Wal-Mart is the number one retailer in the United States. Geographical growth opportunities are shrinking within the boundaries of the United States. The company needs to evaluate multiple options to determine the best strategy to deploy. The challenge is “keeping the world’s biggest retailer on its phenomenal roll and delivering the huge sales and earnings increases that investors had come to expect from Wal-Mart over the years” (Camerius& Hunger, p. 19-30, 2006).

The company’s current strategic plan is to thrive in the following areas:

· Low costs, high customer service, and always low prices

· Product mix

· Logistics and supply-chain management

· International markets

· Domestic growth

· Public relations

I have developed multiple strategic alternatives for the company. They are as follows:

· Stability – Pause And Proceed: Pause physical growth then proceed with growth domestically and globally

· Growth – Concentration: Concentrated Internet program to target domestic and foreign markets

· Growth – Concentration: Horizontal Growth with International Entry for global geographical internal expansion

The plan deployed must be consistent with the corporate strategy. Per Sam Walton (1918-1992), the company’s founder, “Our goal has always been in our business to be the very best and, along with that, we believe that in order to do that, you’ve got to make a good situation and put the interests of your associates first. If we really do that consistently, they in turn will cause…our business to be successful, which is what we’ve talked about and espoused and practiced” (Camerius& Hunger, p. 19-10, 2006).

I. Current Situation

A. Current Performance

1. Wal-Mart’s performance over the past year is still that of a world-leading organization. 2006 was another record year performance for Wal-Mart. Their annual net sales were $312.4 billion for the year ended January 31, 2006. In addition, their net income reached $11.2 billion another record. Their closest domestic competitor, Target, had net sales of $52.6 billion and net income of $2.4 billion in comparison for the same period.

2. They had over 6,100 stores throughout the world. They were expanding their foreign operations in Argentina, Mexico, Brazil, Japan, Coast Rica, El Salvador, Guatemala, Honduras, Nicaragua, and China. They maintain a state-of-the-art logistics and supply-chain to fully support their worldwide operations.

3. However, there were performance issues in some areas. Wal-Mart had difficulty penetrating foreign markets. Their brand is not fully recognized worldwide and the locals were slow to migrate to the new competitor. Additionally, their business and employment practices were increasingly coming under fire domestically. Finally, their stock price did not reflect the expected returns of a world-class organization. Their stock had decreased 9.9% from January 1, 2001 to April 11, 2005, while Target’s stock had increased 49.6% for the same period.

B. Strategic Posture

1. Mission

Early on in Wal-Mart’s development its mission was, “discount department store chain offering a wide variety of general merchandise to the customer.” They later updated their mission to, “everyday low prices.” Customers can count on low prices without cutting coupons or chasing advertisements.

2. Objectives

a. To keep the world’s biggest retailer on its phenomenal growth roll and find new areas to continue that growth. It must build on its market share in the domestic and foreign markets.

b. To deliver consistent sales and earnings increases,which investors had come to expect from Wal-Mart over the years. It must locate new areas to continue its profit growth into the future.

c. To continue to deliver low-cost, high customer service, and everyday low prices. The challenge is to maintain its low-cost operational structure, which relies heavily on its logistics and supply-chain management.

d. To anticipate business and employment practice criticisms. It must develop a public relations strategy to address its critics.

3. Strategies

a. The domestic strategy contains two parts – the customers and the associates. Give the customer what they want, when they want it, at the low price they expect. Secondly, treat each other with respect and support the foundation of our success.

b. The growth strategy within the U.S.A. featured rapid plans for moving into other areas with stores, supercenters, Sam’s Clubs, and distribution centers.

c. Give support to the U.S.A. by offering products made in America to Americans. They offer products made in the U.S.A. whenever possible in their domestic stores.

d. Leverage their distinctive competence in logistics and supply-chain management technology to maintain its low cost position.

e. The international strategy targets foreign markets by growing organically, acquiring competitors, and strategic alliances. In 2006, Wal-Mart was focusing on China, Japan, and Central America.

4. Policies

a. Cost containment is imperative to maintain their always low prices.

b. Provide continuous improvement programs for associate development.

c. Manage growth through continuous environmental scanning for strategic alliance opportunities in foreign countries and take advantage of the retail industry market conditions in the U.S. and Canada.

II. Strategic Managers

A. Board of Directors

1. The Board carries 13 members, three of which were under the guidance of Sam Walton (company founder), and one of which is Sam’s son. In addition, Sam’s other son is also on the board and together the two sons represent the Walton family LLC’s 41% controlling interest.

2. There are a total of nine independent board members, as defined by the New York Stock Exchange. They have diverse backgrounds and represent a broad cross-section of the population. They have three representatives of international markets, including the former Chair and CEO of Coca-Cola.

3. The BOD plays an important role in the strategic decision making processes of Walmart. They are actively involved in reviewing and approving major changes in the direction of the company. They bring many years of experience to a long term focus on growth and market share improvements.

4. The total shares represented by the board and senior officers are less than 1% of the total outstanding shares of Wal-Mart.

B. Top Management

1. The current CEO, Lee Scott, has been with Wal-Mart for over 25 years and at the helm since January of 2000. He began with the company as the manager of their truck fleet. He was personally recruited by David Glass, the second CEO.

2. These two, Scott and Glass, represent the only CEOs to run Wal-Mart since Sam Walton stepped down in 1988, due to health issues.

3. The top managers in Walmart are the most active and vocal leaders in the strategic decision making processes of the company. They are responsible for maintaining a diligent environmental scanning capability, recognizing opportunities and trends, and developing strategic alternatives and recommendations to present to the BOD for discussion and approval. Implementing the corporate directional strategies is the responsibility of the CEO as the lead manager of the company. Top managers’ compensation levels are tied to successful implementations of new strategic alternatives.

4. Wal-Mart has a strong associate development training program and accordingly their management team is promoted from within.

III. External Environment (EFAS Table; see Exhibit 1)

A. Natural Environment

1. Scarcity of natural energy, specifically oil which impacts every facet of Wal-Mart’s operations and its customer base. Increasing fuel prices are partly to blame for the reduction in earnings from 2005 to 2006. Management has pledged to reduce energy usage in its stores by 30% and improve the fuel efficiency of its truck fleet by 25% over the next three years.

2. Protection from pollution for land, water, and air are becoming an increasing concern for Wal-Mart and its customers. This has prompted the development of a “green” marketing program. The program enables customers to get involved and select environmentally friendly products. They have also persuaded their suppliers to reduce their packaging materials. In addition, they have implemented a plastic recycling program.

B. Societal Environment

1. Economic

a. It is a difficult economic time for retailers with uncertainty, lackluster consumer spending, and slow growth worldwide. Many U.S. retailers have either closed their doors or restructured their business (O).

b. The increasing fuel costs could decrease the discretionary spending of consumers worldwide (T).

c. The foreign markets, where Wal-Mart operates, face different types of economic factors including fluctuations in the currency exchange rate, foreign direct investment, and capital markets. These offer unique opportunities and threats to global expansion. A negative change in the exchange rate could result in a profit becoming a loss. Foreign direct investment can be either rewarded with incentives or opposed with limitations. Foreign capital markets offer a wide range of rates and terms, which has made them an attractive option for businesses operating in the global economy (O/T).

2. Technological

a. There is a growing desire to shop at one’s convenience without the limitations of store hours or location proximity. The internet and other electronic devices continue to grow in popularity. Retailers must step-up their operations in this segment or risk losing market share to their competitors (O).

b. Computers and software development have introduced a whole new level of logistics to the retail industry. These technologies are becoming commonplace in many retail operations. Strategy implementation and maintenance of these technologies is instrumental in a company’s success (O).

3. Political-Legal

a. There are many authorities that impact the operations of Wal-Mart including local, state, federal, and foreign governments. Some examples of the types of threats facing them include a state bill passed to enforce minimum benefits payments for medical coverage, and a city ordinance to require payment of “living wage” and minimum benefits for employees. Additionally, they were the defendant in a case brought on by the U.S. National Labor Relations Board in 2002. Further, they face unionization imposed upon them to compete in China’s market (T).

b. The unions are very diligent in their opposition to Wal-Mart’s business practices. Unions represent many employees who work in the grocery industry were workers earn approximately $2 more per hour and have most of their benefits paid. Wal-Mart is resistant to employees organizing within its stores, because of the lower wage and benefit advantage over their unionized competitors (T).

c. Wal-Mart faces further problems in the legal arena. They were involved in a class action law suit brought on by current and former female employees over discrimination in pay and advancement opportunities (T).

d. They have been investigated for hiring illegal workers and paid some large fines in the past within the U.S. (T).

4. Sociocultural

a. The young Generation Y population represents the future shoppers of Wal-Mart. They rely on their computers, mobile devices, and cellular phones to enhance most aspects of their life including shopping (O).

b. There is a growing concern to protect our land, water, and air from pollution. Consumers look for opportunities to select environmentally friendly products. In addition, they support companies that promote these activities (O).

c. Consumers worldwide desire low costs, value, selection and high customer service. There is a need to fill that desire with a product mix of goods and services to meet local tastes (O).

d. A shift in consumer tastes to trendier fashions and upscale electronics. Consumers want what they want at the best price available. There is a need to provide name brand products at low prices (O/T).

C. Task Environment

1. Competition in the domestic market is strong. Competitors have been able to capitalize on the niche markets within Wal-Mart’s market share (T).

2. Global growth market is shrinking. The opportunities to grow globally are finite, which means at some point there must be a shift in strategy to continue to grow profits (T).

3. There is a growing demand for technologically advanced electronics (O/T).

4. Threat of new entrants. This is low due to the mature nature of the retail industry in the domestic market (O). However, in foreign markets entry barriers are high and many prevent penetration in those markets (T).

5. Rivalry high. On the domestic front there are many retailers like Target, Sears, and Kohl’s. In addition, they compete with category killers including Home Depot, Office Depot, and Toys “R” Us (T). The foreign market contains even more rivalry as each country typically has a different industry leader (T).

6. Threat of substitute services. The level of threat in the domestic market is medium-high since Target offers much of the same products and services at similar prices (T). In the foreign market Wal-Mart has an opportunity to exploit this threat and gain competitor market share using substitution of services to its advantage (O).

7. Bargaining power of buyers. The bargaining power of Wal-Mart’s customer base is low as they have a wide variety of clientele worldwide (O).

8. Bargaining power of suppliers. This category is low as products are supplied from multiple countries through special arrangements with suppliers (O).

9. Power of other stakeholders. The pressure from external groups (unions, government, and media) in the domestic market is increasing and therefore medium-high (T). The foreign market is also medium-high as demands are changing as countries develop and governments implement new laws and regulations (T).

D. Summary of External Factors

1. There are four major areas in the strategic external environment that Wal-Mart faces in deciding the way ahead for the company. The first two are opportunities and the second two are threats.

2. First, the opportunity for international growth in countries where Wal-Mart has established operations is a very significant strategic opportunity for Wal-Mart to dramatically increase its top line sales and growth in market share. Next, the opportunity to gain domestic market share is open for Wal-Mart action as its competitors, though formidable, are currently struggling.

3. Wal-Mart faces many threats internationally and domestically, but the two most significant ones are competition in the domestic marketplace and in the international marketplace. There are many international competitors flexing their power to expand their market shares. Wal-Mart has tough competition there. The final major external strategic environmental factor of significant impact on Wal-Mart is the continuing efforts of many anti-Wal-Mart organizations to attack Wal-Mart’s reputation and business practices.

IV. Internal Environment (IFAS Table; see Exhibit 2)

A. Corporate Structure

1. Wal-Mart is split into three strategic business units, Wal-Mart Stores USA, Sam’s Club, and Wal-Mart International. The Stores unit is also responsible for operation of walmart.com while the Club unit manages samsclub.com. The International unit operates in 15 countries (S).

2. The development of new technology and strategy is coordinated from its corporate headquarters in Bentonville, Arkansas. This ensures consistent application of “The Wal-Mart Way” across all markets (S).

B. Corporate Culture

1. Wal-Mart and its associates have received multiple industry awards for its culture. They have a reputation for inspiring “The Wal-Mart Way” in their associates. This consistency in the corporate culture instills the same quality service from store-to-store and country-to-country. This is a core competency that began with Sam Walton himself and helps them maintain their number one position in domestic retail market share (S).

2. They are the dominant U.S. retail market leader and have gained a core competency status in implementing their corporate strategy. Their market leadership has come to be known as the “Wal-Mart Effect.” It ensures low prices, wide selections, and quality service (S).

3. Wal-Mart’s strong corporate culture is mostly accepted by the employees of the companies they acquire in foreign markets (S). However, there has been reluctance to accept the corporate culture in countries such as Canada and Germany.

C. Corporate Resources

1. Marketing

a. Wal-Mart is a channel commander for many brand-name products. They are the dominant U.S. retail market leader and have a core competency in promoting their service. Their market leadership has come to be known as the “Wal-Mart Effect.” It ensures low prices, wide selections, and quality service (S).

b. Wal-Mart is slow to adjust tactical strategies to foreign local markets. This is working as a bottleneck (constraining) to sales growth. The “Wal-Mart” brand is not yet established worldwide so there is still work to be done in this area (W).

c. They have been hesitant to launch a counter attack against their critics or promote their efforts in local communities, social responsibility, and green marketing. This has a negative effect on the company’s reputation. A company’s reputation represents a competitive advantage and needs to be promoted and protected (W).

d. Wal-Mart is trending towards a different product mix that includes more quality fashionable merchandise and advanced electronic devices (W).

2. Finance (see Exhibits 4 and 5)

a. One metric derived from Wal-Mart Stores, Inc., Annual Report, p. 22, 2006, is a slower inventory growth as compared to net sales growth. Their inventory growth from 2005 to 2006 was 8.2% verse net sales growth of 9.5% for the same period (S).

b. Wal-Mart’s growth year-over-year in same stores sales is slower than that of its main domestic competitor. Their sales growth is 3.4% as compared to Target at 5.6%. This implies that their closest domestic competitor is gaining market share (W).

c. A distinctive factor in Wal-Mart’s performance is their negative net working capital (current liabilities less current assets). Net working capital is the denominator in two of the performance measures monitored by investors. The ratios are inventory to net working capital and net working capital turnover. Wal-Mart maintains a negative net working capital which is an indicator of a very efficient operation (Kennon, 2011). Wal-Mart can capitalize on sales revenue prior to paying for the product because they move their inventory so quickly. Their 2006 inventory to net working capital was -6.4% and the net working capital turnover was -62.5 (S).

3. Research & Development

a. Wal-Mart has a very strong R&D program to develop new products and to develop new manufacturing processes.

b. Wal-Mart keeps ahead of its competition by continually innovating with new products that are designed with producibility and marketability considerations from the beginning of the design cycle.

c. Wal-Mart’s R&D operations as spread world-wide to ensure that a wide variety of thinking and expertise are employed.

4. Operations

a. They have found success in implementing new retail formats including wholesale clubs and supercenters. The clubs offer memberships to purchase low cost merchandise on a cash-and-carry basis, while the supercenters are large combination facilities that offer generalmerchandise and groceries (S).

b. Wal-Mart has developed fundamental benchmarks to gauge their operating performance. There is a focus on cost-cutting, eliminating inefficiencies, and pressure to reduce supplier’s costs while delivering just in time inventory. These practices were honored with the “Retailer of the Century” award from Discount Store News in 1999 (S).

c. Wal-Mart has deployed an inventory control system which is the most sophisticated in the industry. It has automated the entire inventory process, right down to the shelf location. This system is instrumental in detecting sales trends and adjusting market reaction times and has earned them a competitive advantage (S).

d. They also designed and developed computerized distribution centers. This allowed them to open new stores efficiently, which helped to control their low operating costs (S).

5. Human Resources

a. Wal-Mart is the largest private employer in the U.S. Their associate relations are strong. They offer many advantages to their associates including management training, seminars, development, awards, and profit sharing. Their cost for hourly labor compared to its competitors is approximately 20% lower. This is a competitive advantage for Wal-Mart (S).

b. Wal-Mart has been criticized, by many outside forces, for its employment practices. They have been the defendant in multiple legal actions. Their pay and benefits are below other unionized stores. Less than one-half of their employees have health insurance (W).

c. They have been accused of hiring illegal workers in the U.S., poor conditions in supplier’s facilities abroad, and blocking access for workers to unionize (W).

6. Information Systems

a. Wal-Mart created a state-of-the-art logistics and supply-chain management system. This system gives it a distinct competency in this area. They understand the importance of these systems on their ability to contain their costs (S).

b. They took technology one step further and implemented a data warehouse to collect and analyze customer shopping habits. It gave them the knowledge to provide the products customers desired most in each and every store. This technology had never been implemented in the retail industry, which gave them a significant competitive advantage (S).

D. Summary of Internal Factors

1. There are four major areas in the strategic internal environment that Wal-Mart must grapple with in deciding the way ahead for the company. The first two are strengths and the second two are weaknesses.

2. First, Wal-Mart’s core competency in implementing their corporate strategy is a very significant strength to use in the future to shape the marketplace both domestically and internationally. Next, the distinctive competency Wal-Mart possesses in the logistics and supply chain management arena is an exceptional asset to use in the future as Wal-Mart expands its operations domestically and internationally. These two attributes have empowered Wal-Mart’s past success and can be very influential in future success.

3. Wal-Mart doesn’t have too many weaknesses as they are the industry standard across-the-board. But Wal-Mart has not performed very well in its penetration of international markets. The lack of success here is a big detractor for future expansion efforts unless Wal-Mart improves their market penetration strategies and tactics. Finally, Wal-Mart has a slow unresponsive public relations program that has not performed well in preparing for nor thwarting attacks on the Wal-Mart reputation or business practices.

V. Analysis of Strategic Factors

A. Situational Analysis (SWOT) (SFAS Matrix; see Exhibit 3)

1. Strengths

a. Wal-Mart has a core competency in developing and deploying its corporate strategy. They are the dominant U.S. retail market leader. This market leadership has come to be known as the “Wal-Mart Effect.” It ensures low prices, wide selections, and quality service.

b. Wal-Mart has created a state-of-the-art logistics and supply-chain management system. This system gives it a distinct competency in the retail industry.

c. They are the largest private employer in the U.S. Their associate relations are strong. They offer many advantages to their associates including management training, seminars, development, awards, and profit sharing. Their cost for hourly labor compared to their competitors is approximately 20% lower. This gives them another competitive advantage.

2. Weaknesses

a. Wal-Mart maintains 20% of its retail operations outside the U.S. However, they are slow to adjust tactical strategies to foreign local markets. The “Wal-Mart” brand is not yet established worldwide. Since foreign markets are a critical part of their strategic growth plan they must penetrate foreign markets.

b. They have been slow to launch a public relations campaign to quite their critics or promote their efforts in local communities, social responsibility, and green marketing. They have been under increasing attacks domestically for business and employment practices, which have a negative effect on the company’s reputation.

3. Opportunities

a. Wal-Mart already has a presence in 15 foreign countries but is facing difficulty adapting to the local business environment. However, these markets represent the biggest opportunity for growth. Expansion in foreign markets is very important to their growth strategy.

b. The domestic market is being vacated by some of their domestic competitors. These competitors have either closed up or are giving up precious market share within the domestic market. Wal-Mart has an opportunity to convert their customers and gain additional market share.

4. Threats

a. Wal-Mart’s competitors are emulating its business strategy and using it against them. The competition in foreign markets has met each of their price cuts with cuts of their own. Target has taken over the #2 spot in the domestic market and has the #1 position in certain niche areas.

b. Their business practices including wages, benefits, union representation, and market dominance have increasingly been under attack from outside critics. Additional costs related to litigation and fines have cut into domestic profits. This area represents a growing opposition to Wal-Mart’s business and could damage to its reputation.

B. Review of Current Mission and Objectives

1. Mission

Their current mission of “everyday low prices” continues to support their business strategy. Customers know they can count on low prices without cutting coupons or chasing advertisements worldwide. Mission statement does not need to be updated.

2. Objectives

a. To keep the world’s biggest retailer on its phenomenal growth roll and find new areas to continue that growth. It must build on its market share in the domestic and foreign markets. Measures need to be established to track progress towards this objective.

b. To deliver the huge sales and earnings increases, which investors had come to expect from Wal-Mart over the years. It must locate new areas to continue its profit growth into the future. What type of areas – new products/services or geographic? This objective needs to have a clear intent.

c. To continue to deliver low-cost, high customer service, and everyday low prices. The challenge is to maintain is low-cost operational structure, which relies heavily on its logistics and supply-chain management. The intent to continue to operate as they have been is clear for this objective.

d. To anticipate business and employment practice criticisms. It must develop a public relations strategy to address its critics. Establish a timeline and some form of qualitative measures.

VI. Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives

1. Strategic Alternative #1 – Stability – Pause And Proceed

a.Corporate Directional Strategy

This stability strategy of pause (for up to 12 months) and proceed is split between Wal-Mart’s domestic and foreign markets. In its domestic market the goal is to further leverage its logistics and supply-chain to strengthen its structural barriers. In its 15 foreign markets there is a need for a well-developed strategic plan for its established operations.

b.Supporting Business Strategy

The business strategy to support both markets is a competitive differentiation strategy. Wal-Mart has core competencies in their lower cost strategy. There is a need for a differentiation strategy to complement its lower cost strategy to further separate it from its competitors.

c.Supporting Functional Strategies

(1) Technology – continue to leverage their distinctive competency in logistics and supply-chain management to maintain their low cost structure. Further leverage its data warehouse to provide the proper product mix for each target market.

(2) HR – continue to promote and develop their strong associate relations and support the new business strategy with additional training. Review, update, and revise their employment practices as needed to quiet outside critics and further strengthen their associate relations.

(3) Marketing – develop a new marketing program to promote the new differentiation strategy. Continue to leverage its position as a channel commander through their core competency in promoting their services known as the “Wal-Mart Effect.” Additionally, develop a public relations campaign to self-promote its revised employment practices and established social programs.

d. Corporate Scenario

(1) This scenario is one of stability, which assumes Wal-Mart can continue to maintain its competencies. It focuses on Wal-Mart’s strengths and develops a strategy to differentiate it from its competitors. In addition, it targets local market strategies for its foreign operations.

(2) In the domestic market the estimated additional growth in market share will provide approximately $4B annually to its sales. Labor costs could increase slightly, but remain 15% below the competition. The increased emphasis on public relations will increase costs in the first year, but will be no more than anticipated saves in defending its practices.

(3) The foreign market will yield approximately $9B annually in sales as Wal-Mart gains market share through targeted local market preferences. The first year will not see the full $9B in profit as there are costs associated with implementing the new marketing strategy of 1% of operating costs.

e.Pros

(1) A strategy of stability is appropriate over the short-run and it sets up long-term company survival. It also provides an opportunity to further evaluate the current operating environment before proceeding.

(2) This strategy will allow Wal-Mart to consolidate its foreign operations and gain further economies of scale in those markets.

(3) This strategy will use Wal-Mart’s distinctive competency in logistics and supply chain management to strengthen its market position.

(4) Strong public relations efforts will aid in improving consumers’ attitudes and shopping perceptions.

f.Cons

(1) Domestic and foreign competitors could emulate Wal-Mart’s new differentiation strategy.

(2) Consumers in each of Wal-Mart’s markets might not accept the change in product mix or their product preferences could change.

(3) Wal-Mart’s domestic model of product differentiation may not be accepted in foreign marketplaces by new consumers.

2. Strategic Alternative #2 – Growth – Concentration:Internet Growth

a.Corporate Directional Strategy

This concentrated growth strategy targets Wal-Mart’s domestic and foreign markets, equally. In its domestic market the goal is to further leverage its logistics and supply-chain to deliver top quality products through technology for horizontal growth. In foreign markets it will focus a well-developed strategic plan for its established operations to achieve horizontal growth.

b.Supporting Business Strategy

The business strategy to support both markets is a competitive lower cost strategy. Wal-Mart has core competencies in their lower cost strategy. The domestic market will continue to use a competitive strategy. However, in foreign markets the strategy will be that of a cooperative strategy that will draw from established strategic alliances.

c.Supporting Functional Strategies

(1)R&D – draw knowledge from their development of computerized distribution centers to redesign and improve their internet operations.

(2)Marketing – develop tactical strategies to target local market preferences. Provide a new product mix based on market research. Use their core competency in promoting their services to reach additional internet market opportunities.

(3)Operations – leverage their strong ability to implement new retail formats to reassess their internet operations.

(4)Information Systems – deploy its state-of-the-art logistics and supply-chain management system to keep costs down and deliver customer products timely. Their logistics and supply-chain management system represents a distinct competency. In addition, they will need their data warehouse capabilities to identify trends and changes in customer preferences.

d.Corporate Scenario

(1) This scenario is one of concentrated growth through the use of technology to gain market share. It assumes that Wal-Mart can successfully convert its many competencies over to the online format. It focuses on Wal-Mart’s strengths and develops a new marketing strategy to target each market. In addition, it requires some research and development to redesign and improve its internet operations.

(2) The estimated additional growth in market share will provide approximately $3B annually domestically and $1B internationally or 5% of net sales. They can further pick-up market share if customers of competitors are willing to substitute Wal-Mart’s internet services, which is approximately another $4B annually. The emphasis on target marketing will increase costs initially by 3%, but will level off as the operations mature to be no more than current levels.

e.Pros

(1) A horizontal growth strategy exploits the strengths of Wal-Mart’s corporate strategy and logistics and supply-chain management. Further, it will help to eliminate possible niche markets within the retail industry.

(2) It costs far less to implement this strategy in any market than to build or acquire operations.

(3) Internet popularity by consumers will boost interest, excitement and online sales.

(4) Ramp-up of Internet marketing and sales domestically and internationally by many corporations will provide a valuable impetus to the changing marketplace to sell online.

f.Cons

(1) The targeted customer segments might not accept Wal-Mart’s online shopping as a substitute for competitor’s web offerings.

(2) Implementing this strategy does not make use of Wal-Mart’s associate relations, which is a competitive advantage.

(3) International Internet complications may slow sales. Taxes or restrictions on shipping products may be impacted.

(4) Wal-Mart may be unable to convert its brick and mortar sales expertise into a similar level of competence in the online marketplace.

3. Strategic Alternative #3 – Growth – Concentration: Horizontal Growth with International Entry for Global Geographic Internal Expansion

a.Corporate Directional Strategy

The global geographic internal expansion growth strategy seeks to concentrate on Wal-Mart’s current services in foreign markets through growth in established operations. It will further leverage its logistics and supply-chain to deliver top quality products for horizontal growth. In addition, it will focus a well-developed strategic plan to establish the “Wal-Mart” brand in these markets.

b.Supporting Business Strategy

The business strategy to support this growth is also the competitive lower cost strategy. Wal-Mart has core competencies in their lower cost strategy. They will continue to use a cooperative strategy with established strategic alliances in its foreign market operations.

c.Supporting Functional Strategies

(1)Marketing – develop tactical strategies to target local market preferences. Provide a product mix based on market research. Use their core competency in promoting their services to establish the “Wal-Mart” brand globally.

(2)HR – leverage their strong associate relations to deploy well trained, friendly, and helpful associates.

(3)Information Systems – deploy its state-of-the-art logistics and supply-chain management system to keep costs down. Their logistics and supply-chain management system represents a distinct competency. In addition, they will need their data warehouse capabilities to identify local market trends and changes in customer preferences.

(4)Finance – provide the necessary capital investment and ongoing capital as needed.

d.Corporate Scenario

(1) This scenario is one of global growth through the use of internal development of Wal-Mart’s current services. It assumes that Wal-Mart can successfully deploy its many competencies in its foreign operations and strategic alliances are willing to participate. It focuses on Wal-Mart’s strengths and develops a new marketing strategy to target each local market. In addition, it requires investment capital and a continuous capital stream to grow its foreign operations.

(2) The estimated additional growth in market share will provide between $7B and $11B annually. Additional sales revenue of $9B or 15% annually can be achieved if Wal-Mart is successful in penetrating these markets. The emphasis on target marketing will increase costs initially by 5%, but will level off as the operations mature to be no more than current levels.

e.Pros

(1) Continued growth in foreign markets offers significant returns on investment and provides an option for continued growth in profits.

(2) It builds on Wal-Mart’s core competencies in countries that Wal-Mart has established operations.

(3) Population growth and the growth of the middle class in foreign countries will add a substantial number of new consumers to the Wal-Mart customer lists.

f.Cons

(1) Large amounts of capital required for foreign expansion.

(2) There is extreme competition in the retail industry in foreign markets.

(3) The Wal-Mart model and brand of low cost products may not be accepted by foreign consumers.

B. Recommended Strategy

1. Strategic Alternative Recommended: Strategic Alternative #3 – Growth – Concentration: Horizontal Growth with International Entry for Global Geographic Internal Expansion. The strategy seeks to concentrate on Wal-Mart’s current services in foreign markets through growth in established operations.

2. Decision Criteria

a. The decision process for the selecting the best alternative was based on 4 specific criteria:net sales growth after 5 years to demonstrate expansion of sales revenues in both domestic and international markets; operating income growth after 5 years to demonstrate both growth in sales revenues and also control of business costs; net earnings level after 5 years to demonstrate which alternative is the most profitable to our owners; and international market share after 5 years to demonstrate the importance of international expansion into new markets to keep the company growing. Also strongly considered were our internal strengths and weaknesses in a SWOT manner as we sought to best employ our considerable competencies and protect and improve on our few internal weaknesses.

b. The 4 decision criteria were evaluated and equally valued in a strategic decision matrix which showed which alternative was best for Wal-Mart’s future. We used pro forma income and balance sheet statements as well as market share estimations in our decision analysis.

3. Rationale / Justification

a. The International Growth Concentration strategy to expand internationally fully utilizes many of the core and distinct competencies of Wal-Mart in the areas of logistics, supply chain management, and technology to facilitate such an aggressive action. Wal-Mart is using its inherent strengths to project itself more into worldwide markets and also taking actions to improve its few weaknesses. This growth strategy will really improve the top line and the bottom line of Wal-Mart’s financial statements and will surely please investors and owners.

b. The International Growth strategy was selected due to its superior returns over the other two alternatives in all four of the decision criteria. Wal-Mart’s pro forma income statement and market share estimate analysis revealed the following in the fifth year of the plan:

(1) net sales growth: Alternative #3 - 17.4%; Alternative #2 - 5.0%; Alternative #1 - 3.6%

(2) operating income growth: Alternative #3 – 39.0%; Alternative #2 – 10.9%; Alternative #1 – 2.2%

(3) net earnings: Alternative #3 - $37.5B; Alternative #2 – $19.0B; Alternative #1 - $12.3B.

(4) international market share estimate: Alternative #3 – 30%; Alternative #2 – 15%; Alternative #1 – 10%.

4. Clearly strategic alternative #3 is the correct choice as it is head and shoulders above the other two alternatives across all lines of important decision criteria.

VII. Implementation (see Exhibit 6)

A. Corporate Directional Strategy

1. The global geographic internal expansion growth strategy concentrates on Wal-Mart’s current services in foreign markets through growth in established operations. It will further leverage its logistics and supply-chain to deliver top quality products for horizontal growth. In addition, it will focus a well developed strategic plan to establish the “Wal-Mart” brand in these markets.

2. The President/CEO will develop, announce, deploy, and support the strategy. The Board of Directors will review the strategy prior to distributing to the SBU Vice Chairmen within 1 month of its full development. The plan will then be distributed to Marketing, Global Procurement, and the President of SBU within 2 weeks of the Chairmen’s review.

B. Supporting Business Strategy

1. The business strategy to support this growth is the competitive lower cost strategy. Wal-Mart has core competencies in their lower cost strategy. They will continue to use a cooperative strategy with established strategic alliances in its foreign market operations. In addition, new strategic alliances will be forged as appropriate.

2. The Vice Chairman International will review the assemble suppliers and distributors program in Phase II of the strategy. The program is implemented by the EVP Global Procurement. They will work closely with the EVP Logistics, and President/CEO International SBU to identify additional resources, secure contracts (within 1 month of securing locations), and negotiate cooperation with established alliances (revise contracts as necessary within 1 month).

C. Supporting Functional Strategies

1. Marketing - The Vice Chairman International will review the marketing plan as implemented by the EVP CMO. The EVP CMO will work in conjunction with the EVP Global Procurement, President/CEO International SBU, and SVP Finance to research (45 days), develop (30 days), and deploy the local marketing plan (30 days). The plan focuses on current operations. It creates a customized store product mix and layout for the local market. Allchanges to staffing will be immediately communicated to EVP People. In addition, the advertising will be specially developed for the local market. This is all implemented within Phase I.

Marketing – Phase II, the Vice Chairman International will review the new stores marketing plan as implemented by the EVP CMO. The EVP CMO will work in conjunction with the EVP Global Procurement, President/CEO International SBU, and SVP Finance to research (45 days), develop (30 days), and deploy the local marketing plan (30 days). The plan focuses on new store operations within the 15 countries that Wal-Mart operates currently. It develops a customized store product mix and layout for the local market. All changes to staffing will immediately be communicated to the EVP People. In addition, the advertising will be specially developed for the local market and deployed 30 days prior to each store opening.

2. Finance – Phase I and Phase II, the SVP Finance will implement a plan to secure all required capital to support the marketing and growth plans as determined above. The EVP/CFO will review the plan monthly.

3. Operations-

a.Operations (Government) – This part of the plan is complete in Phase I. The EVP Corporate Secretary, accompanied by the President/CEO International SBU will implement the regulatory approval plan. They will complete the following: review requirements and develop timelines for each of the 15 countries where expansion is targeted; complete timeline within 30 days of receipt of requirements; prioritize distribution center groundbreaking based on shortest time to secure approvals; distribute timeline directly to each person involved in implementation or review; and work to meet or outdo each date specified on the timeline. The EVP/CFO and Vice Chairman International will co-review the regulatory approval plan.

b. Operations (Distribution Center) – The locate operations plan begins at the end of Phase I and continues through Phase II. The EVP Realty will identify desired locations in each targeted area based on the timeline identified in the regulatory approval plan. Then prioritize the distribution centergroundbreaking based on shortest time to secure approvals. Then secure locations within 2 weeks after government approvals are received. Open 1 distribution center per country (15) within 5 years. A communication for capital is sent to the SVP Finance upon identification of locations. The EVP Logistics and President/CEO International SBU will work with the EVP Realty to implement this plan. The Vice Chairman International will review the plan on a monthly basis.

c. Operations (Store Operations) – The locate operations plan begins at the end of Phase I and continues through Phase II. The EVP Realty will identify desired locations within proper distances of the distribution center in each targeted area based on theprioritized list from the regulatory approval plan. Open 3 stores per distribution center (45) within 5 years. They will determine the store layout appropriate for the market within 1 week of securing the location. A communication for capital is sent to the SVP Finance upon identification of locations. The EVP Logistics, President/CEO International SBU, and EVP CMO will work with the EVP Realty to implement this plan. The Vice Chairman International will review the plan on a monthly basis.

4. HR – This orientation development plan is contained within Phase II. The EVP People will locate, interview, and hire store managers 6 months prior to scheduled store completion and staff 3 months later. Training of managers and staff will begin 2 months prior to opening. The EVP Risk Management will assist in the implementation of the plan and the Vice Chairman International will review progress monthly.

5. Information Technology – The implement technology action plan is the final tactical strategy in Phase II. The EVP CIO (and President/CEO International SBU) will oversee the installation of the systems per established timelines for the distribution centers and stores. All systems will be fully operational 2 months prior to location opening. The plan will be reviewed monthly by the Vice Chairman International.

VIII. Evaluation and Control (see Exhibit 6 and 8)

A. Corporate Directional Strategy

1. The Board of Directors will review the strategy annually. It will compare foreign market current results with pro forma results for: operating income growth in excess of net sales growth, inventory growth rate less than net sales growth, increased sales revenue of 15% per year, and an additional $7 to $11 billion in sales revenue within three years. They will reward senior management based on meeting each of the desired results. In the event the results do not match the expected results a special board committee consisting of the members on the board with international operations experience (Douglas Daft, former Coca-Cola Co. CEO, Roland Hernandez, former Telemundo Group CEO, Linda Wolf, former Leo Burnett CEO, and David Glass, former Wal-Mart CEO) in conjunction with the president will evaluate each area of the plan to identify where the plan is failing. Then an adjustment will be made in the plan to target the area(s) of concern. Upon completion the new plan it will be re-distributed to each of the officers originally tasked with this strategy for implementation.

B. Supporting Business Strategy

1. The Vice Chairman International will review the assemble suppliers and distributors program monthly beginning in Phase II of the strategy. They will compare current results with the requirements of: securing or revising contracts with alliances within one month of securing new locations. They will reward the EVP’s responsible for implementing the program based on meeting these requirements. If results are not met the Vice Chairman International must consult with the EVP’s responsible for implementation and locate the source for under performance. A remedial program will be established to eliminate the problem(s) and update the plan. The updated plan will become an amendment to the original strategy.

C. Supporting Functional Strategies

1. Marketing - The Vice Chairman International will review the marketing plan monthly beginning in Phase I and continue through Phase II. They will compare current results from customer surveys to the research data from the beginning of the Phase. A minimum average improvement rating of one level (like average to above average) is required for the EVP CMO, EVP Global Procurement, President/CEO, and SVP Finance to be eligible to participate in profit sharing. If results are not met the Vice Chairman International will seek advice from those responsible for implementation and locate the source for under performance. A remedial program will be established to eliminate the problem(s) and update the plan. The updated plan will become an amendment to the original strategy.

2. Operations –

a. Operations (Government) – This part of the plan is complete in Phase I the EVP/CFO and Vice Chairman International will co-review the regulatory approval plan quarterly. They will compare regulatory approvals received to the timeline if the EVP Corporate Secretary and the President/CEO International SBU outdo each deadline they will be eligible to participate in profit sharing. If (at a minimum) they meet ALL deadlines they will be eligible for a bonus. If any deadline is missed the EVP/CFO and Vice Chairman International will meet with those responsible for implementation on a monthly basis to locate the source for under performance. A remedial program willbe established to eliminate the problem(s) and update the plan. The updated plan will become an amendment to the original strategy.

b. Operations (Distribution Center) – The locate operations plan begins at the end of Phase I and continues through Phase II, the Vice Chairman International will review the plan on a monthly basis. If a minimum of 3 distribution centers per year are opened the EVP Realty, EVP Logistics and President/CEO International SBU will be eligible for profit sharing. If however they do not open the minimum centers the Vice Chairman will meet with those responsible for implementation to determine if the plan was not realistic or locate the source of the bottleneck. If a remedial program is necessary to eliminate the problem(s), updates will be made to the plan. The updated plan will become an amendment to the original strategy.

c. Operations (Store Operations) – The locate operations plan begins at the end of Phase I and continues through Phase II, the Vice Chairman International will review the plan on a monthly basis. If a minimum of 3 stores per distribution center per year are opened the EVP Realty, EVP Logistics and President/CEO International SBU will be eligible for profit sharing. If however they do not open the minimum stores the Vice Chairman will meet with those responsible for implementation to determine if the plan was not realistic or locate the source of the bottleneck. If a remedial program is necessary to eliminate the problem(s), updates will be made to the plan. The updated plan will become an amendment to the original strategy.

3. HR – This orientation development plan is contained within Phase II the Vice Chairman International will review progress monthly. If semi-annual employee surveys rate store management within the same range as well performing stores the Vice Chairman International will grant a bonus to the EVP People and EVP Risk Management. If the surveys rate store management in the belowaverage range the EVP People and EVP Risk Management will establish a remedial program to improve associate relations.

4. Information Technology – The implement technology action plan is in Phase II. The Vice Chairman International completes a monthly review. If the EVP CIO (and President/CEO International SBU) successfully installs the systems in the distribution centers and stores, and they are fully operational 2 months prior to location opening they will receive an annual bonus. If they miss any installs during the year they will not be eligible for the bonus.

REFERENCES

Camerius, J.W., & Hunger, J.D. (2006). Wal-Mart Stores, Inc.: under attack (2006) [case study]. Upper Saddle River, NJ: Prentice Hall Inc.

Kennon, J. (2011).Negative working capital can be good…sometimes. About.com. Retrieved from http://beginnersinvest.about.com/od/analyzingabalancesheet/a/negative-working-capital.htm

Wal-Mart Stores, Inc., 2006 Annual Report. (2006). Bentonville, Arkansas. Retrieved from http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-reportsannual

Wheelen, T.L., & Hunger, J.D. (2011). Strategic management and business policy. Upper Saddle River, NJ: Pearson Education, Inc.

EXHIBIT 1

EXTERNAL FACTOR ANALYSIS SUMMARY (EFAS) on WAL-MART (WM)

External Factors	Weight:	Rating:	Weighted Score	Comments
Opportunities:
O1: Growing Market in Urban Mall Centers	.025	5.0	.125	The mall center strategy represents a new area for expansion. Many retailers have closed shop in these locations leaving prime real estate open for the taking. Increased foot-traffic could lead to higher sales of approximately $1B, which help offset the increased cost per square foot. However, this opportunity does not represent a critical factor in WM’s survival therefore I weight it low at .025. WM is an industry leader in the domestic market so I rate this factor outstanding (5.0).
O2: International Growth Expansion in Argentine, Brazil, Great Britain, Japan, China, and Central America	.25	4.0	1.0	These are all countries where WM already has a presence but is facing difficulty adapting to the local business environment. However, successful expansion in these markets could bring as much as $7B to $11B to the company’s annual sales income. Helping WM reach its goal of growing more in net income over net sales as a percent over prior year. Expansion in foreign markets is important to WM’s growth strategy so the weight is high at .25. This carries an above average rating (4.0) because WM performs much better in some and average in other countries compared to their peers.
O3: Weak Performance of Domestic Competitors (Sears, Woolco, Toys R Us, Caldor, and Venture)	.20	5.0	1.0	These competitors either have or are giving up precious market share within the domestic market. WM has an opportunity to convert their customers. If WM can capture 40% of their market share it could amount to $4B. This represents a good addition to WM market share so I weight it .20. WM is an industry leader in its domestic operations so I rate it outstanding (5.0).
O4: Internet Retail Operations	.05	3.0	.15	There is a growing Generation Y market which is very computer, mobile device, and cell phone savvy. These shoppers are in their twenties now and make-up a large part of the market. This area could add up to 5% to gross sales increasing sales revenues by $3B, but it is not enough to warrant a large weight so I rate it .05. This has an average (3.0) rating because WM performance is only as equal to their competitors.
O5: Financial Services Sector	.025	2.5	.0625	This is an area where WM could open a whole new world to its customers. They could potentially bring banking and financial services to the many millions that are currently unbanked. This could open a new avenue for market share and additional sales revenue estimated at $.5B for the first year. However, the financial services sector is a difficult one to enter therefore I weighted it low at .025. WM does not have knowledge or experience in this area and are rated below average at (2.5).

Threats:
T1: Attacks on Business Practices (unions, cities, consumers, political groups, local and state governments)	.15	3.0	.45	These groups are very vocal in their opposition to WM’s business practices including wages, benefits, union representation, and market dominance. Additional costs related to litigation and fines have cut into domestic profits by up to 10% or $1B annually. Despite the relatively small impact on profits this is weighted high at .15 which indicates the growing opposition to WM and damage to its reputation. I have rated it average (3.0) due to the fact that WM’s is an industry leader and should address these issues with a stronger public relations counter attack.
T2: Increasing Competition (Target, Kohl’s, TASCO, Aldi, Lidl, Carrefour, and Sears)	.20	4.0	.80	WM’s competitors are emulating its business strategy and using it against them. The competition in foreign markets has met each WM price cut with cuts of their own. Target has taken over the #2 spot in the domestic market and has the #1 position in certain niche areas. This area is a critical factor in WM’s survival and represents approximately 15% of total sales revenue or $47B annually so it warrants a high weight of .20. WM’s response to increased competition in the domestic market is well above average. However, their ability to penetrate foreign markets is average and that is why this is rated (4.0) for above average.
T3: Rising Oil Prices	.025	4.0	.10	The affect of increasing oil prices on WM in both domestic and foreign markets could have a material impact on its performance. Gasoline is up 33% over 2005 prices. This could cause consumers to reduce their discretionary spending. However, these conditions impact all retail operators and therefore I weight it a .025. WM has been through rising oil prices in the ‘70’s and economic downturns before and still grew their income year-over-year therefore I rate them (4.0) in this area.
T4: Investor Expectations	.025	2.5	.0625	Though the company is performing well, the stock continues to decline in price. This is mostly due to the high expectations of investors for WM to continue its market dominance. In just over a 4 year period WM’s stock price had declined by 9.9%! This is in stark contrast to its competitors who, during the same period, saw their stock prices climb. Since this does not have a direct impact on WM’s operations it is weighted low at .025. In view of the fact that WM’s stock performance compared to their peers is rated (2.5) below average.
T5: Growth Prospects Shrinking	.05	4.0	.20	As WM moves into more world markets it eliminates that country from the list of growth potential. World growth is finite and therefore at some point WM will need to change its growth strategy to continue to increase its profits. The weight is low at .05 as there are still many markets that WM has yet to conquer. I rate them above average (4.0) in this area as they grow at an above industry average rate.
Total Scores:	1.000		3.95

EXHIBIT 2

INTERNAL FACTOR ANALYSIS SUMMARY (IFAS) on WAL-MART (WM)

Internal Factors	Weight:	Rating:	Weighted Score	Comments
Strengths:
S1: Corporate Strategy	.15	4.5	.675	WM is the dominant U.S. retail market leader and has gained a core competency status in this SF. This market leadership has come to be known as the “Wal-Mart Effect.” It ensures low prices, wide selections, and quality service. It is very significant in WM’s sustainability so it is weighted .15. The result on net sales revenue is approximately 30% or $94B annually. WM is an industry leader in executing its strategy and therefore I rate it (4.5) well above average.
S2: Corporate Culture	.10	4.5	.45	WM and its associates have received multiple industry awards for its culture. WM has a reputation for inspiring “The Wal-Mart Way” in its associates. This consistency in the corporate culture instills the same quality service from store-to-store. It is important to WM’s consistent operations so it is weighted .10. This core competency helps WM maintain its number one position in domestic market share. WM leads the industry in this SF so I rate it well (4.5) above average.
S3: Logistics and Supply-Chain Management	.20	5.0	1.0	WM created a state-of-the-art logistics and supply-chain management system. This system gives it a distinct competency in this area, which is why it is weighted .20. The impact on sales revenue is an approximate cost savings over the average firm of 6% or $19B annually. WM ranks highest in this area (5.0) outstanding due to its distinct competency.
S4: Associate Relations	.125	4.0	.50	WM is the largest private employer in the U.S. Their associate relations are strong. They offer many advantages to their associates including management training, seminars, development, awards, and profit sharing. Their cost for hourly labor compared to its competitors is approximately 20% lower. This gives WM a competitive advantage so the weight is .125. WM is above average (4.0) in this SF due to its ability to maintain its low cost for labor, coupled with associate satisfaction.
S5: Social Responsibility	.025	4.0	.10	WM does a very good job of being involved in the communities it serves. It offers grants for schooling, and jobs in struggling urban markets. It also strives to reduce, recycle, and reuse resources. Although this is an important SF, it is not weighted very high at .025 due to the importance of so many other SF. WM is an industry leader in this area, which is why it is rated (4.0) above average.

Weaknesses:
W1: Foreign Market Penetration	.20	4.0	.80	WM maintains 20% of its retail operations outside the U.S. However, they are slow to adjust tactical strategies to foreign local markets. In addition, they tend to dictate technological and strategic planning from their main headquarters in the U.S. The “Wal-Mart” brand is not yet established worldwide. Since foreign markets are a critical part of WM strategic growth plan the weight is high at .20. The impact on foreign sales revenue is estimated to be $9B or 15%. However, WM is rated above average (4.0) due to their established operations and strategic alliances in foreign markets.
W2: Employee Practices	.05	3.0	.15	WM has been criticized, by many outside forces, for its employment practices. They have been the defendant in multiple legal actions. Their pay and benefits are below other unionized stores. Less than one-half of their employees have health insurance. However, it is not weighted very high at .05 due to recent changes in their practices. The cost to defend itself in these cases is approximately 5% of other operating costs. WM does an average job (3.0) of establishing its employee policies and procedures compared to the industry.
W3: Business Practices	.025	3.0	.075	This is another area WM has been criticized. They have been accused of manipulating suppliers, hiring illegal workers, poor conditions in supplier’s facilities, and blocking access for workers to unionize. The costs to address these issues are estimated to be $3B annually. This is weighted low .025 due to WM’s willingness to adjust their practices recently (to a certain extent). WM’s business practices are within industry norms so the rating is average (3.0).
W4: Public Relations	.10	2.5	.25	WM has been under increasing attacks for business and employment practices. However, they have yet to launch a counter attack or promote their efforts in local communities, social responsibility, and green marketing. This is weighted high at .10 due to the negative effect on the company’s reputation. A company’s reputation represents a competitive advantage and needs to be protected no matter the costs involved. WM appears to perform below average in this SF and is rated (2.5).
W5: Slowing Same Store Sales Growth	.025	3.0	.075	WM’s growth year-over-year in same stores sales is slower than that of its main competitor. WM’s sales growth is 3.4% as compared to Target at 5.6%. This implies that their closest competitor is gaining market share. Since this spread is not critical it is weighted low at .025. This SF accounts for approximately $3B in lost sales revenue per year. WM has recently changed its practices for carrying quality fashionable merchandise therefore it is rated (3.0) average within the industry.

Total Scores:	1.00		4.075

EXHIBIT 3

STRATEGIC FACTOR ANALYSIS SUMMARY (SFAS) on WAL-MART (WM)

Strategic Factors	Weight	Rating	Weighted Score	S H O R T	I N T E R M E D I A T E	L O N G	Comments
S1: Corporate Strategy	.10	4.5	.45			X	WM is the dominant U.S. retail market leader and has gained a core competency status in this SF. This market leadership has come to be known as the “Wal-Mart Effect.” It ensures low prices, wide selections, and quality service. It is very significant in WM’s sustainability so it is weighted .15. The result on net sales revenue is approximately 30% or $94B annually. WM is an industry leader in executing its strategy and therefore I rate it (4.5) well above average.
S3: Logistics and Supply-Chain Management	.15	5.0	.75	X	X	X	WM created a state-of-the-art logistics and supply-chain management system. This system gives it a distinct competency in this area, which is why it is weighted upper-level .15. The impact on sales revenue is an approximate cost savings over the average firm of 6% or $19B annually. WM ranks highest in this area (5.0) outstanding due to its distinct competency.
S4: Associate Relations	.075	4.0	.30	X	X	X	WM is the largest private employer in the U.S. Their associate relations are strong. They offer many advantages to their associates including management training, seminars, development, awards, and profit sharing. Their cost for hourly labor compared to its competitors is approximately 20% lower. This gives WM a competitive advantage however there are more important SF so the weight is low-level .075. WM is above average (4.0) in this SF due to its ability to maintain its low cost for labor, coupled with associate satisfaction.
W1: Foreign Market Penetration	.125	4.0	.50		X	X	WM maintains 20% of its retail operations outside the U.S. However, they are slow to adjust tactical strategies to foreign local markets. In addition, they tend to dictate technological and strategic planning from their main headquarters in the U.S. The “Wal-Mart” brand is not yet established worldwide. Since foreign markets are a critical part of WM strategic growth plan the weight is high at above mid-level .125. The impact on foreign sales revenue is estimated to be $9B or 15%. However, WM is rated above average (4.0) due to their established operations and strategic alliances in foreign markets.
W4: Public Relations	.075	2.5	.1875	X			WM has been under increasing attacks for business and employment practices, which has a negative effect on the company’s reputation. However, they have yet to launch a counter attack or promote their efforts in local communities, social responsibility, and green marketing. This is weighted low-level at .075 as it is not as important as other SF. A company’s reputation represents a competitive advantage and needs to be protected no matter the costs involved. WM appears to perform below average in this SF and is rated (2.5).
O2: International Growth Expansion	.20	4.0	.80		X	X	WM already has a presence in 15 foreign countries but is facing difficulty adapting to the local business environment. However, successful expansion in these markets could bring as much as $7B to $11B to the company’s annual sales income. Helping WM reach its goal of growing more in net income over net sales as a percent over prior year. Expansion in foreign markets is important to WM’s growth strategy so the weight is high at .20. This carries an above average rating (4.0) because WM performs much better in some and average in other countries compared to their peers.
O3: Weak Performance of Domestic Competitors	.10	5.0	.50	X	X		Some of their domestic competitors either have or are giving up precious market share within the domestic market. WM has an opportunity to convert their customers. If WM can capture 40% of their market share it could amount to $4B. This represents a good addition to WM market share so I weight it mid-level .10. WM is an industry leader in its domestic operations so I rate it outstanding (5.0).
T1: Attacks on Business Practices	.075	3.0	.225	X	X	X	WM’s business practices including wages, benefits, union representation, and market dominance have increasingly been under attack from outside critics. Additional costs related to litigation and fines have cut into domestic profits by up to 10% or $1B annually. Due to the relatively small impact on profits this is weighted low-level at .075 which indicates the growing opposition to WM and damage to its reputation. I have rated it average (3.0) due to the fact that WM’s is an industry leader.
T2: Increasing Competition	.10	4.0	.40	X	X		WM’s competitors are emulating its business strategy and using it against them. The competition in foreign markets has met each WM price cut with cuts of their own. Target has taken over the #2 spot in the domestic market and has the #1 position in certain niche areas. This area is a critical factor in WM’s survival and represents approximately 15% of total sales revenue or $47B annually so it warrants a mid-level weight of .10. WM’s response to increased competition in the domestic market is well above average. However, their ability to penetrate foreign markets is average and that is why this is rated (4.0) for above average.

Total Scores:	1.00		4.1125

EXHIBIT 4
RATIO ANALYSIS ON WAL-MART (WM)

Fiscal Years 2002-2006

	2006	2005	2004	2003	2002
Wal-Mart Performance Measures
Operating Income Growth	8.4%	12.3%	11.5%	14.3%	15.1%
Net Sales Growth	9.5%	11.3%	4.8%	12.3%	12.2%
Inventory Growth	8.2%	11.8%	9.1%	10.6%	10.2%
Return on Average Assets	8.9%	9.3%	9.2%	9.2%	8.4%
Operating Expense to Net Sales	18.2%	18.0%	17.5%	16.8%	16.6%
Interest, Net to Net Sales	0.4%	0.3%	0.3%	0.4%	0.5%

Liquidity Ratios
Current Ratio	0.90:1	0.90:1	0.90:1	0.90:1	1.00:1
Quick Ratio	0.24:1	0.21:1	0.21:1	0.16:1	0.17:1
Inventory to Net Working Capital	-6.4:1	-6.9:1	-8.9:1	-9.1:1	-122.5:1
Cash Ratio	0.13:1	0.13:1	0.14:1	0.09:1	0.08:1

Profitability Ratios
Net Profit Margin	3.6%	3.6%	3.5%	3.3%	3.1%
Gross Profit Margin	23.1%	22.9%	22.5%	21.5%	21.2%
Return on Investment (ROI)	8.1%	8.5%	8.6%	8.7%	8.2%
Return on Equity (ROE)	22.5%	22.6%	21.3%	20.9%	19.4%
Earnings Per Share (EPS)	$2.68	$2.41	$2.08	$1.81	$1.49

Activity Ratios
Inventory Turnover	9.7x	9.6x	9.6x	10.0x	9.9x
Days of Inventory	48.9	49.4	48.9	46.4	46.9
Net Working Capital Turnover	-62.5	-65.9	-85.5	-91.2	-1210.0
Asset Turnover	2.3	2.4	2.4	2.6	2.7
Fixed Asset Turnover	4.1x	4.4x	4.6x	5.1x	5.1x
Average Collection Period	3.1	2.2	1.8	2.3	3.4
Accounts Receivable Turnover	117.4x	166.3x	204.4x	155.8x	108.9x
Accounts Payable Period	38.5	36.5	35.5	32.0	33.2
Days of Cash	7.5	7.0	7.4	4.1	3.6

Leverage Ratios
Debt to Asset Ratio	0.54:1	0.53:1	0.52:1	0.52:1	0.51:1
Debt to Equity Ratio	1.42:1	1.28:1	1.25:1	1.24:1	1.22:1
Long Term Debt to Capital Structure	0.50:1	0.41:1	0.36:1	0.42:1	0.45:1
Times Interest Earned	15.5	17.1	18.0	14.5	9.9
Current Liabilities to Equity	0.92:1	0.87:1	0.86:1	0.82:1	0.76:1

Other Ratios
Price/Earnings Ratio	17.21	21.74	25.89	26.41	40.26
Dividend Payout Ratio	22.39%	21.58%	17.31%	16.57%	18.79%
Dividend Yield on Common Stock	1.30%	0.99%	0.67%	0.63%	0.47%

EXHIBIT 5
COMMON-SIZE INCOME STATEMENT ON WAL-MART (WM)

(Dollar amounts in millions)

For Fiscal Years 2002-2006

Common-Size Percentages

	FY 2006	FY 2005	FY 2004	FY 2003	FY 2002	FY 2006	FY 2005	FY 2004	FY 2003	FY 2002

Net Sales	312,427	285,222	256,329	244,524	217,799	100%	100%	100%	100%	100%
Cost of Merchandise Sold	240,391	219,793	198,747	191,838	171,562	76.94%	77.06%	77.54%	78.45%	78.77%
Gross Profit	72,036	65,429	57,582	52,686	46,237	23.06%	22.94%	22.46%	21.55%	21.23%

Operating Income:
Other Income, Net	3,227	2,910	2,545	2,001	1,873	1.03%	1.02%	0.99%	0.82%	0.86%

Operating Expenses:
Operating, Selling, General, and Administrative	56,733	51,248	44,909	41,043	36,173	18.16%	17.97%	17.52%	16.78%	16.61%
Operating Income	18,530	17,091	15,218	13,644	11,937	5.93%	5.99%	5.94%	5.58%	5.48%

Interest Income (Expense):
Interest and Investment Income	248	201	164	138	171	0.08%	0.07%	0.06%	0.06%	0.08%
Interest Expense	(1,171)	(934)	(729)	(803)	(1,083)	-0.37%	-0.33%	-0.28%	-0.33%	-0.50%
Capital Leases	(249)	(253)	(267)	(260)	(274)	-0.08%	-0.09%	-0.10%	-0.11%	-0.13%
Interest, Net	(1,172)	(986)	(832)	(925)	(1,186)	-0.38%	-0.35%	-0.32%	-0.38%	-0.54%
Minority Interest	(324)	(249)	(214)	(193)	(183)	-0.10%	-0.09%	-0.08%	-0.08%	-0.08%
Earnings Before Income Taxes	17,034	15,856	14,172	12,526	10,568	5.45%	5.56%	5.53%	5.12%	4.85%
Income Taxes	5,803	5,589	5,118	4,487	3,897	1.86%	1.96%	2.00%	1.83%	1.79%
Net Earnings	11,231	10,267	9,054	8,039	6,671	3.59%	3.60%	3.53%	3.29%	3.06%

EXHIBIT 6
IMPLEMENTATION, EVALUATION & CONTROL PLAN FOR WAL-MART (WM)

For Recommended Strategic Alternative #3 – Growth – Concentration: Horizontal Growth with International Entry for Global Geographic Internal Expansion

Strategic Alternative #3 Element	Action Plan	Priority System	Who Will Implement	Who Will Review	How Often Reviewed	Metrics / Criteria
PHASE I
New Corporate Directional Strategy	Develop, Announce, Deploy, and Support	1	President/CEO	Board of Directors	Annually	Total development and distribution to SBU Vice Chairmen within 1 month. Further distribution to Marketing, Global Procurement, and President SBU within 2 weeks of Chairmen review.
Marketing Division	Research, Develop and Deploy Local Market Plan	1	Lead: EVP CMO EVP Global Procurement President/CEO International SBU SVP Finance	Vice Chairman International	Monthly	Complete local market research within 45 days, develop product mix and store layout 30 days later, and determine appropriate staffing levels to support campaign within 30 days. Communicate staffing changes to EVP People. Deploy local market plan immediately following the above.
Finance Division	Secure Required Capital	2	SVP Finance	EVP/CFO	Monthly	Secure all required capital to support the marketing plan as determined in the plan above.
Government	Secure Regulatory Approval	3	Lead: EVP Corp. Secretary President/CEO International SBU	EVP/CFO & Vice Chairman International	Quarterly	Review requirements and develop timelines for each of the 15 countries where expansion is targeted. Complete timeline within 30 days of receipt of requirements. Prioritize distribution center groundbreaking based on shortest time to secure approvals. Distribute timeline directly to each person involved in implementation or review. Work to meet or beat each date specified on the timeline.
Distribution Center	Locate Operations	3	Lead: EVP Realty EVP Logistics President/CEO International SBU	Vice Chairman International	Monthly	Identify desired locations in each targeted area based on timeline identified in - Secure Regulatory Approval Secure locations within 2 weeks after government approvals. Open 1 per country (15) within 5 years. Communicate need for capital to SVP Finance upon identification of locations.
Store Operations	Locate Operations	3	Lead: EVP Realty EVP Logistics President/CEO International SBU EVP CMO	Vice Chairman International	Monthly	Identify desired locations. Work in conjunction with distribution center prioritized list to secure locations within established timelines. Open 3 per distribution center within 5 years. Determine store layout appropriate for market 1 week after securing. Communicate need for capital to SVP Finance upon identification of locations.
PHASE II
Strategic Alliances	Assemble Suppliers & Distributors	4	Lead: EVP Global Procurement EVP Logistics President/CEO International SBU	Vice Chairman International	Monthly	Identify additional resources to accommodate growth. Secure contracts within 1 month of securing locations. Negotiate cooperation with established strategic alliances in 15 countries where Wal-Mart has established operations. Revise contracts if necessary within 1 month.
Finance Division	Secure Required Capital	4	SVP Finance	EVP/CFO	Monthly	Secure all required capital to support the marketing plan as determined in the plan below.
Marketing Division	Research, Develop and Deploy Local Market Plan	4	Lead: EVP CMO EVP Global Procurement President/CEO International SBU SPV Finance	Vice Chairman International	Monthly	Complete local market research within 45 days, develop product mix and product layout 30 days later, and determine appropriate staffing levels to support distribution center/stores within 30 days. Communicate staffing requirements to EVP People. Develop and deploy local market campaign 30 days before each store opening.
HR Division	Orientation Development	5	Lead: EVP People EVP Risk Mgmt	Vice Chairman International	Monthly	Hire store managers 6 months prior to scheduled store completion and staff 3 months later. Begin training managers and staff 2 months prior to opening.
Information Technology Division	Implement Technology	5	Lead: EVP CIO President/CEO International SBU	Vice Chairman International	Monthly	Install systems per established timelines for distribution center and stores. All systems fully operational 2 months prior to location opening.

EXHIBIT 7

TOWS MATRIX on WAL-MART (WM)

Internal Factors (from IFAS)

External Factors (from EFAS)	Strengths (S) S1 Corporate Strategy S2 Corporate Culture S3 Logistics and Supply-Chain Management S4 Associate Relations S5 Social Responsibility	Weaknesses (W) W1 Foreign Market Penetration W2 Employee Practices W3 Business Practices W4 Public Relations W5 Slowing Same Store Sales Growth
Opportunities (O) O1 Growing Market in Urban Mall Center O2 International Growth O3 Weak Performance of Domestic Competitors O4 Internet Retail Operations O5 Financial Services Sector	S/O Strategies Ø Exploit its corporate culture to advance its international growth (O2, S1, S2, S3, S4). Ø Develop a growth strategy that leverages their strong associate relations (O1, O3, S1, S3, S4, S5). Ø Utilize its logistics and supply-chain coupled with internet retail operations to penetrate markets of competitors (O2, O3, O4, S1, S3).	W/O Strategies Ø Develop a growth strategy that focuses on foreign local market conditions (W1, W3, W4, O2). Ø Promote WM through a newly designed and targeted public relations campaign (W4, W5, O3, O4). Ø Penetrate foreign markets through internet retail operations in developed nations (W1, W4, O2, O4).
Threats (T) T1 Attacks on Business Practices T2 Increasing Competition T3 Rising Oil Prices T4 Investor Expectations T5 Growth Prospects Shrinking	S/T Strategies Ø Squelch opposition to business practices by implementing strategies focused on social responsibility (T1, T4, S1, S2, S4, S5). Ø Develop additional strategic alliances to capture further market share abroad (T2, T4, S1, S2, S3, S4, S5). Ø Leverage its logistics and supply-chain to maintain domestic structural barriers (T2, T4, S1, S2, S3, S4, S5).	W/T Strategies Ø Implement new oversight programs in the upstream supply chain in foreign facilities (W1, W2, W3, W4, T1, T4). Ø Invest in promoting the “Wal-Mart Brand” in foreign markets (W1, W4, T2, T4). Ø Create individualized strategic plans for each foreign market (W1, W4, T2, T4).

Internet Growth

(Dollar amounts in millions)

Common-Size Percentages

	FY 2011	FY 2010	FY 2009	FY 2008	FY 2007	FY 2011	FY 2010	FY 2009	FY 2008	FY 2007

Net Sales	389,481	370,934	353,271	336,448	320,427	100%	100%	100%	100%	100%
Cost of Merchandise Sold	295,324	281,783	268,857	256,701	246,546	75.82%	75.97%	76.10%	76.30%	76.94%
Gross Profit	94,157	89,152	84,414	79,747	73,881	24.18%	24.03%	23.90%	23.70%	23.06%

Operating Income:
Other Income, Net	3,392	3,358	3,325	3,292	3,259	0.87%	0.91%	0.94%	0.98%	1.02%

Operating Expenses:
Operating, Selling, General, and Administrative	65,769	63,853	61,994	60,188	58,435	16.89%	17.21%	17.55%	17.89%	18.24%
Operating Income	31,780	28,656	25,745	22,851	18,705	8.16%	7.73%	7.29%	6.79%	5.84%

Interest Income (Expense):
Interest and Investment Income	291	275	264	254	249	0.08%	0.08%	0.08%	0.08%	0.08%
Interest Expense	(1,397)	(1,331)	(1,292)	(1,242)	(1,206)	-0.37%	-0.37%	-0.37%	-0.37%	-0.37%
Capital Leases	(365)	(331)	(301)	(274)	(249)	-0.10%	-0.09%	-0.09%	-0.08%	-0.08%
Interest, Net	(1,470)	(1,387)	(1,329)	(1,262)	(1,206)	-0.39%	-0.38%	-0.38%	-0.37%	-0.37%
Minority Interest	(566)	(509)	(456)	(403)	(327)	-0.15%	-0.14%	-0.13%	-0.12%	-0.10%
Earnings Before Income Taxes	29,743	26,760	23,961	21,186	17,173	7.88%	7.34%	6.82%	6.26%	5.28%
Income Taxes	10,708	9,634	8,626	7,627	6,182	2.84%	2.64%	2.45%	2.25%	1.90%
Net Earnings	19,036	17,126	15,335	13,559	10,990	5.04%	4.70%	4.36%	4.01%	3.38%

Analysis of Wallmart

a. To keep the world’s biggest retailer on its phenomenal growth roll and find new areas to continue that growth. It must build on its market share in the domestic and foreign markets.

b. To deliver consistent sales and earnings increases,which investors had come to expect from Wal-Mart over the years. It must locate new areas to continue its profit growth into the future.

c. To continue to deliver low-cost, high customer service, and everyday low prices. The challenge is to maintain its low-cost operational structure, which relies heavily on its logistics and supply-chain management.

d. To anticipate business and employment practice criticisms. It must develop a public relations strategy to address its critics.

a. The domestic strategy contains two parts – the customers and the associates. Give the customer what they want, when they want it, at the low price they expect. Secondly, treat each other with respect and support the foundation of our success.

b. The growth strategy within the U.S.A. featured rapid plans for moving into other areas with stores, supercenters, Sam’s Clubs, and distribution centers.

c. Give support to the U.S.A. by offering products made in America to Americans. They offer products made in the U.S.A. whenever possible in their domestic stores.

d. Leverage their distinctive competence in logistics and supply-chain management technology to maintain its low cost position.

e. The international strategy targets foreign markets by growing organically, acquiring competitors, and strategic alliances. In 2006, Wal-Mart was focusing on China, Japan, and Central America.

a. Cost containment is imperative to maintain their always low prices.

b. Provide continuous improvement programs for associate development.

c. Manage growth through continuous environmental scanning for strategic alliance opportunities in foreign countries and take advantage of the retail industry market conditions in the U.S. and Canada.

b. Computers and software development have introduced a whole new level of logistics to the retail industry. These technologies are becoming commonplace in many retail operations. Strategy implementation and maintenance of these technologies is instrumental in a company’s success (O).

c. Wal-Mart faces further problems in the legal arena. They were involved in a class action law suit brought on by current and former female employees over discrimination in pay and advancement opportunities (T).

d. They have been investigated for hiring illegal workers and paid some large fines in the past within the U.S. (T).

a. The young Generation Y population represents the future shoppers of Wal-Mart. They rely on their computers, mobile devices, and cellular phones to enhance most aspects of their life including shopping (O).

b. There is a growing concern to protect our land, water, and air from pollution. Consumers look for opportunities to select environmentally friendly products. In addition, they support companies that promote these activities (O).

c. Consumers worldwide desire low costs, value, selection and high customer service. There is a need to fill that desire with a product mix of goods and services to meet local tastes (O).

d. A shift in consumer tastes to trendier fashions and upscale electronics. Consumers want what they want at the best price available. There is a need to provide name brand products at low prices (O/T).

4. Threat of new entrants. This is low due to the mature nature of the retail industry in the domestic market (O). However, in foreign markets entry barriers are high and many prevent penetration in those markets (T).

7. Bargaining power of buyers. The bargaining power of Wal-Mart’s customer base is low as they have a wide variety of clientele worldwide (O).

8. Bargaining power of suppliers. This category is low as products are supplied from multiple countries through special arrangements with suppliers (O).

1. There are four major areas in the strategic external environment that Wal-Mart faces in deciding the way ahead for the company. The first two are opportunities and the second two are threats.

b. Wal-Mart is slow to adjust tactical strategies to foreign local markets. This is working as a bottleneck (constraining) to sales growth. The “Wal-Mart” brand is not yet established worldwide so there is still work to be done in this area (W).

d. Wal-Mart is trending towards a different product mix that includes more quality fashionable merchandise and advanced electronic devices (W).

2. Finance (see Exhibits 4 and 5)

a. One metric derived from Wal-Mart Stores, Inc., Annual Report, p. 22, 2006, is a slower inventory growth as compared to net sales growth. Their inventory growth from 2005 to 2006 was 8.2% verse net sales growth of 9.5% for the same period (S).

b. Wal-Mart’s growth year-over-year in same stores sales is slower than that of its main domestic competitor. Their sales growth is 3.4% as compared to Target at 5.6%. This implies that their closest domestic competitor is gaining market share (W).

1. There are four major areas in the strategic internal environment that Wal-Mart must grapple with in deciding the way ahead for the company. The first two are strengths and the second two are weaknesses.

Weight

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