Wal-Mart Case Study

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After reading the Way-Mart Case from our textbook, respond to the following prompts in one to four sentences:

Based on the information in the case (and as of the case’s date, 2013)

  • Does Walmart have a competitive advantage?
    • Temporary CA?
    • Sustainable CA?
    • What changes could be made to develop CA and/or create more sustainable CA?
  • Are there resources Walmart or its competitors control that are key to CA?
    • Financial, Physical, Human, and Organizational?
    • Temporary CA?
    • Sustainable CA (VRIO)?
  • How has Walmart’s history shaped its capabilities/resource bundles (Financial, Physical, Human, and Organizational)
    • How does Walmart’s internal environment drive its strategic and tactical decisions at the organizational and divisional levels (as highlighted in the case)?
  • Which of Walmart’s capabilities/resources are most important for effective international expansion?
    • What adjustments should Walmart make in altering/acquiring capabilities/resources for particular foreign markets (dependent on the differing strategy/tactics it should deploy in these markets)?

In November of 2013 Doug McMillon had just been named the CEO of Walmart Stores, Inc.
effective February 1, 2014. McMillon had unique preparation for the job. He had held senior
executive positions in Walmart’s domestic operations and had presided over both the
company’s international operations and Sam’s Club, Walmart’s discount club chain.
McMillon would likely need to draw upon his diverse experiences to successfully lead the
company in the face of mounting challenges.

As recently as 1979, Walmart had been a regional retailer little known outside the South
with 229 discount stores compared to the industry leader Kmart’s 1,891 stores. In less than
25 years, Walmart had risen to become the largest U.S. corporation in sales. With more than
$469 billion in revenues, Walmart had far eclipsed not only Kmart but all retail competitors.
Yet another measure of Walmart’s dominance was that it accounted for approximately 45
percent of general merchandise, 30 percent of health and beauty aids, and 29 percent of
non-food grocery sales in the United States.

Despite its remarkable record of success, though, Walmart was not without challenges.
Many observers believed that the company would find it increasingly difficult to sustain its
remarkable record of growth. Walmart faced a maturing market in its core business that
would not likely see the growth rates it had previously enjoyed. Growth in same-store sales
had declined in multiple quarters in the previous year. Many investors believed that
Walmart had reached a point of saturation with its stores. Supercenters had provided
significant growth for Walmart, but it was not clear how long they could deliver the
company’s customary growth rates. The company added new stores at a prodigious rate, but
the new stores often cannibalized sales from nearby Walmart stores. Walmart faced
problems in other business areas as w& The Walmart-owned Sam’s Club warehouse stores
had not measured up to Costco, their leading competitor International operations were
another challenge for Walmart Faced with slowing growth domestically, it had tried to
capitalize on international opportunities. These international efforts, however, had met with
only success at best.

Walmart was also a target for critics who attacked its record on social issues. Walmart had
been blamed for pushing production from the United States to low-wage overseas
producers. Some claimed that Walmart had almost single-handedly depressed wage growth
m the US. Economy. For many, Walmart had become a symbol of capitalism that had run
out of control. Indeed, Time magazine asked, “Will Walmart Steal Christmas?” Much of the
criticism directed at Walmart did not go beyond angry rhetoric. In many cases, however,
Walmart had faced stiff community opposition to building new stores.

With such challenges, some investment analysts questioned whether it was even possible for
a company lilac Wal-Mart, with more than $469 billion in sales, to sustain its accustomed
high growth rates. To do so, Walmart would have to address a number of challenges such as
maturing markets, competition in discount retailing from both traditional competitors and
specialty retailers, aggressive efforts by competitors to imitate Walmart’s products and
Presses- international expansion and increasing competition from online retailers. Indeed,
some believed that Walmart would need to find new business if it were to continue its
historic success.

General retailing in the United States evolved dramatically during the 20th century. Before
1950, general retailing most often took the form of Main Street department stores. These
stores typically sold a wide variety of general merchandise. Department stores were also

different from other retailers in that they emphasized service and credit. Before World War
II, few stores allowed customers to take goods directly from shelves. Instead, sales clerks
served customers at store counters. Not until the 1950s did self-help department stores
begin to spread. Discount retail stores also began to emerge in the late 1950s. Discount
retailers emphasized low prices and generally offered less service, credit, and return
privileges. Their growth was spawned by the repeal of fair trade laws in many states. Many
states had passed such laws during the Depression to protect local grocers from chains such
as the Atlantic & Pacific Company. The laws fixed prices so that local merchants could not
be undercut on price. The repeal of these laws (reed discounters to offer prices below the
manufacturer’s suggested retail price.

Among discount retailers, there were both genera! and specialty chains. General chains
carried a wide assortment of hard and soft goods. Specialty retailers, on the other hand,
focused on a fairly narrow range of goods such as office products or sporting goods.
Specialty discount retailers such as Office Depot, Home Depot, Staples, Best Buy, and
Lowe’s began to enjoy widespread success in the 1980s. One result of the emergence of both
general and specialty discount retailers was the decline of some of the best-known
traditional retailers. Moderate-priced general goods retailers such as Sears-and JC Penny
had seen their market share decline in response to the rise of discount stores.

A number of factors explained why discount retailers had enjoyed such success at the
expense of general old-line retailers. Consumers’ greater concern for value, broadly defined,
was perhaps most central. Value in the industry was not precisely defined but involved
price, service, quality, and convenience. One example of this value orientation was in
apparel. Consumers who once shunned the private-label clothing lines found in discount
stores as a , source of stigma were increasingly buying labels offered by Kmart, Target, and
Walmart. According to one estimate, discount stores were enjoying double-digit growth in
apparel while clothing sales in department stores had decreased since the 1990s.

Another aspect of consumers’ concern for value involved price. Retail consumers were less
reliant on established brand names in a wide variety of goods and showed a greater
willingness to purchase the private-label brands of firms such as JC Penney, Sears, Kmart,
and Walmart. Convenience had also taken on greater importance for customers. As
demographics shifted to include more working mothers and longer workweeks, many
American workers placed a greater emphasis on fast, efficient shopping trips. More
consumers desired “one-stop shopping” where a broad range of goods were available in one
store to minimize the time they spent shopping. This trend accelerated in the previous
decade with the spread of supercenters. Supercenters, which combined traditional discount
retail stores with supermarkets under one roof, grew to more than $100 billion in sales by
2001 and blurred some of the traditional lines in retailing.

Larger firms had an advantage in discount retail. The proportion of retail sales that went to
multi-store chains had risen dramatically since the WOs. The number of retail business
failures had risen markedly. Most of these failures were individual stores and small chains,
but some discount chains such as Venture, Bradlee, and Caldor had filed for bankruptcy.
Large size enabled firms to spread their overhead costs over more stores. Larger firms were
also able to distribute their advertising costs over a broader base. Perhaps the greatest
advantage of size, however, was in relationships with suppliers. Increased size led to savings
in negotiating price reductions, but it also helped in other important ways. Suppliers were

more likely to engage in arrangements with large store chains such as cooperative
advertising and electronic data interchange (EDI) links.

The Internet posed an increasing threat to discount retailers as more people became
comfortable with shopping online. Internet shopping was appealing because of the
convenience and selection available, but perhaps the most attractive aspect was the
competitive pricing. Some Internet retailers were able to offer steep discounts because of
lower overhead costs. Additionally, customers were able to quickly compare prices between
different Internet retailers. Most, if not all, major retailers sold goods via the Internet.

Large discount retailers such as Walmart derived considerable purchasing clout with
suppliers because of their immense size. Even many of the company’s largest suppliers
gained a high proportion of their sales from Walmart. Suppliers with more than $1 billion in
sales such as Newell, Fruit of the Loom, Sunbeam, and Fieldcrest Cannon received more
than 15 percent of their sates from Walmart. Many of these large manufacturers abo sold a
substantial proportion of their output to Kmart, Target, and other discount retailers.
Walmart’s purchasing clout was considerable, though, even compared to other large
retailers. For example, Walmart accounted for more than 28 percent of Dial’s sales, and it
was estimated that it would have to double sales to its next seven largest customers to
replace the sales made to Walmart.5 Frequently, smaller manufacturers were even more
reliant on the large discount retailers such as Walmart For example, Walmart accounted for
as much as 50 percent of revenues for many smaller suppliers.

Private-label goods offered by discount stores had become much more important in the
recent years and presented new challenges in supplier relationships. Managing private
labels required a high level of coordination between designers and manufacturers (who were
often foreign). investment in systems that could track production and inventory was also

Technology investments in sophisticated inventory management systems, state-of-the-art
distribution centers, and other aspects of logistics were seen as critically important for all
discount retailers. Discount retailers were spending large sums of money on computer and
telecommunications technology in order to lower their costs in these areas. The widespread
use of Universal Product Codes (UPC) allowed retailers to more accurately track inventories
for shopkeeping units (SKUs) and better match inventory to demand. Discount retailers also
used EDI to shorten the distribution cycle. EDI involved the electronic transmission of sales
and inventory data from the registers and computers of discounters directly to suppliers
computers. Often, replenishment of inventories was triggered without human intervention.
Thus, EDI removed the need far several intermediate steps m procurement such as data
entry by the discounter, ordering by purchasers, data entry by the supplier, and even some
production scheduling by supplier managers. Walmart was also pushing the adoption of
radio frequency identification (RFID), a new technology for tracking and identifying
products. RFID promised to eliminate the need for employees to scan VPC codes and would
also dramatically reduce shrinkage, another term for shoplifting and employee pilferage.
Suppliers anticipated that RFID would be costly to implement but the benefits for Walmart
were estimated to be as high as $8 billion m labor savings and $2 billion in reducing
shrinkage. The implementation of RFID had not materialized m the way Walmart had
envisioned and, by 2013, was still evolving in ways not forecasted by the company.

Another important aspect of managing inventory was accurate forecasting. Having the right
quantity products in the correct stores was essential to success. Stories of retailers having an
abundance of snow sleds in Florida stores while stores in other areas with heavy snowfall
had none were common examples of the challenges m managing inventory. Discounters
used variables such as past store sales, the presence of competition, variation m seasonal
demand, and year-to-year calendar changes to arrive at their forecasts.

Point-of-sale (POS) scanning enabled retailers to gain information for any purchase on the
dollar amount of the purchase, category of merchandise, color, vendor, and SKU number.
POS scanning, while valuable in managing inventory, was also seen as a potentially
significant marketing tool. Databases of such information offered retailers the potential to
“micromarket” to their customers. Upscale department stores had used the POS database
marketing more extensively than discounters. Walmart, however, had used such
information extensively. For example, POS data showed that customers who purchased
children’s videos typically bought more than one. Based on this finding, Walmart
emphasized placing other children’s videos near displays of hot-selling videos.

By the beginning of 2013, Walmart’s activities had spread beyond its historical roots in
domestic discount centers. The number of domestic discount centers had declined to 561
from a high 1,995 in 1996. Many discount centers had been converted to supercenters,
which had increased to 3,158 stores. Walmart Supercenters combined full-line
supermarkets and discount centers into one store. Walmart also operated 620 Sam’s Clubs,
which were warehouse membership clubs. In 1999, Walmart opened its first Neighborhood
Markets, which were supermarkets, and it expanded to 286 in operation by 2013.

From its beginning, Walmart had focused on Every Day Low Price (EDLP). EDLP saved on
advertising costs and on labor costs because employees did not have to rearrange stock
before and after sales. The company changed its traditional slogan, “Always the Lowest
Price” in the 1990s to “Always Low Prices. Always” In late 2007, Walmart changed its
tagline to “Save Money, Live Better” Despite the changes m slogan, however, Walmart
continued to price goods lower than its competitors. When faced with a decline in profits in
the late 1990s, Walmart considered raising margins.1 Instead of pricing 7 to 8 percent below
competitors, some managers believed that pricing only about 6 percent below would raise
gross margins without jeopardizing sales. Some managers and board members, however,
were skeptical that price hikes would work at Walmart. They reasoned that Walmart’s
culture and identity were so closely attached to low prices that broad price increases would
clash with the company’s bedrock beliefs.

Another concern was that competitors might seize any opportunity to narrow the gap with
Walmart. While the reason was unclear, it appeared that some narrowing on price was
occurring by 2008. One study showed that the price gap between Walmart and Kroger had
shrunk to percent in 2007 from 15 percent a few years earlier. Some analysts worried that
many shoppers would switch to other retailers as the gap narrowed.

Walmart’s low prices were at least partly due to its aggressive use of technology. Walmart
had pioneered the use of technology in retail operations for many years still possessed
significant advantages over its competitors. It was the leader in forging EDI Iinks with
suppliers. Its Retail Link technology gave over 3/200 vendors POS data and authorization
to replace inventory for more than 3,000 stores.14 Competitors had responded to Walmart’s
advantage in logistics and EDI by forming cooperative exchanges, but despite their efforts, a

large gap remained between Walmart and its competitors.15 As a result, Walmart possessed
a substantial advantage in information about supply and demand, which reduced both the
number of items that were either overstocked or out of stock.

November 2003 was also notable for another Walmart technological initiative. It
announced plans to implement RFID to all products by January 2005, a goal that had still
not been realized by 2010. RFID, as its name implies, involves the use of tags that transmit
radio signals. It had the potential to track inventory more precisely than traditional methods
and to eventually reduce much of the labor involved in activities such as manually scanning
bar codes for incoming goods. Some analysts estimated that Walmart’s cost savings from
RFID could run as high as $8 billion.16 Some information technology observers suggested
that Walmart had only experienced lukewarm results from RFID as many suppliers
struggled to with the company’s demands. Walmart focused its RFID implementation
efforts on tagging pallets for Sam’s Club stores and promotional displays in Walmarts. Some
Sam’s Club suppliers were warned they would be assessed a stiff fine for every pallet that
was not tagged with RFID, but by 2009 the fines had been reduced to just 12 cents a pallet.

Technology was only one area where Walmart exploited advantages through its
relationships with suppliers. Walmart’s clout was clearly evident in the payment terms it
had with its suppliers. Suppliers frequently offered 2 percent discounts to customers who
paid their bills within 15 days. Walmart typically paid its bills at close to 30 days from the
time of purchase but still usually received a 2 percent discount on the gross amount of an
invoice rather than the net amount.17 Several suppliers had attributed performance
problems to Walmart’s actions. Rubbermaid, for example, experienced higher raw materials
costs in the 1990s that Walmart did not allow it to pass along in the form of higher prices. At
the same time, Walmart gave more shelf space to Rubbermaid’s lower-cost competitors. As
a result, Rubbermaid’s profits dropped by 30 percent and it was forced to cut its workforce
by more than 1,000 employees.18 Besides pushing for low prices, the large discounters also
required suppliers to pick up an increasing amount of inventory and merchandising costs.
Walmart required large suppliers such as Procter & Gamble to place large contingents of
employees at its Bentonville, Arkansas, headquarters m order to service its account.

Although several companies such as Rubbermaid and the pickle vendor Vlasic had
experienced dramatic downfalls largely through being squeezed by Walmart, other
companies suggested that their relationship with Walmart had made them much more
efficient.19 Some critics suggested, however, that these extreme efficiency pressures had
driven many suppliers to move production from the United States to nations such as China
that had much lower wages. Walmart set standards for all of its suppliers in areas such as
child labor and safety. A 2001 audit, however, revealed that as many as one-third of
Walmart’s international suppliers were in “serious violation” of the standards. Wal-Mart
pursued steps to help suppliers address the violations, but it was unclear how successful
these efforts were.

A Fast Company article on Walmart interviewed several former suppliers of the company
and concluded: “To a person, all those interviewed credit Walmart with a fundamental
integrity in its dealings that’s unusual in the world of consumer goods, retailing, and
groceries. Walmart does not cheat its suppliers, it keeps its word, it pays its bills briskly.
They are tough people but very honest; they treat you honestly” says Peter Campanella, a
former Coming manager.

At the heart of Walmart’s success was its distribution system. To a large extent, it had been
born out of the necessity of servicing so many stores in small towns while trying to maintain
low prices. Walmart used distribution centers to achieve efficiencies in logistics. Initially,
distribution centers were large facilities—the first were 72,000 square feet—that served 80
to 100 Walmart stores within a 250-mile radius. Newer distribution centers were
considerably larger than the early ones and in some cases served a wider geographical
radius. Walmart had far more distribution centers than any of its competitors. Cross-
docking was a particularly important practice of these centers.22 In cross-docking, goods
were delivered to distribution entered and often simply loaded from one dock to another
even from one-track to-another without ever sitting in inventory. Cross-docking reduced
Walmart’s cost of sales by 2 to 3 percent compared to competitors. Cross-docking was
receiving a great deal of attention among retailers with most attempting to implement it for
a greater proportion of goods. It was extremely difficult to manage, however, because of the
close coordination and timing required between the store, manufacturer, and warehouse. As
one supplier noted, “Everyone from the forklift driver on up to me, the CEO, knew we had to
deliver on time. Not 10 minutes late. And not 45 minutes early, either….” The message came
through clearly: You have this 30-second delivery window. Either you’re there or you’re out
723 Because of the close coordination needed, cross-docking required an information
system that effectively linked stores, warehouses, and manufacturers. Most major retailers
were finding it difficult to duplicate Walmart’s success at cross-docking.

Walmart’s focus on logistics manifested itself in other ways. Before 2006, the company
essentially employed two distribution networks, one for general merchandise and one for
groceries. The company created High Velocity Distribution Centers in 2006 that distributed
both grocery and general merchandise goods that needed more frequent replenishment.
Walmart’s logistics system also included a fleet of more than 2,000 company-owned trucks.
It was able to routinely ship goods from distribution centers to stores within 48 hours of
receiving an order. Store shelves were replenished twice a week on average contrast to the
industry average of once every two weeks.

Walmart stores typically included many departments in areas such as soft goods domestics,
hard goods, stationary and candy, pharmaceuticals, records and electronics, sporting goods,
toys, shoes, and jewelry. The selection of products varied from one region to another.
Department managers and in some cases associates (or employees) had the authority to
change prices in response to competitors. This was in stark contrast to the traditional
practice of many chains where prices were centrally set at a company’s headquarters.
Walmart’s use of technology was particularly useful in determining the mix of goods in each
store. The company used historical selling data and complex models that included many
variables such as local demographics to decide what items should be placed in each store.

Unlike many of its competitors, Walmart had no regional offices until 2006. Instead,
regional vice presidents maintained their offices at company headquarters in Bentonville,
Arkansas. The absence of regional offices was estimated to save Walmart as much as 1
percent of sales. Regional managers visited stores from Monday Thursday of each week.
Each Saturday at 7:30 A.M., regional vice presidents and a few hundred other managers and
employees met with the firm’s top managers to discuss the previous week’s results and
discuss different directions for the next week. Regional managers then conveyed
information from the meeting to managers in the field via the videoconferencing links that

were present in each store. In 2006, Walmart shifted this policy by requiring many of its 27
regional managers to live in the areas they supervised.

Aside from Walmart’s impact on suppliers, it was frequently criticized for its employment
practices, which critics characterized as being low in both wages and benefits. Charles
Fishman acknowledged that Walmart saved customers $30 billion on groceries alone and
possibly as much as $150 billion overall when its effect on competitor pricing was
considered, but he estimated that while Walmart created 125,000 jobs in 2005, it destroyed
127,500.25 Others agreed that Walmart’s employment and supplier practices resulted in
negative externalities on employees, communities, and taxpayers. Harvard professor Pankaj
Ghemawat responded to Fishman by calculating that—based on Fishman’s numbers—
Walmart created customer savings ranging from $12 million to $60 million for each job
lost.26 He also argued that, because Walmart operated more heavily in lower-income areas
of the poorest one-third of the United States, low-income customers were much more likely
to benefit from Walmart’s lower prices. Another criticism of Walmart was that it
consistently drove small local retailers out of business when it introduced new stores in
small towns and that employees in such rural areas were increasingly at the mercy of
Walmart, essentially redistributing wealth from these areas to Bentonville. Jack and Suzy
Welch defended Walmart by pointing out that employees in these areas were better off after
a Walmart opened:

“In most small towns the storeowner drove the best car, lived in the fanciest house, and
belonged to the country club. Meanwhile, employees weren’t exactly sharing the wealth.
They rarely had life insurance or health benefits and certainly did not receive much in the
way of training or big salaries. And few of these storeowners had plans for growth or
expansion… a killer for employees seeking life-changing careers.”

A notable exception to Walmart’s dominance in discount retailing was in the warehouse
club segment. Despite significant efforts by Walmart’s Sam’s Club, Costco was the
established leader. Sam’s Club had almost exactly the same number of stores as Costco—620
to 622—yet, Costco still reported almost twice the sales-$105 billion versus $54 billion for
Sam’s. Costco stores averaged considerably more revenue per store than Sam’s Club.

To the casual observer, Costco and Sam’s Clubs appeared to be very similar. Both charged
small membership fees, and both were “warehouse” stores that sold goods from pallets. The
goods were often packaged or bundled into larger quantities than typical retailers offered.
Beneath these similarities, however, were important differences. Costco focused on more
upscale small business owners and consumers while Sam’s, following Walmart’s pattern,
had positioned itself more to the mass middle market. Relative to Costco, Sam’s was also
concentrated more in smaller cities.

Consistent with its more upscale strategy, Costco stocked more luxury and premium-
branded items than Sam’s Club had traditionally done. This changed somewhat when Sam’s
began to stock more high-end merchandise after the 1990s, but some questioned whether or
not its typical customers demanded such items. A Costco executive pointed to the
differences between Costco and Sam’s customers by describing a scene where a Sam’s
customer responded to a $39 price on a Ralph Lauren Polo shirt by saying “Can you
imagine? Who in their right mind would buy a t-shirt for $39?” Despite the focus on pricier
goods, Costco still focused intensely on managing costs and keeping prices down. Costco set
a goal of ten percent margins and kept capped markups at 14 prevent (compared to the

usual 40 percent for department stores). Managers were discouraged from exceeding the
margin goals.

Some analysts claimed that Sam’s Club’s lackluster performance was a result of a copycat
strategy. Costco was the first of the two competitors to sell fresh meat, produce, and
gasoline and to introduce a premium private label for many goods. In each case, Sam’s
followed suit two to four years later.

“By looking at what Costco did and trying to emulate it, Sam’s didn’t carve out its own
unique strategy” says Michael Clayman, editor of the trade newsletter Warehouse Club
Focus. And at least one of the “me too” moves made things worse. Soon after Costco and
Price Club merged in 2993, Sam’s bulked up by purchasing Pace warehouse clubs from
Kmart. Many of the 91 stores were marginal operations in marginal locations Analysts say
that Sam’s Club management became distracted as it tried to integrate the Pace stores into
its system”

To close the gap against Costco, Walmart in 2003 started to integrate the activities of Sam’s
Club and Walmart more. Buyers for the two coordinated their efforts to get better prices
from suppliers.

Perhaps the most distinctive aspect of Walmart was its culture. To a large extent, Walmart’s
culture was an extension of Sam Walton’s philosophy and was rooted in the early
experiences and practices of Walmart. The Walmart culture emphasized values such as
thriftiness, hard work, innovation. and continuous improvement. As Walton wrote,

“Because wherever wove been, we’ve always tried to instill in our folks the idea that we at
Walmart have our own way of doing things. It may be different and it may take some folks a
while to adjust to it at first. But it’s straight and honest and basically pretty simple to figure
it out if you want to. And whether or not other folks want to accommodate us, we pretty
much stick to what we believe in because it’s proven to be very, very successful.”

Walmart’s thriftiness was consistent with its obsession with controlling costs. One observer
joked, “the Walmart folks stay at Mo 3, where they don’t even leave the light on for you”30
This was not, however, far from the truth. Walton told of early buying trips to New York
where several Walmart managers shared the same hotel room and walked everywhere they
went rather than use taxis. One of the early managers described how these early trips taught
managers to work hard and keep costs low:

“From the very beginning, Sam was always trying to instill in us that you just didn’t go to
New York and roll with the flow .We always walked everywhere. ‘We never took cabs, and
Sam had an equation for the trips: expenses should never exceed 1 percent of our purchases,
so we would all crowd in these little hotel rooms somewhere down around Madison Square
Garden. …We never finished up until about twelve-thirty at night, and we’d all go out for a
beer except Mr. Walton. He’d say, “I’ll meet you at breakfast at six o’clock” And we’d say,
“Mr. Walton, there’s no reason to meet that early. We can’t even get into the buildings that
early” And He’d just say, “We’ll find something to do”.

The roots of Walmart’s emphasis on innovation and continuous improvement can also be
seen in Walton’s example. Walton’s drive for achievement was evident early in life. He
achieved the rank of Eagle Scout earlier than anyone previously had in the state of Missouri.
Later, in high school, he quarterbacked the undefeated state champion football team and
played guard on the undefeated state champion basketball team while serving as student
body president. This same drive was evident in Walton’s early retailing efforts. He studied
other retailers by spending time in their stores, asking endless questions, and taking notes
about various store practices. Walton was quick to borrow a new idea if he thought it would
increase sales and profits. When, in his early days at Ben Franklin, Walton read about two
variety stores in Minnesota that were using self-service, he immediately took an all-night
bus ride to visit the stores. Upon his return from Minnesota he converted one of his stores to
self-service, which, at the time, was only the third variety store in the United States to do so.
Later, he was one of the first to see the potential of discount retailing.

Walton also emphasized always looking for ways to improve. Walmart managers were
encouraged to critique their own operations. Managers met regularly to discuss their store
operations. Lessons learned in one store were quickly spread to other stores. Walmart
managers also carefully analyzed the activities of their competitors and tried to borrow
practices that worked well. Walton stressed the importance of observing what other firms
did well rather than what they did wrong. Another way in which Walmart had focused on
improvement from its earliest days was in information and measurement. Long before
Walmart had any computers, Walton would personally enter measures on several variables
for each store into a ledger he carried with him. Information technology enabled Walmart to
extend this emphasis on information and measurement.

Walmart’s entry into the international retail arena had been somewhat recent. As late as
1992, Walmart’s entire international operations consisted of only 162,535 square feet of
retail space in Mexico. By 2013, however, international sales contributed nearly 30 percent
of the company’s sales. With growth rates of 7.4 percent in sales and 8.3 percent in
operating income, Walmart’s international growth exceeded that of its domestic operations.
Although it was the company s fastest-growing division—going from about $59 billion in
sales in 2006 to more than $135 billion in 2013—Walmart’s performance in international
markets had been mixed, or as Forbes put it, “Overseas, Walmart has won some—and lost a
lot” Only a few years earlier, more than 80 percent of Walmart’s international revenue came
from only three countries: Canada, Mexico, and the United Kingdom.

Walmart had tried a variety of approaches and faced a diverse set of challenges in the
different countries it entered. Entry into international markets had ranged from greenfield
development to franchising, joint ventures, and acquisitions. Each country that Walmart
had entered had presented new and unique challenges. In China, Walmart had to deal with
a backward supply chain. In Japan, it had to negotiate an environment that was hostile to
large chains and protective of its small retailers. Strong foreign competitors were the
problem in Brazil and Argentina. Labor unions had plagued Walmart’s entry into Germany
along with unforeseen difficulties in integrating acquisitions. Mistakes in choosing store
locations had hampered the company in South Korea and Hong Kong.

Walmart approached international operations with much the same philosophy it had used
in the United States. “We’re still very young at this, we’re still learning” stated John Menzer,

former chief executive of Walmart International. Menzer’s approach was to have country
presidents make decisions. His thinking was that it would facilitate the faster
implementation of decisions Each country president made decisions regarding his or her
own sourcing, merchandising, and real estate. Menzer concluded, “Over time all you really
have is speed. I think that’s our most important asset”.

In most countries, entrenched competitors responded vigorously to Walmart’s entry. For
example, Tesco, the United Kingdom’s biggest grocer, responded by opening supercenters.
In China, Lianhua and Huilan, the two largest retailers, merged in 2003 into one state-
owned entity named the Bailan Group. Walmart was also not alone among major
international retailers in seeking new growth in South America and Asia. One international
competitor, the French retailer Carrefour, was already the leading retailer in Brazil and
Argentina. Carrefour expanded into China in the late 1990s with a hypermarket in
Shanghai. In Asia, Makro, a Dutch wholesale club retailer, was the regional leader. Both of
the European firms were viewed as able, experienced competitors.’ The Japanese retailer,
Yaohan, moved its headquarters from Tokyo to Hong Kong with the aim of becoming the
world’s largest retailer. Helped by the close relationship between Chairman Kazuo Wada
and Mao’s successor Deng Xiaoping, Yaohan was the first foreign retail firm to receive a
license to operate in China and planned to i more than 1,000 stores there. Like Walmart,
these international firms were motivated to expand internationally slowing down growth in
their own domestic markets. Some analysts feared that the pace of expansion by these major
retailers was faster than the rate of growth in the | market and could result in a price war.
Like Walmart, these competitors had also found difficulty in moving into international
markets and adapting to local differences. Both Carrefour and Makro had experienced
visible failures in their international efforts. Folkert Schukken, chairman of Makro, noted
this challenge: “We have trouble selling the same toilet paper in Belgium and Holland.” The
chairman of Carrefour, Daniel Bernard, agreed, “If people think that going international is a
solution to their problems at home, they will learn by spilling their blood. Global retailing
demands a huge investment and gives no guarantee of a return.”

Walmart sought aggressive growth in its international operations. The company added 497
units during 2013: Walmart’s early activities in a country typically involved acquisitions, but
it had emphasized organic growth in more recent years.


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