JoAnn Hrabousky

Wal-Mart Stores, Inc. (WMT)

BA 301 Research and Analysis of Business Problems

Spring 2014

 

Executive Summary

Wal-Mart’s market share of 64.4% ranks the company as the number one retailer in the

world (Wal-Mart, 2013). The company operates over 10,000 stores and employs 2.2 million

people worldwide with a projected revenue in 2014 exceeding $476 billion (Wal-Mart, 2013).

Many issues have plagued the massive company in recent years and their public image has

steadily declined as a result. Corporate business practices have come under public criticism in

regards to employee labor relations, environmental sustainability issues, and poor customer

service (Wal-Mart, 2014).

Numerous legal proceedings are well documented on the company Form 10-K ranging

from sexual discrimination to unfair labor conditions resulting in sixty-three paid settlements

totaling $640 million (Johnson, 2008). Wal-Mart has also been named 2014 greenwasher of the

year for misleading claims regarding environmental sustainability practices (Hudson, 2014).

Wal-Mart’s main problem is its unfavorable public image. Two solutions to improve

their image are based on improvements in management training and corporate support of the

employee instituted non-profit organization OURWalmart. Innovative management training

focusing on communication and leadership skills will improve employee relationships and job

satisfaction. Transparent corporate support of the employee organization and glocalization will

show goodwill with workers and communities alike. Ultimately, these solutions will garner

toward the values first envisioned by founder Sam Walton, to treat people with integrity and

respect; and resounding the founder’s three values of, “ respect for the individual, service to our

customers, and striving for excellence " (Wal-Mart, 2014).

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Company Background Information

Wal-Mart Stores, Inc. (WMT) is a publicly traded company on the New York Stock

Exchange and is ranked number one retailer in the world according to Fortune 500. In 1962,

Sam and J.L. (Bud) Walton founded the mammoth company in Rogers, Arkansas (Walmart,

2013). Five years after opening the first brick and mortar store, the Walton family legacy grew

to twenty-four stores and earned $12.7 million in sales revenue (Walmart, 2013). Today the

company operates 10,130 stores in 27 countries including 4,400 retail outlets in the U.S. and

employs over 2,200,000 people worldwide, including more than 1.3 million associates in the

U.S. (Wal-Mart, 2013). Projected total revenue for the 2014 fiscal year exceeds $476 billion

(Wal-Mart, 2013).

Wal-Mart’s U.S. segment offers numerous low cost items through discount stores,

supercenters, warehouse membership clubs, neighborhood markets, and e-commerce sales

through walmart.com (Wal-Mart, 2013). Global business accounts for approximately twenty-

eight percent of the company’s annual revenue with more than ninety percent of stores operating

under a banner other than Wal-Mart, including names such as Walmex, Asda, Seiyu, and Best

Price (Wal-Mart, 2013).

The company’s mission statement and advertising slogan are the same: “We save people

money so they can live better.” Sam Walton also added a ‘purpose’ to the company, “If we work

together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see

what it’s like to save and have a better life” (Wal-Mart, 2014). Wal-Mart Stores, Inc. has

instituted standardized policies and procedures that correlate to the overall corporate culture

including “3 Basic Beliefs & Values” which include “respect for the individual, service to our

customers, and striving for excellence” (Wal-Mart, 2014). The company homepage also

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documents another quote originated from founder Sam Walton: “Our people make the

difference. We’ve worked hard to build an environment that emphasizes integrity, respect, open

communication and innovation. Whether it’s a part-time job or the career of a lifetime, working

at Wal-Mart means opportunity” (Wal-Mart, 2014).

Soon after the death of founder Sam Walton in 1992 and S. Robson Walton became

reigning chairman of the board of directors, legal issues began to surface and public criticism of

company practices entered the media spotlight (Wal-Mart, 2014). Waterford Wedgewood sued

the company for allegedly selling counterfeit crystal, and in 1993 television media revealed the

utilization of child labor in Bangladesh for merchandise soon to be sold under the “Made in

USA” label (Wal-Mart, 2013). In 2005 film director Robert Greenwald and Brave New Films

introduced a negative documentary highlighting Wal-Mart’s business practices through

interviews with former employees, small business owners, and footage of company executives.

The film uses statistics interspersed between interview footage to provide an objective analysis

of the effects Wal-Mart has on individuals and surrounding communities. Such criticism has

increased the negativity of Wal-Mart’s public image. The following paragraphs highlight the

variables that have contributed to the overall view of the company’s image.

Social Responsibility

Company practices for attaining property for new store locations has also come under

scrutiny in the public eye. Community activists claim supercenter saturation has damaged the

profitability of local retail districts, independent retailers, and grocers, as well as contributed to

increased traffic congestion and suburban sprawling (Wal-Mart, 2014). Opposition from

communities has steadily risen to approximately one hundred cases per year (Bianco and Zellner,

2003). The small community retail businesses located in the surrounding areas of large Wal-

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Mart stores eventually file for bankruptcy because the merchants cannot compete with the low

prices offered at Wal-Mart. (Bianco and Zellner, 2003).

Regarding Wal-Mart’s carbon footprint, environmental watchdog, The Green Life, has

named the company 2014 Greenwasher of the Year for marketing misleading claims of

environmental sustainability (Hudson, 2014). In 2005, corporate Wal-Mart pledged a one

hundred percent transition into renewable energy, but as of today only four percent of the

electricity consumed by the company comes from renewable sources (Hudson, 2014). In fact,

the company’s carbon footprint has climbed more than 13 percent since claiming eco-friendly

practices for nine years (Hudson, 2014). Major sources of their greenhouse gas emissions occur

as a result of international shipping and other distribution processes and logistics. Last year

Wal-Mart imported two-and-a-half times the volume of goods imported from a decade earlier,

which accounts for one of every twenty-five containers imported to the country as a whole

(Mitchell, 2013).

Poor Customer Service

Consumers throughout the US are complaining about poor customer service experiences

received at Wal-Mart. Desired products have been difficult to find and long checkout lines with

only a few cashiers on duty have become an issue (Lutz, 2014). The decline in service (and

product availability) is due to employee turnover and insufficient staffing; the existing

employees cannot keep up with demand (Lutz, 2014). Since 2008, the company’s workforce has

steadily declined by 120,000 (Lutz, 2014).

Disgruntled Associates

Wal-Mart’s labor practices have been at the center of criticism. The company’s 10-K

report lists numerous legal actions that have occurred over the years including allegations

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pertaining to business practices that violate state labor laws such as employees being required to

work through mandated meal breaks and working off the clock (Wal-Mart, 2014). There are

numerous class action suits that illustrate a pattern of discrimination against women in

promotional advancement, inadequate pay, training, and job assignments as well as forcing

employees to work through break times (Wal-Mart, 2014). Wal-Mart Stores, Inc. settled sixty-

three lawsuits across the United States over wage and hour violations in the sum of $640 million

(Johnson, 2008).

Wal-Mart Corporate Attempts To Improve Public Image

In 2005, Wal-Mart executives organized a communication center known as the “war

room” inside their Bentonville company headquarters and hired the Edelman Public Relations

firm to address negative criticism (Barbaro, 2005). The center is staffed with personnel that scan

current events on a daily basis looking for negative press surrounding the company. If a negative

story is uncovered staff releases a counter story to discredit the media source (Barbaro, 2005).

The firm receives $10 million annually for reputation management (Goldberg, 2007).

Wal-Mart corporate launched a $3 million ad campaign entitled ‘The Real Wal-Mart’ in

2013 to combat press surrounding negative allegations toward labor practices, bribery

accusations in Mexico, and working conditions in factories such as Bangladesh (Ross, 2013).

The campaign has been critiqued as being ineffective because no initiative for change is ever

proposed or implemented (Ross, 2013).

The Competition’s Business Model

The solution to Wal-Mart’s unfavorable image begins with the appropriate treatment of

employees. Competitors such as Costco have proven a better business model to adhere by. The

company delivers low prices to consumers differently than Wal-Mart. Costco’s model is based

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on the following: keep costs down; rely on high volume; pay workers well and aim for upscale

shoppers (Cascio, 2006). Costco’s wages and treatment of employees deter yearly turnover rates

down to 17 percent whereas Wal-Mart is higher at 44 percent (Cascio, 2006).

One of Costco’s core beliefs is to “take care of our employees” (Cascio, 2006). Coscto’s

human resources department sets wages and benefits to be considerably better than that of

competitors (Cascio, 2006). Their approach shows that when it comes to wages and benefits, a

cost-leadership strategy is most effective (Cascio, 2006). Costco records show that treating

employees justly and humanly turns out to be an effective and efficient business model. In

addition, 85% of Costco employees have health-insurance coverage, whereas Wal-Mart and

Target have less than half (Cascio, 2006). Costco is also unionized (13 percent of employees

belong to union) and the company promotes internally for 98 percent of its top positions whereas

Wal-Mart is at 76 percent (Cascio, 2006).

To Improve Wal-Mart’s Unfavorable Public Image:

Solution (#1): Incorporate Innovative Managerial Training

Wal-Mart’s current managerial training program is designed to cultivate managers as

quickly as possible to satisfy demand (Donlon, 2013). The leadership-training program is

modeled after the Royal Military Academy and was originated by former British commando

Damian McKinney (Donlon, 2013). Thirty percent of training time focuses on incorporating

interpersonal skills in unexpected situational settings and seventy percent is geared toward

improving cross-functional career advancement (Donlon, 2014).

The company’s authoritarian style of management training is a product of the corporate

culture and business model (Lichtenstein, 2011). The culture insists on a high degree of

company loyalty despite complaints of poor wage and working conditions from front line

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workers (Lichtenstein, 2011). Store management career opportunities exist from internal

promotions of substandard candidates who, when promoted, are moved to another store location

which may be hundreds of miles away (Lichtenstein, 2011). The fixed policy of corporate

reassignment has contributed to numerous sexual discrimination allegations from the company’s

female employees, which constitute seventy percent of Wal-Mart’s work force (Lichtenstein,

2011).

Wal-Mart needs to energize their workforce with innovative managerial training

programs that focus on Sam Walton’s original beliefs and values. Mr. Walton knew the value of

creating an effective employee partnership, treating employees with dignity and respect.

Training policies focusing on new communication and leadership skill sets involving human

resource management are crucial in reinventing company branding while subsequently

improving their public image.

Solution (#2): Transparent Associate Support Coupled With Fair Labor Policies

Wal-Mart is well known for their opposition to union organization. Union attempts have

been aggressively thwarted and the company has allegedly fired workers who are proactive in

unionization (Dickinson, 2013). In 2000, butchers at a Texas Wal-Mart voted to join the United

Food and Commercial Workers Union, two weeks later Wal-Mart stated that it was closing all

180 of its meat counters; and in 2004, the company closed an entire store after employees voted

to unionize (Dickinson, 2013). Employee unionization undoubtedly will never prevail given

Wal-Mart’s determination against it.

In 2010, Wal-Mart associates created a non-traditional alternative to unionizing called the

Organization United for Respect at Wal-Mart; a not-for-profit, independent organization that

focuses on hourly associates (“OUR Wal-Mart,” 2014). Their vision being, “ We envision a

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future in which our company treats us, the Associates of Wal-Mart, with respect and dignity”

(“OUR Wal-Mart,” 2014).

Transparent corporate support of the organization combined with fair labor policies will

improve the company’s overall public image. Informal groups can be liaisons between

employees and management where labor (or other) issues can be discussed and rectified.

Workers won’t feel the need to unionize if pay and working conditions are comparable to

industry standards.

To hinder opposition from communities when lands for new store locations are sought,

store managers need to glocalize local communities by adapting to local culture (Matusitz,

2013). Individual stores need to sell products and services geared to local tastes and preferences

as well as recruiting bilingual associates (Matusitz, 2013). Glocalization will garner customer

loyalty and add a sense of community within the store itself (Matusitz, 2013).

Cost vs. Benefit Analysis

Wal-Mart Stores, Inc. and the Walton family receive more than $7.8 billion in annual

subsidies and tax breaks (“Report,” 2014). The family also utilizes specialized tax trusts to avoid

estate taxes saving approximately $3 billion annually (“Report,” 2014). Investigative reports

indicate employees earn below minimum range, yet the company’s projected net profit for 2014

exceeds $16 billion which is more wealth than the combined income of approximately forty-two

percent of Americans (see Figure 1) (“Report,” 2014).

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More than half of Wal-

Mart employees earn less

than $22,400 a year,

putting them below the

federal poverty line (Ross,

2013). According to

Derrick Plummer,

spokesperson for the

organization Making Change at Walmart, “If Walmart paid its associates $25,000 a year on

average, it’d still be making more than [its chief competitors] combined” (Ross, 2013).

Innovative management training costs combined with improving employee salaries and

corporate support of OURWalmart will provide substantial benefits to Wal-Mart, therefore

boosting public image. The costs incurred will be substantiated by increased employee

productivity, increased revenue, and improved customer service. The return on investment will

outweigh the costs and will ultimately provide greater profitability. Offering a competitive

salary to associates will not only attract a more talented workforce it will keep employees

motivated. Shareholders will benefit from increased productivity and investment returns will

rise (Cardenal, 2014).

Recommended Solution

The most plausible solution in positively changing Wal-Mart’s unfavorable image is

implementation of corporate associate support coupled with fair labor policies. Since the

management-training module is centered on a fast moving military structure, upper management

: Low Income Standards of Poverty (WMT, 2007)

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would presumably classify any additional training as being time consuming and contradictive to

training efficacy. Transparent company efforts in attempting to effectively build proactive

communication between management and associates help to build positive relationships and also

conditions future internal management candidates.

The most valuable asset in a business is its human capital. Skilled employees working

under the right incentives can generate enormous benefits for investors and positively influence

overall company culture (Marks, 2013). With a 64.4% market share, Wal-Mart has the resources

to positively impact the lives of their associates along with reestablishing the founder’s original

idea of workplace unity.

Appendix

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SWOT Analysis

Strengths:

Wal-Mart’s major strength is their monopolizing power attained from its sheer size and

marketing strategy by offering competitive low prices on products. They are listed as the

world’s largest retailer with a 64.4% market share in the retail industry and totaling $477.2

billion in revenue for fiscal year 2013 (Wal-Mart, 2013). The company and its subsidiaries

employ ~ 2.2 million worldwide, with more than 1.3 million in the U.S. (Wal-Mart, 2014).

Strengthen communication and leadership skills with innovative managerial training.

Weaknesses:

Unfavorable public image has resulted from a variety of sources. Numerous lawsuits

ranging from inadequate labor policies to sexual discrimination from disgruntled employees has

tarnished company reputation. Social responsibility commitments have been skewed by

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Strengths World’s largest retailer with 64.4%

market share ($477.2 billion revenue)

~ 2.2 million employees Competitive low prices Monopolizing power Innovative Management Training

Weaknesses Poor customer service Disgruntled associates with high

employee turnover rate Numerous litigations Unfavorable public image Large carbon footprint and

inadequate environmental sustainability practices

Opportunities Brand company image Improve employee relations and

labor practices Credible social responsibility

practices Promote community and employee

goodwill

Threats Lower class reputation Competitive retailers such as Target Increase price of raw goods High legal liability costs incurred

from litigation Expansion resistance

allegations claiming inadequate environmental sustainability practices resulting in high carbon

footprints (Hudson, 2014). Poor customer service complaints such as long checkout lines reflect

understaffing perpetuated by high employee turnover (Lutz, 2014).

Opportunities:

Elevate the company brand from its lower class reputation by improving the quality of

products as well as store aesthetics. Improve employee relations by implementing fair labor

practices and policies. Improve overall public image with completion of environmental

sustainability programs and community involvement. Promote community and employee

goodwill by offering corporate support with the non-profit employee organization OURWalmart.

Threats:

Competition by other large retailer companies can reduce revenue, specifically Target.

The lower class reputation has a negative effect on consumers. High costs affiliated with

increased pricing for raw goods as well as high litigation fees will also have a detrimental effects

on keeping prices low. Also, expansion of other large warehouse stores has met with resistance

from smaller communities.

SWOT References

Hudson, Drew. Walmart Wins Greenwasher of the Year. The Green Life Online. April 2014.

Lutz, Ashley. Wal-Mart Could Be In Big Trouble If It Doesn’t Fix Customer Service Fast. Business Insider. April 12, 2014.

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Wal-Mart Stores Inc. US Industry Reports (NAICS). Major Companies. IBISWorld. 2013

Wal-Mart Stores, Inc. Form 10-K. U.S. Securities and Exchange Commission | Homepage. N.p., n.d. Web. 11 Apr. 2014.

Works Cited

Barbaro, Michael. A New Weapon for Wal-Mart: A War Room. The New York Times. 2005.

Web Access 14 May 2014.

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Bianco, Anthony, and Wendy Zellner. Bloomberg Businessweek Magazine. Bloomberg

Businessweek Magazine. Businessweek, 5 Oct. 2003. Web. 09 May 2014.

Cardenal, Andres. Costco vs. Wal-Mart: Higher Wages Mean Superior Returns for Investors.

The Motley Fool. N.p., 12 Mar. 2014. Web. 3 June 2014.

Cascio, W. F. (2006). Decency Means More than "Always Low Prices": A Comparison of

Costco to Wal-Mart's Sam's Club. Academy Of Management Perspectives, 20(3), 26-37.

Dickinson, Julie G. Walmart's War Against Unions-and the U.S. Laws That Make It Possible.

Www.huffingtonpost.com. Huffington Post Business, 5 June 2013. Web. 25 May 2014.

Donlon, JP. How Walmart Trains Better Leaders. ChiefExecutivenet Chief Executive Magazine

Home Comments. Chief Executive Group, Inc, 28 Mar. 2013. Web. 21 May 2014.

Goldberg, Jeffrey. Selling Wal-Mart: Can the company co-opt liberals? The New Yorker. April

2007.

Hudson, Drew. Walmart Wins Greenwasher of the Year. The Green Life Online. April 2014.

Johnson, Gene. Wal-Mart Settles Lawsuit by Washington Workers for $35M. ABC News. 2008.

Web. 14 May 2014.

Lichtenstein, Nelson. Wal-Mart's Authoritarian Culture. The New York Times. 21 June 2011.

Web. 25 May 2014.

Lutz, Ashley. Wal-Mart Could Be In Big Trouble If It Doesn’t Fix Customer Service Fast.

Business Insider. April 12, 2014.

Marks, J. (2013). Dinner (Isn't) Served. Home Textiles Today, 34(27), 4.

Matusitz, J., & Lord, L. (2013). Glocalization or Grobalization of Wal-Mart in the US? A

Qualitative Analysis. Journal Of Organisational Transformation & Social Change,

10(1), 81-100. (Ebsco Peer Reviewed article).

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Mitchell, Stacey. Walmart's Assault on the Climate. Institute for Local SelfReliance. N.p., Nov.

2013. Web. 10 May 2014.

OUR Walmart. ForRespect. OUR Walmart, n.d. Web. 25 May 2014.

Report: Walmart and Waltons Get $7.8B/Year in Tax Breaks, Subsidies. Making Change At

Walmart. Walmart, 15 Apr. 2014. Web. 25 May 2014.

Ross, Winston. Wal-Mart’s Goodwill Tour: We Love Our Workers and America Too. The Daily

Beast. 2013.

Wal-Mart Stores, Inc. Major Companies. US Industry Reports (NAICS).Warehouse Clubs &

Supercenters. IBISWORLD US – Industry, Company and Business research Reports and

Information. Web. 9 May 2014

Wal-Mart Stores, Inc. Form 10-K. U.S. Securities and Exchange Commission | Homepage.

N.p., n.d. Web. 11 Apr. 2014.

Wal-Mart Stores, Inc. International Directory of Company Histories. Ed. Jay P. Pederson. Vol.

141. Detroit: St. James Press, 2013. Business Insights: Essentials. Web. 9 May 2014.

Wal-Mart. 2014. History Timeline. Corporate Wal-Mart Homepage. Corporate.walmart.com.

Accessed May 2014.

Wal-Mart Stores Inc in Retailing (USA). Passport Database. Local company profile. 10 Apr 2013

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