Walmart External and Internal Audit

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Joseph Raya

Kara Bowman

Brian Mittelstadt

Besart Beluli

Management 415 - Professor Palmer - November 11, 2015 - Case Study

Table of Contents:

1. Executive Summary
2. Introduction
3. Issues
4. External Audit
5. Internal Audit
6. Strategic Alternatives
7. Recommendations
8. Implementation
9. Review & Evaluation
10. Appendices

Executive Summary:

Wal-Mart is the biggest retailer in U.S. and also one of the biggest multinational companies in the world. It is well-known for its low-cost structure and has been doing very well despite of the current market instability. However, it still faces threats from competitors in the retail industry and has weaknesses to be improved in the future. To help Wal-Mart achieve greater success and sustain its competency, this paper will cover an all-rounded and detailed business analysis on Wal-Mart and the industry it is currently in. The analysis will touch on different perspectives, such as Wal-Mart’s strength, opportunities, weaknesses and threats. Moreover, a brief overview of the retail industry and Wal-Mart’s history are provided to facilitate a deeper and better understanding of the analysis on Wal-Mart.

To help Wal-Mart better exploit its strength and opportunities and reduce threats and weaknesses, recommendations are provided for each of the four sections. I hope the recommendations will be carefully considered for proper implementation.

Introduction:
        Beginning with a simple idea of selling more for less in a single discount store, has grown into the biggest retailer in the world.  Today, almost some 260 million customers visit the more than 11,500 stores in 28 countries under 65 different banners and an online presence in 11 countries each week.  With the 2015 fiscal year pressing net sales of $482. 2 billion, Walmart employs roughly 2. 2 million associates worldwide touching 1. 4 million employees in the Unites states alone.  In the pages to come we will be bringing to your attention numerous key indicators of why Walmart is the supercenter goliath it is today and how it plans to maintain its stronghold at the top.  Walmart is famous for its everyday low cost structure.  Poised on the idea of offering goods at lower prices to customers so they can live better.  

Thus, Walmart offers goods with high qualities at lower prices than the competition.  Walmart has a comparative advantage from other retailers.  How can Walmart achieve its low cost structure? The answer lies in its supply chain.  Walmart firmly holds its ground on the policy to suppliers that “on basic products that don’t change, the price Walmart will pay, and will charge shoppers must drop year after year. “ (Fisher 68)

Issues:

·      Numerous Walmart stores lack cleanliness and tidiness.  – This is a large issue that has to be handled because while some may not care the public at large has concern to shop at a dirty store.  Why would a person want to fresh produce or meats from the butcher shop when there is dirt and dust all over?  Immediately my mind runs to the idea that the item I am purchasing is tainted even if it’s sealed.  I’d prefer not to be present in that store buying anything I am going to be ingesting.  In today’s society being clean is an upmost importance due to the number of sickness and diseases out there not only for when you’re buying food but just being present in the store you could catch something.  This will deter the sick, elderly, anyone pregnant which all could make or break the net profit at the end of the fiscal year.

·      Stores aren’t restocking shelves fast enough – now many may not see this as a threat but when you have an item with an expiration date it is imperative to get it onto the shelf in the eyes of the customer.  The longer it sits in the back room the less time it can sit on the shelf.  In this case, time is money in tune to the fact that when the expiration dates come around are you going to be throwing that item away or are you going to be selling it to make a profit or taking a loss?

·      Store layout and design compromises customer convenience and space. – for the average shopper when you go to the store the majority of the time you are there for specific items you need to purchase.  Yet for many once in the store they may purchase an extra box of crackers they see tantalizing or one may pick up an extra gallon of juice that they like but can’t find anywhere else.  By creating a store layout that strategically forces the customer to see the whole store you increase the amount you can sell in a single transaction.  Stew Leonard’s adopted this idea to make the store a maze forcing the customer to travel through every department to get to the registers.

·      Walmart needs to integrate businesses that drive traffic to the store.  – things that can promote profits in the stores are businesses such as gas stations, pharmacies, and check cashing.  One wouldn’t have a need to travel much farther than its local Walmart to get everything done at one time.  On a Friday they can cash their paycheck, get groceries for the week as well as any other necessities, get their medicine from the pharmacy and then on the way out fill their cars gas tank.  This cuts down on time wasted for the customer as well as increasing the amount of time a customer stays in Walmart hopefully promoting the number of items one buys.  

External Audit:

Opportunities:

1. Changing financial lifestyle for consumers- It is no doubt that Walmart has given many opportunities to their consumers.  We see this simply with their everyday low prices.  Such low prices give consumers the opportunity to buy products more suitable for their financial lifestyle.  Sure, most people are already aware of their discount pricing and so it may be thought that their “regular” customers are the basis of their success.  However, with times as tough as they currently are, more and more people are converting to doing their shopping at the discount store.  We can see this everywhere.  Of course, if there is no Supercenter in the customers’ town, the consumer will have to buy their meats and produce in their local grocery store.  It used to be that consumers would prefer the ease and convenience of one-stop-shopping and complete their grocery list at that grocery store.  Nowadays, however, customers are looking to save wherever possible, and are willing to make the extra trip to their nearest Walmart to save a few extra dollars- therefore, changing their consumers’ lifestyles financially.  Understanding this concept, Walmart has received a rating of 4 with a weighted score 0.8.  
2. Emerging consumer markets- Walmart has so far been incredibly successful in taking their stores globally, with retail operations in 28 different countries including the United States.  This allows us to rate Walmart a 4, giving it a weighted score of 0.4.  As of September 30, 2015 there were a total of 11,526 Walmart retail units accounted for with 6,256 found internationally- that is more than the amount reported domestically (http://corporate.walmart.com/our-story/our-locations#/).  That being said, “Walmart’s international revenue is growing fast.  International revenue grew at a compound annual growth rate, or CAGR, of 7.3% from fiscal year 2009 to 2014.  It grew to ~$136.5 billion.  That makes the International segment the fastest growing revenue segment” (http://marketrealist.com/2015/02/walmart-looking-growth-international-markets/).  
3. Supercenters & Sam’s Club- As of August 31, 2015, there are approximately 5,249 reported Walmart retail units in the United States alone.  Of the 5,249 Walmart retail units, 3,445 of them are supercenters and 652 are Sam’s Clubs (http://corporate.walmart.com/our-story/our-locations#/united-states).  The supercenters and Sam’s Clubs average to about 176,000-179,000 square feet compared to their regular stores of about 15,000 square feet (http://247wallst.com/retail/2014/03/22/walmart-now-has-six-types-of-stores/).  Such space provides for Walmart to not only sell their regular merchandise but to expand into more of a grocery store (Supercenter) or wholesale store (Sam’s Club), providing that ease and convenience of “one-stop-shopping” spoken of previously.  This category, is subsequently given a rating of 3 and weighted score of 0.3.

Threats:

1. Threat of Substitute Products- Of course Walmart provides a broad spectrum of consumer goods, making for a “one-stop-shopping” feel.  However, their products can be easily substituted, giving Walmart a rating of 1 and weighted score of 0.4.  With such a broad scope of products, their competition can be found nearly anywhere.  For example, Walmart sells kitchen appliances, which consumers can find at Target, Williams Sonoma, Pottery Barn, Sears, Macy’s, and etc.  In other words, their competition does not just stop at their industry or sector; it goes beyond that and consequently can redirect its customers.  Granted, going outside its industry comes at a price, therefore customers may not be so willing to do so, but the possibility certainly exists.  
2. Supporting Local Business- The trend these days is to support local, independent businesses, rather than supplying to giant chain stores such as Walmart.  There are a number of reasons as to why local is better.  Such reasons include: strengthening the economy of the community in which you live, creating more jobs, becoming more environmentally friendly, putting your tax dollars to better use, supporting the community, and etc. (https://sustainableconnections.org/thinklocal/why).  “Even if chain stores do save us a few dollars now and again, it comes at a great cost. Chain stores contribute far less to the local economy than independent businesses” (https://ilsr.org/impact-chain-stores-community/).  While there are many who would prefer a brand name opposed to a non-brand name, if people truly understood the science behind contributing to local business, more consumers may do their shopping elsewhere.  As a result, this category is given a rating of 2 and weighted score of 0.1.  
3. Fight For Market Share-

Internal Audit:

Strengths

1. Core competency/Cost Leadership- Walmart is known for their “everyday low prices.” This sets them aside from their major competitors such as Target.  Walmart strives for "saving people money so they can live better."  With the cost leadership strategy in effect, Walmart is ensured a steady and returning flow of customers to their stores.  That understood, Walmart has a comparative advantage over their competition.  Consumers are able to feel better about their purchases knowing they are at a discounted price.  Walmart is therefore given a rating of 4 and weighted score of 1.0 in this category.  
2. Economies of Scale- Walmart is rated a 3 with a weighted score of 0.3 in this particular category.  Being the giant that Walmart is, they have a very large scale of operations.  This therefore gives them strong supplier purchasing power and the opportunity to reduce prices.  With their vast amount of products they can spread their fixed costs out lowering the price of the products. “Higher economies of scale results in lower prices that are passed to consumers” (http://www.strategicmanagementinsight.com/swot-analyses/walmart-swot-analysis.html)
3. Wide Range of Products- Walmart has one of the largest ranges of products providing ease for their customers.  Customers are able to have that “one-stop-shopping” experience they so desire.  Consumers certainly like this aspect for the convenience it entails.  Although Walmart’s discount stores do in fact provide a large variety of items, this holds especially true for their Supercenters and Sam’s Club retail units.  As it pertains, Wal-Mart is highly rated here, with a ranking of 4 and weighted score of 1.0.  

Weaknesses:

1. Poorer Quality Products- With such a wide range of products, Wal-Mart’s merchandise tends to be of lesser quality.  This is due to their inability to focus in on one particular item group.  Their broad spectrum of food, clothing, stationary, toiletries, and other household items and commodities makes it difficult to provide high quality.  Factor in discount pricing, and it becomes nearly impossible.  Simply put, consumers cannot expect to have a wide variety of products with high quality and lower prices; it just cannot happen.  That understood, Wal-Mart is given a rating of 2 and weighted score of 0.40.  
2. Large Span of Control- Considering the size of Wal-Mart, it is no doubt that they have a large span of control.  While having a large span of control may be less costly, it also raises some important issues.  For starters, there may be less supervision due to such a wide range, which makes disciplinary actions harder to enforce.  This therefore can result in less control of employees and further entails a poorer quality of performance among the business.  Moreover, it becomes incredibly difficult for the quality of management to stay consistent throughout the company, giving a rating of 2 with a weighted score of 0.2.    
3. Concerns about Ethical Position- Over the years, Walmart has been questioned about their ethical stance regarding their workplace practices.  It is noted that approximately 5,000 lawsuit filings are made every year against the big box store.  Such abuses consist of “wage law violations, inadequate health care, exploitation of workers, and the retailer’s anti-union stance” (http://www.workplacefairness.org/reports/good-bad-wal-mart/wal-mart.php).  Perhaps not all consumers are aware of such mistreatment taken place behind the scenes.  In fact a majority of people do not perform research on the ethical stance of the stores in which they shop, giving Walmart somewhat of a saving grace, and therefore a rating of 1 and weighted score of 0.1.  However, when such offensive stories make headlines, and the behind the scenes wrongdoings are made public, consumers may second-guess where they are shopping, and consequently may have an impact on its current ratings.

Overall, Walmart has received a 3.0-weighted score in relation to its industry.  It appears that its core competency of implementing a cost leadership strategy as well as providing a wide range of products of lower quality has more of an impact in respect to its industry.  Economies of scale, its large span of control and concerns about Walmart’s ethical position are certainly of concern; however, such factors appear to have less of an influence.