Wal-Marts Moral Responsibility Essay, Research Paper

Sam Walton, a leader with an innovative vision, started his own company and made it into

the leader in discount retailing that it is today. Through his savvy, and sometimes unusual,

business practices, he and his associates led the company forward for thirty years. Today,

four years after his death, the company is still growing steadily. Wal-Mart executives

continue to rely on many of the traditional goals and philosophies that Sam’s legacy left

behind, while simultaneously keeping one step ahead of the ever-changing technology and

methods of today’s fast-paced business environment. The organization has faced, and is

still facing, a significant amount of controversy over several different issues; however,

none of these have done much more than scrape the exterior of this gigantic operation.

The future also looks bright for Wal-Mart, especially if it is able to strike a comfortable

balance between increasing its profits and recognizing its social and ethical

responsibilities.

Why is Wal-Mart so Successful? Is it Good Strategy or Good Strategy Implementation? –

In 1962, when Sam Walton opened the first Wal-Mart store in Rogers, Arkansas, no one

could have ever predicted the enormous success this small-town merchant would have.

Sam Walton’s talent for discount retailing not only made Wal-Mart the world’s largest

retailer, but also the world’s number one retailer in sales. Indeed, Wal-Mart was named

“Retailer of the Decade” by Discount Store News in 1989, and on several occasions has

been included in Fortune’s list of the “10 most admired corporations.” Even with Walton’s

death (after a two-year battle with bone cancer) in 1992, Wal-Mart’s sales continue to

grow significantly.

The Wal-Mart Philosophy — Wal-Mart is successful not only because it makes sound

strategic management decisions, but also for its innovative implementation of those

strategic decisions.

Regarded by many as the entrepreneur of the century, Walton had a reputation for caring

about his customers, his employees (or “associates” as he referred to them), and the

community. In order to maintain its market position in the discount retail business,

Wal-Mart executives continue to adhere to the management guidelines Sam developed.

Walton was a man of simple tastes and took a keen interest in people. He believed in

three guiding principles: 1. Customer value and service; 2. Partnership with its associates;

3. Community involvement (The Story of Wal-Mart, 1995).

The Customer — The word “always” can be seen in virtually all of Wal-Mart’s literature.

One of Walton’s deepest beliefs was that the customer is always right, and his stores are

still driven by this philosophy. When questioned about Wal-Mart’s secrets of success,

Walton has been quoted as saying, “It has to do with our desire to exceed our customers’

expectations every hour of every day” (Wal-Mart Annual Report, 1994, p. 5).

The Associates — Walton’s greatest accomplishment was his ability to empower, enrich,

and train his employees (Longo, 1994). He believed in listening to employees and

challenging them to come up with ideas and suggestions to make the company better. At

each of the Wal-Mart stores, signs are displayed which read, “Our People Make the

Difference.” Associates regularly make suggestions for cutting costs through their “Yes We

Can Sam” program. The sum of the savings generated by the associates actually paid for

the construction of a new store in Texas (The story of Wal-Mart, 1995). One of Wal-Mart’s

goals was to provide its employees with the appropriate tools to do their jobs efficiently.

The technology was not used as a means of replacing existing employees, but to provide

them with a means to succeed in the retail market (Thompson & Strickland, 1995).

The Community — Wal-Mart’s popularity can be linked to its hometown identity. Walton

believed that every customer should be greeted upon entering a store, and that each store

should be a reflection of the values of its customers and its community. Wal-Mart is

involved in many community outreach programs and has launched several national efforts

through industrial development grants.

What are the Key Features of Wal-Mart’s Approach to Implementing the Strategy Put

Together by Sam Walton — The key features of Wal-Mart’s approach to implementing the

strategy put together by Sam Walton emphasizes building solid working relationships with

both suppliers and employees, being aware and taking notice of the most intricate details

in store layouts and merchandising techniques, capitalizing on every cost saving

opportunity, and creating a high performance spirit. This strategic formula is used to

provide customers access to quality goods, to make these goods available when and

where customers want them, to develop a cost structure that enables competitive pricing,

and to build and maintain a reputation for absolute trustworthiness (Stalk, Evan, &

Shulman, 1992).

Wal-Mart stores operate according to their “Everyday Low Price” philosophy. Wal-Mart has

emerged as the industry leader because it has been better at containing its costs which

has allowed it to pass on the savings to its customers. Wal-Mart has become a capabilities

competitor. It continues to improve upon its key business processes, managing them

centrally and investing in them heavily for the long term payback.

Wal-Mart has been regarded as an industry leader in “testing, adapting, and applying a

wide range of cutting-edge merchandising approaches” (Thompson & Strickland, 1995, p.

860). Walton proved to be a visionary leader and was known for his ability to quickly learn

from his competitors’ successes and failures. In fact, the founder of Kmart once claimed

that Walton “not only copied our concepts, he strengthened them. Sam just took the ball

and ran with it” (Thompson & Strickland, 1995, p. 859).

Wal-Mart has invested heavily in its unique cross-docking inventory system. Cross docking

has enabled Wal-Mart to achieve economies of scale which reduces its costs of sales. With

this system, goods are continuously delivered to stores within 48 hours and often without

having to inventory them. Lower prices also eliminate the expense of frequent sales

promotions and sales are more predictable. Cross docking gives the individual managers

more control at the store level.

A company owned transportation system also assists Wal-Mart in shipping goods from

warehouse to store in less than 48 hours. This allows Wal-Mart to replenish the shelves 4

times faster than its competition. Wal-Mart owns the largest and most sophisticated

computer system in the private sector. It uses a MPP (massively parallel processor)

computer system to track stock and movement which keeps it abreast of fast changes in

the market (Daugherty, 1993). Information related to sales and inventory is disseminated

via its advanced satellite communications system.

Wal-Mart has leveraged its volume buying power with its suppliers. It negotiates the best

prices from its vendors and expects commitments of quality merchandise (Thompson &

Strickland, 1995). The purchasing agents of Wal-Mart are very focused people. “Their

highest priority is making sure everybody at all times in all cases knows who’s in charge,

and it’s Wal-Mart” (Vance & Scott, 1995, p. 32). “Even though Wal-Mart was tough in

negotiating for absolute rock-bottom prices, the company worked closely with suppliers to

develop mutual respect and to forge long-term partnerships that benefited both parties”

(Thompson & Strickland, 1995, p. 866). Wal-Mart built an automated reordering system

linking computers between Procter & Gamble (”P&G”) and its stores and distribution

centers. The computer system sends a signal from a store to P&G identifying an item low

in stock. It then sends a resupply order, via satellite, to the nearest P&G factory, which

then ships the item to a Wal-Mart distribution center or directly to the store. This

interaction between Wal-Mart and P&G is a win-win proposition because with better

coordination, P&G can lower its costs and pass some of the savings on to Wal-Mart.

Sam Walton received national attention through his “Buy America” policy. Through this

plan, Wal-Mart encourages its buyers and merchandise managers to stock stores with

American-made products. In a 1993 annual report management stated the “program

demonstrates a long-standing Wal-Mart commitment to our customers that we will buy

American-made products whenever we can if those products deliver the same quality and

affordability as their foreign-made counterparts” (Thompson & Strickland, 1995, p. 868).

Environmental concerns are important to Wal-Mart. A prototype store was opened in

Lawrence, Kansas, which was designed to be environmentally friendly. The store contains

environmental education and recycling centers (Slezak, 1993). Wal-Mart has also adopted

the low cost theme for its facilities. All offices, including the corporate headquarters, are

built economically and furnished simply. To conserve energy, temperature controls are

connected via computer to headquarters. Through these programs, Wal-Mart shows its

concern for the community.

Wal-Mart has been led from the top but run from the bottom, a strategy developed by

Sam Walton and carried on by a small group of senior executives led by CEO David Glass.

Although recent growth has led Wal-Mart to add more management layers, senior

executives strive to maintain its unique culture. This culture, described as “one part

Southern Baptist evangelism, one part University of Arkansas Razorback teamwork, and

one part IBM hardware” has worked to Wal-Mart’s advantage (Saporito, 1994, p. 62).

Just how Successful is Wal-Mart? — A forecast (see Appendix A) of Wal-Mart’s income for

the period 1995-2000, considering increases of 30.6% in Net Sales, 27.7% in Operating

Expenses, and 52.3% in Interest Debt (a level which is below Wal-Mart’s historically

compounded growth rate of 55.6%) indicates that the company should continue to report

gains each year until 2000.

Growth on Sales — According to most analysts and company projections, sales should

approximate $115 billion by 1996, representing an increase of 30.6% as compared to

1995. If the company continues at this pace, sales should reach $334 billion by the year

2000. The growth on sales that Wal-Mart reported during the 1980s and the beginning of

the 1990s will be difficult to repeat, especially considering the ever-changing marketplace

in which it competes. In an interview, Bill Fields, President of the Stores Division, said

“Wal-Mart is now seeing price pressure from companies that once assiduously avoided

taking it on. These include specialty retailers such as Limited, category killers like Home

Depot and Circuit City, and catalog companies like Spiegel. I think everybody prices off of

Wal-Mart. You’ve got Limited reaching levels we’d thought they’d never get to. The result

is that everyday low prices are getting lower” (Saporito, 1994, p. 66).

In addition, the baby-boomers are reaching their peak earnings years, when financial and

personal priorities change. Thus, savings, not spending, will likely take precedence

because most baby-boomers are approaching retirement.

Debt Position — Based on Wal-Mart’s position in 1994, which was considered a year of

expansion for the company, (Wal-Mart added 103 new discount stores, 38 “Supercenters”,

163 warehouse clubs, and 94,000 new associates) interest debt increased 52.3%. The

cost paid by Wal-Mart to finance property plants and equipment forced the company to

increase long term debt by 4.6 times during the period 1991-1995. Long term debt for

1995 is $7.9 billion. If Wal-Mart continues its expansion plans based on more debt

acquisition at 1994 levels, the company may not attain forecasted gains by as early as

1998.

Operating Expenses — Operating expenses will be a key strategic issue for Wal-Mart in

order to maintain its position in the market. The challenge is how to run more stores with

less operating expenses. According to Bill Fields, “. . . the goal is to increase sales per

square foot and drive operating costs down yet another notch” (Saporito, 1994, p. 66).

Trends indicate that operating expenses have been growing at a rate of 27.7% in recent

years. However, Wal-Mart should reap the benefits of its investments in high technology,

and be able to operate more stores without increasing its expenses.

Cost of Sales — Cost of sales historically has been equal to the level of sales. If the

company continues to take advantage of its buying power, Wal-Mart can expect to lower

its cost of sales.

Wal-Mart’s future will depend on how well the company manages its expansion plans. For

the coming years, the company will need to justify its expansion plans with consistent

growth in sales, in order to offset the increases in debt interest and operating expenses.

What Problems are Ahead for Wal-Mart? What Risks? — Throughout the 1980s, Wal-Mart’s

strategic intent was to unseat industry leaders Sears and Kmart, and become the largest

retailer in the U.S. Wal-Mart accomplished this goal in 1991. But Wal-Mart’s current strong

competitive position and its past rapid growth performance can’t guarantee that the

company will remain as the industry leader or maintain its strong business position in the

future. Carol Farmer, a retail consultant, told the Wall Street Journal that, “One little bad

thing can wipe out lots of good things” (Trimble, 1990, p. 267). Every move in its business

operation ought to be well thought-out and executed.

Wal-Mart needs to address two major areas in order to maintain or to capture an even

stronger long term business position: 1) Single-business strategy — Wal-Mart’s success is

mainly based on its concentration of a single-business strategy. This strategy has achieved

enviable success over the last three decades without relying upon diversification to sustain

its growth and competitive advantages. Given its current position in the industry, Wal-Mart

may want to continue its single-business strategy and to push hard to maintain and

increase market share. However, there is risk in this strategy, because concentration on a

single-business strategy is similar to “putting all of a firm’s eggs in one industry basket”

(Thompson & Strickland, 1995, p. 187). In other words, if the retail industry stagnates due

to an economic downturn, Wal-Mart might have difficulty achieving past profit

performance.

Also, if Wal-Mart continues to follow Sam Walton’s vision of expansion, Wal-Mart will

reach its peak in the very near future. When it does, its growth will start to slow down and

the company will need to turn its strategic attention to diversification for future growth.

2) Social responsibility — Retail stores can compete on several bases: service, price,

exclusivity, quality, and fashion. Wal-Mart has been extremely successful in competing in

the retail industry by combining service, price, and quality. However, other merchants may

object to Wal-Mart’s entry into their community. Because of its ability to out-price smaller

competitors, Wal-Mart’s stores threaten smaller neighborhood stores which can only

survive if they offer merchandise or services unavailable anywhere else. This makes it very

hard for small businesses, such as “mom-and-pop” enterprises, to survive. They,

therefore, fight to keep Wal-Mart from entering their locales. Numerous studies conducted

in different states both support and criticize Wal-Mart (Verdisco, 1994). Nevertheless,

Wal-Mart did drive local merchants out of business when it opened up stores in the same

neighborhood. As a result, more and more rural communities are waging war against

Wal-Mart’s entrance into their market. Besides protesting and signing petitions to attempt

to stop Wal-Mart’s entry into their community, the opposition’s efforts can even be found

on The Internet. Gig Harbor, a small town in Washington, recently started a World Wide

Web page entitled “Us Against the Wal.” The town’s neighborhood association promised

that they “will fight them [Wal-Mart] tooth and nail” (PNA/Island Aerie Internet

Productions, 1995/1996).

The increasing opposition indicates that the road ahead for Wal-Mart may not be as

smooth as Wal-Mart’s annual report would entail. This requires Wal-Mart to rethink its

expansion strategy since it would not be profitable to operate in an unfriendly community.

How Big Will Wal-Mart be in Five Years if all Continues to go Well? — Before he died, Sam

Walton expressed his belief that by the year 2000 Wal-Mart should be able to double the

number of stores to about 3,000 and to reach sales of $125 billion annually. Walton

predicted that the four biggest sources of growth potential would be the following: 1.

expanding into states where it had no stores; 2. continuing to saturate its current markets

with new stores; 3. perfecting the Supercenter format to expand Wal-Mart’s retailing

reach into the grocery and supermarket arena — a market with annual sales of about $375

billion; 4. moving into international markets (Thompson & Strickland, 1995).

Wal-Mart Supercenters represent leveraging on customer loyalty and procurement muscle

in order to create a new domestic growth vehicle for the company. With few locations left

in the U.S. to put a new Sam’s Club or traditional Wal-Mart, the Supercenter division has

emerged as the domestic vehicle for taking Wal-Mart to $100 billion in sales. Before the

Supercenter, Walton experimented with a massive “Hypermart”, encompassing more than

230,000 square feet in size. The idea failed. Customers complained that the produce was

not fresh or well-presented and that it was difficult to find things in a store so big that

inventory clerks had to wear roller skates. One of Walton’s philosophies was that traveling

on the road to success required failing at times.

As a result of the unsuccessful experiment, Walton launched a revised concept: the

Supercenter, a combination discount and grocery store that was smaller than the

Hypermart. The Supercenter was intended to give Wal-Mart improved drawing power in

its existing markets by providing a one-stop shopping destination. Supercenters would

have the full array of general merchandise found in traditional Wal-Mart stores, as well as

a full-scale supermarket, delicatessen, fresh bakery, and other specialty shops like hair

salons, portrait studios, dry cleaners, and optical wear departments. Supercenters would

measure 125,000 to 150,000 square feet, and target locations where sales per store of

$30 to $50 million annually were feasible.

Walton’s prediction was right on target. The Supercenter division more than doubled in

size during 1993, then doubled again in 1994. Supercenters, once thought of as risky

because of slim profit margins on the food side, will most likely make Wal-Mart the

nation’s largest grocery retailer within the next five to seven years (Longo, 1994).

Expanding overseas, Wal-Mart moved into the international market in 1991 through a

joint-venture partnership with CIFRA S.A. de C.V., Mexico’s leading retailer. Since then the

company has entered Canada, Hong Kong, mainland China, Puerto Rico, Argentina, and

Brazil. The Wal-Mart International Division was officially formed in 1994 to manage the

company’s international growth. By the year 2000, analysts expect Wal-Mart to be a huge

international retailer, with numerous locations in South America, Europe, and Asia.

Conclusion — The ever-changing market presents continuing challenges to retailers. First

and foremost, retailers must recognize the strong implications of a “buyers’ market”

(Lewison, 1994). Customers are being offered a wide choice of shopping experiences, but

no one operation can capture them all. Therefore, it is incumbent upon management to

define their target market and direct their energies toward solving that specific market’s

problems. Technology, demographics, consumer attitudes, and the advent of a global

economy are all conspiring to rewrite the rules for success. Success in the next decade

will depend upon the level of understanding retailers have about the new values,

expectations, and needs of the customer. If Wal-Mart continues its customer-driven

culture, it should remain a retail industry leader well into the next century.

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