Expert Answer:Case Analysis: Walmart

  

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MGMT 4860:
STRATEGIC CASE ANALYSIS:
You will complete a written analysis of a case provided to you. The objective of this assignment is
to assess your ability to apply the course concepts to a real company. The project is worth 100
points – 80 points for content graded by your professor and 20 points for the writing labs graded and
awarded by the lab instructors. As part of the assignment, you must meet with the business
writing lab on 2 different occasions to review your writing prior to submitting your final
copy. Your analysis will be a maximum of three pages. You will be provided a business case as
the basis of your analysis. This is a case analysis, not a research paper. All of the information you
need to complete the assignment can be found in the case. Put any tables, charts, or figures you wish
to include in an appendix at the end of the paper. The appendix is not counted as part of the 3 page
limit. Your analysis must be double-spaced with proper headings, one-inch margins, and 12-point
Times New Roman font. Use quoted material sparingly and cite using APA format. You will be
penalized 5 points for each line that exceeds the maximum page limit, 20 points for not doublespacing, and 10 points for excessive use of quotes. These rigid limits are to help you learn brevity
and clarity—a skill your bosses/clients will prize. Submit a stapled copy of your analysis in class on
the due date indicated in the syllabus. Use the Strategic Case Analysis Grade Rubric (rubric is
included in the appendix) to understand how you will be evaluated and as your coversheet.
In your write-up, please address the following areas:
1) Conduct and internal and external analysis of the business (SWOT) to identify the major
issues outlined in the case. Include the identification of any distinctive competencies as well
as a quantitative assessment in your internal analysis.
2) Provide your recommendation for future action. Is their strategy working? If your
answer is no, what should the company do to fix the situation? If your answer is yes,
what problems / issues will the company need to deal with sometime in the future?
This is an individual writing assignment. Please resist the temptation to collaborate with or use
someone else’s work and/or ideas. Failure to cite the work and ideas of others—quoted or
paraphrased—constitutes plagiarism and will be dealt with as such. When citing, do not assume
that any idea is “common knowledge.” Your analysis will be thoroughly examined for
originality using all available tools and resources.
Name: _____________________________________________
Section: ____________
Grade: _______
Assignment: Strategic Case Analysis
MGMT 4800
CONTENT CRITERIA
Points
15
12
9
6
0
Evaluation Criteria
Excellent: Analysis is thoughtful, comprehensive, and exceeds expectations; creative and insightful
narrative, excellent use of data, tables, graphs, charts, and other supporting materials; conveys mastery of
course concepts; the quality of the analysis exceeds expectations.
Acceptable: Analysis is competent, but may be uneven or missing information; narrative is generally
satisfactory but may lack depth or insight, adequate use (or overuse) of data, tables, graphs, charts, and
other supporting materials; conveys a general grasp of course concepts; the quality of the analysis is
acceptable.
Unacceptable: Analysis is superficial, consistently inadequate, and/or generally incomplete; narrative is
weak, shallow, and dull; poor use (or overuse) of data, tables, graphs, charts, and other supporting
materials; conveys little grasp of course concepts; the quality of the analysis is marginal or uneven.
Deficient: Analysis fails to meet any of the above criteria; narrative is shoddy and unintelligible; makes
little to no use of data, tables, graphs, charts, and supporting materials; uses few, if any, course concepts;
work is clearly last-minute, slapped together, unedited, and / or piecemeal; the quality of the analysis is
poor.
The analysis is missing or incomplete.
CONTENT SCORE
1: External Analysis
Comments:
______out of 25points
General Environment
Five Forces Analysis
2: Internal Analysis
Comments:
______out of 25 points
Strengths and Weaknesses
Resources & Capabilities
Distinctive Competencies
Sustainability
3: Quantitative Analysis
Comments:
______out of 15 points
Internal Analysis
Competitive
Comparison
Conclusion
4: Recommendation &
Conclusion
______out of 10 points
Strategic Assessment
Fixes / Solutions
Future Issues
Comments:
WRITING, GRAMMAR, AND COMPLIANCE CRITERIA
Number of lines exceeding page limit (minus 5 points per line):
_______________________________________
Excessive use of quotes (minus 10 points):
_______________________________________
Not double-spaced (minus 20 points):
_______________________________________
Content Score from Above (out of 75 Points):
_______________________________________
Writing, Grammar, and Compliance Score (out of 5 Points):
_______________________________________
The writing, grammar, and compliance score will be based on your evaluation from the writing lab based on
preparation using the business writing lab standards listed in the WSB Writing Rubric document. If you miss one or
both writing lab sessions, you automatically lose the points allocated the session missed.
Additional Comments:
Although not a requirement, the following format outline will allow the
project to flow smoothly:
1. Cover Page
2. Introduction/Executive Summary
3. SWOT
a. Strengths
b. Weakness
c. Opportunities
d. Threats
4. Case analysis
5. Conclusions/Recommendations
Prof. Milligan
9-711 -546
JUNE15,2011
DAVIDB.YOFFIE
RENEEKIM
Wal-Mart Update, 2011
In early 2011, W al-Mart reigned as the world’s largest company. It boasted net s ales of nearly $420
billion, managed more than 8,400 stores in 14 countries, and employed over 2 million people
World-wide. In addition to offering general discount merchandise and groceries, Wal-Mart had
ventured into e-commerce, online classified services, auto and tire maintenance, vacation planning, and
financial services. Now in its 49th year of operation, the retail giant served more than 200 million
customers and members every week around the world.1
Nonetheless, W al-Mart struggled in its search for the right growth strategy, especially in the United
States, which accounted for 62% of total sales. Wal-Mart’s impressive historical growth r ate of routinely
increasing sales by 10% or more per year h ad become harder and harder to sustain, although it still
outperformed Target, Wal-Mart’s main U.S. competitor, by a big margin (see Exhibits 1 and 2). In search of
new growth opportunities, Wal-Mart tried pursuing different strategies, such as dabbling in trendy fashions,
offering organic foods, and remodeling st ores to look more upscale, only to have them backfire. As of M ay
2011, same -store sales in the U.S. ha d tumbled for eight consecutive quarters, the worst U.S sales slump in
W al-Mart’s history.2 The re tailer’s shar price was losing momentum as well (see Exhibits 3a and 3b).
To confront such challenges, Wal-Mart vowed to refocus on “ Every Day Low Prices” again,
founder Sam Walton’s core strategy that d rove the company to its initial success. The retailer also
announced plans to open new smaller stores in urban markets like Chicago. Yet W al-Mart faced stiff
competition from general discount merchandisers, specialty discounters like dollar stores, and online
retail er giant, Amazon.com. In addition, W al-Mart pushed for an aggressive though occasionally
problematic—move into international markets as it found itself increasingly relying on overseas sales
to drive profit (see Exhibit 4).
Wal-Mart’s Priorities
Store Formats and Merchanising Stratgies
Wal-Mart’s discount stores, which Sam Walton first opened in 19 62, had long been central to the
company’s success. In 2011, the chain operated around 700 discount stores that averaged 1 08,000
square feet in size with about 225 associates.3 However, Wal-Mart had been replacing discount stores
____________________ _______________ ____________________________ ______________ _______________ ____________________
Profess r David B. Yoffie and Research Associate Renee Kim prepared this case. This case was developed from published sources. HBS ases are
developed solely as the b asis for class discussion. Cases are n ot intended to serv e as endorsement s, sources of prim ary data, or illustr ations of
effectiv e or ineffective ma nagement.
Copyrig ht © 2011 Preside nt and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800 -545-7685,
write Harvard Business School Publishing, Boston, MA 02163, o r go to www.hbsp .harvard.edu/educators. This publication may not be digitized,
photoco pied, or otherwise reproduced, posted, or transmitted, without the permis sion of Harvard Business School.
711-546
Wal-Mart Update, 2011
with “supercenters” since the 1990s (see Exhibit 5). Introduced in 1988, supercenters added grocery
products and various new services to Wal-Mart’s traditional merchandise offerings. By 2011, there
were 2,900 supercenters, more than triple the number of supercenters Wal-Mart had in 2000. On
average, these stores featured 185,000 square feet of retail space and employed 350 or more people. The
most popular feature of supercenters was groceries (Wal-Mart had become the largest U.S. grocer in
2003). It was the single biggest merchandising unit for Wal-Mart’s U.S. operations and generated 54%
of net sales. That was more than quadruple the amount of net sales the next biggest category,
entertainment, generated. Many supercenters also featured specialty shops, including photo centers,
vision centers, hair salons, banks, and even employment agencies.
The third major store format was Sam’s Club, a members-only warehouse store. Since opening the
first one in 1983, Wal-Mart had increased the number of Sam’s Club to 609. It averaged 132,000 square
feet in size, employed around 175 people per unit, and accounted for 12% of Wal-Mart’s total
worldwide revenues. Like other U.S. Wal-Mart stores, groceries generated the most traffic in Sam’s
Club, followed by fuel-related categories, such as gas stations and tire and battery centers.
As Wal-Mart entered the 2000s, its traditional U.S. markets started running out of room to build
new supercenters. In addition, Wal-Mart faced a critical question of how to differentiate store formats.
One concept was to push for more Neighborhood Markets. These stores occupied a relatively small
footprint (averaging 42,000 square feet in size) and offered limited drug and grocery merchandise.
Since 1998, the company had opened 189 Neighborhood Markets. Wal-Mart also tested small
community grocery stores that offered fresh prepared meals, cheap wines, and fresh produce.
Scale for Wal-Mart suddenly had its disadvantages. It was estimated that every person in the United
States would have to spend an additional $10 at Wal-Mart stores to increase comparable-store sales by
1%.4 To attract new customers in the upper income bracket (households that earned over $100,000 a
year), billions of dollars were spent to remodel U.S. stores. The renovated stores looked cleaner with
less clutter in the aisles. “Action Alley”, a main corridor that usually featured pallets of fast-selling
items like diapers and bottled water, disappeared. Stores offered a leaner assortment of merchandise,
with around 10,000 items disappearing from the shelves.5 Shoppers found new trendy clothes made
under Wal-Mart’s own product lines. Some stores even offered organic groceries.
In contrast to most of its competitors, Wal-Mart had benefited from the U.S. recession, which
officially started in December 2007 and lasted for 18 months. Middle-class consumers “traded down”
to discount stores to buy basic supplies. In the company’s 2009 fiscal year, shoppers spent 13% more
on staple items (foods, pharmacy, and household goods) at Wal-Mart stores.6 Investors cheered and
Wal-Mart outperformed both rival Target and the S&P 500 index (see Exhibit 3c).
Wal-Mart’s recovery, however, was short-lived. Price-conscious consumers, still weary of the fragile
U.S. economy, started to question whether Wal-Mart really offered the lowest prices. A heavy emphasis
on “Rollbacks”, promotional discounts on selected products, meant that the retailer had drifted away
from offering low prices across the board. Wal-Mart’s core customers—households that earned less
than $70,000 a year—shun the trendy apparels that came with higher price tags. Wal-Mart found itself
losing customers to dollar stores as well, which offered a convenient, quick stop for basic household
and food items like cereal, milk, and snacks. Family Dollar and Dollar General, combined, had
thousands more stores and a stronger presence in urban areas than Wal-Mart.
Mike Duke, who became CEO in 2009, launched a different approach to reverse the decline in sales.
Several key executives were shuffled and a new chief was appointed for U.S. stores. Urban markets
became a new target with the introduction of Wal-Mart Express stores. They would be roughly a
quarter the size of an average flagship supercenter and resemble convenience stores. As
2
Wal-Mart Update, 2011
711-546
Many as 40 such stores were planned to open in 2011. For existing stores, Wal-Mart returned “Action
Alley”, rolled out a new nationwide ad campaign that emphasized its commitment to low prices, and
increased the number of products on shelves by 8,500 items, or 11%, in an average store.7
Wal-Mart also viewed e-commerce as a big opportunity. With online retail sales rising 10% to $143
billion in 2010, Walmart.com wanted to capitalize on the fastest growing retail segment in the United
States.8 Wal-Mart aggressively expanded online, moving into digital music, books, appliances, and
even groceries. Although it trailed significantly behind Amazon.com, Wal-Mart tried to take advantage
of its physical presence by offering same-day pickup for online orders, a service also offered by Best
Buy (the number one consumer electronics store in the United States) and Sears.
Human Capital and Public Relations
Wal-Mart had often been ranked at the most admired company in the United States by Fortune
magazine. However, public criticism of Wal-Mart’s business practices had tarnished its image. Critics
bashed the company for paying low wages, employing too many part-time workers without healthcare
coverage and other benefits, and driving local mom-and-pop stores out of business. Human rights
groups claimed that Wal-Mart failed to enforce child-labor and worker-safety rules in its relations with
international suppliers. The retailer was also involved in the largest class action suit in U.S. history over
alleged discrimination against women in pay and promotions.
Wal-Mart aggressively moved to tackle its brand image. In 2005, Edelman, the largest U.S. public
relations firm, was hired to roll out a political-style “Candidate Wal-Mart” campaign that highlighted
Wal-Mart’s new low-cost generic drug product and its contributions to Hurricane Katrina relief. In
addition, Wal-Mart vowed to become an environmentally responsible, “green” company. It reduced
its global plastic bag consumption by over 16% in 2010 and made a strong commitment to reduce
greenhouse gas emissions.9 Wal-Mart also announced a five-year plan, encouraged by First Lady
Michelle Obama, to cut salt and sugar in its products, and drop prices on healthier foods. Separately,
Wal-Mart continued its long-standing emphasis on gaining efficiencies through human resources
management and adopting new technologies for inventory management and scheduling.
International Operations
Wal-Mart had begun expanding into non-U.S. markets in 1991 with an initial foray into Mexico. By
2011, it maintained over 4,500 units abroad, more than double the number of international stores WalMart held five years earlier. Collectively, international stores generated 26% of Wal-Mart’s net sales.
The retailer aggressively sought to expand abroad amid difficulties in the U.S., such as by trying to
implement the “Every Day Low Prices” strategy across all borders, initiate multiple store formats, and
pursue e-commerce opportunities (see Exhibit 6).
International growth took place through a combination of acquisition, partnership, and go-it-alone
ventures. In the Americas, entry into Mexico started as a joint venture with the country’s largest
retailer, Cifra, in 1991. Wal-Mart eventually acquired a majority stake in Cifra and changed the name
to Wal-Mart de Mexico (“Walmex”) in 2000. As Mexico’s largest retailer and private employer,
Walmex’s sales growth had averaged around 10% in the past decade. In addition to general discount
stores and supermarkets, Walmex also operated restaurants, apparel stores, and banks. A major
expansion outside Mexico occurred in January 2010 when Walmex acquired over 500 stores located in
five Latin American countries (Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica). The
stores had been jointly owned by parent company Wal-Mart and local investors.
3
711-546
Wal-Mart Update, 2011
Wal-Mart Argentina started its operations in August 1995 with the opening of a Sam’s Club in the
greater Buenos Aires area. By 2011, Wal-Mart operated 27 supercenters and employed more than 10,000
associates across Argentina. Nearby in Brazil, Wal -Mart had positioned itself as the third largest
retailer in the country. Growth had been fueled by the acquisitions of Bompreco (a leading supermarket
chain, with 118 units) in 2004 and Sonae stores (140 units) in December 2005. Wal-Mart operated
multiple store formats in Brazil to adapt to local customs, such as introducing a hybrid store that
combined a neighborhood market with a Mexican-style grocery store.10
Wal-Mart entered Canada in 1994 with the acquisition of 122 Woolco stores. As one of the country’s
biggest retailers, operations had expanded to emphasize supercenters. Wal-Mart Canada also launched
banking services in 2010, including credit cards. In Britain, Wal-Mart purchased ASDA, a leading food
and clothing superstore, in 1999. Under Wal-Mart, ASDA had become Britain’s second largest
supermarket behind Tesco, most notably through aggressive “Rollback” pricing strategies. ASDA was
Wal-Mart’s largest non-U.S. business unit, accounting for roughly a third of its international net sales.
Yet in recent years, the chain had begun to struggle as competing U.K. retailers closed their price gap
with ASDA and as U.K. consumers’ shopping habits moved up-market.11 In 2011, ASDA completed
the acquisition of Netto Food stores, a Dutch-owned store chain. The deal marked ASDA’s first major
entry into local convenience stores, in which rival Tesco and Sainsbury already had established a strong
presence.
In Japan, Wal-Mart started with a partial investment in Seiyu, one of the largest local supermarket
chains, in 2002. Over a six-year period, Wal-Mart gradually gained full ownership but retained the
Seiyu brand name, partly because reportedly less than 20% of Japanese consumers had heard of WalMart at the time of market entry. Wal-Mart’s major challenge was figuring out how to implement its
usual across-the-board low-price strategy as Japanese shoppers usually equated low prices with low
quality. Wal-Mart had to aggressively market Seiyu as a low-cost leader that also offered quality. The
process required several adjustments on Wal-Mart’s end, such as re-designing stores to make more
space for food items, offer more basic apparels (vs. fashion items), and upgrade the overall look of
Seiyu stores. After seven consecutive years of losses, Seiyu finally achieved positive same-store sales
in 2010. But as of April 2011, Seiyu’s market share in Japan stood at …
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