Wal-Mart Stores, Inc.

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Wal-Mart Stores, Inc.

founded: 1962 as wal-mart discount city

Contact Information:

headquarters: 702 sw 8th st.
bentonville, ar 72716-8611 phone: (501)273-4000 fax: (501)273-1917 url: http://www.wal-mart.com

OVERVIEW

Wal-Mart is the largest retailer in the world. With its new Wal-Mart Supercenters, the regular Wal-Mart discount stores, and grocery stores, the company has become the second largest grocer in the United States behind Kroger. Its megastores average approximately 180,000 square feet and are located mainly in the South and Midwest. The company's Sam's Club stores operate in 48 states. In 1998 the company operated 1,921 discount stores and 441 Supercenters. Wal-Mart also has stores in South and Central America, Asia, and Europe.

COMPANY FINANCES

In the 1980s, Wal-Mart frequently saw annual earnings growth of 25 percent but began to experience declining profits by the early 1990s. Stock prices fell from almost $30.00 per share in 1991 to approximately $21.00 per share in 1994. Furthermore, its annual earnings growth declined sharply, from 24 percent in 1992 to almost zero percent in 1995. In 1996 Wal-Mart faced its first decline in profits in 25 years. In the late 1990s, however, the company had rallied and showed sales of $117.96 billion in fiscal 1998, compared with $104.86 billion in fiscal 1997 and $93.63 billion in 1996. Its net income was $3.53 billion in fiscal 1998, up from $3.06 billion in 1997 and $2.74 billion in 1996. While the company's upturn in the late 1990s hardly compares to its strong earlier performance, analysts say the company will probably have consistent profit increases in the range of 15 percent.

ANALYSTS' OPINIONS

Many analysts agree that Wal-Mart remains a leading retailer in the United States, but some experts note key areas of decline since the death of Sam Walton, its founder, in poor management, declining profits, and a loss of focus. Wal-Mart has also been criticized for allegedly manufacturing and selling products labeled "Made in the USA" that were manufactured elsewhere.

As part of Wal-Mart's approach to customer service, Sam Walton developed the "ten-foot rule": when an employee, or "associate," saw a customer approach within 10 feet, the employee should smile and offer assistance. As financial analyst Michael Gade noted in Fortune, "I am amazed to see greeters at the front door talking to other employees instead of to customers, and floors that aren't beautifully waxed and clean as they were just a year ago." Thomas Jefferson, a former Wal-Mart executive, commented in the same article that Sam Walton would "raise hell" if he were alive to see this kind of poor management. Analysts speculate that these and other declines could have been related to heavy executive turnover in the past decade. Lastly, some experts question Wal-Mart's focus on Wal-Mart Supercenters and SAM's Club. Robert Buchanan, a retail analyst, argues that part of Wal-Mart's potential problem is that the supercenters offer the company's only justifiable means of growth. SAM's Club, Wal-Mart's second largest business, has seen tremendous profit decline since the death of Sam Walton, who had big dreams for that segment of the company. Wal-Mart has also been cited for selling television star Kathy Lee Gifford's line of clothing. Concerns were raised about questionable working conditions in its New York City manufacturing facilities in 1996.

In 1998 the company appeared to be overcoming these difficulties with strong earnings figures and a doubling of stock prices over the previous year. According to a Fortune article in early 1998, Wal-Mart's strong showing was due to new superstores, overseas expansion, and improved understanding of Wall Street expectations. Referring to the company's top executives, J.P. Morgan analyst Mark Husson stated: "Wal-Mart people are far more accessible than they were just three years ago. . . there's been a real change in attitude toward Wall Street, and it's made me a lot more comfortable with the stock."

HISTORY

Sam Walton, whose family owned 38 percent of the company's stock in the late 1990s, founded Wal-Mart in 1962 with his brother, James "Bud" Walton, in Bentonville, Arkansas. After beginning his career in retailing with J.C. Penney, he opened a Walton 5 store in Bentonville and by 1962 owned 15 Ben Franklin stores under the Walton 5 name. When his idea to target small towns was rejected by upper management, he and his brother launched Wal-Mart, eventually opening 18 stores and watching sales climb to $44 million by 1970. Ben Franklin stores were then phased out. Sam's Wholesale Club was founded in 1983, offering discounts on large quantities of merchandise to its members. Although small business owners were Sam Walton's target, he also attracted the ordinary consumer. By 1987 the company came up with the idea of a "hypermart"—a discount/grocery store offering conveniences such as photofinishing, fast food dining, and banking. The Hypermart USA was later renamed the Wal-Mart Supercenter.

In 1992 Wal-Mart Stores, Inc. expanded into Mexico in a partnership with CIFRA, Mexico's largest retailer. That same year, NBC News reported that Wal-Mart sold products falsely labeled "Made in the USA," a major embarrassment for a company that promoted a "Buy American" campaign. Also in that same year, Sam Walton died of bone cancer. In 1993 Wal-Mart Stores, Inc. introduced a food line, Great Value, for its super-centers. One year later the company bought 122 Woolco stores from Woolworth in Canada for conversion. In 1995 Bud Walton died. That same year the company introduced plans to open smaller versions of its giant discount stores in Bennington, Vermont, which then placed Wal-Mart in all 50 states. Fuji Photo Film bought rights to Wal-Mart's photofinishing labs in 1996 for approximately $200 million. These one-hour labs continue to operate in Wal-Mart stores across the country.

STRATEGY

Wal-Mart's strategy was devised early in its history when sales peaked at $44 million in 1970. Two major developments accounted for Wal-Mart's success that year and in following years: the company equipped its stores with a computerized inventory system that decreased checkout and reordering time and built highly automated distribution centers, which reduced shipping costs and time. Also responsible for Wal-Mart's success was Sam Walton's initial desire to see Wal-Mart stores in small towns. This strategy was also applied to the Wal-Mart Supercenters, located mainly on the West Coast and in the Northeast, which were intended to provide a one-stop shopping source, putting smaller food and other retailers out of business.

INFLUENCES

Sam Walton's strategy proved successful. By 1980 the 276 stores reported sales of $1.2 billion. His marketing instincts, together with increasing disposable income after World War II, accounted for much of WalMart's success. At the same time, distribution networks were changing, allowing retailers greater control over consumer pricing. Manufacturers had previously been required by the government to sell at a single price in a given market, but in reality they offered discounts to retailers disguised as promotional efforts. With the power to set customer pricing, retailers became able to expand their stores, offer larger selection, and become more efficient. Technological changes also contributed to WalMart's management and logistic success. Sophisticated inventory control systems implemented over the past 15 years allow for better monitoring of sales, profits, and customer base. Advanced information systems also allow Wal-Mart to reorder merchandise as needed, saving the company money on inventory and storage costs.

At times, however, Wal-Mart's focus on small towns has proven difficult. When Wal-Mart tried to develop in the small town of Gig Harbor, Washington, in 1996, the town fought the company, obtaining many supporters online on the "US Against Wal" page at http://www.harbornet.com/pna/. This online fight to keep Wal-Mart out of town was part of the aftermath of a similar opposition to the company's presence in Wooster, Ohio.

FAST FACTS: About Wal-Mart Stores, Inc.

Ownership: Wal-Mart is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: WMT

Officers: David D. Glass, Pres. & CEO, 62, 1997 base salary $1,163,846; Donald G. Soderquist, VChmn. & COO, 64, 1997 base salary $906,000

Employees: 825,000

Principal Subsidiary Companies: Wal-Mart's principal subsidiaries include: Mohr Value, Hutchison Wholesale Shoe, Kuhn's Big-K Stores, Super Saver Warehouse Club, Sam's Wholesale Club, and Wal-Mart Supercenters.

Chief Competitors: Wal-Mart competes with other discount chains, discount stores, supermarkets, and specialty stores. Its main competitors include: Costco Companies; Kmart; and Target Stores.

CURRENT TRENDS

Wal-Mart's venture into cyberspace reflects other technological developments in the 1990s. Wal-Mart created access to their stores for Internet users (Wal-Mart Online, http://www.wal-mart.com), offering books, music, office and home products, toys, tools, and collectibles along with products strictly designed for Internet users. SAM's Club Online (http://www.samsclub.com) offers home and office products not available at regular SAM's Warehouse Club locations. Membership is optional, and members receive discounts.

PRODUCTS

The Wal-Mart Stores, including both the company's discount and Supercenters, sell a wide variety of merchandise, including clothing, home furnishings, house-wares, hardware, electronics, stationery and books, sporting goods, cameras and supplies, fabrics and notions, shoes, small appliances, automotive accessories, toys, health and beauty aids, pharmaceuticals, groceries, bakery goods, and deli and dairy products. Sam's Clubs also carry software and electronic goods, tires, fresh produce, meat, bakery goods, and other items.

CORPORATE CITIZENSHIP

Wal-Mart contributes to many community programs including those for education, the environment, charities, and children's issues. More than 420 students showing promise in science, engineering, or computer science have received a Competitive Edge Scholarship, which pays $5,000 annually for college over a four-year period. Funding for this program is generated by sales of Sam's Choice food. Together with Coca-Cola and Wellman, Inc., Wal-Mart sponsored the E-Patrol "Bottles 4 T-Shirts Tour 1997," which focused on getting children involved in recycling. Using Wal-Mart's parking lots in an eight-city tour, the group gave free T-shirts to the first 800 people who brought in four empty two-liter bottles. The team also recruits children ages 6 through 12 to teach others about recycling. Wal-Mart has built three Environmental Demonstration Stores in Lawrence, Kansas; Moore, Oklahoma; and City of Industry, California, to demonstrate energy efficiency and environmental friendliness. Other corporate environmental initiatives include the use of wood as a major building material; advanced heating, ventilation, and air conditioning systems; and an electric car-charging station.

The company is also involved with children's issues in its Code Adam program, a tribute to Adam Walsh, a 6-year-old boy who was abducted from a shopping mall in Florida and murdered in 1991. Whenever a child is believed to be missing in a Wal-Mart store, a Code Adam is announced and workers abandon their normal jobs to assist in the search and monitor store exits and entrances to prevent someone other than a parent or guardian from leaving with the child. Since 1993, Wal-Mart has also raised money for United Way, an umbrella organization for local charities addressing problems such as hunger, homelessness, illiteracy, substance abuse, and day care availability. Wal-Mart also hosts an annual "Charity Blitz" every Saturday after Thanksgiving in which more than 2,200 nonprofit organizations receive contributions from a percentage of Wal-Mart's sales.

CHRONOLOGY: Key Dates for Wal-Mart Stores, Inc.

1962:: Sam Walton opens the first Wal-Mart store in Rogers, Arkansas
1969:: The company incorporates as Wal-Mart Stores, Inc.
1970:: Wal-Mart goes public
1976:: Forbes magazine ranks Wal-Mart number one on their list of discount and variety stores
1985:: Wal-Mart launches the "Made in the USA" program to encourage buying domestically produced products
1987:: Wal-Mart acquires 18 Supersave Wholesale Clubs and renames them Sam's Club
1992:: A news program exposes foreign plants producing "Made in the USA" products for Wal-Mart
1994:: A joint venture is formed to open stores in Hong Kong and China
1996:: Fiji Photo purchases rights to Wal-Mart's photofinishing labs

GLOBAL PRESENCE

Wal-Mart operates 9 stores in Argentina, 144 in Canada, and 14 in Puerto Rico. By franchise, it operates 2 in Indonesia, 8 in Brazil, 3 in China, and 402 in Mexico. In 1998 it moved into the European market by acquiring 21 stores of the German Wertkauf hypermarket chain, which, like Wal-Mart, offer one-stop shopping with a wide variety of merchandise. Wal-Mart's international sales were approximately 6.4 percent of its total sales in 1998, compared with 4.8 percent in fiscal 1997.