Wal-Mart Stores, Inc. (Wal-Mart) operates retail stores in various formats worldwide. The Company organizes its business into three principal segments: Wal-Mart Stores, SAM'S CLUB and International. The Wal-Mart Stores segment is the largest segment of Wal-Mart's business, accounting for 67.3% sales during the fiscal year ended January 31, 2005 (fiscal 2005). The segment consists of three different retail formats, all of which operate in the United States. The Company's SAM'S CLUB segment consists of membership warehouse clubs that operate in the United States, and accounts for 13% of fiscal 2005 sales. The international segment consists of retail operations in eight countries and Puerto Rico, and generated 19.7% of Wal-Mart's fiscal 2005 sales. In addition, the Company owns an unconsolidated minority interest of approximately 37% of The Seiyu, Ltd., a retailer in Japan.
BRIEF: For the fiscal year ended 31 January 2006, Wal-Mart Stores, Inc.'s revenues increased 10% to $315.65B. Net income increased 9% to $11.23B. Revenues reflect higher sales from wal-mart stores and increased sales from international business divisions. Net income was partially offset by increased operating expenses. Wal-Mart Stores, Inc. operates supercenters, neighborhood markets and SAM'S club locations in the United States.
1962: First Wal-Mart store opens in Rogers, Arkansas
1969: The company incorporates as Wal-Mart Stores, Inc. on October 31, 1969.
1972: Wal-Mart listed on the New York Stock Exchange.
1983: First Sam's Club opens in Midwest City, Oklahoma.
1987: Wal-Mart completes largest private satellite communication system in the U.S.
1988: First Supercenter opens in Washington, Missouri.
1990: Wal-Mart becomes nation's largest retailer.
1991: The first store outside of the U.S. opens, in Mexico City.
1994: Wal-Mart acquires 122 Woolco stores in Canada.
1996: Wal-Mart enters China through a joint-venture agreement.
1997: Wal-Mart replaces Woolworth on the Dow Jones Industrial Average. Woolworth's Square One Shopping Centre location in Canada becomes the largest Wal-Mart store in the world, at 220,000 square feet (20,000 m²).
1997: Wal-Mart becomes largest private employer in the United States, with 680,000 employees worldwide.
1997: Wal-Mart has its first $100 billion sales year.
1998: First Wal-Mart Neighborhood Market opens
1999: Wal-Mart has 1,140,000 employees, making it the largest private employer in the world. It acquires the ASDA Group with 229 stores in the United Kingdom.
2003: Wal-Mart sets a single-day sales record of $1.52 billion on Black Friday.
2004: Wal-Mart buys the Amigo supermarket chain in Puerto Rico for $17 million.
2004: Wal-Mart employees in Jonquière, Quebec, Canada vote in favor of becoming the first unionized Wal-Mart in North America. Five months later, Wal-Mart announces that it would close the store, citing poor sales.
2005: Wal-Mart seeks to expand to urban markets, most notably New York City, Chicago, and Los Angeles.
2006: Wal-Mart is built in the town of Napanee, Ontario after years of discussion.
2006: Wal-Mart required to sell the morning after pill in Massachusetts stores. [1]
Business
Exterior of a typical Wal-Mart Supercenter, located in Madison Heights, Virginia.
Exterior of a typical Wal-Mart Neighborhood Market, located in Center Point, Alabama.Wal-Mart operates discount retail department stores selling a broad range of non-grocery products, though emphasis is now focused on the "Supercenters" which offer a full line of grocery items. Wal-Mart also operates Sam's Club—a "warehouse club" (similar to Costco and BJ's) that sells discounted bulk merchandise to due-paying members.
As of January 2005, Wal-Mart employed 1.3 million people in the United States. Wal-Mart's corporate headquarters are located in Bentonville, Arkansas. Apart from retail locations, it operates 99 Distribution Centers and Transportation Offices in the United States. Internationally, Wal-Mart employs over 410,000 people (excluding Japan) for a company-wide total of 1.7 million employees. Wal-Mart also operates the largest real estate company in the United States, with an entire division devoted to building new stores, selling old stores, and developing shopping centers around its stores.
In addition to its wholly-owned international operations, Wal-Mart owns a 42% stake in The Seiyu Co., Ltd. in Japan, with a proposed US$597 million to increase its stake to 50%. This purchase has been approved by Seiyu Group shareholders and The Seiyu will be consolidated into Wal-Mart International in FYE 2006.
In the past, Wal-Mart operated dot Discount Drugs, Bud's Discount City, Hypermart*USA, OneSource Nutrition Centers, and Save-Co Home Improvement stores. In 1990 Wal-Mart acquired The McLane Company, a foodservice distributor. In 2003 McLane Company was sold to Berkshire Hathaway.
Wal-Mart stock is publicly traded on the New York Stock Exchange under the symbol WMT.
Competition in the United States
Wal-Mart's chief competitors in the discount retail space nationally include Sears Holdings Corporation's Kmart chain and Target, Best Buy, along with many smaller regional chains such as Meijer in the midwest. Wal-Mart's move into the grocery business has also positioned it against major grocery chains such as HEB, Kroger, Albertsons, Publix, Giant Eagle, Safeway and dozens of local grocery chains. Chief competitors of Sam's Club are Costco, which is slightly larger than Sam's in terms of sales, as well as the smaller BJ's Wholesale Club chain operating mainly on the East Coast.
Due to Wal-Mart's success in selling consumer goods and its necessary focus on more expensive items (and larger population areas) to increase revenue, a niche has been carved out of Wal-Mart's dominance by several shrewd retail corporations [2]. By focusing on a small number of low-cost products, and siting their retail operations in extremely convenient locations (primarily very small towns which cannot support a Wal-Mart as well as low-income areas of larger metropolitan areas), retailers such as Family Dollar and Dollar General have successfully competed head-to-head with Wal-Mart for home consumer sales.
Wal-Mart Television Network
The Wal-Mart Television Network is an in-store network showing commercials for products sold in the stores, concert clips and music videos for recording artists products sold in the stores, trailers for upcoming movie releases, and news. According to a New York Times story, it is seen by 130 million people a month, making it the fifth largest network in America, behind NBC, CBS, ABC and Fox
Contributions
In 2004, cash donations to non-profit organizations by Wal-Mart, its employees, and its customers made through Wal-Mart, the Wal-Mart Foundation and the Sam's Club Foundation totaled more than US$170 million. Unlike most corporate donors, Wal-Mart does not provide a figure for its corporate contributions; instead Wal-Mart's reported contributions include those made by its customers in a larger aggregate figure. The typical Supercenter channels $30,000 to $50,000 a year to local causes and events. More than 90 percent of cash donations from Wal-Mart Stores and the Wal-Mart & SAM'S CLUB Foundation target local communities.
After the 2005 Hurricane Katrina disaster on the United States Gulf Coast, Wal-Mart donated $2 million to the Salvation Army and the American Red Cross and $15 million to the Bush-Clinton Hurricane Katrina Fund for a total of $17 million. These donations made it the largest single corporate contributor. In addition, an estimated $3 million in merchandise was donated to victims in several states, and in some cases the corporation was able to provide supplies before the federal government. An emergency contact website was set up by Wal-Mart to help locate displaced persons, accessible by Internet and at every store in the country. About $1.5 million in emergency aid was given to displaced employees, and employees displaced by the storm were offered work at Wal-Mart locations elsewhere in the country.
According to the November 21, 2005 issue of The Nation, recently both the Arkansas-based company and the Walton family have elevated their charitable giving. The Walton Family Foundation (WFF) gave away $106.9 million in 2003, twice as much as in 2000. Walmart's company political action committee, the second largest corporate donor to the GOP, gave away $2.1 million in 2004, compared to $100,000 in 1994. Also in 2004, Alice Walton donated $2.6 million to the Progress for America PAC, which supported the Swift Boat Veterans for Truth. From 1998 through 2003, the WFF contributed $25,000 to the Heritage Foundation, $15,000 to the Cato Institute, $125,000 to the Hudson Institute, $155,000 to the Goldwater Institute, $70,000 to the National Right to Work Legal Defense Foundation, $300,000 to the Mackinac Center for Public Policy, $185,000 to the Pacific Research Institute for Public Policy, and $350,000 to the Evergreen Freedom Foundation. The WFF has also donated to advocacy groups promoting school privatization, such as a $3 million donation in 2003 to the Knowledge Is Power Program.
Renewable energy experiments
Recently, Wal-Mart has designed two experimental stores [3], one in McKinney, Texas, the other in Aurora, Colorado, which feature wind turbines, photovoltaic solar panels, and biofuel-capable boilers. The buildings also include many other energy and cost-saving technologies. Critics, such as the Institute for Local Self-Reliance [4], while acknowledging these features are an improvement, contend that Wal-Mart's negative environmental impact far outweighs gestures at two stores among several thousand. Driving sprawl, consuming unnecessarily large amounts of land and locating on environmentally sensitive sites are among the complaints.
An environmentally-friendly design for a Wal-Mart in Vancouver, BC, Canada was proposed. This design, too, included wind turbines, geothermal heating and collecting rainwater. However, this proposal was rejected by the city councillors [5] on June 28, 2005 for several reasons including worry over the possible negative impact to small businesses and a potential increase in traffic as customers drive longer distances to go shopping.
Employees
Wal-Mart refers to its employees as "associates," and encourages managers to think of themselves as "servant leaders." Each shift at every store, club, and distribution center (theoretically) starts with a store-wide meeting where managers discuss with hourly employees daily sales figures, company news, and goals for the day.
All Wal-Mart stores in the United States have employees referred to as "People Greeters." They welcome people to the store and help prevent shoplifting. At some stores, these employees inspect the contents of the shopping carts of exiting customers.
Wal-Mart benefits
According to an October 2005 article in BusinessWeek, Walmart's health insurance covers 44% or approximately 572,000 of its 1.3 million U.S. workers.[6] According to Wal-Mart's website, Wal-Mart provides insurance to more than 1 million people.[7]
Financial results
Exterior of a Wal-Mart Supercenter in Mexico.Wal-Mart is now the largest grocery chain in the U.S., with 14 percent of all grocery sales -- nearly twice the sales of Kroger ($95 billion vs. $51 billion). Wal-Mart also does 20 percent of the retail toy business. Sam Walton's family's holdings in Wal-Mart if combined would comprise the nation's largest fortune; at $100 billion combined they are significantly ahead of Bill Gates.
Wal-Mart went public in 1975. Since then its stock has climbed from 5 cents (split adjusted) to a high of $63 in March 2002. Its stock has dropped more than 20% since then, closing under $50 in August 2005.
Different explanations have been offered for this success:
The company has always paid a great deal of attention to site selection; in the company's early years, Sam Walton would fly over small towns in a private plane to identify prospective locations. The company claims it analyzes potential locations to find those that would support "one and a half" stores. Although the intended location was a seemingly small rural town, being up in a plane would reveal a lucrative market if the surrounding communities were taken into account, defying the conventional wisdom that a discount store requires a sizable city. Wal-Mart then promptly moved quickly to pre-empt these discovered locations, since allowing a competitor to locate would likely cause a price war that would make both discount stores unprofitable. Lastly, rural towns were less likely to have organized unions and community activists unlike large urban centres. "This strategy gave Wal-Mart a near monopoly in its local markets and enabled the company to ride out the recessions of the 1970s and 1980s more successfully than its then larger competitors such as K-Mart and Sears."[8]
Wal-Mart benefits from economies of scale in manufacturing and logistics; the purchase of massive quantities of items from its suppliers combined with a very efficient stock control system help make Wal-Mart's operating costs lower than those of its competitors. They are leaders in the field of vendor managed inventory—asking large suppliers to oversee stock control for a category and make recommendations to Wal-Mart buyers. This reduces the overhead of having a large inventory control and buying department. Wal-Mart's vast purchasing power also gives it the leverage to force manufacturers to change their production (usually by creating cheaper products) to suit its wishes: a single Wal-Mart order can easily comprise a double-digit percentage of a supplier's annual output.
One particular aspect of the economy of scale is the aggregation effect, used in other business such as The Home Depot and Wells Fargo, whereby Wal-Mart sells as many different items as possible. This allows the company to grow revenue over its fixed cost base (more sales out of the same store). This is why Wal-Mart began to sell low margin groceries.
Information Systems: Wal-Mart helped push the retail industry to adopt UPC codes and bar-code scanning equipment. Also, Wal-Mart's focus on cost reduction has led to its involvement in a standards effort [9] to use RFID-based Electronic Product Codes to lower the costs of supply chain management. As of June 2004, it has announced plans [10] to require the use of the technology among its top 300 suppliers by January 2006.
Suppliers: A spokesperson for the company told the Wall Street Journal on Nov. 18, 2004 that it imported $15 billion worth of goods from China in the year that ended Jan. 31, 2004. About $7.5 billion were directly imported by Wal-Mart; the other $7.5 came indirectly through suppliers. In the same period net sales reached $256 billion, with $209 billion coming from U.S. operations. U.S. current account imports from China was reported as $152.4 billion during 2003 [11]. Mainland Chinese media place Wal-Mart as their 8th largest trading partner in front of Russia and the UK on the top-10 list.
Cost Control: Wal-Mart watches controllable expenses very closely. Hourly employees can be reprimanded or terminated for having unauthorized overtime. Wal-Mart also squeezes out any inefficiencies in the business, such as reducing paper consumption by using a computerized process.
Public relations
In 2005, Wal-Mart officials embarked on a public relations campaign to counter some of the criticism it receives, through its public relations website as well as through television commercials which show employees who have had a medical emergency and have been sent by Wal-Mart to the Mayo Clinic.
It was reported in the New York Times on November 1, 2005 that in response to increased criticism the public relations firm Edelman had been retained. Edelman has set up an internal "war room", a rapid-response public relations team, staffed with high-profile political operatives to respond to negative media attention. Operatives hired include Michael K. Deaver who formerly worked on behalf of Ronald Reagan, Leslie Dach who worked on behalf of Bill Clinton, and Robert McAdam who worked on behalf of the Tobacco Institute [12].
Economic impact in the United States
As Wal-Mart is an enormously large business, it has a significant impact on economies, especially in the United States. Several studies have been conducted to determined the nature and extent of this effect.
Kenneth E. Stone of Iowa State University has published several studies on Wal-Mart. In 1997, Stone found that small towns "lose up to 47 percent of their retail trade after 10 years of Wal-Mart stores nearby."[13] A study by Russell S. Sobel and Andrea M. Dean, says that the Stone study is flawed, and found that though Wal-Mart openings cause some small businesses to close by offering lower prices, it also creates opportunities for other small businesses and that as a result, "the process of creative destruction unleashed by Wal-Mart has no statistically significant impact on the overall size of the small business sector in the United States" [14] In [2003], Stone collaborated Georgeanne Artz, also of Iowa State University and Albert Myles of Mississippi State University to show that there "are both positive and negative impacts on existing stores in the area where the new supercenter locates."[15]
In 2002, the state of Georgia's survey of children in the state's subsidized health care system, PeachCare, found that Wal-Mart employed more of the parents of these children than any other employer. More than 10,000 children who qualified for the program had parents working at Wal-Mart. The next largest employer employed the parents of less than 800 children in the program.[16]
A 2002 study[17] by Emek Basker of the University of Missouri examined the impact of Wal-Mart on local employment. Basker found that Wal-Mart's entry into a county increased net retail employment in that county by 100 jobs in the short term. Half of this increase disappeared as other retail establishments close or reduce employment over a five-year period "leaving a long-run statistically significant net gain of 50 jobs."
In 2004, the University of California, Berkeley published a study which asserted that Wal-Mart's low wages and benefits resulted in an increased burden on the social safety net, costing California taxpayers $86 million.[18]
A 2005 study by Global Insight that was commission by Wal-mart found that the company has had a positive net economic impact on the U.S. economy (Several notable economists oversaw the study, including both political conservatives and liberals [19]). From 1985-2004, Wal-Mart "can be associated with a cumulative decline of 9.1% in food-at-home prices, a 4.2% decline in commodities (goods) prices, and a 3.1% decline in overall consumer prices" and, that this has saved consumers $263 billion in that time frame ($2329 per household). Also in that time period, it is responsible for the creation of 210,000 net jobs for the economy. The study indicates that "nominal wages are 2.2% lower, but given that consumer prices are 3.1% lower, real disposable income is 0.9% higher than it would have been in a world without Wal-Mart." (Global Insight Study)
Additional findings from the Global Insight study include: Wal-Mart increased the US economy's overall productivity by three-quarters of a percent by highly efficient distribution systems and pressure on suppliers to be more efficient. Wal-Mart increased net consumer purchasing power by $118 billion in 2004. The efficiencies created 210,000 jobs that would not otherwise exist, but at the same time reduced take-home pay for all retail workers (including the company’s competitors) by $4.7 billion. However, that $4.7 billion is overwhelmingly offset by the $263 billion it has saved Americans from spending from 1985 to 2004, ($2,329 per houshold) according to a Global Insight study. [20] And, this savings has the largest effect on the poor since the average Wal-Mart customer earns $35,000 a year, compared with $50,000 at Target and $74,000 at Costco. [21]
Debates over Wal-Mart
Main article: Debates over Wal-Mart
satirical bumper sticker produced by ReclaimDemocracy.orgSome praise Wal-Mart for benefiting consumers, while other criticise it for being harmful to employees, the community, the economy, and the environment. [22] Specific areas of controversy include the company's product selection; treatment of suppliers, competitors, and employees; impact on local communities, and effects on world trade and globalization.
Jay Nordlinger of the conservative National Review believes [23] criticism of Wal-Mart is more about what Wal-Mart represents; the success of capitalist enterprise and how Wal-Mart is the largest retail store in the world rather than what it actually does. He compares this criticism to the same attacks upon Hummer SUVs while ignoring the issues with many other gas guzzling competitors like old cars the poor could only afford. He believes that Wal-Mart is merely a symbol of capitalism and success that leftists attack in order to associate capitalism with "exploitation" and "unfairness" to further their own big government/socialist objectives.
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