walmart: in search of renewed growth

Author affiliation *James P. Gorman Professor of Business Strategy, Columbia

Business School†Andreas Andresen Professor of Business Administration, Harvard

Business School

Acknowledgments Axel Ramm, MBA’16, provided valuable research and insights for

the updated version of this case.

Kate Permut, MBA’83, and Lori Qingyuan Yue, PhD’10, provided

research and writing support for earlier versions of the case.

Maris Moon’ 20 provided research and writing support for the

revised version of this case.

Copyright information ©2008–2020 by The Trustees of Columbia University in the City

of New York. This case includes changes made to the version

originally published on July 30, 2008.

This case is for teaching purposes only and does not represent an

endorsement or judgment of the material included.

This case cannot be used or reproduced without explicit permission

from Columbia CaseWorks. To obtain permission, please visit

www.gsb.columbia.edu/caseworks, or e-mail

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UBLISHED ON AUGUST 20, 2020 P

Walmart: In Search of Renewed Growth BY STEPHAN MEIER* AND FELIX OBERHOLZER-GEE†

Introduction In early 2020, Walmarti Stores, Inc., the world’s largest retailer, faced several strategic challenges.

The company had just been ranked number one on the Fortune 500 list, with same-store sales in

the United States improving after many years of slow growth. However, international expansion

had yielded uneven results, and competition in online sales remained fierce. Wall Street’s support

for Walmart was mixed: Market Realist reported in early 2019 that the firm’s stock performance

was “minimal upside,” noting that “Target, Costco, and Walmart stock have risen 23.1 percent,

20 percent, and 5.3 percent, respectively for the year.”1 See Exhibit 1.

Finding new sources of growth would be no easy task. With more than 5,000 stores across the

United States, the company had achieved broad geographic coverage.2 Cutting costs to boost

financial performance seemed equally daunting. Walmart’s laser-like focus on its famous

“Everyday Low Prices” (EDLP) policy seemed to have wrung almost every conceivable expense

from the firm’s supply chain and operations. Competitive pressure from ultra-low-cost dollar

store chains had increased substantially. As a result, the company found itself looking outside its

traditional paths for growth opportunities.

One option was to make a strategic shift toward a more upscale shopping experience. Target had

already staked a claim to this positioning in discount retail, with its “Expect More, Pay Less”

message and exclusive deals with top designers. Could Walmart top Target? As CEO Doug

i Wal-mart officially changed its name to Walmart in 2018.

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This document is authorized for educator review use only by MARCOS LUPPE, FIA - Fundacao Instituto de Administracao until Apr 2021. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

Walmart: In Search of Renewed Growth | BY STEPHAN MEIER* AND FELIX OBERHOLZER-GEE†

McMillon envisioned a new kind of Walmart, he carefully weighed the risks and benefits of such

a move.

Humble Beginnings In 1962, Sam Walton and his brother opened the first Wal-Mart Discount City store in Rogers,

Arkansas. Walton was already an experienced retail manager, having worked both at J. C. Penney

and as a franchise manager for the Ben Franklin chain. He had become intrigued by a growing

trend in retailing—discount stores. These new establishments combined the low-margin/low-

price strategy of supermarkets with the broader selection of merchandise often seen in

department stores. Discount stores featured minimal decor, bare-bones staffing, and few services,

rarely providing delivery or credit. By eliminating these costs and charging margins at least 10 to

15 percent lower than other retailers, discounters were able to offer customers a wide variety of

goods at sharply reduced prices. Top discounters such as Woolco, Korvettes, King’s, Caldor, Two

Guys, and Mammoth Mart were already prospering with this low-price, high-volume strategy.

In 1962, Kmart and Target were also launched as discount retailers.

Walton’s idea was to bring the discount store concept and the benefits of lower prices to a

neglected consumer demographic—shoppers in rural America. He opened his first stores in small

towns, in contrast to his competitors who were reluctant to do business in cities with populations

below 50,000. By operating in locations that larger competitors shunned, Walmart found itself

competing primarily against small, locally owned shops—just the type of businesses Walton

could challenge with his EDLP policy. The crux of EDLP was to sell goods at a lower price per

item at all times, not just during holidays or special sales periods, and to reap profits by selling a

larger volume of those goods. Walton described his strategy:

Here is the simple lesson we learned . . . say I bought an item for 80 cents. I found that

by pricing it at $1.00, I could sell three times more of it than by pricing it at $1.20. I

might make only half the profit per item, but because I was selling three times as

many, the overall profit was much greater. Simple enough. But this is really the

essence of “discounting”—you can lower your markup but earn more because of the

increased volume.3

To be successful, Walton paid close attention to costs, carefully monitored prices charged by each

store’s neighboring competitors, and invested heavily in operations and logistics.

CONTROLLING COST Walmart’s concern with controlling costs reached into every aspect of the business. To reduce

expenses, Walton shunned bureaucracy and traditional marketing. Walmart housed its lean

senior team in a nondescript building in rural Bentonville, Arkansas. When managers visited

suppliers, they rented inexpensive cars, stayed in low-cost hotels—often sharing a room—and

walked instead of taking taxis. The operational rule was to hold trip expenses to less than 1% of

purchases. As Walmart grew, the company asked buyers to come to Bentonville, where

negotiations were conducted in sparse rooms. Meetings with suppliers were set up via collect

calls. In the early 1990s, in a move that was challenged and upheld in the courts, Walmart Do Not

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| Walmart: In Search of Renewed Growth BY STEPHAN MEIER* AND FELIX OBERHOLZER-GEE†

bypassed manufacturer representation altogether to deal directly with suppliers, thus saving 3

%–4% on the cost of goods.

PRICING PRACTICES While Walmart’s competitors set prices at headquarters, Walton delegated pricing and

merchandising decisions to store managers who often visited neighboring stores to observe their

rivals’ prices. Decentralization allowed the company to react quickly to local market conditions.

For example, Walmart prices were approximately 1% lower when Walmart and Kmart were

located next to each other. However, if a store had no immediate local competition, prices were

about 6% higher than the company’s average.4

INFORMATION TECHNOLOGY Starting in the early 1980s, the company made large investments in technology. Walmart was an

early adopter of electronic scanning, automated distribution systems, and satellite-supported

electronic data interchange (EDI) with its suppliers. By the 1990s, EDI supported inventory

management throughout the company. At the same time, Walmart launched Retail Link, a private

exchange that gave thousands of suppliers access to point-of-sale data and offered inventory

information for the previous two years on a store-by-store basis. This wealth of data allowed store

managers and suppliers to determine the specific traits of a Walmart location by indexing local

demand against more than 1,000 other stores and market characteristics.

Distribution Walmart’s distribution strategy reflected the isolated locations of many of its stores (see Exhibit

2 for sociodemographic information about Walmart and competitors). Walton said, “We were in

the boondocks, so we didn’t have distributors falling over themselves to serve us . . . Our only

alternative was to build our own warehouse so we could buy in volume at attractive prices and

store the merchandise.”5

The company’s first warehouse served 18 stores. Suppliers delivered goods to the warehouse, but

Walton used his own trucks to ship the merchandise to his stores. Walmart expanded its retail

network by adding stores that were within one day’s drive of each associated distribution center

(see Exhibit 3). Professor Thomas J. Holmes, an economist at the University of Minnesota who

studied Walmart’s distribution strategy, explained:

Walmart started in a relatively central spot in the country and store openings radiated

from the inside out. . . Walmart always placed new stores close to where it already

had store density . . . When stores are packed close together, it is easier to set up a

distribution network that keeps stores close to a distribution network . . . And when

stores are close to a distribution center, Walmart can save on trucking costs.6

Walton’s trucks were usually able to reach a store in time for shelves to be restocked within one

day, a critical advantage over the weeklong delivery time historically experienced by Walmart’s

competitors. Over 80% of sales went through the company’s own distribution centers. Walmart

introduced cross docking—moving merchandise items from one truck to another without ever

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parts of the delivery and schedule process. Walmart had even taken over the transportation of

some of its suppliers’ merchandise—which, due to the size of Walmart’s trucking fleet, it could

do more efficiently than the suppliers themselves.7 As a result, the company was able to

drastically reduce the number of items that experienced stockouts or overstocks. At the same

time, a typical store allocated just 10% of its footprint to inventory storage, versus the 25%

historical retail-industry average. The continued expansion of Walmart’s network made it more

likely that people would shop at its stores, since many customers lived within a short walking

distance of several Walmart locations (see Exhibit 4).

Creating a Culture Walton died in 1992, but the core company values he created live on. He had articulated them

with three phrases—"respect for the individual, service to our customers, and striving for

excellence.” These values were reflected in numerous company policies:

COST Throughout its history, cost concerns remained front and center at Walmart. Walton’s own

behavior exemplified this in many ways: when he traveled between stores (first in his old pickup

truck and then in the plane he flew himself, thus saving the cost of hiring a pilot); when he

designed his stores (which had cement floors and industrial shelving); when he eschewed fancy

corporate trappings (keeping a cramped, spartan office at headquarters); when he banned gifts

from suppliers (believing those costs might be passed on to Walmart); and when he was reluctant

to add overhead (Walmart did not have a PR department until the 1990s). As Walmart grew,

Walton’s midwestern values, emphasizing frugality, independence, and propriety, permeated

the company.

CUSTOMER FOCUS Walton said:

There is only one boss: the customer. And he can fire everybody in the company from

the chairman on down, simply by spending his money somewhere else. Whenever I

come within 10 feet of a customer, I look him in the eye, greet him, and ask if I can

help him.8

The yellow smiley-face logo became the corporate symbol. At the entrance of every store a greeter

said, “Welcome to Walmart” as shoppers arrived. Suppliers were called partners, and employees

were called associates, implying that both had a different, closer relationship to management than

was common at other companies. To build a bond between management and associates, everyone

was asked to give a Walmart cheer at the start of meetings (see Exhibit 5 for a photo of Walton

doing the “squiggly”).9 Senior executives were expected to avoid ostentatious displays of power

or wealth.

AGILITY Walmart’s culture was fast-paced, allowing it to react to market opportunities swiftly. Walton

started his work day at 4:30 a.m., and his management team arrived by 6:30 a.m. At the

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store locations) the week’s priorities, including up-to-the-minute sales trends, new products, and

competitive developments. Saturday meetings were “equal parts talk show, financial update,

merchandising workshop, town-hall forum, talent revue, gripe session and pep rally.”10 Actions

called for on Saturday morning were implemented by the end of that day.

COMPETITION Walmart’s culture was characterized by a fierce sense of competition and a keen focus on business

improvement. After managers visited the stores of local rivals, they had to come up with ways to

undercut their prices. Every associate was asked to make suggestions about ways to improve

sales for his or her area. Buyers aggressively negotiated the best prices from their suppliers and

then went back each year to demand another 5% savings. The company was not shy about asking

suppliers to modify their products or packaging. Despite such pressures, many manufacturers

continued to view Walmart as the best retailer to do business with. Walmart had taken the top

spot in Kantar Retail’s annual ranking of about 350 retailers every year since the first survey was

published in 1997. Out of nine categories in the 2019 survey,11 Walmart scored first in seven, with

key competitor Kroger topping the remaining two.12

New Store Formats To grow its business, Walmart experimented with a variety of new store formats (see Exhibit 6).

SAM’S CLUBS Modeled after San Diego’s Price Club, Walmart’s warehouse club offered a limited selection of

merchandise (3,500 SKUs, compared to 70,000 at a regular store) at near-wholesale prices

exclusively for Sam’s Club members. The company delineated the differences between these

ventures and Walmart stores clearly. Sam’s Clubs’ inventory was purchased separately from

Walmart’s, seasonal merchandise played a much bigger role, and inventory turnover was much

faster. As was typical for stores of this format, Sam’s Clubs sold merchandise in industrial

quantities. Although the division’s gross margin was 13%—significantly lower than Walmart

stores’ average of 23%—each Sam’s Club had sales-per-square-foot averaging $401, versus $150

at a Walmart.13

SUPERCENTERS In the late 1980s, Walmart adapted the European hypermarket store format, pioneered by the

French retailer Carrefour, to create supercenters. Supercenters added a grocery market to an

existing Walmart store. Despite the thin margins in the grocery business—3%–4% was considered

typical, compared to 20% in the general merchandise segment—supercenters came to fuel

Walmart’s growth and profitability (see Exhibit 7). The company expanded into supercenters at

a blistering pace; by 1999 it had opened 683. By the mid-2000s, this figure had grown to 1,980. In

2020, groceries accounted for 56% of the company’s annual revenues.14

NEIGHBORHOOD MARKETS As Walmart’s grocery business grew, the company seized on closely related opportunities, as

reported in the company’s 1999 Annual Report: Do Not

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Supercenters effectively serve a large trade area, but we think there may be some

business that we are not getting purely because they may not be as close to the

customer or convenient for small shopping trips. That’s where we think there may be

an opportunity for the small grocery/drug store format where we are testing the

Neighborhood Market.15

Neighborhood Markets signaled Walmart’s entry into the small-scale grocery business, and by

2015, growth in that format had intensified. A Neighborhood Market store was one-quarter the

size of a supercenter and carried one-fifth the number of items available there. The smaller size

also gave Walmart a useful format for trying out new merchandise and service concepts. For

example, the company first tested pharmacies in Neighborhood Markets and found them to be

an attractive new revenue stream. Walmart also experimented with private-label grocery and

household product brands in its Neighborhood Markets. While the number of Neighborhood

Markets had increased dramatically, in 2015 there were still none in New York, New Jersey,

Pennsylvania, Massachusetts, Ohio, Michigan, and many other states.

International Expansion In the early 1990s, Walmart’s executives turned to global markets for growth opportunities. The

company’s initial move outside the United States was to the south, where it entered into a joint

venture with Cifra, Mexico’s largest retailer. Walmart purchased Cifra outright in 1998. In similar

moves, Walmart acquired 122 Canadian Woolco discount stores in 1994, and 21 hypermarkets in

Germany in 1998. One year later, Walmart completed the purchase of ASDA, a 232-store

supermarket chain in the United Kingdom with $14 billion in sales. In 1996, Walmart entered

China. By 2020, Walmart International operated in 26 countries, producing 28% of the company’s

revenue in 6,146 locations.16

While international sales grew quickly, Walmart often faced savvy competitors who matched the

company’s management skills and sophisticated consumers who were not impressed by its

midwestern frugality. The company was forced to exit Germany and South Korea in 2006, ceding

these markets to better-positioned rivals.17 Competition was especially strong in Germany, where

labor laws were very different than in the United States, and zoning regulations were extremely

strict and unfavorable to megastores.18

Mexico was an encouraging growth story, and Walmart’s sales there were by far the largest of

any country outside the United States; however, the Mexican market had slowed in recent years.

In June 2012, Walmart’s senior executives in Mexico were charged by the US Justice Department

for allegedly bribing local officials to sidestep zoning laws in order to fast-track new store permits.

In 2019 after years of investigation, Walmart agreed to pay $282 million to the SEC for allowing

a third-party to bribe foreign officials in Mexico, Brazil, China, and India.19

In view of these setbacks, Walmart started to take a more measured approach to international

expansion. For example, the company scaled back its ambitions in China, setting more modest

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Continuing Challenges In 2013, Doug McMillon became Walmart’s new CEO, the youngest CEO since Walton first took

the helm and only the fourth since Walton’s death in 1992. McMillon had started out in a Walmart

distribution center as a summer intern and had spent almost his entire career at the company. A

tough-minded buyer for many years, McMillon assumed responsibility for Walmart’s

international business in 2009. When McMillon was appointed CEO, he led the largest retailer in

the world—an international behemoth with 2.2 million associates (1.4 million employees in the

United States alone) and $482 billion in annual sales (see Exhibits 8A and 8B).21 Walmart revenues

surpassed those of its top five competitors combined.22 As McMillon soon learned, the company’s

scale invited scrutiny, posing management challenges in two distinct areas: labor relations and

community impact.

LABOR RELATIONS Walmart had a long history of staunch opposition to labor unions. Rather than allowing its

workforce to organize, the company preferred to restructure its operations to eliminate positions

that could potentially be unionized. Although Walton had emphasized maintaining good

relations between employees and management, the company’s reputation as an employer grew

increasingly negative. Many saw Walmart’s culture as bullying and mean-spirited and believed

the firm exploited its market power.23 Critics alleged that Walmart’s wage policies kept

employees below the poverty line. According to these estimates, a typical sales clerk earned $8.50

an hour, or about $14,000 a year, which was $1,000 below the poverty line for a family of three in

2003 (see Exhibit 9 for information on labor costs).24 Low wages, these critics argued, also

prevented Walmart employees from participating in the company’s health plan.25

Gender discrimination was another matter of contention. In a 2001 lawsuit, six Walmart

employees claimed that women earned 5 %–15% less than men in similar positions.26 Women also

seemed less likely to be promoted. While two-thirds of Walmart’s hourly employees were

women, only one-third of salaried managers and 14% of the company’s top managers were

female. The company’s competitors had about 20% more women in managerial positions.

Walmart challenged the plaintiffs’ statistical studies, arguing that female associates were less

likely to apply for management positions.27 Reviewing the evidence, a federal judge certified the

class in June 2004 and Walmart’s stock fell by 1.6 percent on the day of the announcement.28 The

Supreme Court ultimately sided with Walmart. But the suit—and similar allegations in

subsequent years—indicated how costly the antagonistic labor relations had become. Poor labor

relations also impacted operating costs; the turnover rate among Walmart associates was close to

50% each year, historically more than double that experienced at Costco and other retailers.29

COMMUNITY IMPACTS As the retail industry in the United States grew more concentrated (the average US county had

3.86 small retail stores in 1988, but this number fell by more than 10% in the following decade),

Walmart’s critics linked the rise of the discount retailer to deserted city centers and main streets.

One independent academic study attributed at least 50% of the decline in the number of small

stores to the rise of Walmart.30 When Walmart opened a new store, it created 100 new jobs, but as

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the initial increase in local jobs was eventually lost.31 Everyday low prices, some argued, came at

a significant social cost. As a result, the company found it increasingly difficult to develop new

sites. Supported by unions and grassroots groups, towns used zoning laws and referenda to

stymie the company’s expansion plans. When citizens kept Walmart from opening stores in

Inglewood, California, and Littleton, Colorado, the company’s defeat was widely publicized,

further encouraging Walmart’s detractors.

Strained community relations impeded not only store growth; when Walmart applied for a

banking license so it could take deposits and make loans, there was massive public outcry. There

were “thousands of public comments and a letter from nearly 100 lawmakers” against approving

Walmart’s application.32 In 2007, the firm had to withdraw its bid. As the cost of sour community

relations became more visible, Walmart began to soften its stance. Former CEO Lee Scott

explained the evolution:

No question, it has been a hard transition for us going from being the darling to being

under attack. At first, we threw the sandbags up and got the machine guns out and

believed anybody who criticized us was our enemy. But I think we’re taking down

those sandbags one at a time.33

The company’s attempts to put on a friendlier face seemed to have paid off. Rather than trying to

embarrass the retailer, unions started to work with the company on proposals for improved

healthcare, for instance. David Nassar, executive director of Walmart Watch, a largely union-

financed group that sought to shame the company with stinging newspaper advertisements and

public pronouncements, noted “It is fair to say we have been less in-your-face.”34 Reflecting the

better relations, the company shut down the campaign-style war room created to battle the unions

and disbanded “Working Families for Walmart,” a company-supported advocacy group.

Seeking Fresh Opportunities for Growth Walmart’s expansion began to falter in the mid-2000s, and its stock price flattened. At the

company’s 2015 shareholders meeting, McMillon acknowledged that same-store sales had been

negative in some quarters.35 The rate of increase in comparable store sales had slowed to virtually

zero in 2014 and 2015 and had only grown 2.6% overall since 2009 (see Exhibit 10). Later in the

decade, Walmart was able to increase its comparable store sales to 4.0 percent and 2.7 percent in

2019 and 2020, respectively.36 By comparison, Walmart’s key competitor, Costco, posted gains of

approximately 5% annually from 2015 to 2019.37

McMillon and his team faced a number of challenges as they sought further growth. One issue

was sales cannibalization (see Exhibit 12). By 2006, 60% of the US population lived within five

miles of a Walmart, and 96% lived within 20 miles of one. There were still some potential areas

for expansion, such as California and New York, but the company acknowledged that “additional

stores may take sales away from existing units.”38 McMillon estimated that comparable store sales

in fiscal years 2014 and 2015 were negatively impacted by the opening of new stores by

approximately 1% each year (see Exhibit 13). Do Not

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Grocery margins were a second area of concern. The company remained the price leader in the

food business, but supermarkets such as Kroger and Publix were beginning to close the gap. The

innovations that Walmart had created in merchandising, logistics, and transportation had been

well studied by its competitors and were being duplicated.39 Even more importantly, dollar stores

and “deep discount” grocers created enormous price pressure; during the Great Recession of

2009, even wealthier customers patronized such venues. Even though they were no-frills stores,

people enjoyed shopping at them, especially for fill-in trips, because they were more centrally

located and smaller than supercenters.40 In 2014, Dollar Tree announced it was taking over Family

Dollar to create a chain with more than 13,000 stores and $18 billion in annual sales; competitor

Dollar General had around 12,000 stores.41 Germany’s Aldi and Lidl stood out among the

discount grocers—both companies offered mainly private-label products, a far smaller number

of SKUs, and a reduced store format of about 5,000 square feet filled with cut boxes and

rudimentary shelf displays. As a result, Aldi’s and Lidl’s prices compared favorably to Walmart’s.

In some studies, consumers saved more than 20% by shopping at Aldi.42

Third, online sales were another headache. With a market share of 1.6% of US online sales,

Walmart was lagging behind Amazon (12.1%), the largest e-retailer in the world.43 Amazon didn’t

have brick-and-mortar stores and optimized its distribution to the particular needs of e-tailing.

In contrast, Neil Ashe, CEO of Global eCommerce for Walmart, admitted at the company’s 2015

shareholder meeting “we’re rebuilding the business from scratch.”44 Walmart was investing

heavily in online sales by improving its platform and opening new e-commerce distribution

centers. To compete with Amazon’s Prime, a popular service that offered customers free shipping

and entertainment for an annual membership fee of $99, Walmart introduced unlimited free

shipping for a $50 annual fee.45

In 2016, Walmart acquired Jet.com for $3.3 billion in order to compete more effectively with other

online retailers.46 Jet was an e-commerce startup that offered a broad selection of merchandise. It

operated on a unique pricing scheme that found the true marginal cost of getting the product to

the customer. Prices dropped when the customer purchased multiple items from the same

distribution center, when the customer purchased multiple units of the same item, and when the

customer waived their right to return the item. Despite continued efforts, however, Jet was never

profitable and Walmart finally closed it down in 2020.47

Jet’s demise was gradual. Walmart took several intermediate steps before closing it down.

Walmart shifted much of its budget from Jet to Walmart.com starting in 2018. Jet’s team was

transferred to Walmart.com, including Jet cofounder Marc Lore who became the CEO of

Walmart.com. Marc Lore introduced free two-day shipping for orders over $35 without a

membership fee, a move that was a direct threat to Amazon Prime. Walmart’s physical stores

were a key advantage against Amazon, and it utilized the power of its store base to introduce

two-hour express delivery. From 2016 to 2019, Walmart.com sales tripled and the company

became the second biggest player in e-commerce but still lagged far behind Amazon (see Exhibit

14).

Fourth, customer preferences appeared to have evolved in ways that hurt Walmart. Shoppers

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the store environment. The allure of EDLP did not always overcome the minimal customer

service, disheveled aisles, and aging physical spaces that could make a trip to Walmart

exhausting and depressing. In the 2019 American Consumer Satisfaction Index, Walmart scored

at the bottom, far behind competitors like Target, Sears, and Costco.48

Upscaling the Walmart Experience Walmart’s competitors had long emphasized their superior products and a more pleasant

shopping experience to compete with the company’s low-price value proposition. Former Target

President Bob Ulrich said, “If Walmart was striving to be the king of logistics with enough muscle

to force vendors to deliver on price, Target could deliver on a great store experience and a product

that was exciting and unique.”49

Ulrich made innovation, design, and quality the hallmarks of Target’s offerings. He set up a

trend-tracking department, founded a user-experience research center, and aggressively pursued

design leaders to create unique products for Target stores. He launched fashion trendsetter Isaac

Mizrahi’s line of value-priced women’s clothing. Target’s eye-catching TV and print ads

suggested that shoppers could find joy in buying a broom or a toothbrush. Target’s motto,

“Expect More, Pay Less,” embodied its offerings—upscale products including Michael Graves’s

line of housewares, Todd Oldham’s home decor and furniture, and Philippe Starck’s kitchenware

at discount prices. This positioning appeared to be a success; for a similar mix of merchandise,

Target’s prices exceeded those of Walmart by about 10%, but Target’s same-store sales still grew

more quickly.50

Lured by the attractive margins of products with a stylish design―fashion clothing, for instance,

had a 31 percent profit margin, compared to 20% for general merchandise and 4% for

food51―Walmart introduced branded clothing at higher price points beginning in 2000. To

support these efforts, the company installed simulated wood floors and more dressing rooms in

its stores, moved its office from Bentonville to a 40,000-square-foot space in New York City’s

Fashion District, and added more than 300 fashion merchandisers to the company’s payroll.

Walmart inked a series of deals to bring brand-name designer goods to its shoppers: surfer brand

OP (Ocean Pacific) signed on to develop a line of casual clothing, footwear, and accessories; junior

jeans brand l.e.i. agreed to partner with Walmart; and designer Norma Kamali was tapped to

create a new line of women’s wear.52 These forays into the world of fashion had limited success,

however, and the executive in charge resigned in 2010 due to “slow growth in sales.”53 One

analyst commented: “Without imagery, apparel just becomes a commodity business. Without the

nuances of making a brand have an essence, as opposed to just a product, there is no additional

sale.”54

Upscaling 2.0 Under McMillon’s leadership, Walmart renewed its efforts to reposition the company. An

important goal was to improve customers’ in-store experience. To increase the engagement of its

associates, McMillon raised the hourly wage of 500,000 employees to $9 in early 2015, and to $12

in early 2020.55 The company also adjusted the pay bands for many full- and part-time workers, Do Not

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raising compensation for those making more than the starting wage. It added staff to shorten

check-out lines and hired almost 8,000 department managers. McMillon introduced this new

management tier hoping to improve the availability and presentation of products. In early 2015,

in-stock positions were close to 95%.56 The company also developed new training programs. The

estimated cost of all these initiatives was about $1 billion.57

To strengthen its grocery business, Walmart broadened its relationship with Wild Oats, a well-

known label for organic products. In an aggressive move, the company promised to sell organic

products at the same price as conventionally produced items. Competitors typically charged a

25% premium. “We’re removing the premium associated with organic groceries,” said Jack L.

Sinclair, executive vice president of Walmart’s US grocery division.58 The company also worked

on getting produce to its stores more quickly, and hoped to teach associates to cull fruit and

vegetables more consistently to leave only high-quality produce on the floor. As Barclays analyst

Meredith Adler remarked, these efforts were unlikely to produce quick results. “Since produce is

a seasonal business, it can take a year to train a produce clerk on exactly how to handle all the

different kinds of fruits and vegetables.”

When Walmart announced its first quarter results for 2015, its share price fell by more than 4%.

By early June, Walmart’s valuation had declined by more than 10%. Adler noted:

Perhaps investors were hoping that the many initiatives . . . would have benefited

results this quarter. We don’t think that view was realistic, since many initiatives are

still being rolled out, and in most cases, the only communication to customers about

the changes is coming via word of mouth.

Others were more skeptical. Patricia Edwards, retail fund manager at Wentworth, Hauser and

Violich, pointed out: “The challenge that Walmart faces is value. An upper-end consumer defines

value differently than a moderate-income shopper. If it was just price, they would drink the office

coffee instead of going to Starbucks.”59

Was moving upscale the right strategy for McMillon to pursue?

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Exhibits Exhibit 1 Ten-Year Trend in Stock Prices, December 2009 to July 2020

Source: Yahoo Finance.

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Exhibit 3 Diffusion of Walmart Stores and General Distribution Centers, 1970–2005

Source: Thomas J. Holmes, “The Diffusion of Wal-Mart and Economies of Density,” Econometrica 79, no. 1 (January 2011): 253-302.

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Exhibit 4 Probability of Customers Shopping at Walmart The table reports the likelihood that a customer would shop at Walmart as a function of

population density and customer distance. For example, a customer in an area with 10,000 people

within a five-mile radius shops at Walmart with a probability of 61.5 percent if the closest store

is five miles from home.

Store Distance (miles)

Population Density (thousands of people within a 5-mile radius)

1 5 10 20 50 100 250

0 .999 .989 .966 .906 .717 .496 .236

1 .999 .979 .941 .849 .610 .387 .172

2 .997 .962 .899 .767 .490 .288 .123

3 .995 .933 .834 .659 .372 .206 .086

4 .989 .883 .739 .531 .268 .142 .060

5 .978 .803 .615 .398 .184 .096 .041

10 .570 .160 .083 .044 .020 .011 .006


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Exhibit 5 Sam Walton Does the “Squiggly” in the Walmart Cheer

Give me a W!

Give me an A!

Give me an L!

Give me a squiggly!

Give me an M!

Give me an A!

Give me an R!

Give me a T!

What’s that spell?

Wal-Mart!

Whose Wal-Mart is it?

It’s my Wal-Mart!

Who’s number one?

The customer! Always!

Source: Company documents.

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Exhibit 6 Number of Walmart Stores, 1962–2020

.

Source: Walmart Stores, Inc. Annual Report.

Exhibit 7 Estimated Net Present Value (NPV) per New Store, 2003 ($ millions)

Type of Store Discount Store Supercenters Long-Run Operating Margin* 10% 7% 8% 9%

Estimated NPV $16.3 $15.0 $19.0 $22.9

Notes: Discount stores are assumed to generate long-run sales of $39 million per year with an initial investment of $10.6 million, and supercenters are assumed to generate long-run sales of $75 million per year with an initial investment of $15.5 million. NPVs are net of these initial investments.

*Operating margin is assumed to ramp up to its long-run level in five years.

Source: Pankaj Ghemawat, Stephen P. Bradley, and Ken Mark, Wal-Mart Stores in 2003 (Abridged Version) (Cambridge, MA: Harvard Business Publishing, 2003).

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Exhibit 8A Financials: Comparable Income Statements, 2019–2020 IN MILLIONS OF REPORTED CURRENCY (CONVERSION: HISTORICAL)

Walmart

Total (incl. rev other ops)

Target Costco Kroger

Last Twelve Months 12 months 12 months 12 months 12 months For the Fiscal Period Ending Jan-2020 Feb-2020 Sept-2019 Jan-2020 In Currency

USD

USD

USD

USD Total Revenue 523,964.0 78,112.0 152,703.0 122,286.0 Cost Of Goods Sold 394,605.0 54,864.0 132,886.0 95,294.0 Gross Profit 129,359.0 23,248.0 19,817.0 26,992.0 Selling General & Admin Exp. 108,791.0 18,590.0 15,080.0 24,741.0 Operating Income 20,568.0 4,658.0 4,737.0 2,251.0 Interest Exp. 452 468 17.0 123 EBT Excl. Unusual Items - - - - Operating Profit Before Tax 20,116.0 4,190.0 4,720.0 2,128.0 EBT Incl. Unusual Items - - - - Income Tax Expense 4,915.0 921.0 1,061.0 469.0 Net Income 15,201.0 3,269.0 3,659.0 1,659.0 Profitability Return on Assets % 6.7% 7.8% 8.6% 3.6% Return on Capital % 10.9% 11.2% 16.5% 7.3%

Return on Equity % 20.2% 18.4% 26.1% 19.9%

Compound Annual Growth Rate Over Five Years

Total Revenue 10.5% 11.1% 11.0% 6.3%

Gross Profit 12.5% 12.2% 11.0% 4.0% EBITDA 11.3% 12.9% 9.6% -0.3% EBITA 10.8% 13.3% 9.4% -2.6% EBIT 10.8% 13.4% 9.4% -2.6% Earnings from Cont. Ops 10.5% 15.7% 10.9% -0.6% Net Income 9.9% 11.9% 10.9% -0.4%

Source: S & P Capital IQ. Note: There are variations with regard to the month in which each company’s accounting year ends.

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Exhibit 8B Segment Income Statements ($ billions)

Consolidated Walmart US Walmart Int'l Sam's Club

Net Sales 519.92 321.00 120.1 58.79

Operating Income 20.57 17.38 3.37 1.64

Total Assets 236.50 110.35 105.81 13.49

Depreciation 10.99 6.41 2.68 0.61

EBITDA 31.56 23.79 6.05 2.25

Capital Expenditures 10.71 6.32 2.80 0.53

Source: Walmart 2020 10-K report.

Exhibit 9 Distribution of Labor Costs at Selected Walmart Locations

Quartile Store Location Annual Payroll per Worker ($)

Wages as Percent of Sales

Minimum Pineville, MO 12,400 4.5

25 Litchfield, IL 19,300 7.0

50 Belleville, IL 21,000 7.6

75 Miami, FL 23,000 8.3

Maximum San Jose, CA 37,900 13.7

Source: Thomas J. Holmes, “The Diffusion of Wal-Mart and Economies of Density,” Econometrica 79, no 1. (January 2011): 253-302).

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Exhibit 10 Walmart Same-Store Sales, 1987–2020

Note: Comparable store sales are defined as sales in stores and clubs for those units which were open at least 12 months as of January 31 of the prior year; for example, 11 percent for 1993 is the comparable sales growth during 1993 for stores open as of January 31, 1992.

Source: Financial summary notes from each year’s Walmart Annual Report.

Exhibit 11 Competitors’ Same-Store Sales, January 2013–January 2015

Jan/13 Jan/14 Jan/15 Total US 2.4% -0.5% 0.5%

Target 2.7% -0.4% 1.3%

Costco US 7% 6% 5%

Kroger 4.5% 3.3% 4.2%

Dollar General 4.7% 3.3% 2.8%

Dollar Tree 3.4% 2.4% 4.3%

Family Dollar 4.7% 3.0% -2.1%

Source: Company 10-K reports. Do Not

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Exhibit 12 Walmart Cannibalization Rates, 1998–2015

Year Rate 1998 0.62%

1999 0.87%

2000 0.55%

2001 0.67%

2002 1.28%

2003 1.38%

2004 1.43%

2005 1.27%

2006 1.00%

2007 1.00%

2008 1.50%

2009 1.10%

2010 0.60%

2011 0.80%

2012 0.80%

2013 0.70%

2014 0.80%

2015 0.90%

Note: Cannibalization measures the reduction in same-store sales as a result of new store openings. For example, in 2003 same-store sales would have been 1.38 percent higher if Walmart had not opened any new stores.


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Exhibit 13 Incremental Values of New Store Openings Part A: All Stores

Incremental Sales

Incremental Operating Profit

Incremental Distribution Center

Distance (miles)

Average for All Stores 36.3 3.1 168.9

How Many Years After Walmart’s Entry Into the State Did the Store Open?

1-2 years 38.0 3.5 343.3 3-5 years 39.5 3.5 202.2 6-10 years 37.6 3.3 160.7 11-15 years 36.1 2.9 142.1 16-20 years 32.9 2.8 113.7 21 or more years 29.5 2.4 90.2

Part B: New Supercenters

Incremental Sales Incremental

Operating Profit

Incremental Distribution Center

Distance (miles)

Average for all Centers All Supercenters 40.2 3.6 137.0

How Many Years After Walmart’s Entry Into the State Did the Store Open?

1-2 years 42.4 3.9 252.9 3-5 years 42.7 4.0 171.2 6-10 years 41.0 3.6 113.5 11-15 years 36.7 3.2 95.3 16-20 years 30.1 2.8 94.0


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Exhibit 14 Top 10 US Companies, Ranked by Retail E-Commerce Sales Share, 2020

Source: eMarketer

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Endnotes

1 Amit Singh, “Is Kroger Losing to Walmart, Target, and Costco?” Market Realist,

https://marketrealist.com/2019/04/is-kroger-losing-to-walmart-target-and-costco/. 2 Walmart, “Location Facts,” https://corporate.walmart.com/our-story/locations/united-states. 3 Sam Walton and John Huey, Sam Walton: Made in America (New York: Doubleday, 1992). 4 George C. Strachan, “The State of the Discount Store Industry,” Goldman Sachs Report, April 6,

1994. 5 Walton and Huey, Sam Walton: Made in America. 6 Thomas J. Holmes, “The Diffusion of Wal-Mart and Economies of Density,” Econometrica 79,

no. 1 (January, 2011): 253-302), http://www.econ.umn.edu/~holmes/papers/ecta7699.pdf. A

video of Holmes’s interactive map charting the opening of US stores and distribution centers

from 1962 to 2004 is available at http://www.youtube.com/watch?v=EGzHBtoVvpc. 7 Carol Wolf, Chris Burritt, and Matthew Boyle, “Why Wal-Mart Wants to Take the Driver’s

Seat,” BusinessWeek, May 27, 2010, https://www.bloomberg.com/news/articles/2010-05-27/why-

wal-mart-wants-to-take-the-drivers-seat. 8 Walmart, “10-Foot Rule,” http://walmartstores.com/AboutUs/285.aspx. 9 See the Wal-Mart cheer performed by executives at the annual shareholders meeting

(http://www.youtube.com/watch?v=z48kJTYSl8s). 10 Brent Schlender, “Wal-Mart’s $288 Billion Meeting,” Fortune, April 18, 2005,

https://money.cnn.com/magazines/fortune/fortune_archive/2005/04/18/8257009/. 11 “PoweRanking Leaders Harness the Climatic Winds of Change for Growth in Retail Today . . .

and Tomorrow,” Kantar, https://consulting.kantar.com/growth-hub/poweranking-2019/. 12 Kantar Retail, PoweRanking® 2013: Navigating the Storm. 13 Schlender, “Wal-Mart’s $288 Billion Meeting.” 14 Walmart, “Financial Information,” https://stock.walmart.com/investors/financial-

information/sec-filings/default.aspx, p. 76. 15 1999 Wal-Mart Stores, Inc. Annual Report,

https://www.annualreports.com/HostedData/AnnualReportArchive/w/NYSE_WMT_1999.pdf. 16 Walmart.com, “Financial Information,” https://stock.walmart.com/investors/financial-

information/sec-filings/default.aspx, pp. 8-10. 17 “Wal-Mart Exits Korean Market,” Los Angeles Times, May 23, 2006,

https://www.latimes.com/archives/la-xpm-2006-may-23-fi-walmart23-story.html. 18 David Macaray, “Why Did Walmart Leave Germany?” Huffington Post, August 29, 2011,

http://www.huffingtonpost.com/david-macaray/why-did-walmart-leave-ger_b_940542.html. 19 U.S. Securities and Exchange Commission, “Walmart Charged with FCPA Violations,” press

release no. 2019-102, June 20, 2019, https://www.sec.gov/news/press-release/2019-102. 20 Laurie Burkitt, “Wal-Mart Says It Will Go Slow in China,” Wall Street Journal, April 29, 2015,

https://www.wsj.com/articles/wal-mart-to-open-115-stores-in-china-by-2017-1430270579. 21 2014 Wal-Mart Stores, Inc. Annual Report,

https://cdn.corporate.walmart.com/66/e5/9ff9a87445949173fde56316ac5f/2014-annual-report.pdf. 22 Top 100 Retailers,” National Retail Federation, https://nrf.com/2015/top100-table.

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https://marketrealist.com/2019/04/is-kroger-losing-to-walmart-target-and-costco/

https://corporate.walmart.com/our-story/locations/united-states

http://www.econ.umn.edu/~holmes/papers/ecta7699.pdf

http://www.youtube.com/watch?v=EGzHBtoVvpc

https://www.bloomberg.com/news/articles/2010-05-27/why-wal-mart-wants-to-take-the-drivers-seat

https://www.bloomberg.com/news/articles/2010-05-27/why-wal-mart-wants-to-take-the-drivers-seat

http://walmartstores.com/AboutUs/285.aspx

http://www.youtube.com/watch?v=z48kJTYSl8s

https://money.cnn.com/magazines/fortune/fortune_archive/2005/04/18/8257009/

https://consulting.kantar.com/growth-hub/poweranking-2019/

https://stock.walmart.com/investors/financial-information/sec-filings/default.aspx


https://www.annualreports.com/HostedData/AnnualReportArchive/w/NYSE_WMT_1999.pdf



https://www.latimes.com/archives/la-xpm-2006-may-23-fi-walmart23-story.html

http://www.huffingtonpost.com/david-macaray/why-did-walmart-leave-ger_b_940542.html

https://www.sec.gov/news/press-release/2019-102

https://www.wsj.com/articles/wal-mart-to-open-115-stores-in-china-by-2017-1430270579

https://cdn.corporate.walmart.com/66/e5/9ff9a87445949173fde56316ac5f/2014-annual-report.pdf

https://nrf.com/2015/top100-table


23 “Stop the Bullying, Wal-Mart,” Bloomberg Business, April 2007,

https://web.archive.org/web/20101027154612/http://www.businessweek.com/debateroom/archi

ves/2007/04/stop_the_bullying_wal-mart.html. 24 Steven Greenhouse, “Wal-Mart, Driving Workers and Supermarkets Crazy,” New York Times,

October 19, 2003, https://www.nytimes.com/2003/10/19/weekinreview/the-nation-wal-mart-

driving-workers-and-supermarkets-crazy.html. 25 William Selway, “Wal-Mart Loses to the Little Guy,” Miami Herald, April 8, 2004. 26 Martin J. Jenkins, United States District Court for the Northern District of California, Betty

Dukes et al. v. Wal-Mart Stores, Inc. (C 01-02252 MJJ), June 21, 2004, 29. 27 Betty Dukes et al. v. Wal-Mart Stores, Inc., 38. 28 Ann Zimmerman, “Judge Certifies Wal-Mart Suit as Class Action,” Wall Street Journal, June 23,

2004. 29 Wayne Cascio, “Decency Means More than Always Low Prices: A Comparison of Costco to

Wal-Mart’s Sam’s Club,” Academy of Management Journal 20, no. 3 (August 2007). 30 Panle Jia, “What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the

Discount Retailing Industry,” (working paper, MIT, Cambridge, MA, July 2007),

http://economics.mit.edu/files/7575. 31 Jia, “What Happens When Wal-Mart Comes to Town.” 32 “Walmart Financial Services Hampered by Regulation,” Seeking Alpha, March 23, 2015,

https://seekingalpha.com/article/3021596-walmart-financial-services-hampered-by-regulation. 33 Brent Schlender, “Wal-Mart’s $288 Billion Meeting,” CNN Money, April 18, 2005,

https://money.cnn.com/magazines/fortune/fortune_archive/2005/04/18/8257009/. 34 Michael Barbaro, “Wal-Mart’s Detractors Come in from the Cold,” New York Times, June 5,

2008, https://www.nytimes.com/2008/06/05/business/05walmart.html. 35 CuriousObserver, “Wal-Mart: Digging for Clues Behind the June 5th Shareholder Meeting,”

Seeking Alpha, June 12, 2015, http://seekingalpha.com/article/3255925-wal-mart-digging-for-

clues-behind-the-june-5th-shareholders-meeting. 36 Walmart, “Financial Information,” https://stock.walmart.com/investors/financial-

information/sec-filings/default.aspx, p.29. 37 Costco, SEC Filing Details, September 1, 2019, https://investor.costco.com/sec-filings/sec-

filing/10-k/0000909832-19-000019. 38 Matthew Zook and Mark Graham, “Wal-Mart Nation: Mapping the Reach of a Retail

Colossus,” in Wal-Mart World: The World’s Biggest Corporation in the Global Economy, ed. Stanley

Brunn (London: Routledge, 2006), 20. 39 Financial data provided by Capital IQ from annual reports from Kroger Co. and Wal-Mart

Stores, Inc. 40 Jack Hitt, “The Dollar-Store Economy,” New York Times Magazine, August 18, 2011,

https://www.nytimes.com/2011/08/21/magazine/the-dollar-store-economy.html. 41 Lauren Debter, “Family Dollar Sales Rise Ahead of Dollar Tree Merger,” Forbes, April 8, 2015,

http://www.forbes.com/sites/laurengensler/2015/04/08/family-dollar-second-quarter-earnings/.

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https://web.archive.org/web/20101027154612/http:/www.businessweek.com/debateroom/archives/2007/04/stop_the_bullying_wal-mart.html

https://web.archive.org/web/20101027154612/http:/www.businessweek.com/debateroom/archives/2007/04/stop_the_bullying_wal-mart.html

https://www.nytimes.com/2003/10/19/weekinreview/the-nation-wal-mart-driving-workers-and-supermarkets-crazy.html

https://www.nytimes.com/2003/10/19/weekinreview/the-nation-wal-mart-driving-workers-and-supermarkets-crazy.html

http://economics.mit.edu/files/7575

https://seekingalpha.com/article/3021596-walmart-financial-services-hampered-by-regulation

https://money.cnn.com/magazines/fortune/fortune_archive/2005/04/18/8257009/

https://www.nytimes.com/2008/06/05/business/05walmart.html

http://seekingalpha.com/article/3255925-wal-mart-digging-for-clues-behind-the-june-5th-shareholders-meeting

http://seekingalpha.com/article/3255925-wal-mart-digging-for-clues-behind-the-june-5th-shareholders-meeting



https://investor.costco.com/sec-filings/sec-filing/10-k/0000909832-19-000019

https://investor.costco.com/sec-filings/sec-filing/10-k/0000909832-19-000019

https://www.nytimes.com/2011/08/21/magazine/the-dollar-store-economy.html

http://www.forbes.com/sites/laurengensler/2015/04/08/family-dollar-second-quarter-earnings/


42 Hayley Peterson, “This Rapidly Expanding Grocery Chain Is Shockingly Cheaper than Wal-

Mart,” Business Insider, January 5, 2015, http://www.businessinsider.com/this-grocery-store-has-

the-lowest-prices-2015-1#ixzz3hDC7COqv. 43 Euromonitor International, US Online Sales (Table 21), June 2015. 44 CuriousObserver, “Wal-Mart: Digging for Clues.” 45 Brian O’Keefe, “The Chosen One,” Fortune, June 15, 2015. 46 Walmart, “Walmart Completes Acquisition of Jet.com, Inc.,” press release, September 9, 2016,

https://corporate.walmart.com/newsroom/2016/09/19/walmart-completes-acquisition-of-jet-

com-inc. 47 Neil Stern, “Walmart Grounds Jet.com,” Forbes, May 19, 2020,

https://www.forbes.com/sites/neilstern/2020/05/19/walmart-grounds-jetcom/#294e2da12e6c. 48 American Consumer Satisfaction Index (ACSI) Retail Report 2014, February 18, 2015,

https://www.theacsi.org/news-and-resources/customer-satisfaction-reports/report-archive/acsi-

retail-report-2014. 49 Jennifer Reingold, “Target’s Inner Circle,” Fortune, March 31, 2008,

https://money.cnn.com/2008/03/18/news/companies/reingold_target.fortune/. 50 Target Corporation Form 10-K for the period ending 31 January 2015,

https://www.sec.gov/Archives/edgar/data/27419/000002741915000012/tgt-20150131x10k.htm. 51 Zimmerman, “After Misstep, Wal-Mart Revisits Fashion,”

https://www.wsj.com/articles/SB120899828876040063 52 Zimmerman, “After Misstep.” 53 Matthew Boyle, “Wal-Mart Apparel Chief Leaves Duties after Split,” Bloomberg Business, July

23, 2010, www.bloomberg.com/news/articles/2010-07-23/wal-mart-apparel-chief-mattison-

leaves-after-retailer-splits-job-duties. 54 Emily Scardino, “Wal-Mart’s Fashion Sense Chain’s Best Kept Secret,” DSN Retailing Today,

February 7, 2005. 55 Lauren Thomas, “Walmart Raises Starting Hourly Wage to $12 in 500 Stores, As Part of a

Test,” CNBC, January 24,2020, https://www.cnbc.com/2020/01/24/walmart-raises-starting-

hourly-wage-to-12-in-500-stores.html#:~:text=Menu,Walmart%20raises%20starting%20hourly

%20wage%20to%20%2412%20in%20500,as%20part%20of%20a%20test&text=In%20roughly%205

00%20stores%2C%20Walmart,to%20a%20new%20workflow%20model. 56 “Wal-Mart Stores: No Light at the End of the Tunnel Yet,” Barclays Equity Research, May 20,

2015. 57 Paul Ziobro and Eric Morath, “Wal-Mart Raising Wages as Market Gets Tighter,” Wall Street

Journal, February 19, 2015, https://www.wsj.com/articles/wal-mart-plans-to-boost-pay-of-u-s-

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https://www.wsj.com/articles/wal-mart-plans-to-boost-pay-of-u-s-workers-1424353742

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walmart: in search of renewed growth

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