Case Study Example: Wal-Mart Stores in 2003

The financial year ending on January 31, 2003, saw a lot of changes in the financial position of Wal-Mart Stores. The retailer had just posted an increase in its net income and overall sales by 21 % and 12% respectively compared to the previous year (Ghemawat et al., 2004). The retail business was now the world's leading private employer. Before the report, the company's CEO, that is, H. Lee Scott Jr had rated the company six on a scale of ten. When asked what he thought the company's founder, Sam Walton, would think of the current situation of Wal-Mart, he was quick to admit that the founder would probably be pleased with their current position in the market. However, he mentions that Walton would likely be disappointed by some of their actions (Scott, 2005). For instance, he would not be happy with the company's high expenses and its position in the global market, considering that some of Wal-Mart's competitors are way better than the company in some categories.

At the end of 2003 fiscal year, Wal-Mart controlled 30% of the United States market based on the sales of household staples. The company also performed well in the domestic market, with sales averaging between 5%-6% for the vital domestic set-ups. Following the massive profits generated by the company previously, the management planned to increase its annual spending to $11 billion and increase the number of their stores in the U.S and other countries by 335 and 130 respectively. This strategy will help to increase the company's annual income even by a bigger margin.

Up to the year 2003, Wal-Mart Stores in the U.S. were grouped into two divisions, that is, Division One and SAM's Clubs. The former comprised of discount stores, supercenters, and neighborhood markets. However, outside the United States, the retail formats for the company were divided according to Wal-Mart's International Division. The typical setup exhibited by most Wal-Mart stores was the Discount Store format (GHEMAWAT et al., 2004). However, by 1995 the popularity of this retail form began to decline with the conversion of more stores to supercenters. The second most common retail format taken by Wal-Mart Stores was the Supercenter format. The setup involved converting a full-line grocery store to a Discount Store. The primary reason for introducing this type of retail was to enterprise the excess traffic to the departments of general merchandise.

Wal-Mart introduced the neighborhood markets to increase the number of their stores in the suburban markets. In the suburbs, the space for erecting stores was limited hence this was an excellent opportunity for the retailer to expand its size in a relatively fixed market. The primary purpose of establishing this retail format was to provide groceries to the surrounding population. These stores also offered services such as photo processing and drugstore items. Lastly, the SAM's Clubs form incorporated warehouse clubs that employed bulk buying and high-volume merchandising. Still, the lifespan of this retail format was short as it was surpassed by Costco. This is because it failed to satisfy consumer needs in the area of perishable goods. In addition to its stores, Wal-Mart also generated approximately $100 million in 2003, thanks to Walmart.com, an online marketing sit intended to market the company's product via the internet (Ghemawat et al., 2004).

By 2003, Wal-Mart was on the verge of adopting new procurement methods. In 2002, the company had already cut links with its longtime procurement agent and instead hired the firm's employees. The reason for this move was to ensure that Wal-Mart took the task of marketing to itself. This decision also enabled the company to deal with the problem of unbranded suppliers. This change provided that suppliers did not engage the buyers in negotiations in their offices, but instead the terms were agreed over in small rooms. In the rooms, the conditions were agreed upon based on the prices in the invoice. This guaranteed fair prices to the buyer considering that most suppliers included additional costs to the retailer. At times, the estimates were exaggerated to cater for other services such as co-operative advertising, return management fees, and promotional expense.

Lastly, apart from changes in procurement techniques, Wal-Mart also experienced transformation in its distribution system by the end of the 2003 fiscal year. For instance, by the end of that year, the company had a total of eighty-four Wal-Mart distribution centers in the United States and forty-three of such centers in other countries. The company also had a total of nineteen SAM's Club distribution centers in the U.S. These centers employed the hub-and-spoke transport system whereby a truck picked the merchandise from suppliers and brought it to the distribution center. Activities in the distribution center included the sorting of the merchandise after which it was delivered to the stores within a timespan of two days of being ordered.

References

Ghemawat, P., Mark, K. A., & Bradley, S. P. (2004). Wal-Mart stores in 2003. Harvard Business School.

GHEMAWAT, P., MARK, K., & BRADLEY, S. P. (2004). Wal-Mart Stores in 2003 (Abridged).Scott, H. L. Twenty-First Century Leadership," October 24, 2005. Wal-Mart Stores web site.