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Wal-Mart and the Necessary Change

Abstract

Economic issues have presented plenty of problems when it comes to all types of organizations in our country, especially retail business. Wal-Mart, while not invincible, does appear to have a leg up when it comes to survivability in this regard. This survivability appears to be ingrained into the company culture, which has been there since the beginning. This paper seeks to explore Wal-Mart’s ever expanding role in regard to its survival when other businesses are failing in droves. Focusing on Wal-Mart’s organizational changes, strategic moves, and posturing in regard to speed bumps, as well as the leadership at the helm of the organization over the past decade, I examine and compare the implications these changes have had on their organization and the industry. I have researched numerous resources from company websites to media outlets and found that Wal-Mart’s survivability has more to do with their strategic posturing in relation to the economic climate. They build and expand on the premise of lowest price when the economy needs it most and where it is needed most. These findings signify a continual model of growth and expansion in the face of certain and quickly approaching economic strife.


Wal-Mart and the Necessary Change

Economic issues have presented plenty of problems when it comes to all types of organizations in our country, especially retail business. Businesses are dropping like flies all around the country and still, there are some that remain and sometimes even thrive. Are changes made inside of the organization what helps to keep their doors open?

Today, we examine Wal-Mart, a company with a sorted and exciting history. Wal-Mart’s assets and liabilities have continued to grow over the many years it has operated. We need to examine and compare some of their organizational changes over the last decade when it comes to leadership within the organization, and also changes in regard to ethical standards and technology. Then we need to examine and compare the implications these changes have had on the organization and to the industry.

We begin this journey with the leader himself, Sam Walton. We do this in an effort to better understand the company culture. Sam started his journey by borrowing $25,000 from his father-in-law to buy his first store, a Ben Franklin franchise in Newport, Arkansas in 1945 (Biography, 2014). He would eventually own 15 Ben Franklins. However, Walton had a vision that the leadership at Ben Franklin did not share. That vision; expanding such stores into rural areas. This rub between the leadership at Ben Franklin and Sam would set the tone for what Sam Walton envisioned moving forward. In 1962 Sam opened up his first Wal-Mart store in Rogers, Arkansas (Biography, 2014). Within fourteen years, Wal-Mart would be a publicly traded company and worth over $170 million. Sam had evidently figured out the recipe for success, and in turn, the company began to explode.

Many say that Wal-Mart is a different company today than it was during Sam’s reign, suggesting that perhaps the priorities are different. Regardless, Sam died of cancer April 5, 1992, in Little Rock, Arkansas (Martin, 2013). Some say the “real” Wal-Mart died along with him. According to Arkansas Business, “some put the blame on Wal-Mart’s management team, saying it has drifted away from Walton’s essential philosophy of offering the lowest price” (Friedman, 2012).

Can that be so? Was Wal-Mart really just a pure company whose success was predicated on serving the customer with the lowest prices? Was Sam simply the greatest mind in retail business that just happened to have the biggest heart? Ironically not and that model actually has not gone anywhere. It seems that perhaps controversy is in the blood of Wal-Mart. For instance, in 1967, a federal court ruled that Mr. Walton had set up his first few stores as separate corporations to avoid having to pay minimum wage under the Fair Labor Standards Act (Friedman, 2012). Of course, this would not be the last time that Wal-Mart was accused of exploiting their workers for the sake of lowering prices.

David Glass was Wal-Mart’s first CEO after Walton’s death (Longo, 1988). Glass was the one who pushed forward with the international expansion that fueled the retailer’s growth. Focusing on the last decade, we must turn our attention to H. Lee Scott, Jr. who was CEO from 2000 to 2008 and succeeded David Glass. Of course, 2000 was a big year for the company under Scott. For the first time, Wal-Mart topped the Fortune 500 ranking of America's largest companies (Wal-Mart, 2014). This was a big step in many ways, but did not come by accident and it did not come without some growing pains and some major mistakes.

Wal-Mart saw some of its most substantial changes under Scott, primarily in the technological arena and in health. These are great examples of changing when the iron is hot. In 2003, less than 5% of households were even connected to the internet, but in 2013 there were five internet-connected devices within the average American household. Wal-Mart had a couple of websites early on, but the internet was not really a focus until they saw its real potential by way of competitors making sales. However, in 2000 Walmart.com was founded, allowing U.S. customers to shop online (Wal-Mart, 2014). The problem was that other retailers already had a bit of a jump and gained retail confidence early on, so it would take a few years for the retail giant to gain a market share online. In 2007, Walmart.com launched a service called “Site to Store” which enabled customers to make a purchase online and pick up that merchandise in the store of their choosing, free of charge (Wal-Mart, 2014). This helped substantially.

Wal-Mart really started to make an impact in the market when they started focusing on the needs of the customer, rather than trends. Hearing the national cries about increasing costs of healthcare, in the fall of 2006, Wal-Mart introduced $4 generic prescription drugs then followed that up a year later with in-store health clinics (Wal-Mart, 2014). Business boomed as a result but sales increased across the board as they saw that people would pick up other items while waiting for the prescriptions. These moves not only ensured their place in the market, but they also secured the jobs of the more than 1.1 million associates in 3,989 stores and clubs worldwide that the company boasted. More expansions and more jobs were on their way.

H. Lee Scott, Junior’s reign over the retail giant was not without controversy though. In 2005, Wal-Mart made a public commitment in regard to environment sustainability (Wal-Mart, 2014). Out of almost nowhere, Wal-Mart had announced a goal to create zero waste and use only renewable energy. They even went as far as opening up new lines, selling products that sustain people and the environment. This was great PR for the company and it benefited the company substantially in the long run. Of course, a major focus on environment had recently erupted around the world. In 2005, the Kyoto Protocol officially went into effect. The Kyoto Protocol is an international environmental treaty, though the United States, did not sign the treaty (Hartman, 2013). Still, environmental issues were and remain hot topics for many.

However, Wal-Mart Stores has since paid multiple millions of dollars for what prosecutors have said was for negligently dumping pollutants from stores into sanitation drains (Neuman, 2013). Was their environmental generosity a positive change, or a preemptive strike for what would surely be fallout over such a lawsuit? The violations occurred between 2003 and 2005 and resulted in $81 million in penalties as part of a guilty plea on criminal charges of improperly disposing of hazardous waste in California and Missouri. This would not be the last time the company was forced to pay out for environmental issues to either state (Neuman, 2013).

Also in the early 2000’s, Wal-Mart saw substantial expansion all over the world. However in 2005, according to documents released by members of the U.S. Congress and a former lawyer for the company, Wal-Mart used a state governor in Mexico to facilitate $156,000 in bribes meant to help open stores. Among details released since then by Waxman and Cummings, Wal-Mart paid at least $273,000 in bribes to local officials and managers of a power company to expedite construction projects (Feeley, 2013).

Ethical violations, environmental issues, but a solid technological business model. Wal-Mart had a mixed bag, and moving into 2009, even Wal-Mart began to slide when the U.S. was suffering through the worst economic “recession” in decades. So in 2009, Mike Duke took over as CEO and Wal-Mart launched a project to renovate most of its U.S. stores. It was that same year that Wal-Mart would enjoy for the first time, exceeding $400 billion in annual sales (Wal-Mart, 2014). By 2010, Wal-Mart would become the world’s largest company.

It was at this time that Duke introduced a new approach of how Wal-Mart would conduct business moving forward. His idea was simple. If the company wanted to survive and improve sales, the company would need to return to its focus of having the lowest prices. Wal-Mart began to step away from the cut-throat business model they had become known for under Scott in regard to the vendors. Instead, Duke decided to prop up vendors and invest in them. Duke saw that the main goal should be market share which would drive demand and volume, which would lower prices if the vendors were taken care of. He also sought to expand internal and external brands to help further that effort.  His plan also included diversification within the company.

As of October 2009, Wal-Mart stores operate in Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico, the United Kingdom, and the United States. In 2010, Wal-Mart confirmed it was acquiring the video streaming company Vudu, Inc. In 2011, Wal-Mart also acquired 51% of Massmart Holdings. This acquisition gave the company access to the African countries of: South Africa, Botswana, Ghana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Uganda and Zambia (Wal-Mart,2014).

The explosion of banners has occurred as well. Aside from acquiring other companies, Wal-Mart has created a few of their own. Neighborhood Markets, Express, Wal-Mart Supercenter’s, Sam’s Club, Supermercado de Walmart, Asda, and many more now cover the globe employing millions of people. In fact, Wal-Mart is now the third largest employer on the planet, coming in closely behind the United States Department of Defense and People's Liberation Army of China (Alexander, 2012).

The growth, the power, and the prestige was great. Their Shareholders Meetings bring in some of the biggest names in Hollywood and in the music business. However, being such a big player also creates a mighty big target. Controversy persists about wage law violations, inadequate health care for employees, exploitation of their workers, and the retailer’s anti-union stance. Though most employees would say that these claims are unfounded, outsiders continue their scrutiny. Nation-wide protests, primarily organized by the unions seeking a piece of the pie, continue to spring up at major events each year such as Black Friday, arguably one of Wal-Mart’s biggest sales days. Of course, with billions in revenue, many opportunists see a chance to get something for nothing. So what is the opportunist’s weapons of choice? Frivolous lawsuits. Altogether, roughly 17 lawsuits are filed against Wal-Mart per working day, and many are settled out of court (Jordan, 2014).

Wal-Mart is a company of constant change, innovation, ruthless growth and sometimes some major controversy. Wal-Mart has succeeded because of Walton’s focus on keeping prices low and the return to that idea after greed forced that vision off the road for awhile. Profit of course has sometimes occurred at great sacrifice from those in the field. True, people continue to protest at some of the seemingly odd or perhaps even unethical business practices of Wal-Mart, but the fact remains that people continue to shop and work there nonetheless.  As far as labor practices go, people are not quitting their jobs in droves. In fact, just the opposite is true.

When a Wal-Mart is about to open a new location, a hiring center is created. Hundreds, if not thousands of applicants tend to show up in an effort to land a job with the retail giant. Union-backed activist groups such as “Our Wal-Mart” continually accuse the company of showing disrespect to its employees because it does not pay so-called “living wages”. Yet, while nobody is forced to work for Wal-Mart, the truth is that Wal-Mart actually provides a very competitive wage for many jobs that require little or no work experience and/or technical skills (Lutz, 2012). This ends up to be a great opportunity for these people who need to acquire skills and experience before landing a better job. That being said, Wal-Mart also promotes from within from time to time and those promotions usually come with substantial pay increases, stock options, bonuses, and much more. Many associates will spend their entire career with Wal-Mart, holding many different jobs throughout their time there (Hosier, 2014).

The question of how this has all impacted the organization and the industry is summed up by a couple of simple sentences. Wal-Mart currently operates more than 11,000 retail units under 69 banners in 27 different countries. They employ some 2.2 million associates around the world; 1.3 million of whom are right here in the United States (Wal-Mart, 2014). They boast revenue in the multiple billions and their share holders remain happy. The price for a share of stock in 2003 was $56.32. In 2013 it was $71.40 a share (Yahoo Finance, 2014). This does not mean that Wal-Mart is immune from economic distress.

As mentioned earlier, economic issues have presented plenty of problems when it comes to all types organizations in our country, especially retail businesses. The sad part is that the experts have been quoted repeatedly in headlines across the globe, discussing the doom and gloom on the horizon. Many claim these headlines are only the tip of the iceberg for the retail industry. For instance, CNBC recently released information stating that people need to “get ready for the next era in retail—one that will be characterized by far fewer shops and smaller stores” (Gustafson, 2014). The article demonstrated how businesses like Sears, JC Penney, Macy’s, Target, etc, are all currently, or making plans to shut down many of their stores, lay employees off, and reduce the square footage of the few stores they aim to keep. On the other side of this coin, Wal-Mart plans to and is continuing to open new stores all around the country.

Retail businesses are dropping like flies and still, there are some businesses that remain and sometimes even thrive. Wal-Mart is a great example of this. Are changes made inside of the organization what helps to keep their doors open? The answer to this is a resounded yes. Wal-Mart's primary competition includes department stores like Kmart, Publix, Target, ShopKo and Meijer, which are all stores a part of that retail tsunami closing trend discussed earlier. Wal-Mart appears to embrace the changes and roll with them. Does that mean that such changes are easy or do not come without some setbacks? Of course not, but keeping up with strategic trends based on economic factors appears to be crucial. Fashion or “want” oriented stores or even product lines appear to be failing as clearly demonstrated by the competition.

Personally, I see Wal-Mart enjoying at least a little more success in the coming months and perhaps years. At the very least, being one of the last retailers standing when the dust storm really gets underway. When we look at the bigger economic picture, we see that we have an out of control unemployment rate that the feds are trying desperately to keep under wraps (22.9-32.7% by legitimate estimations) and even that is getting worse (Bedard, 2014). We have a declining and unbacked dollar that other nations are trying to get rid of, and we have the potential for hyperinflation as early as this year according to economists such as John Williams (Hunter, 2014). We also see repeated headlines talking about the stock market making records in the category of “worst since”. Bernanke just stepped down and left us a debt that can NEVER be paid. We have a population spending more money than they can save in a given year, of which over half require some form of government monetary aid, and the list goes on and on. The point is that the business model of Wal-Mart puts itself into a very good position moving forward if they keep their prices lower than their competitors. They will also continue to gain loyalty by creating jobs in a market where so many have lost one. This, all while the consumer will soon be forced into a position to ONLY shop at Wal-Mart so they can live at all.

When we examine Wal-Mart, we see a company with a sorted and exciting history but one that continually sees growth when it listens to the fundamental needs of the communities in which they serve. “Saving Money to Live Better” may be great, but the company appears to continually reap the benefit when they keep their “Everyday Low Prices”.


Resources:

Sam Walton. (2014). The Biography Channel website. Retrieved 08:19, Feb 09, 2014, from http://www.biography.com/people/sam-walton-9523270.

Martin, K. (2013). Samuel moore walton (1918–1992). In Encyclopedia of Arkansas History & Culture. University of Arkansas. Retrieved from http://www.encyclopediaofarkansas.net/encyclopedia/entry-detail.aspx?entryID=1792

Friedman, M. (2012, July 02). After sam: Did wal-mart lose its way after walton died?. Retrieved from http://www.arkansasbusiness.com/article/85510/after-sam-did-wal-mart-lose-its-way-after-walton-died?page=all

Longo, Donald. "Wal-Mart hands CEO crown to Glass - David Glass." Discount Store News February 15, 1988. Retrieved on February 11, 2014.

Wal-Mart. (2014). History timeline. Retrieved from http://corporate.walmart.com/our-story/history/history-timeline

Hartman, Holly "Milestones in Environmental Protection | Infoplease.com." Infoplease. © 2000–2013 Pearson Education, publishing as Infoplease. 12 Feb. 2014 http://www.infoplease.com/spot/earthdaytimeline.html.

Neuman, S. (2013, May 28). Wal-mart to pay $81 million for hazardous waste dumping. Retrieved from http://www.npr.org/blogs/thetwo-way/2013/05/28/186951760/wal-mart-to-pay-81-million-for-hazardous-waste-dumping

Feeley, J. (2013, Jan 29). Wal-mart accused of using mexican governor to push bribes . Retrieved from http://www.bloomberg.com/news/2013-01-29/wal-mart-accused-of-using-mexican-governor-to-push-bribes.html

Alexander, R. (2012, March 19). Which is the world's biggest employer?. Retrieved from http://www.bbc.co.uk/news/magazine-17429786

Jordan, T. (2014). The good, the bad, and wal-mart. Retrieved from http://www.workplacefairness.org/reports/good-bad-wal-mart/wal-mart.php

Lutz, A. (2012, Dec 12). Walmart ceo: Our wages are competitive for the retail industry. Retrieved from http://www.businessinsider.com/walmart-ceo-comments-on-wages-2012-12

Hosier, D. (2014, Jan 31). Interview by DM Robertson. Proper planning.

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Gustafson, K. (2014, Jan 22). A 'tsunami' of store closings expected to hit retail. Retrieved from http://www.cnbc.com/id/101353168

Bedard, P. (2014, Jan 22). Wall street adviser: Actual unemployment is 37.2%, 'misery index' worst in 40 years. Retrieved from http://washingtonexaminer.com/wall-street-advisor-actual-unemployment-is-37.2-misery-index-worst-in-40-years/article/2542604

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David Robertson

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