ADM 4143 Strategic Management – Strategic Audit Report
Company: Wal-Mart Stores, Inc. (Walmart)
Corporate Overview – Assignment I
Analyse your company’s mission statement. Is your firm’s mission statement aligned with its vision and core values, or do you think it should be changed in any way? Is the mission reflective of customer’s jobs to be done, or is it more product and service based? Is it motivational & strategic, and does it adequately reflect all stakeholders?
Wal-Mart Business Description
The company Wal-Mart Inc aids people around the world live a better life by saving in their retail purchasing via e-commerce and mobile facility. The company Wal-Mart Inc has its physical presence as well as the digital presence in each of the markets in which it operates. The enormous scale of the business activities of the company Wal-Mart Inc can be accessed via its figures of 11.500 stores in thirty-eight countries. The company is also operating under sixty-three banners and e-commerce websites operating in eleven countries (Yahoo Finance, 2016).
Compare the performance of the divisions within the company- are all divisions performing equally well? Are there substantial differences in profitability?
Wal-Mart has 3 reportable segments; Wal-Mart US, Sam’s Club and Wal-Mart International. Out of these three segments, Wal-Mart US is the largest of the segments and operates in all 50 states of the USA, and in Puerto Rico. This segment generated about 62% of the 2016 net revenue. This segment has also remained historically as the contributor of the highest gross profit margin. On the other hand, Wal-Mart International operates in 27 countries in three formats; retail, wholesale, and digital. This segment has contributed about 26% of the 2016 net revenue. The gross profit margin has been lowering for this segment as compared to Wal-Mart US because of the merchandise mix. This segment is the second largest segment of Wal-Mart and has grown via acquisitions, adding of retail, wholesale, and other units. The third operating segment Sam’s Club only consists of the clubs with memberships and is operating in 48 states of the USA and in Puerto Rico in physical and digital mediums. This segment accounts for about 12% of the 2016’s year net revenue. This segment has the lowest gross profit margin but also has the lowest operating expenses as well as the other segments (Sec.gov, 2016).
Analyze the investment trends- Are some divisions getting more capital investment than others? Are some businesses being starved of investment?
The investment trend of the company within its segments is apparent from the following capital expenditure table showing the spent capital on each segment in 2015 and 2016.
Capital expenditure Table of Wal-Mart
| Capital Expenditure Detail | |||
| (US$ billions) | |||
| Segment | FY 15 Actual | FY 16 Revised | FY 17 Projected |
| Wal-Mart U.S. | $6.30 | $7.0 | $6.2 |
| Wal-Mart International | $3.50 | $3.5 | $3.0 |
| Sam’s Club | $0.80 | $0.8 | $0.8 |
| Total segments | $10.60 | $11.3 | $10.0 |
| Corporate & support | $1.20 | $1.1 | $1.0 |
| Total | $11.80 | $12.4 | $11.0 |
Wal-Mart (2017). Walmart strategy drives growth and sustainable returns, plans $20 billion share repurchase program over two years. Retrieved from https://news.walmart.com/news-archive/2015/10/14/walmart-strategy-drives-growth-and-sustainable-returns-plans-20-billion-share-repurchase-program-over-two-years
| Capital Expenditure Detail | |||
| (US$ billions) | |||
| FY 15 | FY 16 | FY 17 | |
| Actual | Revised | Projected | |
| Physical | $11.10 | $11.5 | $9.9 |
| E-commerce & digital | $0.70 | $0.9 | $1.1 |
Wal-Mart (2017). Walmart strategy drives growth and sustainable returns, plans $20 billion share repurchase program over two years. Retrieved from https://news.walmart.com/news-archive/2015/10/14/walmart-strategy-drives-growth-and-sustainable-returns-plans-20-billion-share-repurchase-program-over-two-years
The above table shows the detail of capital expenditure. The detail shows that a significant part of the capital expenditure was spent in the US segment. Whereas the least invested in a segment is that of Sam’s Club, which is also the least revenue contributing segment. The expenditure based on physical and e-commerce is also shown showing that major emphasis has been in the past on physical store building. However, it has changed in 2017, depicted from the projected budget (WalMart, 2017).
Another clear picture is shown via this pie chart (Self prepared according to above-given tables) for the segment’s investment trends.
What corporate assets does your company have that it leverages all businesses to derive economies of scope and scale? What dynamic capabilities/parenting advantages does your company have?
One of the leveraging assets which the company Wal-Mart Inc can take advantage form is its substantial economies of scale through which it can get lower prices from its suppliers and thus sell at lower prices than its small competitors. It is the advantage that it gets through its economies of scale. With its large supply chain, logistics network and distribution network, the most valued assets that the company Wal-Mart Inc has as leveraging asset is its innovative technology named as the retail Link (Faulkner & Campbell, 2006). This system not only records the sale, but also automatically triggers rescheduling, delivery, scheduling of inventory. This innovative system has contributed not only in making the company one of the Fortune 500 companies and 12% contributor of US economy, but also gives parenting advantages to its segments and associated acquisitions (Fishman, 2013).
Does your company have an effective corporate strategy, or should it be broken up, divested, restructured?
The corporate strategy of Wal-Mart is to lead on price, get competitive by assortment, differentiate by access, and deliver an excellent customer and shopping experience. The mantra of the company Wal-Mart Inc must have to lead on price and gain the trust of customers through the provision of cheaper products at lower prices. Everyday Low Prices (EDLP) is the driving philosophy behind Wal-Mart. Wal-Mart works to ensure that these prices are not just promotional and will remain low. Everyday low cost (EDLC) is the strategy of lowering and controlling the cost and expenses on an everyday basis, so that the benefits can be passed on to the customers (Sec.gov, 2016).
Acquisition
The company Wal-Mart Inc acquired Jet.com in September 2016, which is a US-based e-commerce company. Wal-Mart is very excited about this acquisition and reports to have building integration of current e-commerce foundations of Wal-Mart and Jet.com. It has reported that it is allowing the synergies across logistical operations, talent, and customer base. The company Wal-Mart acquired Jet.com for a total purchase price of $2.4 Billion, as net of cash acquired. It included an initial distribution of the acquire price of $1.7 Billion and $0.6 Billion in Goodwill and for intangible assets respectively. Ana addition, compensation of $0.8 Billion will be paid over the period of five years. This acquisition has primarily affected the US Segment of Wal-Mart (WalMart, 2017).
What was the strategic intent behind the alliance/acquisition? What goal is it achieving and what skills/capabilities is it bringing? Does the alliance/acquisition benefit all divisions or some more than others?
As shown by Wal-Mart in its blog by CEO of the company for the intent of acquisition of Jet.com it was to strengthen the e-commerce capabilities of Wal-Mart and also for looking for the right partner for Wal-Mart for accelerating their growth rate (Turner, 2017). The acquisition seems smart as both companies were working on making the customer shopping experience easier and cheaper. By use of the smart technology of Jet.com Wal-Mart has acquired a new customer base and has also added integration in its physical stores and e-commerce to benefit its customer (McMillon, 2017). Many analysts raised eyebrows on the high premium paid for this deal; however, it is shown that it has been quite satisfied (Bowman, 2017).
Was the choice of partner/target firm appropriate? Is there cultural fit? Was the premium paid justified (in the case of acquisition)?
As mentioned above, the alliance seems very smart and successful. Wal-Mart was looking for the right partner. Moreover, that is what it got in return. Marc Lore, the founder of Jet.com, is now leading the US e-commerce segment and has proved for the company Wal-Mart as the digital embodiment. By using the smart technology, the customers of Wal-Mart is now benefiting from EBT technology and ordering their groceries online and picking it up from their closest grocery shops. Currently, the company has 1000 grocery pickup locations and is also testing walmart.com orders delivery in few stores as well. It has the intention of automating 100 pickup towers in the US where the customers can pick up their ordered items in minutes, saving time and money which is the corporate strategy of Wal-Mart (McMillon, 2017). The company US segment has reported 63% growth in sales and has gained 10% at stock price in a year (Bowman, 2017).
How did the stock market react to the announcement of the acquisition/alliance? Did the price of your company go up/go down? What was the opinion of analysts? Did they think positively/negatively of the acquisition/alliance?
After the purchase of the company Jet.com by Wal-Mart the stock price of Wal-Mart on S&P 500 index dropped from USD 71.03 to USD 69.89. This drop continued until September 15 when it went up to USD 70.44. The analyst and critics had not welcomed the alliance of Wal-Mart with Jet quite open-heartedly and had raised many eyebrows, showing concern and not understanding the logic behind paying such premium for a startup business like Jet.com (Sec.gov, 2016).
Was the choice of alliance/acquisition appropriate? Could the same benefits have been achieved through any other means such as licensing, alliance (in the case of an acquisition), or acquisition (in the case of an alliance)? Remember the Build-borrow-buy framework from class.
As mentioned earlier, the company Wal-Mart paid a very high price to get hold of Jet.com and also of the founder of Jet Marc Lore who is currently considered as the sharpest mind sin retailing business after Jeff Bezos of Amazon. However, if looked at the effects that this acquisition has made, it can be easily said that Wal-Mart made the right choice, it is far better with this acquisition than without it. If not acquired Jet.com the company would have gone for buybacks, which are considered fondly in the company as it has spent $8 Billion on it in the last year, however, does not pay in the long-term health of the business. Therefore, it can be said that with the same pace, the company jet and Lore would pay more magnificent than its tag price in future for Wal-Mart (Bowman, 2017).
References
Bowman, J. (2017, October 4). One year later, Walmart’s biggest acquisition is proving naysayers wrong. Retrieved from http://www.businessinsider.com/walmart-stock-price-jet-acquisition-one-year-later-2017-10
Faulkner, D. O., & Campbell, A. (2006). The Oxford Handbook of Strategy: A Strategy Overview and Competitive Strategy, Volume 1. OUP Oxford. Retrieved from https://www.retailcustomerexperience.com/blogs/walmarts-secret-sauce-how-the-largest-survives-and-thrives/
Fishman, C. (2013, January 12). The Wal-Mart You Don’t Know. Retrieved from https://www.fastcompany.com/47593/wal-mart-you-dont-know
McMillon, D. (2017, September 19). One Year Ago, We Welcomed Jet … and the Winners are Our Customers. Retrieved from https://blog.walmart.com/business/20170919/one-year-ago-we-welcomed-jet-and-the-winners-are-our-customers
Sec.gov. (2016). Wal-Mart Stores Inc 10K Report. Retrieved from https://www.sec.gov/Archives/edgar/data/104169/000010416916000079/wmtform10-kx1312016.htm
Turner, M. (2017, September 19). An Expanded Way to Pay for Online Grocery Pickup. Retrieved from https://blog.walmart.com/business/20170919/an-expanded-way-to-pay-for-online-grocery-pickup
WalMart. (2017). WalMart 10Q Report Note 10. Acquisitions, Disposals and Related Items. Retrieved from http://d18rn0p25nwr6d.cloudfront.net/CIK-0000104169/a3e8c2af-54d6-4b4b-ade2-f5392efccf20.pdf
Yahoo Finance. (2016, September 6). WMT. Retrieved from https://finance.yahoo.com/quote/WMT/history?period1=1472842800&period2=1474311600&interval=1d&filter=history&frequency=1d
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