Walmart has a market value of $71.66 per share compared to a book value
of $22.86 per share (Yahoo Finance, 2013). The intellectual capital
value of Walmart is $48.80 per share and the ratio of market value to
book value is 3.14. It is not surprising that Walmart has a low market
value to book value ratio. Companies that have high ratios are usually
tech companies that have a high investment in knowledge resources and
technological expertise. Walmart invests heavily in physical resources,
such as stores and warehouses, and less investment in knowledge. Walmart's market value to book value is higher than their competitors in the industry.
Walmart has had a hard time retaining employees as 70% of their
employees decide to leave in their first year. The biggest reason for
their turnover is low wages and inadequate health care. Walmart employees are paid 20% less than
the average retail worker. Walmart also has had a hard time retaining workers
due to poor working conditions. They have had lawsuits filed against
them for forcing their employees to do off-the-clock work, not giving
overtime pay, and not allowing workers rest and lunch breaks. They have
also been sued for discriminating against women (Wikipedia, 2013).
Walmart's mission statement is "We save people money so they can live
better." I think their employees identify with Walmart's mission, but
their mission does not lead to employee retention. They also have a
hard time retaining employees because the work is not challenging.
Walmart is trying to improve their retention rate. They are now
offering their employees who have been on the job for at least one year
full-time or three years part-time, the chance to get a 15% tuition
reduction from American Public University which is an online college
(Inc. 2010).
Walmart has a hard time attracting quality employees because of their
bad reputation with their employees. They can't rely on getting quality referrals from their
current employees like other companies can. Walmart has programs to
develop employee skills. They have a Assistant Management Training
program to develop managerial skills. Walmart has the Walton Institute
which allows employees to learn about the company culture and how to
foster that culture (Walmart, 2012).
Walmart's intellectual capital strength is their logistics strategy. By
using just-in-time inventory, they are able to move products quickly
which reduces inventory costs. They use ID tags to better control
inventory. They constantly try to improve their supply chain,
especially with their trucks. Walmart has seen a 21% increase in fuel
efficiency in their trucks, 5.5% increase in the pallets in their
trucks, and a 6.5% reduction in empty truck miles (About.com, 2010).
About.com. 2010. Retrieved from http://logistics.about.com/od/industryfocus/a/Wal-Mart.htm
Inc. 2010. Retrieved from http://www.inc.com/news/articles/2010/06/wal-mart-worker-retention.html
Walmart. 2012. Retrieved from http://careers.walmart.com/training-and-development/
Wikipedia. 2013. Retrieved from http://en.wikipedia.org/wiki/Criticism_of_Walmart
Yahoo Finance. 2013. Retrieved from http://finance.yahoo.com/q/ks?s=WMT
Thursday, February 28, 2013
Chapter 3: Assessing the Internal Enviroment
Walmart Financial Statistics as of 2/26/13 (Rueters, 2013)
Company Industry Sector
Quick Ratio 0.22 0.48 1.18
Current Ratio 0.83 1.13 1.53
Debt to Equity Ratio 70.91 67.73 53.69
Inventory Turnover 8.34 6.64 9.34
Receivables Turnover 73.85 100.36 17.58
Asset Turnover 2.37 2.01 0.96
Profit Margin (5 year avg.) 3.67 2.86 5.84
Return on Assets (5 year avg.) 8.85 6.10 6.43
Return on Equity (5 year avg.) 21.90 15.90 12.05
P/E Ratio 14.03 24.65 14.41
Market to Book 3.15 4.46 1.45
Walmart has efficient inbound logistics. They use the just-in-time inventory to reduce inventory costs. They made their trucks 25% more fuel efficient from 2005 to 2008. Walmart has improved the routing of their trucks to reduce miles. They have tried a new way to load their trucks which allows them to get 3% more product in each load. Walmart plans to double the fuel efficiency of their trucks by 2015 (Walmart, 2009).
Walmart markets their customer segments well. Not all Walmart stores are "one size fits all." Walmart tailors stores specifically for: Hispanics, African Americans, the affluent, empty-nesters, rural resident, and suburban residents (Wikipedia, 2013). They use facebook, twitter, and cellphone apps as marketing tools. Walmart changed it's procurement strategy to buy 80% of their products directly from it's manufacturers compared to the current 20%. This will save Walmart between 5% to 15% on the products they buy (SC Digest, 2010).
Walmart has strong financial tangible resources as they have cash on hand and have good borrowing capacity. Their physical tangible resources include their 4,200 U.S. stores and their 140 distribution centers (Wikipedia, 2013). A strong intangible resource is their specific procedures like their logistics system. Another important intangible resource is their brand name. Walmart's brand name is associated with lower prices.
Walmart needs to work on their organizational capabilities. They struggle to retain human capital due to low pay and not treating everyone fairly, especially women. Walmart needs to improve their customer service. A 2008 study by the University of Michigan concluded Walmart had the worst customer service among American companies (Seeking Alpha, 2008).
Walmart's organizational resources are valuable. The organizational resources have provided Walmart with greater efficiency and effectiveness. Walmart's business is not rare as grocery stores and department stores sell the same products. Many stores have tried to imitate Walmart's low prices and have failed. There are substitutes available for the products they sell including Target, Kmart and Shopko. The problem is their competitors can't match Walmart's low prices.
Reuters. 2013. Retrieved from http://www.reuters.com/finance/stocks/financialHighlights?symbol=WMT.N
SC Digest. 2010. Retrieved from http://www.scdigest.com/Assets/ON/Target/10-01-06-1.php
Seeking Alpha. 2008. Retrieved from http://seekingalpha.com/article/6533-walmart-s-poor-customer-service-has-to-go
Walmart Sustainability Report. 2009. Retrieved from http://www.walmartstores.com/sites/sustainabilityreport/2009/en.logistics.html
Wikipedia. 2013. Retrieved from http://wikipedia.org/wiki/Walmart
Thursday, February 21, 2013
Chapter 2: Analyzing the External Enviroment
Porter's "Five Forces" Model
Threat of New Entrants - It is very difficult to compete on the same scale as Walmart. They have economies of scale and a great logistics system. Walmart has stores around the world with many distribution channels. They have large financial capital that no start-up business can match. Walmart has their own brand names which gives them even more market share. Departments stores and specialty stores can enter the market, but on a smaller scale.
The Bargaining Power of Buyers - The bargaining power of Walmart buyers is low since Walmart relies on sales from individuals and not large buyers. Buyers can't switch competitors for lower prices since typically Walmart has the lowest prices.
The Bargaining Power of Suppliers - Small suppliers have no or very low bargaining power against since Walmart is so large. Large companies like Proctor and Gamble, may have some bargaining power.
Threat of Substitute Products - The threat of substitute products is low because it is hard for other companies to offer such a wide variety of products at such a low price. Both department stores and specialty stores have struggled to compete with Walmart's low prices.
Intensity of Rivalry - Target has become Walmart's biggest rival. Target has made the competition even closer by adding more grocery items and lowering their prices. Shopko and Kmart have fallen behind and have closed stores in recent years. The rivalry among the businesses is intense since the industry is in the mature stage.
The General Environment
Demographic - Walmart targets people of all ages and both sexes. They tailor stores specifically for: Hispanics, African Americans, the affluent, empty-nesters, rural residents, and suburban residents (Wikipedia, 2013). Walmart target people who have low incomes.
Sociocultural - Walmart has shown greater concern for the environment. The 2011 Walmart Global Responsibility Report says their 3 main environmental goals are: (1) to be supplied by 100% renewable energy, (2) to create zero waste, (3) to sell products that sustain people and the environment. They have reduced greenhouse gases from their stores 10.61% from 2005 levels. Walmart reduced their plastic bag waste by 3.5 billion bags in 2011 (Walmart 2011 Global Responsibility Report, 2012). With a greater concern for health and fitness, Walmart needs to add more healthy food options and exercise equipment.
Political/Legal - Walmart has to worry about the increase in minimum wage because they pay low wages to their employees. They will have to adapt to the recent increase in taxes for individuals as the payroll tax went up on all U.S. citizens. Federal taxes and capital gain taxes went up on higher income individuals. Congress is also thinking about changing the corporate tax code.
Technological - Walmart uses new technology for their logistics system. They use ID tags to manage their inventory. Walmart uses the latest technology to improve the fuel efficiency of their trucks. Walmart uses the Internet technology to sell their products and give people information about their products.
Economic - The stock price of Walmart has recently went down because sales have been down for the first two months of the year. Walmart says the loss of sales is due to the increase in the payroll tax. If the unemployment rate goes up, their low income customers will have less money to spend. They could gain some new customers if some people have to give up shopping at upscale stores.
Global - Walmart is a global retailer as they have stores in 15 different countries. With being a global retailer, they have to deal with exchange rates. Smaller currencies have more volatile exchange rates than larger currencies.
Walmart 2011 Global Responsibility Report. (2012). Retrieved from http://walmartstores.com/sites/responsibikityreport/2011/executive_summary.aspx
Wikipedia. 2013. Retrieved from http://en.wikipedia.org/wiki/Walmart
Threat of New Entrants - It is very difficult to compete on the same scale as Walmart. They have economies of scale and a great logistics system. Walmart has stores around the world with many distribution channels. They have large financial capital that no start-up business can match. Walmart has their own brand names which gives them even more market share. Departments stores and specialty stores can enter the market, but on a smaller scale.
The Bargaining Power of Buyers - The bargaining power of Walmart buyers is low since Walmart relies on sales from individuals and not large buyers. Buyers can't switch competitors for lower prices since typically Walmart has the lowest prices.
The Bargaining Power of Suppliers - Small suppliers have no or very low bargaining power against since Walmart is so large. Large companies like Proctor and Gamble, may have some bargaining power.
Threat of Substitute Products - The threat of substitute products is low because it is hard for other companies to offer such a wide variety of products at such a low price. Both department stores and specialty stores have struggled to compete with Walmart's low prices.
Intensity of Rivalry - Target has become Walmart's biggest rival. Target has made the competition even closer by adding more grocery items and lowering their prices. Shopko and Kmart have fallen behind and have closed stores in recent years. The rivalry among the businesses is intense since the industry is in the mature stage.
The General Environment
Demographic - Walmart targets people of all ages and both sexes. They tailor stores specifically for: Hispanics, African Americans, the affluent, empty-nesters, rural residents, and suburban residents (Wikipedia, 2013). Walmart target people who have low incomes.
Sociocultural - Walmart has shown greater concern for the environment. The 2011 Walmart Global Responsibility Report says their 3 main environmental goals are: (1) to be supplied by 100% renewable energy, (2) to create zero waste, (3) to sell products that sustain people and the environment. They have reduced greenhouse gases from their stores 10.61% from 2005 levels. Walmart reduced their plastic bag waste by 3.5 billion bags in 2011 (Walmart 2011 Global Responsibility Report, 2012). With a greater concern for health and fitness, Walmart needs to add more healthy food options and exercise equipment.
Political/Legal - Walmart has to worry about the increase in minimum wage because they pay low wages to their employees. They will have to adapt to the recent increase in taxes for individuals as the payroll tax went up on all U.S. citizens. Federal taxes and capital gain taxes went up on higher income individuals. Congress is also thinking about changing the corporate tax code.
Technological - Walmart uses new technology for their logistics system. They use ID tags to manage their inventory. Walmart uses the latest technology to improve the fuel efficiency of their trucks. Walmart uses the Internet technology to sell their products and give people information about their products.
Economic - The stock price of Walmart has recently went down because sales have been down for the first two months of the year. Walmart says the loss of sales is due to the increase in the payroll tax. If the unemployment rate goes up, their low income customers will have less money to spend. They could gain some new customers if some people have to give up shopping at upscale stores.
Global - Walmart is a global retailer as they have stores in 15 different countries. With being a global retailer, they have to deal with exchange rates. Smaller currencies have more volatile exchange rates than larger currencies.
Walmart 2011 Global Responsibility Report. (2012). Retrieved from http://walmartstores.com/sites/responsibikityreport/2011/executive_summary.aspx
Wikipedia. 2013. Retrieved from http://en.wikipedia.org/wiki/Walmart
Subscribe to:
Posts (Atom)