which those family can experience the “one stop shopping” of products
which are offered at extremely low prices.
Economic factors:
Economic factors like unemployment and economic growth have an influence on Wal-Mart´s sales.
The best example is probably the financial crisis which has been significantly affected Wal-Mart
especially during October and November 2008. Although there was a global instability of the
finance banking sector, which continues to affect trade between countries creating liquidity
problems, Wal-Mart was still able to keep on growing and increasing their sales. This was caused
by the fact that at this point of time also higher income groups were forced to take a closer look at
their expenditures. Another reason can be that one of the industries that faced least effect from
the crisis was the food industry due to the fact that population was still in need of consuming.
This industry represents one of Wal-Mart´s most important ones.
A high unemployment rate can have on the one hand positive influences for Wal-Mart and on the
other hand also negative ones. It depends which customer group is affected by the
unemployment. Because of the fact that Wal-Mart offers products for very low prices their
customers are mainly people from lower income classes. Unemployment can force people from
originally upper income classes to reduce their expenditures and save money. This would be a
chance for Wal-Mart to enlarge their customer base. Still Wal-Mart is a retailer who wants to sell
products to their customers. Therefore some amount of money is still needed. Currently Wal-
Mart´s core customers are under a lot of pressure and running out of money. 17 Wal-Mart has to
observe this trend to be able to react in the right way. Otherwise it would have a huge influence
on their sales.
Political factors:
Wal-Mart has not only a well established brand image within their target customer groups. By being the
No. 1 corporate political contributor, they are additionally highly recognized on the federal level. In year
2006 they supported with $943,455 the US election cycle. 18 Political instability and the lack of resources
caused fuel prices to rise during the last years. This affects Wal-Mart´s operations and returns in two
ways.19 On the one hand customers have less money in their pockets and are only willing to spend less
during their shopping trips. On the other hand transportation costs for Wal-Mart itself are rising. This
increase in costs cannot be balanced by offering higher prices because it exists the risk that customers
17
http://money.cnn.com/2011/04/27/news/companies/walmart_ceo_consumers_under_pressure/index.htm
18
http://www.businessweek.com/bwdaily/dnflash/content/sep2006/db20060928_251244.htm
19
http://money.cnn.com/2006/04/28/news/companies/gas_retailers/index.htm
13
won´t come back. Because of Wal-Mart´s strategy of extremely low prices, they were several times in
conflict with government regulations according to predatory pricing. Several experts claimed that Wal-Mart
offered prices which were intended to drive competitors down. Wal-Mart has to be very careful with this
behavior because the fines for violating this law are extremely expensive.
Ecological Factors
Ecological aspects should play an important role for Wal-Mart. It is urgent that every company
includes some amount of environmental awareness within their processes. Wal-Mart realized this
by founding their “Sustainability 360°” initiative. This initiative is directed to all of Wal-Mart´s
associates, suppliers, communities and customers. Their main goal is to sustain resources and the
environment by making use of renewable energy instead of producing waste. Additionally they put
effort in reducing water and electricity usage within their own stores. By working in this direction
Wal-Mart does not only improve the environment they operate in but in the same way also
improves their image. This is of high importance for Wal-Mart because at this point of time there
are still several critics who say that Wal-Mart´s actions within the environmental area are still too
little.20 Wal-Mart should strive for changing this opinion by increasing their efforts. As being the
largest retailer in the world they should not forget which huge impact their behavior has. Their
commitment towards environmental friendly processes has to be in relation to their enormous
and continuously growing business size. Otherwise it would neither be efficient nor effective. An
improved image according to this topic would lead to a higher amount of customers and therefore
higher sales revenue.
Social/Cultural Factors
There are several social and cultural aspects which might have an influence on Wal-Mart´s sales. First of all
it is possible to say that Wal-Mart concentrates their operations on the continental US market and 14 other
countries which are not part of it. Examples are Argentina, Brazil, Honduras, etc. As we can conclude from
their website, Wal-Mart is not present in any European countries at the moment. During the past Wal-
Mart´s target customers came from the lower middle class or poorer segments. 21 During the recession in
2008/2009 they were clever enough to recognize new trends within their customer groups and tried to use
them to enlarge their customer base. Now that also people out of the middle and upper-middle class
started to review more carefully their expenditures, Wal-Mart was able to benefit from this situation.
Customers asked for inexpensive food and cheaper goods and Wal-Mart´s stock rose about 50% during this
time.22 But not only the recession but also the steady improvement of their stores attracts a higher-income
audience.
20
http://business-ethics.com/2010/05/15/1411-assessing-walmarts-environmental-impact/
21
http://snippets.com/who-and-what-is-Walmarts-target-market.htm
22
http://articles.moneycentral.msn.com/learn-how-to-invest/Walmart-vs-target-who-will-win-the-recovery.aspx?ucpg=6
14
All in all we can describe Wal-Mart´s customers as “easy shopper”. They want to be able to buy all they
need by doing “one stop” at a Wal-Mart store. Wal-Mart´s huge quantities and broad product assortment
enables them to fulfill exactly these demands.
Technological Factors
When we take a look at Wal-Mart´s distribution activities we can conclude that technological aspects play
an important role for the company. To be able to organize their highly automated distribution operations
and their huge amounts of items in stock they have to make use of latest technologies. With the help of
their private satellite communication systems and the point-of-sale bar code scanning they ensure that
everything is linked with each other and orders are placed at the right time at the right place. To satisfy
customers demands it is urgent to have all needed items available as quick as possible. Additionally the
technological tools facilitate the work of all employees within the company. The other way around
technological advancement can also be seen as a negative impact on Wal-Mart. As we all know rapid
changes in technology lead to shorter product life cycles.23 Especially retailers like Wal-Mart which handle
very broad product assortments and huge amounts of items are less flexible in changing their product lines.
This could be a disadvantage towards smaller competitors which are maybe more capable of offering
newest products.
Porter’s Five Forces
This model, developed by Porter, is used to develop strategies while taking competition into account. Most
of Wal-Mart’s product range is in the lower-return segment and in this segment competition is particularly
fierce. According to Porter, there are 5 forces which determine the competitiveness of an industry. These
are:
1. Rivalry among competing businesses 4. Bargaining power of suppliers

2. Potential entry of new competitors 5. Bargaining power of consumers24
3. Potential development of substitute products
Source: http://www.soopertutorials.com/business/strategic-management/3028-porter-fiveforces-model.html
23
http://herkules.oulu.fi/isbn9514264509/html/c953.html
24
Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David pages 118-121
15
Rivalry among competing businesses
This is usually the most powerful of the five competitive forces. Wal-Mart can only be successful when its
strategies have a competitive advantage over strategies followed by its rival firms. 25
There are three main competitors in this industry, namely K Mart, Sears and Target. All of them follow a
low cost strategy, but none can beat Wal-Mart’s. Wal-Mart follows a policy of monitoring retail prices
charged by competitors and set prices below theirs regardless of the item’s costs. They were sued and later
found guilty for predatory pricing.26 Wal-Mart goes to great lengths to maintain low-price leadership. Since
they can afford to set prices below competition all the time their value chain activities must be flawless and
their cost saving measures are innovative.
In 2009 Wal-Mart was trying to bring a legislation under way which required all employers to provide
health insurance to employees. Wal-Mart itself already provides insurance to all its employees. 27 If this
legislation became active, many of Wal-Mart’s competitors would have to struggle with the costs this
brings along and give Wal-Mart a strategic advantage since they will not have more costs than they already
have. While its competitors will have to save money somewhere or increase prices, Wal-Mart can continue
with its low cost approach. At this point in time the risk of rivalry among competing businesses is low for
Wal-Mart.
Potential Entry of New Competitors
The more firms can enter the market the higher the
competitiveness. Entry barriers, enforced or of
natural origin, can influence the level of market
entrants.28 There are only few rules regarding market
entry and basically any business can enter. However,
Wal-Mart is a strong presence and makes it difficult
for firms to establish themselves in this industry. The
biggest problem is that Wal-Mart has economies of
scale due to their size. A new business will have large
scales and this is hard to afford. Besides that, Wal-
Mart draws customers through wide Marketing.29 A new
business would also have to rely on large and expensive Marketing campaigns to increase understanding
and knowledge of its business. Consequently, huge sums of capital are required to successfully enter this
industry. For Wal-Mart, the risk of potential new entries in the industry is low.
25
Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David p. 120
26
Walmart Stores, Inc.-2009, Amit J.Shah and Michael L. Monahanat, Frostburg State University p. 304
27
Walmart Stores, Inc.-2009, Amit J.Shah and Michael L. Monahanat, Frostburg State University p.293
28
29
http://www.helium.com/items/888341-how-Walmart-really-works
16
Potential Development of Substitute Products
Deals with the level of competition between a firm in a certain industry and its competition which produces
substitute products in another industry. Competitive pressure increases when prices of substitute products
drop.30
Wal-Marts biggest competitor in this segment is Target, which produces more upscale and chic products
than Wal-Mart at inexpensive prices. 31 Wal-Mart is still cheaper than Target, but those customers who
want superior quality and are willing to pay slightly more for it might swap. Another substitute alternative
is online shopping. Here, customers can find cheap alternatives since online businesses do not need real
stores and on site staff, can save this money and therefore reduce product cost. The risk of developments
of substitute products is medium.
Bargaining Power of Suppliers
This force affects the level of competition in any industry, but as a general rule it can be said that
competition gets fiercer when:
- there are many suppliers
- there are only a few good substitute raw materials
- the costs of switching raw materials is especially costly
Usually, it helps both the business and the supplier when they enter into a closer relationship with
more visibility, an agreement on fair prices and better cooperation. 32 The volume of Wal-Marts
orders is so large that supplier’s bargaining power is fairly low. 33 Suppliers do not want to lose this
big customer and are willing to reduce product’s prices accordingly.
Wal-Mart sells mainly undifferentiated and standard products. For these, the costs of switching
raw materials are low, lowering the bargaining power of suppliers further. The bargaining power
of suppliers is low.
Bargaining Power of Customers
When there are many customers or when customers buy large volumes their bargaining power is high,
affecting the level of competition. Competition is particularly high in industries with little product
differentiation, which is the case with Wal-Mart.34 Therefore, Wal-Mart is forced to offer the lowest prices,
or the customer will go buy the product somewhere else. Besides that, the number of customers in this
industry is huge, increasing customer bargaining power further. Wal-Mart’s customer bargaining power is
30
31
Walmart Stores, Inc.-2009, Amit J.Shah and Michael L. Monahanat, Frostburg State University p. 306
32
33
http://ezinearticles.com/?Porters-Five-Forces-Analysis&id=15116
34
17
high. To sum it up it can be concluded that Wal-Mart has Porter’s Five Forces under good control and
integrated it into its strategy.
There is not much rivalry to be expected since Wal-Marts biggest competitors are still much smaller than
itself and cannot beat its prices. Wal-Marts size also comes in handy when controlling new industry entries,
making it almost impossible for new entrants, unless they bring a lot of capital.
There exists a risk of substitute products, especially from the online store development which are, due to
their nature, often able to beat Wal-Marts prices. The bargaining power of suppliers is low, again this is due
to Wal-Marts size and power, as well as the type of products they are selling which are easily available from
other suppliers. The bargaining power of customers is high due to the size of the market and the availability
of the same products from other Markets.
External Factor Evaluation (EFE) Matrix
Within this matrix we will give, based on the importance of each aspect, weights to all opportunities and
threats. The rating will describe the ability of Wal-Mart to react to the opportunities and threats. The
weight multiplied by the rating then gives us a weighted score whose total sum demonstrates if Wal-Mart
lies below or above the average of 2.5.
Weighted
Key External Factors Weight Rating
Scores
Opportunities
1. Trend towards Online Shopping 0,15 4 0,6
2. Potential of European market 0,13 3 0,39
3. Customers of higher income group 0,1 4 0,4
4. Trend towards "one stop shopping" experience 0,07 4 0,28
5. Trend in sustainability awareness 0,05 3 0,15
Threats
1. Fast changing technology (e.g. online shops) 0,2 2 0,4
2. Fierce price competition in retail industry 0,13 3 0,39
3. High bargaining power of customers 0,07 3 0,21
4. Instabilities due to external factors(e.g. unemployment) 0,05 3 0,15
5. Laws requiring more investment into employee benefits 0,05 2 0,1
Total 1 3,07
Figure 2: EFE Matrix
The overall score of Wal-Mart is 3.07. From this it can be concluded that the company’s response to
external opportunities and threats is above average.
18
Opportunities
1. Trend towards Online Shopping
Online Shopping is a new technological trend and provides huge potential to interested businesses. The
amount of time consumers spend shopping online is increasing rapidly.35
For those businesses that are already active in the market, opening online stores can lead to additional
sales. Besides these points, products from online stores can usually be marketed at lower prices than their
equivalents in retail shops. This is due to cost savings. Online stores do not need retail stores nor do they
need sales staff and other costs associated with these stores. 36
2. Potential of European Market
Half a billion people live in Europe37 and the GDP per capita was $32,900 in 2010.38 It can be said that
Europe has a very large buyer market and that the money generating potential is very promising.
3. Customers of higher income group
The higher income group is an opportunity for Wal-Mart. Experts says that the people from higher income
groups spend about 40% more on retail articles than people from the lower income groups do.
Consequently, they are seen as potential candidate to boost sales considerably.39
4. Trend towards “one-stop shopping experience”
“One stop shopping” is a trend as it allows customers to buy everything they need at only one store, saving
them the trouble of spending extra time and traffic to go to another store to buy other products they
need.40 The advantage for businesses providing a “one stop shopping experience” is that it keeps
customers longer in the store and that they are more likely to buy all their needed products there instead
of going to a competitor.
5. Trend in sustainability awareness
The consumer’s awareness in sustainability issues rises and they begin to favor products from businesses’
that focus on sustainable production. 41 Businesses that do not put more pressure on the environment than
necessary are preferred42 as well as products that are as biological as possible.43
35
http://www.prnewswire.com/news-releases/couponalbumcom-to-provide-great-savings-as-consumers-trend-toward-online-shopping-this-
holiday-season-103996793.html
36
http://www.archive.dcita.gov.au/2001/10/ecommerce_cs/summary_report/revenue_and_cost_savings
37
http://europa.eu/about-eu/facts-figures/living/index_en.htm
38
https://www.cia.gov/library/publications/the-world-factbook/geos/ee.html
39
http://articles.moneycentral.msn.com/Investing/Extra/Walmart-moves-more-upscale.aspx
40
http://www.4managers.de/management/themen/one-stop-shopping/
41
http://www.wornthrough.com/2011/05/16/cfp-sustainability-marketing-claims-and-consumer-behavior/
42
http://www.sustainablebusinessoregon.com/columns/2011/05/where-sustainability-and-consumer.html
43
http://greenretailingnews.blogspot.com/2009/07/retailtrends-biological-products-in.html
19
Threats
1. Fast changing technology (e.g. online shops)
This issue provides a threat as it gets increasingly difficult to always stay on top of technological trends and
to use them in creating a competitive advantage. 44 An example for Wal-Mart is the online shop
development. Some businesses like Amazon and EBay developed a well working technology incredibly fast
which helped them in their rise to industry leadership. 45
2. Fierce price competition in retail industry
In the retail industry, especially in food and clothing exists fierce price competition. Prices decrease and as
a consequence so do profit margins. Businesses have to develop new ways of saving costs to stay
competitive in the industry.46
3. High bargaining power of customers
Customer bargaining power is high in the industry due to the large number of customers. Besides that,
product differentiation is low in Wal-Mart’s case which also has a strengthening effect on bargaining power
of customers.47 Consequently, customers are very price sensitive and perceptible to lowest price offer,
which drives down Wal-Mart’s profit margin.
4. Instabilities due to external factors (e.g. unemployment)
Instabilities that arise from external factors, like unemployment, can affect the retail industry because
people’s feelings of security change. This aspect is influenced by psychological factors. People who are
insecure about what is going to happen are more likely to save their money than to spend it. 48 This has a
negative effect on businesses.
5. Laws requiring more investments into employee benefits
Wal-Mart employs 2,100,000 employees.49 If the U.S. government decided to bring a new legislation under
way requiring businesses to invest more money into employee benefits, this would mean huge costs for the
big employer.
44
http://www.information-management.com/news/insurance_technology-10016312-1.html
45
http://www.industryleadersmagazine.com/ebay-scores-over-amazon-acquires-gsi-for-2-4-billion/
46
http://www.marketing.uni-frankfurt.de/fileadmin/Publikationen/natter_7.pdf
47
http://ezinearticles.com/?Porters-Five-Forces-Analysis&id=15116
48
http://www.npd.com/press/releases/press_100126b.html
49
http://money.cnn.com/magazines/fortune/global500/2010/snapshots/2255.html
20
Competitive Profile (CPM) Matrix
The Competitive Profile Matrix

(CPM) Walmart
Critical Success Factors Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score Rating Weighted Score
Advertising 0,25 3 0,75 2 0,5 3 0,75 2 0,5
Global expansion 0,2 4 0,8 3 0,6 3 0,6 1 0,2
Price competitiveness 0,15 3 0,45 3 0,45 3 0,45 4 0,6
Product quality 0,1 3 0,3 4 0,4 2 0,2 3 0,3
Community Involvement 0,1 4 0,4 4 0,4 3 0,3 2 0,2
Consumer loyalty 0,1 3 0,3 2 0,2 2 0,2 3 0,3
Market share 0,05 3 0,15 3 0,15 2 0,1 1 0,05
Financial position 0,05 4 0,2 3 0,15 2 0,1 3 0,15
Total 1 3,35 2,85 2,7 2,3
Figure 3: CPM Matrix
According to Fred. R. David the CPM “identifies a firm’s major competitors and its particular strength and
weaknesses in relation to a sample firm’s strategic position” (David, 2008, p.127).
The main competitors of Wal-Mart are Target (American retailing company; headquartered in Minneapolis,
Minnesota, United States) and Kmart (American chain of discount department stores, headquartered in
Detroit, Michigan, United States) as well as several national supermarket chains in the respective
international markets. However, Target can be considered to be the main competitor of Wal-Mart, having
sales of $65 billion and 1,700 stores. Kmart is the second competitor of Wal-Mart. Till 2001, they have been
the main competitor, but after having declared bankruptcy in 2001, they are only the third biggest retailer
with having sales of $17 billion and running 1,300 stores. Due to the bankruptcy they operate now as a
subsidiary of Sears Holding.50 Another competitor is the Costco Wholesale Corporation, a membership
warehouse club, which is mainly competing the Sam´s Club segment of Wal-Mart. Other smaller
competitors are Shopko (chain of retail stores based in Ashwaubenon, Wisconsin) and Meijer (regional
American hypermarket chain, based in Grand Rapids, Michigan). 51 The critical success factors in a CPM
include internal and external issues which therefore refer to strength and weaknesses where 1 is a major
weakness and 4 a major strength.
The above CPM Matrix shows that Wal-Mart is the market leader. Wal-Mart dominates compared to its
competitors with the highest score of 3, 35. Target is on the second position and dominates Kmart (Sears
Holding). Costco is only a competitor to the Sam’s Club and although its rating is in the overall industry low,
it is one of the biggest competitors for the Sam’s Club.52
50
R. David, Strategic Management 13th Edition,.p. 306
51
http://wiki.answers.com/Q/Who_are_wal_mart's_main_competitors#ixzz1McNLNuBO; http://finance.yahoo.com/q/co?s=WMT+Competitors;
http://www.kmart.com.au/Community.aspx; http://sites.target.com/site/en/corporate/page.jsp?contentId=PRD03-001817
52
http://shop.costco.com/en/About/Charitable-Giving.aspx
21
Rank Company Fortune 500 Revenues On the Fortune 500 list published 2010 Wal-Mart leads the
rank ($ millions) second year in a row -- and the eighth time this decade.
Wal-Mart
1 Stores 1 421,849.0 This supports the results calculated by the CPM matrix
2 Costco 28 77,946.0 above. Nonetheless sales at its U.S. stores have dropped
3 Target 33 67,390.0
for seven straight quarters, despite gains in worldwide
4 Sears 57 43,326.0
Figure 4: Industry General Merchandiser42
revenues and profits.
To fight against this the CEO Michael Duke is restocking shelves with lower-priced products dropped by his
predecessor, Lee Scott. Wal-Mart’s recent adaptations to changes in consumer behavior to increase sales
include the reconfiguration of thousands of packaged food items to cut their salt and sugar. In stable
economic times Target's low-cost inventory was always demanded. But to capitalize on increased traffic
during the downturn, Target started to stock produce and food products, competing with some grocery
stores. Also entering new markets such as Seattle, San Francisco and Boston with smaller stores should
boost Target’s slowing U.S. growth rate. Also expanding northward, by taking over 220 stores previously
owned by Canadian chain Zellars is part of their financial strike back.53
Strengths and Weaknesses
Strenghts Weaknesses
1. Well established brand awareness 1. Lack of presence in many developed countries
2. Cost leadership in comparison with competitors 2. Failure of entering foreign markets
3. Continuous growth 3. No formal mission statement
4. Control over suppliers 4. Continuous product recalls
5. Profitable organization of distribution channels 5. "Everyday low prices" could be connected to poor quality
Figure 5: Strengths and Weaknesses
53
http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2303.html;
http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2292.html
22
The Internal Analysis
Financial Performance Analysis

In order to measure the financial performance of companies, financial ratios are the fundamental base in
order to create the comparison between rival companies, the industry, and the market leaders or the top
companies. For the analysis of Wal-Mart, we are using the financial ratios function from
msnmoneycentral.com, which utilizes 4 main Ratios with detailed ratios in each one, such as the Growth
Rates, Price Ratio, Profit Margin, Investment Returns, and Management Efficiency to create a benchmark of
Wal-Mart’s Performance in 2009.
Wal-Mart’s sales growth rate can be considered low compared to the industry, and even lower compared
to the S&P 500. On the other hand, Wal-Mart’s net income is more than twice compared to the industry’s
3.60, which indicate a very great cost management. Sales & Net income does not vary very much from
industry and S&P 500, which indicate the competitiveness of Wal-Mart. However, Wal-Mart seems to score
almost 3 times in dividends paid to stakeholders and slightly higher than the industry average which shows
Wal-Mart honors their stakeholder’s interests.
Key Financial Ratios

These ratios are easily determining the current situation of any
companies. Wal-Mart scores extremely well in these ratios, as
their Debt/Equity ratio is only 0.73,most of their investments are
financed through equity rather than debt. Although most of their
key financial ratios are impressive, their current ratio is 0.9, which
means they are barely able to convert their current assets into
cash to off short term liabilities.
Price Ratios
As the Price Ratios has shown, Wal-Mart is very competitive in their
pricing, which we can assume resulted on their high Net Income
Ratio. The big differences between Wal-Mart and S&P are due to
different industries.
23
Profit Margins
Wal-Mart Profit margins is very impressive. Wal-Mart is very
competitive in their pricing, yet still able to retain its Gross & Net
profit margin really high compared to the industry, and does not
vary very much from the S&P 500, except for the Net profit
margin, but this is due to different industries.
Investment Returns
Wal-Mart is more profitable compared to the Industry, in
spite of the lower pricing, and their shortage of current asset
(the current ratio). Wal-Mart’s return on equity still can
better with a more thorough investment plans.
Management Efficiency
We can assume that the low cost strategy also have
impact on employee salaries, since yearly employee
salaries and almost all cost in management are much
lower compared to the industry, and even more than
12x lower compared to the S&P 500, but this is due to
different industries.
Growth & Profitability
WMT Growth Analysis (2006 - 2009)

500,000.00 401,087.00
344,759.00 373,821.00
400,000.00 308,945.00
300,000.00
200,000.00
100,000.00 11,408.00 12,189.00 12,863.00 13,235.00
0.00
2006 2007 2008 2009
Total Revenue Net Income
Figure 6: Wal-Mart Growth Analysis (in $ million)
24
As the growth analysis graph shows, Wal-Mart gained more than $ 20 million revenue increase from 2008,
but it is lower compared to the previous year (2007-2008) which Wal-Mart gained almost $ 30 million, also
again lower than 2006 -2007. This is indicating a lower growth percentage each year. Although revenue
growth has been decreasing each year, Wal-Mart’s net income is steadily increasing each year. Despite the
recession in the U.S Wal-Mart was still able to make quite a sum of profit even though it is $ 200 million less
than the previous year.
Wal-Mart Revenue/Income compared with direct competitors
Figure 7: Revenue/Income comparison 2009
As of 2009, Wal-Mart clearly is the market leader with the most revenue compared to Target, Costco, and
almost 10 times than Kmart. Even though Target, Kmart, Costco are direct competitors to Wal-Mart, none
of them pose a major threat according to their respective Revenue and Net Income, especially Kmart with
only $ 53 million net income was barely able to cover their expenses in 2009.
Figure 8: 2009 Net Profit Margins
Although Wal-Mart had significantly higher revenue and net profit, Target’s Net Profit Margin (3.4%) seems
to be slightly better than Wal-Mart’s (3.3%) even though Target’s Revenue and net profit are almost 7
times lower than Wal-Mart’s. All in all, Kmart seems to be in a lot of trouble with their net profit margin
(0.1%) being lowest compared to all other competitors.
25
Value Chain Analysis
The Value Chain, as developed by Porter, deals with all activities undertaken by a business to create value.
More precisely, it calculates total revenue minus total costs of all activities undertaken by a business to
produce and market a product or service, and results in the yielded value of this process. Profitability is
therefore granted as long as total revenues exceed the total costs of creating and delivering the product or
service. The purpose of the value chain analysis (VCA) is to identify where in the value chain process low
cost advantages or disadvantages lie. It also helps businesses to define its strengths and weaknesses.
Once core competences are defined the firm should

try to convert these into distinctive competences.54
The value chain is divided in primary activities and
support activities. The primary activities encompass
every process that directly relates to production or
sale of the product or service. The support activities
are functions which support the business in
Source: http://www.provenmodels.com/26/value-chain- optimally conducting the primary activities.
analysis/michael-e.-porter/
The graphic Figure above depicts a typical value chain. The elements printed vertically are primary
activities; the elements printed horizontally are support activities. All these activities combined are
responsible for the profit margin. In the next step, each of these activities will be analysed for Wal-Mart.
The reason we use this analytical tool is because Wal-Mart’s pricing is the most competitive in the market.
We assume that this is related to a very well-working value chain and decided to give this issue some
thought.
Primary Activities
Inbound Logistics
Wal-Mart’s many stores and its huge product assortment make a well working inbound logistics system an
essential part for success.
Wal-Mart was among the first businesses to implement a hub and spoke distribution network. This network
is a centralized and integrated logistics system which is designed to keep costs down. These distribution
canters receive products from various origins, consolidate them and then send them directly to their
destinations. This way of managing distribution reduces transportation cost, inventory levels and overall
costs and provides businesses with a competitive logistics advantage.55 Wal-Mart’s knowledge and
expertise in logistics greatly contributes to its cost leadership.
Since 2006 Wal-Mart uses a vendor transportation consolidation program called Remix. This distribution
system requires vendors to work together with transportation and logistics providers to turn lightly filled
54
Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David pages 164-166
55
http://scm.ncsu.edu/scm-articles/article/success-with-hub-and-spoke-distribution
26
truckload deliveries into full truckload freight before reaching the store. 56 This saves tremendous costs
through using carriers efficiently. Wal-Mart uses carriers to take care of inbound logistics. At this point,
over 60% of Wal-Mart’s inbound freight is taken care of by its suppliers.
Operations
Wal-Mart knows of the importance of its inventory system and in just 5 years invested over $600million
into information systems.
The business uses telecommunications to create a link between each store, the central computer system
and from there to suppliers. This allows for greater invisibility and speed and saves money invested in
inventory. In fact, many products leave the warehouse without ever really being stored there and only 10%
of warehouse space is used for inventory whereas the industry average is 25%.
At the same time, the increased coordination helps the suppliers in making more consistent planning which
brings costs down. These cost savings will also be passed on to Wal-Mart.
Wal-Mart uses barcode scanners for their point of sale system. This enables the company to record each
item sold and make this information available for recording and for sales analyses. 57 Besides these technical
aspects Wal-Mart introduced some principles which make the shopping experience at Wal-Mart more
enjoyable and lead to more sales.
An example of this is the 10 foot rule, which means that whenever an employee gets within 10 feet of a
customer they are to greet him and ask if they can help. 58
Outbound Logistics
Here again, the excellent inventory tracking and point of sale system are of essential value to Wal-Mart and
bring costs down.59
Marketing and Sales

Wal-Mart has always tried to attract customers by their “everyday low prices” strategy. Besides that, they
have a large and diverse product assortment under one roof which suits especially those customers living in
rural areas.
Wal-Mart is already at the top, but instead of relaxing they are constantly looking for new ways to attract
customers and investigate potential methods of reducing costs along their value chain.
According to Wal-Mart’s Marketing director the businesses’ major objective is that sales are always
increasing. Other business objectives are to increase Wal-Marts availability all over the country and
especially in rural areas, and working on the image of Wal-Mart being a friendly retailer. 60Wal-Mart does
not invest much money into marketing and this is somewhat unusual considering their size. Instead they
56
http://www.accessmylibrary.com/article-1G1-146221038/remixing-inbound-channel-wal.html
57
http://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.html
58
http://walmartstores.com/AboutUs/285.aspx
59
http://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.html
60
http://www.articlesbase.com/management-articles/marketing-management-in-walmart-1919747.html
27
use public relations as their most notable marketing strategy. They take part in charitable events and
market themselves as a community based institution to enhance their image of being the average
American’s friend. However, they also struggle with negative media attention by wrong treatment of their
employees and predatory pricing accusations.60
Service
Wal Mart has set aside extra page on its website for ‘help` features. 61 They have a return policy in place
that allows customers a 90 day return on receipt and a lot of information on shipping costs, shipping time
and ordering status.62 They provide the customer with the necessary information but do not go to great
lengths to provide exceptional service. This goes in line with their low cost strategy.
Support Activities
Firm Infrastructure
Wal-Mart is a three product divisional structure consisting of Wal-Mart stores, Sam’s Club, and
International Stores. This divisional approach used by Wal-Mart helps them in setting different goals for
each division.63
Human Resource Management

Wal-Mart’s HRM goal is to make every employee feel fulfilled, motivated and empowered in their job. 64
However, in the media they do not manage to keep this image up. The most significant negative media is
coming from lawsuits filed by Wal-Mart employees against the company regarding discrimination.65
Technological Development
Despite Wal-Marts incredible investment in IT and its top of the arts supply chain, its founder Sam Walton
never cared much for technology. Consequently, the business was stagnating and encountering difficulties
in 2007. For instance, despite Wal-Mart’s size and its control over the market, they were unable to match
the growth of internet platforms like Amazon and missed its chance to also outperform competition in the
online segment.66
Procurement
This is probably the most valuable and cost saving part of Wal-Mart’s supply chain. Wal-Mart is such a big
business that it exerts immense control over its suppliers. Most of Wal-Mart’s suppliers depend on their
sales to this retailing giant and have no choice but to accept the prices Wal-Mart is willing to pay for
incoming products. Consequently, Wal-Mart is able to buy in at very low costs and transfer these cost
savings to its customers.67
61
http://www.walmart.com/cp/Help/5436
62
http://www.walmart.com/cp/Returns-Policy/538459
63
http://www.associatedcontent.com/article/782963/the_organizational_structure_of_starbucks.html?cat=3
64
http://walmartstores.com/Careers/7684.aspx
65
http://findarticles.com/p/articles/mi_m3495/is_1_49/ai_112799800/
66
http://www.cio.com/article/143451/How_Wal_Mart_Lost_Its_Technology_Edge
67
http://procureinsights.wordpress.com/2007/07/09/public-sector-procurement-and-the-Walmart-effect/
28
Internal Factor Evaluation (IFE) Matrix
Within this matrix we will give, based on the importance of each aspect, weights to all strengths and
weaknesses. The rating will describe the ability of Wal-Mart to react to the strengths and weaknesses. The
weight multiplied by the rating then gives us a weighted score whose total sum demonstrates if Wal-Mart
lies below or above the average of 2.5.
Weighted
Key Internal Factors Weight Rating
Scores
Strenghts
1. Well established brand awareness 0,18 4 0,72
2. Cost leadership in comparison with competitors 0,13 4 0,52
3. Continuous growth 0,1 4 0,4
4. Control over suppliers 0,09 3 0,27
5. Profitable organization of distribution channels 0,05 4 0,2
Weaknesses
1. Lack of presence in many developed countries 0,13 3 0,39
2.Failure of entering foreign markets 0,1 2 0,2
3.No formal mission statement 0,08 1 0,08
4. Continuous product recalls 0,08 2 0,16
5. "Everyday low prices" could be connected to poor quality 0,06 3 0,18
Total 1 3,12
Figure 9: IFE Matrix
The overall score is 3.02 which means that Wal-Marts response to internal strengths and weaknesses is
above average.
Strengths
1. Well established brand awareness
With their more than 8,500 stores, Wal-Mart represents the number one retailer in the world. By
providing 15% to 25% lower prices for grocery products than the average retailer store 68 Wal-Mart
can support their strong brand attribute of offering “everyday low prices”. As shown within a study
Wal-Mart is the only retailer in the U.S. that carries two brands which are directly identified and
connected to Wal-Mart by more than 52% of all American women. 69
To establish their brand awareness also through modern networks, Wal-Mart makes use of social
media networks like Facebook. 70 All in all it is possible to say that if you believe the experts, Wal-
Mart is a store that every single citizen, at least in the United States, knows. 71
2. Cost leadership in comparison with competitors
Wal-Mart makes use of the cost leadership strategy which gives them a competitive advantage. In
the beginning, when Wal-Mart was not that well known, they had to develop economies of scale
68 http://www.emorymi.com/allen.shtml
69 http://www.marketingforecast.com/archives/4880
70 http://www.psfk.com/2011/02/walmart-uses-facebooks-viral-platform-to-offer-groupon-like-discounts-and- increase-brand-awareness.html
71 http://www.associatedcontent.com/article/104858/walmart_the_great_american_dream_so.html
29
and find as many ways as possible to reduce costs. One way was to cut down overhead costs, keep
the inventory level as low as possible and gain high control over suppliers.72 Today they are able to
keep their concept of “everyday low prices” on offer.
3. Continuous growth
Wal-Mart is a continuously growing company. From their foundation in 1946 until today they
developed a network consisting out of 891 discount stores, 2612 Supercenters, 602 Sam´s Clubs
and 153 Neighborhood Markets.73 When taking a look at the net sales from year 2007 up to 2009
one can see an increase from $344.7 billion to $401.2 billion. Important to mention in this case is
that although there was a financial crisis within these years Wal-Mart was still able to keep on
growing.
4. Control over suppliers
All in all it is possible to say that many of Wal-Mart´s suppliers totally depend on this collaboration.
The majority receives more than 30% of their revenues from the huge retailer. 74 Because of
increasing debts and financial problems Wal-Mart founded the “Supplier Alliance Program” that
they offered some selected supplier to give them a new financing option. With the help of this
program Wal-Mart wants to ensure the steady flow of inventory. From the view point of suppliers it
makes them even more dependent on Wal-Mart. 75
5. Profitable organization of distribution channels
By making use of latest technology Wal-Mart creates highly automated distribution operations. To
be as cost effective as possible Wal-Mart frequently orders their stock and maintains a close
connection with their vendors.76
Weaknesses
1. Lack of presence in many developed countries

At this point in time Wal-Mart is mainly present in continental US and additionally 14 other
countries. It is important to mention that they are not present in Europe yet, except for the United
Kingdome. Other developed countries such as Australia are not entered yet either.
2. Failure of entering foreign markets
The unsuccessful entrance in the German market symbolizes a significant example for this
weakness. In the year 2007 Wal-Mart finally decided to sell 85 German stores to its competitor
“Metro”.77 Because of poor inter-cultural management and a poor approach to international
marketing Wal-Mart lost a lot of money. They had to realise that simply trying to convert the
American way of retailing to Germany did not work out.
72http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/Business%20Strategy%20Walmart%20Cost%20Leadership.htm#Achievi
ng%20Cost%20Leadership
73 Walmart Stores,Inc-2009, Amit J. Shah and Michael L. Monahanat
74 http://adage.com/article/news/Walmart-weans-suppliers/96969/
75 http://www.storebrandsdecisions.com/news-print/2009/11/19/Walmart-offers-suppliers-financing-option
76
Walmart Stores,Inc-2009, Amit J. Shah and Michael L. Monahanat
77
http://www.donnellyspire.com/research/how-not-to-do-it---learning-from-walmarts-failure/index.php
30
3. No formal mission statement
The mission statement should give an answer to the question “What is our business”. Within the
mission people can identify the company´s main purpose and objectives. This is especially
important for employees to ensure that everybody knows in which aspects the company is engaged
in and that everybody is working in the same direction. Therefore a lack of a formal mission
statement can lead to an internal weakness.
4. Continuous product recalls
The company image is always suffering if it comes to product recalls. In the year 2007 for example
Wal-Mart had to recall several toy products which were produced in China. 78 What huge impact
this has for the image shows a customer study made afterwards. This study documents that 39% of
respondents were more fearful to buy products from Wal-Mart in comparison to 22% for their
competitor Target.
5. “Everyday low prices” could be connected to poor quality
There are several people who believe that Wal-Mart offers low quality just because their prices are
so extremely low. Everybody knows that if a company always offers way lower prices than
competitors, it is in need of cheap production and operations.
Problem statement
All in all Wal-Mart´s main goal is to continuously grow and increase their sales. This goal is
endangered caused by several aspects. At this point of time Wal-Mart can be seen as the definite
cost leader within their industry. The majority of their business operations is placed within the
continental US and they are additionally present in 14 other countries. One of their major
weaknesses is the lack of presence in several well developed countries. Except for the UK, they are
not operating in any European countries at all. To gain a bigger international market share should
be one of their main goals for the future.
Another problem which might occur within the near future will be the disability to offer lower
prices than the competition does. Especially the development of online shops gives competitors
the opportunity to lower their prices significantly. Up to now Wal-Mart was able to offer the
lowest prices partly due to their bargaining power over suppliers. However, in this area the
bottom line is reached and Wal-Mart is in need to find other ways of saving costs and increasing
sales.
78
http://www.environmentalleader.com/2007/09/10/product-recalls-hurt-Walmarts-brand-perception/
31
Models
SWOT Matrix
This matrix is an important matching tool. It matches key external and internal factors and helps us to
develop four types of strategies: SO (strengths- opportunities) strategies, WO (weaknesses-opportunities)
Strategies, ST (strength-threat) strategies and WT (weaknesses-threats) strategies.79
Key Internal Factors

Strenghts Weaknesses
1. Lack of presence in many
1. Well established brand awareness
SWOT Matrix developed countries
2. Cost leadership in comparison with 2. Failure of entering foreign
competitors markets
3. Continuous growth 3. No formal mission statement
4. Control over suppliers 4. Continuous product recalls
5. Profitable organization of distribution 5. "Everyday low prices" could
Key External Factors channels be connected to poor quality
Opportunities SO Strategies WO Strategies
1. Introduction of a premium product line (S1, 1. Enter European countries
1.Trend towards Online Shopping
S3, O3) through joint-ventures (W1, O2)
2. Improvement of general
2. Potential of European market 2. Extensive sponsorships in Europe (S1, O2) image through environmental
friendly operations (W5, O5)
3. Customers of higher income group
4. Trend towards "one stop shopping"
experience
5. Trend in sustainability awareness
Threats ST Strategies WT Strategies
1. Improved customer
1.Fast changing technology (e.g. online 1. Backward Integration and take over the
satisfaction through better
shops) function of suppliers (S2, S4,T2, T3)
quality management (W4, T3)
2.Target people with financial uncertainty by
2. Fierce price competition in retail
more agressive "best deal" marketing (S1, S2,
industry
T4)
3. Improve existing e-commerce by investment
3. High bargaining power of customers
into IT and online presence (S1, S2, S3, T1)
4. Instabilities due to external
factors(e.g. unemployment)
5. Laws requiring more investment into
employee benefits
Figure 10: SWOT Matrix
79
32
SO Strategies
1. Introduction of a premium product line (S1, S3, O3)

The introduction of a new premium product line would make Wal-Mart more appealing to high-income
customers. Obviously, the products within this product line should have a satisfying quality and therefore
cost more than a standard product of a similar product group. If Wal-Mart succeeds in convincing the
customers with a higher income (which usually do not buy at Wal-Mart) that they are able to offer
premium quality products for a fair price, than they have the chance to gain some steady customers out of
this group. However, it will be necessary that Wal-Mart can ensure and maintain the highest quality
standards for this product line. High income customers would probably not come back to Wal-Mart if they
are not satisfied with the quality of their products at first try.
2. Extensive sponsorships in Europe (S1, O2)
Extensive sponsorships in Europe could increase Wal-Mart´s chances of succeeding in Europe. Even though,
Wal-Mart´s brand awareness in Europe is not as high as in the United States, most of the Europeans will link
the retailing business to Wal-Mart. However, before entering a European market the brand awareness
could be further increased through sponsorships. Sponsoring of sports events, fairs, concerts or festivals
are possible ways of improving the chances of Wal-Mart to gain ground in the respective market and even
offer Wal-Mart the possibility to gain more experiences about the local culture.
WO Strategies
1. Enter European countries through joint-ventures (W1, O2)
Wal-Mart has a recognizable lack of presence in many developed

countries. This lack could be filled by making use of the potential
that exists in the European market (W2,O2) . At the moment Wal-
Mart operates mostly in the US, despite the UK as the only
European country. Due to the fact that they already have a strong
presence in the US, increasing sales even more would be difficult
to realize but therefore in Europe. Wal-Mart needs to be aware of
the fact, that in Europe the brand awareness will not be as high as
in the US. Factors like customer buying behavior, cultural aspects
and competitors, will influence their operations in Europe. The
entry can be performed by doing joint-venture. This is a partnership between two (or more) partners to
form a joint venture in the new market. Reasons for that might be complementary technology or
management skills and it increases the speed of the market entry and saves additional costs.
33
2. Improvement of general image through environmental friendly operations (W5, O5)
Furthermore Wal-Mart could make use out of the growing trend towards sustainability. According to the
CEO Mike Duke sustainability is an important part of Wal-Mart’s culture (O5). They strive for being supplied
by 100 percent renewable energy, create zero waste and sell products that sustain their resources and the
environment. 80 Right now there does not exist a time frame for this goal. An implementation within the
near future could lead to an improvement of Wal-Mart´s image. Customers would recognize that Wal-Mart
is not just searching for the cheapest way of production and supply but also for the most environmental
friendly one. Quality and sustainability play an important role within their operations. (W5)
ST Strategies
1. Backwards integration and take over the function of suppliers (S2, S4,T2, T3)
Wal-Mart is cost leader in the industry and this is to a great degree due to their high bargaining power over
suppliers. Wal-Mart was able to negotiate supplier prices down to a minimum but at this point there are no
more savings to be realized from this area.
However, price competition in the retail industry is fierce and customers have high bargaining power.
Consequently, Wal-Mart has to find new ways to lower prices to keep its status of cost leadership in the
market. A suitable strategy to follow is: backwards integration
in doing so, Wal-Mart takes over the supplying function and can look for new ways to save costs in this
area.
2. Target people with financial uncertainty by more aggressive “best deal” marketing (S1,S2, T4)
During the economic crisis, many people from the higher income group turned to Wal-Mart. The same
applies to people who are unemployed. The feeling of insecurity and the desire to save costs where
possible can be used by Wal-Mart to target these people and bind them to Wal-Mart through offering the
lowest prices.
3. Improve existing e-commerce by investment into IT and online presence (S1, S2, S3, T1)
If Wal-Mart invested more money and resources into its online presence, they might profit from it in the
long run. It might lead to higher sales, Wal-Mart will be able to save more costs in online sales and is
therefore in a position to stay cost leader, and the businesses’ strong brand image can help in reaching the
target group more easily. This can only be achieved with an increased investment in IT to develop a
superior online shop system.
80
Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David , p.305
34
WT Strategies
1. Improved customer satisfaction trough better quality management (W4, T3)
Because of the extremely high bargaining power of customers Wal-Mart has to keep their customers as
satisfied as possible. Because of the fact that within the retailer business there exists much more supply
than demand customers do have a lot off power. Continuous product recalls can harm the company image
and motivate customers to switch to competitors. Therefore Wal-Mart should improve their quality
management to avoid future product recalls. They should have clear requirement for all their suppliers.
This would ensure that they only collaborate with high quality suppliers. By making use of regular statistics
and accurate capturing of information and data it is easier to control suppliers. If it still comes to product
recalls Wal-Mart can directly identify the source and decide on follow up activities.
Space Matrix
The Strategic Position and Action Evaluation (SPACE) matrix is a matching tool, which helps to determine if
either an aggressive, conservative, defensive or competitive strategy is best fitting to the company. The
different average scores regarding to their financial-, stability-, competitive-, and industry-position lead to a
X- and Y-coordinate, through which a graph can be drawn that shows which type of strategy (aggressive,
conservative, defensive or competitive) is most attractive. 81
Space Matrix
Internal strategic position External strategic position
Financial Position (FP) Score Stability Position (SP) Score
Investment returns 4 Technological changes -3
Inventory turnover 3 Rate of inflation -2
Operating Profit 4 Price range of competitors -2
Liquidity 6 Demand variability -4
Profit margin 6 Risk involved in business -3
Average score: +4.6 Average score: – 2.8

Y-axis = 4.6 – 2.8 = 1.8
Competitive Position (CP) Score Industry Position (IP) Score
Market share -2 Growth potential 5
Product range -2 Profit potential 6
Product quality -4 Financial stability 5
Product life cycles -5 Resource utilization 4
Customer loyalty -4 Extend lerveraged 5
Average score -3.4 Average score: + 5.0

X-axis = (-3.4) + 5.0 = 1.6
Figure 11: SPACE Matrix
81
35
Figure 12: Strategy result from SPACE Matrix
When looking at the final result, one can see that the graph with the directional vector point (+2.2|+1.8) is
positioned in the aggressive sector. This means that the organization is in a good position to use its internal
strengths, take advantage of external opportunities, overcome internal weaknesses and avoid external
threats. For these reasons, market penetration, market development, product development, backward
integration, forward integration, horizontal integration or diversification are feasible strategies dependent
on the circumstances.(1)
In the case of Wal-Mart one could focus on using their control over their suppliers to apply backward
integration, which means taking over or seeking increased control over their suppliers. Additionally, the
lowest price strategy applied by Wal-Mart is the right way to penetrate the respective markets in order to
compete aggressively against their competitors and putting them under pressure .
36
Boston Consulting Group (BCG) Matrix
Usually, the BCG is used to determine what

products of the business take priority over others,
based on their product life-cycle. Our BCG will be
adapted and deal with Wal-Marts divisions instead
of with its product lines.
Roughly, the following divisions exist
 Wal-Mart Stores U.S.

 Sam’s Club
 Wal-Mart International
F
i
gure 13: BCG Matrix
Two variables are of importance and influence the result. These are ‘business growth rate’ and ‘market
share’. The retail business makes sales worth $3trillion per year and Wal-Mart’s market share in this is
11.3% as of 2009.82
When comparing the net sales by operating segment for the year 2009, the following things become
obvious:
Wal Mart U.S.’s market share of Wal-Mart’s overall sales was 63.7%, with an increase of 6.8% compared to
the previous year. Wal Mart International market share of Wal-Mart’s overall sales was 24.6%, with an
increase of 9.1% compared to the previous year. Sam’s Club market share of Wal-Mart’s overall sales was
11.7%, with an increase of 5.6% compared to the previous year. 83
Internal-External (IE) Matrix
The IE matrix analyzes the strategic position of an organization. It uses the total weighted scores of the
EFE- and IFE matrix as inputs. The total weighted scores of the EFE matrix are shown on the Y-axis, the total
weighted scores of the IFE matrix are shown on the X-axis. A score of 1.0 – 1.99 on the X-axis represents a
weak internal position, while 2.0 – 2.99 is considered to be average and 3.0 -4.0 represents a strong
internal position. Similar to this, a score of 1.0 – 1.99 on the Y-axis is a low score, 2.0 – 2.99 medium and 3.0
– 4.0 is a high score.
Depending on the outcome of this analysis, the result will be a positioning in one of the three main regions:
If the division falls into cell 9, 8 or 6 the prescription would be “harvest or divest”. Most appropriate
strategies for this case would be retrenchment or divestiture. If the division falls into the cells 7, 5 or 3, the
prescription would be “Hold and maintain”, where market penetration or product development would be
fitting strategies.
82
http://money.cnn.com/2009/06/05/news/companies/Walmart.shareholders.meeting.fortune/
83
Walmart Stores, Inc.-2009 Amit J.Shah and Michael L. Monahanat, Frostburg State University
37
Figure 14: IE Matrix
In our case, the outcome of the EFE was a total weighted score of 3.07 and the outcome of the IFE was a
total weighted score 3.12. Therefore Wal-Mart falls into cell 1. All divisions that fall into cell 4, 2 and 1 have
the prescription “Grow and build”. Because of this, also the fitting prescription for Wal-Mart is “Grow and
build”, which means that backward-, forward- or horizontal integration as well as market penetration,
market development and product development are appropriate strategies.
Grand Strategy Matrix
The Grand strategy matrix is an additional tool for the formulation of alternative strategies. Depending on
market growth rate and the businesses´ competitive position, a company will be positioned in one of the
four strategic quadrants.
In the case of Wal-Mart, the Grand Strategy Matrix identifies that the company is situated in quadrant I.
When having in mind the Competitive Profile Matrix, Wal-Mart has a strong competitive position and
scored with 3.35 in total. This score is relatively high and shows that Wal-Mart has a strong competitive
position. Wal-Mart´s market growth rate in 2009, with 11.3%, can also be considered to be a rapid
growthrate. For these reasons the company can be positioned in the first quadrant of the matrix. 84 In this
respect, the following alternative strategies are feasible:
Market development Product development Backward integration Related diversification
Market penetration Forward Integration Horizontal integration
84
http://money.cnn.com/2009/06/05/news/companies/Walmart.shareholders.meeting.fortune/
38
The Value Disciplines Model Treacy and Wiersema
The Value Disciplines model of Michael Treacy and

Fred Wiersema describes three focus areas which
are called disciplines. Any company must choose
one of these value disciplines and act upon it
consistently and emphatically.
The first value discipline is operational excellence

where the focus is on efficiency and smooth
Source: running. This discipline focuses on fluently running

http://www.valuebasedmanagement.net/methods_valuedisciplines.
html operations as well as supply chain management,
and volume of products is counted. The objective is to differentiate from competitors. Mostly large
companies are operating in this area.
Another discipline is the product leadership where the company is strong in innovation and brand
marketing and where the company operates in dynamic markets. Here the focus is set on the innovation
design, the development and the time-to-market and high margins in a short timeframe.
The last discipline is called customer intimacy where the company strength lies in customer attention and
customer service; relationship management. The company tunes its products and services to the individual
39
customer as far as possible. The focus here lies in CRM and to deliver the products and services in time and
to operate above customer expectations. Furthermore the company works with lifetime value concepts,
reliability and is close to the customer.85
With respect to Wal-Mart this means for Wal-Mart that they operate in the first value discipline because
their focus is as well on fluently running operations and excellent production operations. Wal-Mart is very
well equipped with technology which enables them a direct connection from the retailer to the distribution
centre. Furthermore Wal-Mart does not put its focus on the customer itself but on the product they deliver
to the customer. Marketing as well as great CRM are not the strengths but therefore the low costs of
products which they achieve through their good operations.
New Strategies
Pre-selection
From the eight strategies we developed in the confrontation matrix, we will use four to continue with.
These will be:
- Enter European market to enlarge international market share

- Backward integration by taking over the supplying function
- Improve existing e-commerce by investment into IT and online presence
- Introduction of a premium product line
We decided on these four because they can be directly related to the factors mentioned in the problem
statement. Another reason why we decided on these is because all of them either support Wal-Mart’s
operational excellence as reported in the Treacy and Wiersema disciplines, and help in saving costs, or
support Wal-Mart in its purpose of increasing sales.
The other four were eliminated because they were either already included in -or the same as- one of the
strategies we chose to continue with, or aimed at sustainability and customer satisfaction which are both
not core efficiencies of Wal-Mart.
85
Quantitative methods in project management, John C. Goodpasture 2004, p.7
40
Selection of Strategies for the QSPM Matrix based on the costs of the alternative
strategies
Johnson and Scholes Suitability, Feasibility and Acceptability Model
To determine the validity of each proposed strategy, we will now evaluate each strategy and select the two
most promising. These two will then be used in the QSPM Matrix.
To come up with the two most promising strategies, we will employ Johnson and Scholes Suitability,
Feasibility and Acceptability Model.
This model first analyses each strategy’s suitability and its compatibility within the external environment.
This will be done by taking all relevant factors from the previous analysis into account. Then the project’s
feasibility will be focused on to determine whether Wal-Mart has the resources to follow through with the
strategy. At this point we will take a closer look at Wal-Marts internal capabilities. As the last point, the
acceptability of the models will be evaluated. For this, the financial aspect and the stakeholder aspects will
be considered.86
1. Backward integration by taking over the supplying function
Suitability:
Wal-Mart is famous for its low prices. This is the main reason for their success and without constantly being
able to beat the competition’s prices they will not be able to keep their position as market leader in the
retail industry. Wal-Mart is able to offer their products at prices so low because they have a very well
working value change which allows the business to save costs wherever possible. The biggest area of
savings to be realized is procurement. Wal-Mart has very high bargaining power over suppliers and was
able to lower prices to a bare minimum, making it almost impossible for suppliers to make a profit
anymore. A bottom line has been reached and no more cost cuts can be realized from the supplier’s side.
As was mentioned above, it is vital to Wal-Mart’s success that they stay low price leader in the industry.
This is getting more and more difficult, especially with the rise of online stores like Amazon, who are, due to
their very nature, able to save more costs than store retailers and poses a significant threat for Wal-Mart’s
position in this segment. By backward integration Wal-Mart will take over the supplying function itself and
be able to save costs by not only cutting out an intermediary who wants a profit, but also by getting the
chance to develop new IT systems to continue on its quest for further savings.
Feasibility:
For this project, Wal-Mart requires a rather large amount of capital investment. The business has the
financial means and does not have to borrow money, though. Personnel must be increased to take care of
the planning, acquiring, organizing and executing function of the new task. The material input will pose an
extra effort as Wal-Mart will have to introduce new measures of quality management.
From an organizational point of view, Wal-Mart can probably handle the new task, but chances will need to
be made to the organizational chart when it includes the supplying function into its main activities.
86
http://www2.accaglobal.com/pubs/hongkong/students/newsupdate/archive/2010/25/learning_strategic_choice.pdf
41
Acceptability:
Ratios 2009 2010 2011 2012 2013 2014 2015 2016

Growth Rate 2.40% 2.65% 2.80% 2.70% 2.90% 3.10% 3.80% 4.50%
Debt/Equity 0.730 1.640 1.494 1.354 1.214 1.077 0.936 0.794 The Lower
Ratio The better
Net Profit Margin 3.30% 3.21% 3.12% 3.04% 2.95% 2.86% 2.97% 3.10% The Higher
the better
Current Ratio 0.91 0.500 0.586 0.670 0.751 0.827 0.896 0.956 The higher
the better
Quick Ratio 0.26 0.253 0.246 0.239 0.232 0.225 0.234 0.244 The higher
the better
2.000
1.640 Growth Rate
1.500 1.494
1.354 Debt/Equity Ratio
1.214
1.000 1.077
0.91 0.936
0.90 0.956 Net Profit margin
0.73 0.75 0.83 0.794
0.59 0.67
0.500 0.50 Current Ratio
0.26 0.25 0.25 0.24 0.23 0.23 0.23 0.244
- Quick Ratio
2009 2010 2011 2012 2013 2014 2015 2016
Backward integration for Wal-Mart will ultimately lower costs in the long run, but as our group has
forecasted the growth rate of this strategy, a huge investment into many suppliers would have to be done
since Wal-Mart have quite a number of product lines, and Cost reductions are only will able to take place
after 5 years, due to the very heavy investment on acquiring suppliers and intermediaries.
2. Improve existing e-commerce by investment into IT and online presence
Suitability:
As was explained in the previous strategy already, the online shopping trend proves to be a threat to Wal-
Mart. Online businesses manage to save considerable costs over retail stores and Wal-Mart’s price
leadership is endangered.
Wal-Mart already is active in the online business segment but not as successful as other businesses. More
and more people have access to computers and to the internet
the sales of online stores are increasing as customers become more aware of the possibilities this holds for
them. The biggest possibility being that they can compare prices of every product they are interested in
and they can buy it at the online store where it is the cheapest.
Wal-Mart has the capabilities to enter the e-commerce segment with more force, but the chances of
success of this endeavor are not very high. Brands like Amazon are already well established in the market
and it will be hard to reach, let alone surpass their level. Wal-Mart’s success receipt was to always and in
every situation offer to lowest prices and now that other companies actually surpassed them this image
lost some of its glory, if not all.
42
Feasibility:
The development of superior, technologically flawless online system will take time and money. Wal-Mart
does have the money, but not the time. Time is crucial and the longer it takes to put a new e-commerce
system out there the harder it will be to reach the market leaders in this area. Good IT staff is required and
needs to be hired, maybe even enticed away from other businesses at an extra cost. Machinery adaptations
are required and current computer systems must be redeveloped to take in this extra area of activity. The
current number of employees responsible for online shops must be increased. Wal-Mart must be aware of
the difference in market as well. While many of the retail store customers come into the shop also to just
have a good time, online shoppers do not feel this way. They want the best bargain, will compare prices
online and buy where the price is lowest. If Wal-Mart manages to continue with its lowest price motto
online as well, then the business should also encourage customers to use price comparison machines. This
will of course lead to additional costs as well. Concluding it can be said that Wal-Mart is able to acquire all
of the resources required for this strategy, but they don’t have any of them in business already. It will take
time and money to take care of these things.
Acceptability:
Ratios 2009 2010 2011 2012 2013 2014 2015 2016

Growth Rate 2.40% 2.56% 2.65% 2.74% 2.84% 2.95% 3.30% 3.50% The Higher
the better
Debt/Equity Ratio 0.730 1.124 1.054 0.975 0.898 0.821 0.744 0.668 The Lower
The better
the better
the better
the better
1.200
1.124
1.000 1.054 Growth Rate
0.91 0.975
0.898
0.800 0.821 0.78 0.807
0.73 0.69 0.71 0.73 0.75 0.744 Debt/Equity Ratio
0.68 0.668
0.600
Net Profit margin
0.400
0.26 0.25 0.26 0.27 0.27 0.28 0.29 0.302 Current Ratio
0.200
- Quick Ratio
2009 2010 2011 2012 2013 2014 2015 2016
Our Group has made a forecast for the growth rates of this investment and as well as the ratios. Entering
the online shopping market is a challenge since there is already well established business as mentioned
earlier, so growth rate is not so strong, this maybe an excellent investment to be an addition to Wal-Mart
shopping experience but will not be a strategy for the long run.
43
3. Introduction of a premium product line
Suitability:
During the financial crisis many customers from the medium and higher income group turned to Wal-Mart.
This is because in a time of financial uncertainty customers want to save their money rather than spend it.
This is best possible when they do their every-day shopping at the price leader Wal-Mart. However, now
that the crisis and its after effects are coming to an end, Wal-Mart has to make an effort to keep these-
normally more affluent- customers close to the business. This can be achieved through the introduction of
a premium product line. This premium product line reaches out towards the standards and tastes of the
higher income group and has them want to come back to Wal-Mart. Besides this, it can also improve Wal-
Mart’s image in the heads of this customer group by showing up that the brand cannot be so bad when
they offer this premium product. An example for a premium product can be biological food. Despite the
fact that biological food is a trend, especially among the higher income group, it is not very likely that
customers will keep coming to the store to buy their food there just because one area of their product lines
actually suits this group. Their interest in the other product lines is likely to still be low.
Feasibility:
Adding a premium product line to the assortment is a low investment endeavor and can be accomplished
fairly quickly. However, new suppliers must be found, quality standards must be taken to a higher level, and
the marketing of these products must be increased to make the higher income target group aware of Wal-
Mart’s offer.
Acceptability:
Ratios 2009 2010 2011 2012 2013 2014 2015 2016

the better
The better
the better
the better
the better
1.000
0.91 0.900 0.877 0.855 0.879
0.800 0.833
0.81 0.83
0.811 0.85 Growth Rate
0.75 0.77 0.79 0.788 0.764
0.73
0.600 Debt/Equity Ratio
0.400 Net Profit margin

0.26 0.25 0.26 0.27 0.27 0.28 0.29 0.297
0.200 Current Ratio
- Quick Ratio
2009 2010 2011 2012 2013 2014 2015 2016
44
A new premium product is not a major investment for the long run as the growth rate and the ratio shows.
Our group forecasted this investment does not need a substantial amount of capital. Mostly of the
investment made to introduce this new product will only be for promotion and marketing. This investment
will in the end only add several new products in a new “premium” product line, with no substantial changes
in both net profit margin and revenue.
4. Enter European market to enlarge international market share
Suitability:
Wal-Mart’s has the highest market share in the retail industry in the U.S. and a growing market share in
Europe, with potential for more. Market entry barriers into the European retail industry are considerably
low. Besides that, Wal-Mart already has stores in Europe, which only simplifies and speeds up the process.
The economic crisis affected people all over the world and as a consequence many people in Europe were
made aware of the insecurity of their financial situation. Many of these people are more open towards low
prices than they were before.
Entering a new market abroad will give access to many new customers and provides a high potential of
increasing sales. However, people in Europe do not particularly like the name “Wal-Mart” . Thus, the
business’ plan of entering the European market by employing a joint venture is the best choice because
then Wal-Mart could use the name of the company they are joint-venturing with. Another reason for the
joint venture is that Wal-Mart in itself is anti-worker union, which is against European law and a joint
venture can help avoid this problem. Last but not least, Joint-Venturing provides much less risk than
acquisitions due to the experienced local company with already loyal or aware customers.
Feasibility:
Entering the European market with new retail stores requires huge amounts of money as well as new
machinery, new employees and new management teams, products to add to the portfolio, knowledge of
the market potential within the chosen countries as well as an understanding for cultural differences that
need to be considered when designing the store.
This is a huge but profitable project that requires a considerable amount of investment of Wal-Mart’s
resources. However, earlier was explained already that the entry to the European market would take place
in the form of a joint venture. Using this approach of entering Europe, the European counterpart can take
care of cultural differences and other problems that may occur due to these differences for Wal-Mart,
greatly simplifying the endeavor.
An important factor for Wal-Mart here is to make sure they do not repeat the mistake they made when
entering the German market, which they did not adapt their working procedures and their stores locally to
the German way of perceiving things and have to face failure in the end.
45
Acceptability:
Ratios 2009 2010 2011 2012 2013 2014 2015 2016

the better
The better
the better
the better
the better
2.00
Growth Rate
1.50 1.44 1.38 1.27 Debt/Equity Ratio
1.00 1.12 1.12
0.91 0.94
0.89 0.96 Net Profit margin
0.73 0.77 0.81 0.74
0.50 0.49 Current Ratio
0.26 0.32 0.31 0.26 0.29 0.32
0.16 0.1 0.06 0.06 Quick Ratio
-
2009 2010 2011 2012 2013 2014 2015 2016
With this huge amount of investment our group has forecasted a 4 year breakeven point of the investment
made for entering the European market with joint venturing. With forecasted ratios has shown very well in
all aspects. Additionally, growth rate more than 2% increases in 5 years and trending up, and Net profit
margin for Wal-Mart will increase 0.5% in 5 years and also trending up, creates a significant difference
against all other strategies.
Enter European Backward Improve Introduce premium

Market Integration e- product line
commerce
Suitability 9 9 5 4
Feasibility 6 7 8 8
Acceptability 9 7 6 5
Total 24 23 19 17
To simplify the decision-making process each possible strategy will get points from 1(worst) to 10(best),
depending on their match with the businesses’ overall strategy of increasing sales.
Evaluate strategies
Based on the Suitability, Feasibility, Acceptability Model the strategies with the highest score, and
therefore with the highest chances for success, are „entering the European market“ and „backward
integration by taking over the supplying function“. These two strategies will now be further evaluated in
the QSPM matrix.
46
The Quantitative Strategic Planning (QSPM) Matrix
The Quantitative Strategic Planning Matrix (QSPM) is tool that helps to identify the attractiveness of
alternative strategies. It includes the strengths/weaknesses and opportunities/threats from the IFE- and
EFE matrices and their weights in combination with rating that defines the attractiveness score (AS). These
two multiplied make total attractiveness score (TAS). In the case of the Wal-Mart, we compared the two
Backward integration Enter European
countries through joint-
Key Factors QSPM Weight
ventures
AS TAS AS TAS
Opportuni ti es
• Trend towards 0.15 3 0.45 3 0.45
onl i ne s hoppi ng
• Potenti al of 0.13 2 0.26 4 0.52
European market
• Cus tomers of 0.1 - -
hi gher i ncome groups
• Trend towards 0.07 - -
„one s top s hoppi ng”
experi ence
• Trend i n 0.05 2 0.1 4 0.2
s us tai nabi l i ty
awarenes s
Threats
• Fa s t changi ng 0.2 3 0.6 2 0.4
technol ogy
• Fi erce pri ce 0.13 2 0.26 2 0.26
competi ti on i n retai l
i ndus try
• Hi gh bargai ni ng 0.07 - -
power of cus tomers
• Ins tabi l i ti es due 0.05 3 0.15 2 0.1
to external fa ctors (e.g.
unempl oyment)
• Laws requi ri ng
more i nves tments to
empl oyee benefi ts
0.05 - -
1.0
Strengths
• Wel l es tabl i s hed 0.18 3 0.54 2 0.36
brand awarenes s
• Cos t l eaders hi p 0.13 2 0.26 3 0.39
i n compari s on wi th
competi tors
• Conti nuous 0.1 2 0.2 4 0.4
growth
• Control over 0.09 - -
s uppl i ers
• Profi tabl e 0.05 - -
organi zati on of
di s tri buti on channel s
Weaknes s es
• Lack of pres ence 0.13 - -
i n many devel oped
countri es
• Fa i l ure of 0.1 - -
enteri ng forei gn
markets
• No formal 0.08 2 0.16 2 0.16
mi s s i on s tatement
• Conti nuous 0.08 3 0.28 2 0.16
product recal l s
• "Everyday l ow 0.06 - -
pri ces " coul d be
connected to poor
qual i ty
1.0
Total 3,26 3,4

Figure 14: QSPM
strategies “Backward integration” and “Enter European countries through joint-ventures”. The final result of
the comparison of those two strategic alternatives shows, that the second strategy, “Enter European
countries through joint-ventures” is the more favorable option. With a score of 3.4 it scores over average
and is a promising strategy to implement. However, the first strategy, “backward integration”, with a score
of 3.26, also scores over average and is a considerable alternative strategy.
47
Selected Strategies
Specific strategy and Long term objectives
Based on the QSPM Matrix we decided to choose the strategy “Enter European countries through joint-
ventures” which scored an over average result of 3.4 during the analysis.
The joint-venture will give Wal-Mart the possibility to enter the European market through a risk and cost
sharing alternative. Both joint-venture partners will invest capital and resources. The retail chain “Auchan”,
which is mainly present in France, will be a considerable partner for this project. Detailed information
about the company will follow in the next text “Implementation”.
In the first year they will support Wal-Mart during the process of entering the French market. Their
experience about the culture will help Wal-Mart to adapt to the foreign market and develop effective
strategies. Depending on the success of this joint-venture Wal-Mart can make further steps in their process
of entering European countries. One of the log-term objectives is to make use of Auchan´s additional
experience in countries like Spain, Italy and Poland. The objective is to pave the way for Wal-Mart to gain
access to foreign markets and distribution networks. The access to greater resources like for example
specialised staff, technology and finance will have advantages for both partners. Wal-Mart´s most
important goal is to increase their brand awareness within Europe. Because of the fact that they will use a
joint-venture it is quite likely that both partners will operate under a new company name. Wal-Mart hope
to benefit from this because their original brand name does not have the best reputation within Europe.
The joint-venture will enable Wal-Mart to keep on growing continuously. It will foster their objective of
enlarging their international market share and increase sales. The fear of failure is limited due to the
collaboration with the company Auchan. Their strengths will reverse Wal-Mart´s weaknesses.
Within the business world it is not untypical that after a few years the stronger partner, within the joint-
venture, is able to take over the newly created company. Wal-Mart´s objective is to become exactly this
strong partner within the relationship and turn into one of the big retail players in the European market
during the coming years.
Comparison: Actual vs. New strategy
Like mentioned above within this case, Wal-Mart is planning to open 715-785 additional units worldwide in
the near future. The definite locations are not published yet but the company agree upon the decision to
focus especially on international markets. This comes along quite well with the specific strategy our group
developed for Wal-Mart, while working on this case, which is enlarging the international market share by
searching suitable joint-venture partners in European countries. Of course this strategy includes the
concept of being cost leader within the retail industry, caused by the simple reason that European citizens
are quite price conscious. Also in Europe, Wal-Mart will follow their strategy of offering “Everyday low
prices” to their customers. They want to offer the best possible value for the price the customers are willing
to pay.
48
This strategy already worked out in continental US and 14 other countries, including the UK as the
instantaneous only European country. Nevertheless Wal-Mart has to be aware of the differences which
exist between strategies in the US and Europe concerning their strategy. The “laissez-faire” development
model of the US is not comparable with the inhibit organic growth that exists in Europe. European
regulations are way stricter and strategies need to be adapted to special consumer tastes. Just imposing
the American style on the European market and its customers’ will not work out. At this point of time Wal-
Mart mainly makes use of corporate takeovers.
Up to now this strategy did not pay out in Europe. A striking example therefore is Germany, where the
“pure American” Wal-Mart concept did not produce the expected results. The strategy of searching joint-
venture partners within Europe would be a way to correct mistakes made in the past during the processes
of corporate takeovers. In China Wal-Mart is already succeeding with the concept of joint-venture.
Because of the fact that international companies are just allowed to operate within China via joint ventures
or licensees, Wal-Mart is cooperating with CITIC Group (China International Trust and Investment
Corporation).87 This example demonstrates the positive results which might occur in the same way if Wal-
Mart will use similar strategies as well in Europe. Experts expect that China will be as big and as successful a
market for Wal-Mart as the United States. 88
Implementation and Expected Results
Before Wal-Mart can decide in which exact market they want to search for joint-venture partners,
intensive market research has to be done and fitting marketing strategies need to be developed.
The SWOT analysis, which was made in this case, supports Wal-Mart during their process of
finding a partner which is capable to complement the already existing strengths and weaknesses.
They have to ensure that the partner has the same objectives and that both companies are
working in the same direction.
Wal-Mart will start within the French market, because it has the highest level of sales through
food retailers and offers a fundamental basis of well performing retail chains. The retailer called
“Auchan” can be considered as a possible joint-venture partner within this market. Right now it is
a private owned company which holds 14.3% of the total French grocery market and nearly 3% of
the European wide grocery market share. With their 124 hypermarkets and 406 supermarkets in
Europe they were able to achieve a sales revenue and profit growth within the last years. Because
of this financial stable position and their presence in further attractive European countries like
Spain, Italy or Poland, Auchan can be seen as a budding partner for this project.
Wal-Mart would contribute with its logistics and cost reduction expertise and the local partner
87
http://findarticles.com/p/articles/mi_m0FNP/is_20_41/ai_93917345/
88
http://www.newsweek.com/2006/10/29/the-great-Walmart-of-china.html
49
Auchan with its expertise of the foreign complex market. They have the needed knowledge about
the culture, working requirements and legal aspects. Both partners have to develop effective
working relationships in which all involved parties need to be open for reorganisation and
restructuring activities. Realistic expectations, which will be explained in detail during the last part
of this case, have to be set and ways to measure them, need to be found.
If the strategy is working out well within France, Wal-Mart can think of doing the same activities as
well in Italy, Spain or Poland. Auchan is located there too and can support them another time with
cultural expertise.
600,000.00
500,000.00
400,000.00
300,000.00
200,000.00
100,000.00
-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Net Income Cost Revenue
Figure 15: Forecasted Joint-Venture Result
Year Net Income Cost Revenue Growth Net Income Margin

2009 13,235.00 381,032.00 401,087.00 3.30%
2010 8,565.88 395,557.80 404,123.68 0.75% 2.12%
2011 10,788.59 404,842.30 415,630.89 2.85% 2.60%
2012 12,090.67 417,177.89 429,268.56 3.28% 2.82%
2013 12,453.39 430,693.22 443,146.61 3.23% 2.81%
2014 16,326.99 444,614.02 460,941.01 4.02% 3.54%
2015 16,882.11 460,730.90 477,613.00 3.62% 3.53%
2016 19,040.51 479,699.40 498,739.91 4.42% 3.82%
2017 21,321.17 500,367.08 521,688.25 4.60% 4.09%
2018 24,237.98 523,883.60 548,121.58 5.07% 4.42%
2019 25,328.69 545,315.06 570,643.75 4.11% 4.44%
2020 26,468.48 567,582.34 594,050.82 4.10% 4.46%
All values in $ million
As Wal-Mart to join forces with Auchan to enter the European market, our plan is to create a joint-venture
that will in return generate higher net income margin, and open 50 new stores in 10 years in Europe. This
joint-venture will include an investment of $10 Billion U.S dollar, which will be used to create New Stores,
Implement Wal-Mart logistic support to existing Auchan Logistic system, and merge of existing supplier to
supply American Wal-Mart Product line to Auchan existing and planned stores. The $10 billion will be paid
in 4 consecutive years, in 2010 with amount of $5 billion, in 2011 with amount of $ 3 Billion, in 2012 and
2013 with amount of each year $ 1 Billion. This Joint-Venture will in return increase Wal-Mart’s Net Income
margin by 1.20% or $ 8 billion by 2017.
50

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Management Summary .................................................................................................................................... 4

Wal-Mart’ Vision and Mission Statement ................................................................................................ 7

Proposed Vision ....................................................................................................................................... 8

Proposed mission statement ................................................................................................................... 8

Value statement ...................................................................................................................................... 9

Competitive advantage .......................................................................................................................... 10

Objectives and Strategies ...................................................................................................................... 11

Opportunities and Threats ......................................................................................................................... 12

The External Analysis...................................................................................................................................... 12

Demographic factors ............................................................................................................................. 12

Economic factors: .................................................................................................................................. 13

Political factors: ..................................................................................................................................... 13

Ecological Factors .................................................................................................................................. 14

Social/Cultural Factors ........................................................................................................................... 14

Technological Factors ............................................................................................................................ 15

Porter’s Five Forces .................................................................................................................................... 15

Rivalry among competing businesses .................................................................................................... 16

Potential Entry of New Competitors ...................................................................................................... 16

Potential Development of Substitute Products ..................................................................................... 17

Bargaining Power of Suppliers ............................................................................................................... 17

Bargaining Power of Customers............................................................................................................. 17

External Factor Evaluation (EFE) Matrix ..................................................................................................... 18

Competitive Profile (CPM) Matrix .............................................................................................................. 21

Strengths and Weaknesses ........................................................................................................................ 22

The Internal Analysis ...................................................................................................................................... 23

Key Financial Ratios ............................................................................................................................... 23

Price Ratios ............................................................................................................................................ 23

Profit Margins ........................................................................................................................................ 24

Management Efficiency ......................................................................................................................... 24

Growth & Profitability ........................................................................................................................... 24

Wal-Mart Revenue/Income compared with direct competitors ............................................................ 25

Value Chain Analysis .................................................................................................................................. 26

Internal Factor Evaluation (IFE) Matrix ...................................................................................................... 29

Problem statement .................................................................................................................................... 31

Space Matrix .............................................................................................................................................. 35

Boston Consulting Group (BCG) Matrix ...................................................................................................... 37

Internal-External (IE) Matrix....................................................................................................................... 37

Grand Strategy Matrix................................................................................................................................ 38

The Value Disciplines Model Treacy and Wiersema ................................................................................... 39

New Strategies ............................................................................................................................................... 40

Johnson and Scholes Suitability, Feasibility and Acceptability Model.................................................... 41

Evaluate strategies ..................................................................................................................................... 46

The Quantitative Strategic Planning (QSPM) Matrix .................................................................................. 47

Selected Strategies ......................................................................................................................................... 48

Comparison: Actual vs. New strategy ........................................................................................................ 48

Implementation and Expected Results ...................................................................................................... 49

Wal-Mart runs different chains, which have different main

Proposed mission statement

The elements of Wal-Mart´s value statement aim at establishing an employee-friendly working

Wal-Mart’s competitive advantage is linked to their success which is

Wal-Mart gains a competitive advantage through offering low prices (cost

The External Analysis

 The “brand aspirational – low income shoppers

With the help of this classification, Wal-Mart can

Porter’s Five Forces

1. Rivalry among competing businesses 4. Bargaining power of suppliers

Potential Entry of New Competitors

Bargaining Power of Suppliers

Bargaining Power of Customers