W12894
HALF A CENTURY OF SUPPLY CHAIN MANAGEMENT AT WALMART 1
Ken Mark wrote this case under the supervision of Professor P. Fraser Johnson solely to provide material for class discussion. The
authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.
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Copyright © 2012, Richard Ivey School of Business Foundation
Version: 2013-11-12
INTRODUCTION
James Neuhausen was a U.S. stock analyst tasked with preparing a recommendation on what his firm, a
large U.S. investment house, should do with its stake in Wal-Mart Stores, Inc. It was an unseasonably
warm day in early February 2012, and Neuhausen was reviewing his notes on the firm. Wal-Mart, the
world’s largest retailer, was trying to recover from a series of missteps that had seen competitors such as
Dollar Stores and Amazon.com close the performance gap. Competitors had copied many aspects of WalMart’s distribution system, including cross-docking product to eliminate storage time in warehouses,
positioning stores around distribution centres and widespread adoption of electronic data interchange
(EDI), to manage ordering and shipping from suppliers. Neuhausen stated:
Wal-Mart is believed to have one of the most efficient supply chains in the retail world.
What impact will the increasing variety of product, store formats and the growing
importance of international stores have on the way it distributes product? What
improvements to its supply chain does the company need to make in order to continue to
stay ahead of competitors?
Last year, Wal-Mart suffered nine consecutive quarters of declining same store sales.
Procter & Gamble’s Chief Executive, Robert McDonald, pointed out that part of the
problem was that there were execution issues at Wal-Mart’s U.S. stores. 2 More nimble
competitors such as Dollar General are rolling out small format stores that are eating into
Wal-Mart’s share. In the online space, Amazon.com has become a major threat. Wal-Mart
has also changed over the years and it now operates a variety of store formats under 60
different banners around the world. International sales hit US$109 billion in fiscal year
2011, more than a quarter of its business. Can its supply chain keep up and still deliver
efficiency gains?
1
This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of Wal-Mart or any of it employees.
2
http://operationsroom.wordpress.com/2011/03/07/is-wal-mart-losing-focus/, accessed January 4, 2012.
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THE RETAIL INDUSTRY
U.S. retail sales, excluding motor vehicles and parts dealers, reached US$3.9 trillion in 2011. Major
categories in the U.S. retail industry included general merchandise, food and beverage, health and personal
care and other categories as can be seen in Exhibit 1. In the United States, retailers competed at local,
regional and national levels, with some of the major chains such as Wal-Mart and Costco counting
operations in foreign countries as well. In addition to the traditional one-store owner-operated retailer, the
industry included formats such as discount stores, department stores (selling a large percentage of soft
goods, or clothing), variety and convenience stores, specialty stores, supermarkets, supercentres
(combination discount and supermarket stores), Internet retailers and catalog retailers. Online retail sales
were rising in importance, accounting for US$197 billion in 2011. 3
The top 200 retailers accounted for approximately 30 per cent of worldwide retail sales. 4 Major retailers
competed for employees and store locations as well as customers. There were two broad strategies in
global retailing: variable pricing, or “hi-lo pricing,” and everyday low price (EDLP). Hi-lo pricing,
practiced by retailers for decades, involved adjusting the retail price of items to optimize gross margins.
For example, at traditional grocery stores, while prices of key items — such as milk, sugar, eggs and butter
— were kept consistently low, items such as toothpaste, detergent and tissue had high prices. The goal in a
hi-lo environment was to generate increased sales by having the manufacturer fund the trade promotions on
some items — lowering prices by 25 to 30 per cent — every month or quarter.
On the other hand, an EDLP strategy meant that prices on items were generally consistent from week to
week but were kept as low as possible so as to generate the highest consumer foot traffic. Running an
EDLP strategy generally required the retailer to focus on keeping operational costs as low as possible and
investing any savings into lowering retail prices. The goal, in an EDLP environment, was to generate
higher aggregate gross profit by increasing the volume of items sold.
As many of the top global retailers faced intense competition in their home markets, a growing trend for
these global retailers was international expansion, especially into developing markets such as Asia, South
America and Africa. The objective of international expansion was to find a way to continue to grow
earnings at a faster pace than was possible domestically. Retailers going abroad sought to capitalize on
global purchasing economies of scale and to leverage international expertise from one market to another.
But international expansion was fraught with risk, and it was not uncommon for retailers to pull out of a
market if they were unable to build profitable operations.
WAL-MART STORES, INC.
Based in Bentonville, Arkansas and founded by the legendary Sam Walton, Wal-Mart was the number one
retailer in the world with fiscal year 2011 net income, from continuing operations, of US$16 billion on
sales of US$419 billion. It had over 2 million employees and 8,500 stores in 15 countries, the result of a
series of acquisitions over the past 20 years. Beginning with its “big box” discount store format in the
1960s, Wal-Mart’s store formats around the world had grown to include supercentres, which were a larger
version of a discount store that included groceries, supermarkets, wholesale outlets, restaurants and apparel
stores. Globally, it served about 200 million customers per week. 5
3
http://mashable.com/2011/02/28/forrester-e-commerce/, accessed January 15, 2012.
http://www.uneptie.org/pc/sustain/reports/Retail/Nov4Mtg2002/Retail_Stats.pdf, accessed May 10, 2006.
5
“WMT — 17th Annual Meeting for the Investment Community,” Thomson StreetEvents, October 13, 2010, accessed
January 5, 2012.
4
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Wal-Mart’s strategy was to provide a broad assortment of quality merchandise and services at “everyday
low prices” (EDLP) and was best known for its discount stores, which offered merchandise such as
apparel, small appliances, housewares, electronics and hardware. In the U.S. general merchandise arena,
Wal-Mart’s competitors included Sears and Target, with specialty retailers including Gap and Limited.
Department store competitors included Dillard, Federated and J.C. Penney. Grocery store competitors
included Kroger, Albertsons and Safeway. The major membership-only warehouse competitor was Costco
Wholesale. Wal-Mart was facing growing competition for large ticket general merchandise products and
from online retailers such as Amazon.com.
THE DEVELOPMENT OF WAL-MART’S SUPPLY CHAIN
Before he started Wal-Mart Stores in 1962, Sam Walton owned a successful chain of stores under the Ben
Franklin Stores banner, a franchisor of variety stores in the United States. Although he was under contract
to purchase most of his merchandise requirements from Ben Franklin Stores, Walton was able to
selectively purchase merchandise in bulk from new suppliers and transport these goods to his stores
directly. When Walton realized that a new trend, discount retailing — based on driving high volumes of
product through low-cost retail outlets — was sweeping the nation, he decided to open up large warehousestyle stores in order to compete. To stock these new stores, initially named “Wal-Mart Discount City,”
Walton needed to step up his merchandise procurement efforts. As none of the suppliers were willing to
send their trucks to his stores, which were located in rural Arkansas, self-distribution was necessary.
Wal-Mart undertook an initial public offering in 1969 to raise funds to build its first distribution centre in
Bentonville, Arkansas. As the company grew in the 1960s to 1980s, it benefited from improved road
infrastructure and the inability of its competitors to react to changes in legislation, such as the removal of
“resale price maintenance,” which had prevented retailers from discounting merchandise. To keep an eye
on his growing network, Walton piloted a small single-engine airplane, which he would land at air strips
close to his new stores.
Wal-Mart’s supply chain, a key enabler of its growth from its beginnings in rural Arkansas, was long
considered by many to be a major source of competitive advantage for the company. It was one of the first
firms to rely on data to make operational decisions, using bar codes, sharing sales data with suppliers,
controlling its own trucking fleet and installing computerized point-of-sale systems that collected itemlevel data in real time. When Wal-Mart was voted “Retailer of the Decade” in 1989, its distribution costs
were estimated at 1.7 per cent of its cost of sales, comparing favourably with competitors such as Kmart
6
(3.5 per cent of total sales) and Sears (5 per cent of total sales).
Its successes were widely publicized, and competitors had adopted many of Wal-Mart’s management
techniques. Yet Wal-Mart continued to lead the industry in efficiency, achieving inventory turns of 11.5
times in fiscal year 2011. For perspective, for the same period, key U.S. competitors Target Corp.,
Amazon.com and Sears had inventory turns of 8.7 times, 6.2 times, and 4.7 times, respectively. But Kroger
Co., the second largest grocery retailer in the United States, had inventory turns of 14.2 times, primarily
due to its focus on high-turning perishable food items. 7
6
7
“Low Distribution Costs Buttress Chain’s Profits,” Discount Store News, December 18, 1989.
Inventory turns calculated from respective firms’ 10-K filings.
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Procurement
As his purchasing efforts increased in scale, Walton and his senior management team would make trips to
buying offices in New York City, cutting out the middleman (wholesalers and distributors). Wal-Mart’s
U.S. buyers, located in Bentonville, worked with suppliers to ensure that the correct mix of staples and new
items were ordered. Over time, many of Wal-Mart’s largest suppliers maintained offices in Bentonville,
staffed by analysts and managers supporting Wal-Mart’s business.
In addition, Wal-Mart started sourcing products globally, opening the first of these offices in China in the
mid-1980s. Wal-Mart’s international purchasing offices worked directly with local factories to source WalMart’s private label merchandise. Private label products were appealing to customers as they were often
priced at a significant discount to brand name merchandise; for Wal-Mart, the private label items generated
higher margins than suppliers’ branded products. Private label sales at Wal-Mart, first developed in the
1980s, were believed to account for just 16 per cent of Wal-Mart’s sales, compared to 25 per cent at U.S.
rivals Safeway and Kroger. 8 This was because Wal-Mart’s stated strategy was to be a “house of brands,”
procuring top brands in volume and selling them at low prices. 9
Every quarter, buyers met in Bentonville to review new merchandise, exchange buying notes and tips and
review a fully merchandised prototype store, which was located in a warehouse. In order to gather field
intelligence, buyers toured stores two or three days a week and worked on sales floors helping associates
stock and sell merchandise.
Wal-Mart wielded enormous power over its suppliers. For example, observers noted that increase
bargaining clout was a contributing factor in Procter & Gamble’s (P&G) acquisition of chief rival
Gillette. 10 Prior to the acquisition, sales to Wal-Mart accounted for 17 per cent of P&G’s and 13 per cent of
Gillette’s revenues. 11 On the other hand, these two suppliers combined accounted for about 8 per cent of
Wal-Mart’s sales. 12 Some viewed Wal-Mart’s close cooperation with suppliers in a negative light:
Wal-Mart dictates that its suppliers . . . accept payment entirely on Wal-Mart’s terms . . .
share information all the way back to the purchasing of raw materials. Wal-Mart controls
with whom its suppliers speak, how and where they can sell their goods and even
encourages them to support Wal-Mart in its political fights. Wal-Mart all but dictates to
suppliers where to manufacture their products, as well as how to design those products and
13
what materials and ingredients to use in those products.
When negotiating with its suppliers, Wal-Mart insisted on a single invoice price and did not pay for cooperative advertising, discounting or distribution. Globally, Wal-Mart was thought to have around 40,000
suppliers, of whom 200 — such as Nestle, P&G, Unilever, and Kraft — were key global suppliers. With
Wal-Mart’s expectations on sales data analysis, category management responsibilities and external
research specific to their Wal-Mart business, it was not uncommon for a supplier to have several
employees working full-time to support the Wal-Mart business.
8
http://www.ft.com/intl/cms/s/0/762b1f80-1259-11de-b816-0000779fd2ac.html#axzz1lv8XtooH, accessed January 15, 2012.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8ErNwolNpAw, accessed January 15, 2012.
10
http://www.newyorker.com/talk/content/?050214ta_talk_surowiecki, February 7 2005, accessed January 15, 2012.
11
Larry Dignan, “Procter & Gamble, Gillette Merger Could Challenge Wal-Mart RFID Adoption,” Extremetech.com, January
31, 2005. http://www.extremetech.com/article2/0,1558,1758152,00.asp, accessed January 15, 2012.
12
Mark Roberti, “P&G-Gillette Merger Could Benefit RFID”, RFID Journal, February 4, 2005.
13
Barry C. Lynn, “Breaking the Chain,” Harper’s Magazine, July 2006, p. 34.
9
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Distribution
Wal-Mart’s store openings were driven directly by its distribution strategy. Because its first distribution
centre was a significant investment for the firm, Walton insisted on saturating the area within a day’s
driving distance in order to gain economies of scale. Over the years, competitors had copied this “hub-andspoke” design of high volume distribution centres serving a cluster of stores. This distribution-led store
expansion strategy persisted for the next two decades as Wal-Mart added thousands of U.S. stores,
expanding across the nation from its headquarters in Arkansas.
Stores were located in low-rent, suburban areas close to major highways. In contrast, key competitor
Kmart’s stores were thinly spread throughout the U.S. and located in prime urban areas. By the time the
rest of the retail industry started to take notice of Wal-Mart in the 1980s, it had built up the most efficient
logistics network of any retailer. Wal-Mart’s 75,000-person logistics and its information systems division
included the largest private truck fleet employee base of any firm — 6,600 trucks and 55,000 trailers,
which delivered the majority of merchandise sold at stores. 14 Its 150 distribution centres, located
throughout the United States, were a mix of general merchandise, food and soft goods (clothing)
distribution centres, processing over five billion cases a year through its entire network.
In the United States, Wal-Mart’s distribution centres received about 315,000 inbound truckloads, of which
115,000 were shipped “collect,” which meant they were picked up directly from suppliers’ warehouses by
Wal-Mart’s trucking fleet, The remaining 200,000 loads were shipped by suppliers’ trucks or by logistics
providers. The goal at Wal-Mart’s distribution centres was for high turning items — such as fresh food or
other perishable merchandise — to be cross-docked, or directly transferred from inbound to outbound
trailers without extra storage.
The average distance from distribution centre to stores was approximately 130 miles. Each of these
distribution centres were profiled in a store friendly way, with similar products stacked together.
Merchandise purchased directly from factories in offshore locations such as China or India were processed
at coastal distribution centres before shipment to U.S. stores.
On the way back from delivering product to stores, Wal-Mart’s trucks generated “backhaul” revenue by
transporting unsold merchandise on trucks that would be otherwise empty. Wal-Mart’s backhaul revenues
— its private fleet operated as a for-hire carrier when it was not busy transporting merchandise from
15
distribution centres to stores — were more than US$1 billion per year. In mid-2010, Wal-Mart was
looking to expand its backhaul program, to pick up more product directly from suppliers’ factories. It was
seeking, in some cases, a 6 per cent reduction in the manufacturer’s selling price. For perspective, suppliers
estimated the actual transportation expense was just 3 per cent of the selling price. 16
Because their trucking employees were non-unionized and in-house, Wal-Mart was able to implement and
improve upon standard delivery procedures, coordinating and deploying the entire fleet as necessary.
Uniform operating standards ensured that miscommunication between traffic coordinators, truckers and
store level employees were minimized. During an analyst meeting in October 2011, Johnnie Dobbs, WalMart Stores’ (Wal-Mart’s) EVP Logistics, had stated:
Everyday low cost is the foundation for everyday low prices. So our focus across the
organization is delivering products that our customers need in the most efficient method
14
http://walmartprivatefleet.com/AboutUs/LeadershipProfiles.aspx, accessed January 2, 2012.
http://www.dcvelocity.com/articles/july2004/inbound.cfm, accessed August 19, 2006.
16
http://www.businessweek.com/magazine/content/10_23/b4181017589330.htm, accessed March 3, 2012.
15
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and process available. So, here’s an example of a sustained cost reduction in our
transportation area. We have improved visibility and routing tools. We’ve reengineered
processes that have decreased the number of empty miles and out-of-route miles that our
drivers drive. Our merchants and our suppliers have improved packaging, and we’ve
adjusted methods that we use to load our trailers, resulting in increased cases in cube in
every trailer that we ship. . . . (This year) we’ll ship 335 million more cases while we’ll
drive 300 million fewer miles. 17
Store Network
In the early years, Wal-Mart grew rapidly as customers were attracted by its assortment of low-priced
product. Over time, the company copied the merchandise assortment strategies of other retailers, mostly
through observation as a result of store visits. It bought in bulk, bypassing distributors, and passed savings
on to consumers.
Each Wal-Mart store aimed to be the “store of the community,” tailoring its product mix to appeal to the
distinct tastes of that community. Thus, two Wal-Mart Stores a short distance apart could potentially stock
different merchandise. In contrast, most other retailers made purchasing decisions at the district or regional
level.
The display of merchandise was suggested by a store-wide template, with a unique template for each store,
indicating the layout of Wal-Mart’s various departments. This template was created by Wal-Mart’s
merchandising department after analyzing historical store sales and community traits. Associates were free
to alter the merchandising template to fit their local store requirements. Shelf space in Wal-Mart’s different
departments — from shoes to household appliances to automotive supplies — was divided up, each spot
allocated to specific SKUs.
Unlike its competitors in the 1970s and 1980s, Wal-Mart implemented an EDLP policy, which meant that
products were displayed at a steady price and not discounted on a regular basis. In a “hi-lo” discounting
environment, discounts would be rotated from product to product, necessitating huge inventory stockpiles
in anticipation of a discount. In an EDLP environment, demand was smoothed out to reduce the “bullwhip
effect.” Because of its EDLP policy, Wal-Mart did not need to advertise as frequently as their competitors
and channeled the savings back into price reductions. To generate additional volume, Wal-Mart buyers
worked with suppliers on price rollback campaigns. Price rollbacks, each lasting about 90 days and funded
by suppliers, had the goal of increasing product sales between 200 and 500 per cent. A researcher
remarked: “Consumers certainly love Wal-Mart’s low prices, which are an average of 8 per cent to 27 per
cent lower than the competition.” 18
The company also ensured that its store level operations were at least as efficient as its logistics operations.
The stores were simply furnished and constructed using standard materials. Efforts were made to
continually reduce operating costs. For example, light and temperature settings for all U.S. stores were
controlled centrally from Bentonville.
17
“WMT — 18th Annual Meeting for the Investment Community,” Thomson StreetEvents, October 12, 2011, Investext,
accessed January 12, 2012.
18
William Beaver, “Battling Wal-Mart: How Communities Can Respond,” Business and Society Review 110.2, Summer
2005, p. 159.
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As Wal-Mart distribution centres had close to real-time information on stores’ in-stock levels, the
merchandise could be pushed to stores automatically. In addition, store level information systems allowed
manufacturers to be notified as soon as an item was purchased. In anticipation of changes in demand for
some items, associates had the authority to manually input orders or override impending deliveries. In
contrast, most of Wal-Mart’s retail competitors did not confer merchandising responsibility to entry level
employees as merchandising templates were sent to stores via head office and were expected to be
followed precisely. To ensure that employees were kept up-to-date, management shared detailed
information about day/week/month store sales with all employees during daily 10-minute long “standing”
meetings.
Information Systems
Walton had always been interested in gathering and analyzing information about his company operations.
As early as 1966, when Walton had 20 stores, he attended an IBM school in upstate New York with the
intent on hiring the smartest person in the class to come to Bentonville to computerize his operations. 19
Even with a growing network of stores in the 1960s and 1970s, Walton was able to personally visit and
keep track of operations in each one, due to his use of a personal airplane, which he used to observe new
construction development (to determine where to place stores) and to monitor customer traffic (by
observing how full the parking lot was).
In the mid-1980s, Wal-Mart invested in a central database, store level point-of-sale systems and a satellite
network. Combined with one of the retail industry’s first chain-wide implementation of UPC bar codes,
store level information could now be collected instantaneously and analyzed. By combining sales data with
external information such as weather forecasts, Wal-Mart was able to provide additional support to buyers,
improving the accuracy of its purchasing forecasts.
In the early 1990s, Wal-Mart developed Retail Link. At an estimated 570 terabytes — which, Wal-Mart
claimed, was larger than all the fixed pages on the Internet — Retail Link was the largest civilian database
in the world. By 2008, Retail Link had 2.5 petabytes (2,500 terabytes) in data storage capacity, second only
to eBay’s 4-petabyte installation. 20 For a description of how Retail Link fits in with Wal-Mart’s supply
chain, see Exhibit 2. Retail Link contained data on every sale ever made at the company during a twodecade period. Wal-Mart gave its suppliers access to real-time sales data on the products they supplied,
down to individual stock-keeping items at the store level. In order to harness the knowledge of its
suppliers, key category suppliers, called “category captains,” first introduced in the late 1980s, provided
input on shelf space allocation. As an observer noted:
One obvious result [of using category captains] is that a producer like Colgate-Palmolive
will end up working intensively with firms it formerly competed with, such as Crest
manufacturer P&G, to find the mix of products that will allow Wal-Mart to earn the most
it can from its shelf space. If Wal-Mart discovers that a supplier promotes its own products
at the expense of Wal-Mart’s revenue, the retailer may name a new captain in its stead. 21
In 1990, Wal-Mart became one of the early adopters of collaborative planning, forecasting and
replenishment (CPRF), an integrated approach to planning and forecasting through sharing critical supply
19
http://www.time.com/time/time100/builder/profile/walton2.html, accessed August 23, 2006.
http://www.informationweek.com/news/software/info_management/228800661, accessed March 3, 2012.
21
Barry C. Lynn, “Breaking the Chain,” 33.
20
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chain information, such as data on promotions, inventory levels and daily sales. 22 Wal-Mart’s vendor
managed inventory (VMI) program (also known as continuous replenishment) required suppliers to
manage inventory levels at the company’s distribution centres, based on agreed service levels. The VMI
program started with P&G diapers in the late 1980s and by 2006 had expanded to include all major
suppliers. 23 In some situations, particularly grocery products, suppliers owned the inventory in Wal-Mart
stores up to the point that the sale was scanned at checkout.
Retail Link had an estimated 100,000 registered users, working for suppliers, who accessed the system.
They ran approximately 350,000 weekly queries of the data warehouse that contained two years of weekly
point-of-sale information. 24 Wal-Mart buyers held regular meetings with category captains, who would
come to the meeting prepared with category analyses and recommendations for how shelf space for the
various competitors should be allocated. In exchange for providing suppliers access to these data, WalMart expected them to proactively monitor and replenish product on a continual basis.
To support this inventory management effort, supplier analysts worked closely with Wal-Mart’s supply
chain personnel to coordinate the flow of products from suppliers’ factories and resolved any supply chain
issues, from routine issues such as ensuring that products were ready for pick up by Wal-Mart’s trucks and
arranging for the return of defective products, to last minute issues such as managing sudden spikes in
demand for popular items. When Wal-Mart buyers met, on a frequent basis, with a supplier’s sales teams,
two important topics of review were supplier’s out-of-stock rate and inventory levels at Wal-Mart,
indications of how well replenishment was being handled. Suppliers were provided targets for out-of-stock
rates and inventory levels.
In addition to managing short-term inventory and discussing product trends, Wal-Mart worked with
suppliers on medium- to long-term supply chain strategies including factory location, cooperation with
downstream raw materials suppliers and production volume forecasting. Wal-Mart’s satellite network, in
addition to receiving and transmitting point-of-sale data, also provided senior management with the ability
to broadcast video messages to the stores. Although the bulk of senior management lived and worked in
Bentonville, Arkansas, frequent video broadcasts to each store in their network kept store employees
informed of the latest developments in the firm. In an effort to emulate Wal-Mart’s ability to share
information with suppliers, Wal-Mart’s competitors began developing systems similar to Retail Link.
Available through Agentrics LLC, a software service provider, the software platform, built with the input
of dozens of global retailers, was made available through a subscription and collected and made available
store level data by retailer. Agentrics’ customer base included many of the world’s top retailers including
Carrefour, Tesco, Metro, Costco, Kroger and Walgreen’s. Many of these retailers were also investors in
Agentrics.
RFID
To ensure that cases moved efficiently through the distribution centres, Wal-Mart worked with suppliers to
standardize case sizes and labeling. Since 2003, Wal-Mart had required its top 100 suppliers to affix RFID
(radio-frequency identification) tags to shipping cases to facilitate the tracking and sorting of inbound
product.
22
A.H. Johnson, “35 Years of IT Leadership: A New Supply Chain Forged,” Computerworld, September 30, 2002, pp. 38-39.
T.
Andel,
“Partnerships
With
Pull,”
Transportation
and
Distribution,
July
1995,
pp.
65-74;
http://www.industrialsupplymagazine.com/pages/Print-edition--MayJune10IsVMIForYou.php, accessed April 10, 2012.
24
http://findarticles.com/p/articles/mi_m0FNP/is_17_44/ai_n15624797, accessed January 15, 2012.
23
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RFID tags allowed Wal-Mart to increase stock visibility as stock moved in trucks through the distribution
centres and on to the stores. Wal-Mart would be able to track promotion effectiveness within the stores
while cutting out-of-stock sales losses and overstock expenses. The company placed RFID tag readers in
several parts of the store: at the dock where merchandise came in, throughout the backroom, at the door
from the stockroom to the sales floor and in the box-crushing area where empty cases eventually wound
up. With those readers in place, store managers would know what stock was in the backroom and what was
on the sales floor.
According to researchers, about 25 per cent of out-of-stock inventory in the United States was not really
out of stock: the items could be misplaced on the floor or mis-shelved in the backroom. U.S.-wide, about 8
per cent of merchandise was out of stock at any given time, leading to lost sales for retailers. 25 In a study
performed by the University of Arkansas, Wal-Mart stores with RFID showed a net improvement of 16 per
cent fewer out-of-stocks on the RFID-tagged products that were tested. However, RFID tags cost
approximately 17 cents each. 26 It was estimated that Wal-Mart saved US$500 million a year by using
RFID in its operations. 27
Human Resources
By visiting each store and by encouraging associates to contribute ideas, Walton was able to uncover and
disperse best practices across the company in the 1960s and 1970s. To ensure that best practices were
implemented as soon as possible, he held regular “Saturday morning meetings” that convened his top
management team in Bentonville. At 7:00 a.m. each Saturday, the week’s business results were discussed
and merchandising and purchasing changes implemented. Store layout resets were managed on the
weekend, and the rejigged stores were ready by Monday morning. Walton and his management team often
toured competitors’ stores, looking for new ideas to “borrow.”
Wal-Mart believed that centralization had numerous benefits including lower costs and improved
communications between different divisions. All of Wal-Mart’s divisions, from U.S. stores, International
and Sam’s Club, to its logistics and information systems division, were located in Bentonville, a town of
28,000 people in Northwest Arkansas. Regional managers and in-country presidents were the few
executives who were stationed elsewhere. Another key to Wal-Mart’s ability to enjoy low operating costs
was the fact that it was non-union. Without cumbersome labour agreements, management could take
advantage of technology to drive labour costs down and make operational changes quickly and efficiently.
Being non-union, however, had its drawbacks. As its store network encroached on unionized grocers’
territory, unions, such as the United Food and Commercial Workers’ Union, started to become more
aggressive in their anti-Wal-Mart publicity campaigns, funding so-called grassroots groups whose goals
were to undermine Wal-Mart’s expansion. Wal-Mart’s size also made it a target for politicians: every
stumble was magnified and played up in the press.
FOCUSING ON THE SUPPLY CHAIN
Wal-Mart remained focused on improving its supply chain. A recent initiative was Remix, which was
started in the fall of 2005 and aimed at reducing the percentage of out-of-stock merchandise at stores by
redesigning its network of distribution centres. As Wal-Mart stores increased its line-up of grocery items
25
http://knowwpcarey.com/article.cfm?aid=803, accessed April 10, 2012.
http://knowledge.wpcarey.asu.edu/index.cfm?fa=viewfeature&id=1205, accessed March 3, 2012.
27
http://www.rfidprivacy.org/wal-marts-supply-chain-management-and-rfid.htm, accessed March 3, 2012.
26
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9B12D010
(Wal-Mart was the U.S.’s largest grocer in 2005), the company noticed that as employees sorted through
28
truckloads of arriving merchandise to find fast-selling items, delays in restocking shelves occurred.
Moving from its original model of having distribution centres serve a cluster of stores, Wal-Mart
envisioned that fast-moving merchandise, such as paper towels, toilet paper, toothpaste and seasonal items,
would be shipped from dedicated “high velocity” food distribution centres. Food distribution centres — of
which there were 40 — were designed to handle high-turn food items.
High velocity distribution centres differed from general merchandise distribution centres in the following
ways: as primarily food distribution centres, they were smaller and had temperature controls and less
automation. 29 In contrast, general merchandise distribution centres required automation and conveyor belts
to move full pallets of goods. Wal-Mart did not elaborate on how much savings this move was expected to
generate, but it was believed to be an incremental improvement to the current system. Wal-Mart’s CIO,
Rollin Ford, stated:
We could have done nothing and been fine from a logistics standpoint . . . but as you
continue to increase your sales per square foot, you’ve got to do things differently to make
those stores more productive. 30
In 2006, Wal-Mart continued to seek improvements to its supply chain. Although the company publicly
declined to outline its targets for inventory reduction, its suppliers stated that Wal-Mart’s top executives
31
spoke in January 2006 about eliminating as much as $6 billion in excess inventory. In addition, the firm
was undertaking a significant program to remodel most of its U.S. stores to improve “checkout speed,
customer service and store appearance.”
The company reported that remodeled stores could drive 125 to 200 basis points of improvement in both
sales and gross margin and 8 to 9 per cent in lower inventories. 32 From fiscal year 2008 to fiscal year 2011,
Wal-Mart had remodeled just under 70 per cent of its store base. The company was opening fewer large
format supercenters, down to 113 a year in fiscal year 2011 from 277 in fiscal year 2006, and was facing
competition from online competitors such as Amazon.com, which enjoyed annual sales increases of 40 per
cent from 2009 to 2011. And smaller format stores, or Dollar Stores, which were 10,000 square feet in size
or smaller, were becoming popular. Wal-Mart had a small store format as well, Wal-Mart Express, aiming
to be a fill-in store for space-constrained urban areas. But even as competitors such as Dollar General were
opening over 500 new stores in 2011, Wal-Mart seemed hesitant with its small store format, opening only
35 small stores that year (see Figure 1). 33
28
Kris Hudson, “Wal-Mart’s Need for Speed,” The Wall Street Journal, September 26, 2005.
http://knowwpcarey.com/article.cfm?aid=803, accessed April 10, 2012.
30
http://cincom.typepad.com/simplicity/2005/09/index.html, accessed August 23, 2006.
31
Kris Hudson, “Wal-Mart Aims To Sharply Cut Its Inventory Costs,” The Wall Street Journal, April 20, 2005.
32
Patrick McKeever, “Wal-Mart Stores,” MKM Partners, May 28, 2010.
33
Charles Grom, Paul Trussell, Shane Higgins, and Matt Siler, “Broadline Retail Initiation,” Deutsche Bank, September 14,
2011, page 106.
29
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Figure 1: Net New Small Store Plans — FY 2011
600
565
500
400
300
240
190
200
150
100
45
35
Big Lots
Wal-Mart
12
0
Dollar General
Dollar Tree
Walgreens
CVS
Fred's
But execution issues at the store level and disruption from the remodeling had a negative impact on WalMart’s sales. There was also the financial crisis that started in 2008, along with a cutback on staffing
levels. The result was nine consecutive quarters of same store sales decline starting in the second quarter of
2009. 34
Figure 2: Wal-Mart Same Store Sales Increases (Decreases)
5.0%
4.4%
4.0%
3.6%
2.8%
3.0%
2.0%
1.9%
2.6%
2.2%
2.4%
1.0%
0.0%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
-0.5%
-1.0%
-1.3%
-1.4%
-1.5%
-2.0%
-2.0%
-1.1%
-1.8%
-0.9%
-1.8%
-3.0%
34
Charles Grom, Paul Trussell, Shane Higgins, Matt Siler, “Broadline Retail Initiation,” page 106; Wal-Mart press releases.
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By October 2011, due to its lacklustre topline and earnings growth prospects, Wal-Mart’s stock price had
languished in the $45 to $55 dollar range for the entire decade. The stock price seemed to be a topic of
conversation at every analyst meeting that Neuhausen had attended for the past few years. This year,
however, he wondered whether Wal-Mart’s management’s efforts to drive additional gains from its already
efficient operations could help its lagging stock price.
NEW INITIATIVES AND A REORGANIZATION
There were three significant initiatives at Wal-Mart whose goals were to improve its supply chain as the
firm operated an increasingly varied number of store types and grew its global operations. There were
changes to the way it procured product (Global Sourcing), optimizing product delivery to stores to increase
on-shelf availability (Project One Touch) and finding ways to leverage its strength in physical store
locations to boost its online business (Multi-Channel). To facilitate the improvements, Wal-Mart
reorganized, combining its real estate division with store operations and logistics. Wal-Mart was split into
three geographic business units (GBUs) in the United States: West, South, and North. 35
Global Sourcing
In February 2010, the Wal-Mart buying group was reorganized into Global Merchandising Centers:
general merchandise; food; consumables, health and wellness and Wal-Mart.com; and softlines. 36 For its
private label business, instead of purchasing directly from factories, it entered into a partnership with Li &
Fung. The latter would assist with product sourcing in a range of categories and markets where Wal-Mart
did not “have the scale or the competencies and skills to leverage.” 37 In 2010, the first year of the
agreement called for approximately $2 billion in goods to be purchased through Li & Fung. 38 Wal-Mart
was targeting 5 to 15 per cent savings on the $100 billion in product it was purchasing through non-direct
channels. 39
Project One Touch
“Across the organization, we’re focused on the supply chain all the way down to the customer,” said
Dobbs. “Improvements in our DCs [distribution centres] and our transportation operations generate
savings, but if you improve processes at the store level, you have a significant multiplier, when you think
about the 3,800 plus stores out there (in the United States).” He continued:
So we’ve been working with our store operations team and our innovations teams to
develop what we call Project One Touch. We aligned the merchandise flow, our delivery
schedules, and the store labor schedules together. Then, we reorganized our high velocity
distribution centers to deliver category group pallets that allow our associates to easily
transfer product from our trailers to the sales floor. Then, we added aisle and modular
locations to the general merchandise case labels to make it easy for our store associates to
get these types of products onto the shelf. And finally, this past year, we installed a
35
http://www.chainstoreage.com/article/wal-mart-reorganization-designed-increase-efficiency, accessed January 15, 2012.
http://www.massmarketretailers.com/inside-this-issue/news/09-20-2010/changes-at-walmart, accessed January 15, 2012.
37
http://www.storebrandsdecisions.com/news/2010/02/02/wal-mart-creates-global-merchandising-centers-to-streamlinesourcing, accessed March 15, 2012.
38
http://www.chainstoreage.com/article/wal-mart-reorganization-designed-increase-efficiency accessed January 215, 012.
39
Charles Grom, Paul Trussell, Shane Higgins, Matt Siler, “Broadline Retail Initiation,” p. 118.
36
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systems-driven process that dramatically improves the less than case back processing in
our back rooms. 40
In the 10 months from January to October 2011, Wal-Mart’s on-shelf availability increased by 5.7 per cent
to over 90 per cent. On key items, it had 93 per cent availability. In addition, as a result of reorganizing its
logistics, Wal-Mart was able to reinvest the US$2 billion in cost reductions into reducing prices at store
level. 41
The Multi-Channel strategy
Wal-Mart aimed to build a “continuous channel approach” to leverage both its physical store and
distribution centre infrastructure and its growing presence online. Wal-Mart.com aimed to carry a broader
selection of items not available in stores. In addition, the firm looked to find ways to use the stores to drive
online business. Joel Anderson, EVP and president of Wal-Mart.com, stated:
Our store teams next year (in 2012) will get sales credit for both store sales and .com
sales. This is like unleashing a sales force of over 1 million people. That is a
differentiation that will be hard to replicate. Secondly, I want to focus on access. Several
pilots are currently in place to leverage our ship food storage capabilities. We will offer
next day delivery at a very economical price. We will use these capabilities to reach
customers in urban areas that we have not yet penetrated. And finally, our online
marketing efforts will over index in these areas we haven't penetrated so that we can
continue to provide access to the Wal-Mart brand. The third area is fulfillment. We
already have unlimited assets in place. Nearly 4,000 stores, over 150 DCs, this will give
us the flexibility to offer our customers best in class delivery options.
For example, last week, we transitioned several disparaged shipping offers into one
comprehensive fulfillment program. We are now offering three compelling free shipping
programs. This is an excellent example of multi channel strategy beginning to come to
life. Let's look at this one a little bit closer. We call it fast, faster, fastest. You have our
site to store offer. And this offers our broadest merchandise assortment beyond the stores.
Site to store allows a customer to pick it up in our store or hundreds of urban FedEx
locations for free. Home free in the middle is our new faster program.
This launched just last week. Home free allows our customers to bundle their items into
one order and have it delivered to home for free. And there are no membership fees like
some other online retailers currently charge. Pickup today . . . is our third program. It is
our fastest option, and it provides the convenience of same day pickup in our stores for
free. Pickup today is available in every one of our stores on the hottest assortment we
have to offer. 42
40
“WMT — 18th Annual Meeting for the Investment Community.”
Ibid.
42
Ibid.
41
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DECISION — HOLD, BUY OR SELL?
Neuhausen put his notes down and walked into the conference room where his analyst team was
assembled. He switched on the projector and clicked through the Wal-Mart stock presentation to the
comparative information slides that included financial information (see Exhibit 3) and a description of each
competitor (see Exhibit 4). Neuhausen hit “enter” and brought up Wal-Mart’s stock performance over the
past 10 years (see Exhibit 5). He concluded:
We’ve owned Wal-Mart stock for the past decade, and it’s been basically flat over that
period. During the same time, we’d have made more money had we been invested in the
S&P 500 index of the largest 500 U.S. stocks. Should we continue to hold Wal-Mart
stock?
I’d like to find out your views on Wal-Mart’s key competitive advantages, especially its
supply chain strategy, and whether these advantages are sustainable. The data suggest that
new competitors, especially the Dollar Stores, Amazon.com and Tesco, 43 are gaining in
popularity in the United States. Is Wal-Mart’s high volume “buy it low, stack it high, sell
it cheap” model still valid today?
43
Tesco
opened
four
“Fresh
&
Easy”
food
markets
in
http://www.freshandeasy.com/whereweare.aspx, accessed January 15, 2012.
California,
Arizona
and
Nevada.
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Exhibit 1
U.S. RETAIL CATEGORIES (PARTIAL LIST)
Category
2011
(US$ billions)
General merchandise stores
630.9
Food and beverage
615.4
Food services and drinking places
494.2
Gasoline
533.6
Building materials and gardening equipment and supplies
300.2
Furniture, home furnishings, electronics and appliances
190.9
Health and personal care
274.9
Clothing and clothing accessories
226.5
Sporting goods, hobby, books, music
88.9
Source: http://www.census.gov/retail/index.html#arts, accessed January20, 2012.
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Exhibit 2
WAL-MART’S RETAIL LINK DATABASE
Store
Network
Distribution
Centres
Shipping to Distribution Centres or Factory Pick-Up
(Logistics)
Sales Data At
Store Level
(Collected from
cash registers
in all stores)
Data
Transmission
via
Global
Satellite
Network
Retail Link
Database
(located in
Bentonville,
AR)
External Data
(Weather
forecasts,
economic
forecasts etc)
Supplier
Network
accesses realtime sales data
Merchandise
Production
by Suppliers
Wal-Mart
internal
analysts work
to forecast
demand, work
with suppliers
Source: Case writers.
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Exhibit 3
WAL-MART AND COMPETITORS — FINANCIAL RESULTS, 2002-2011
FISCAL YEAR
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
Wal-Mart
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
418,952
315,287
81,020
16,993
36,318
180,663
405,046
304,657
79,607
14,848
33,160
170,706
401,244
306,158
76,651
13,400
34,511
163,429
374,526
286,515
70,288
12,731
35,180
163,514
344,992
264,152
64,001
11,284
33,685
151,193
312,427
240,391
56,733
11,231
32,191
138,187
285,222
219,793
51,105
10,267
29,447
120,223
256,329
198,747
44,909
9,054
26,612
104,912
244,524
191,838
41,043
8,039
24,891
94,685
217,799
171,562
36,173
6,671
22,614
83,451
Target Corp
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
68,466
47,860
14,106
2,929
7,918
46,630
65,786
45,725
13,469
2,920
7,596
43,705
63,435
44,062
13,078
2,488
7,179
44,533
62,884
44,157
12,954
2,214
6,705
44,106
61,471
41,895
13,704
2,849
6,780
44,560
57,878
39,399
12,819
2,787
6,254
37,349
51,271
34,927
11,185
2,408
5,838
34,995
45,682
31,445
9,797
3,198
5,384
32,293
46,781
31,790
10,696
1,841
5,343
31,392
42,722
29,260
9,416
1,654
4,760
28,603
Kroger Co
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
90,374
71,494
15,345
596
6,157
23,476
82,189
63,927
13,811
1,133
5,793
23,505
76,733
58,958
13,398
57
5,705
23,093
76,000
58,564
12,884
1,249
5,659
23,211
70,235
53,779
12,155
1,181
5,459
22,299
66,111
50,115
11,839
1,115
5,059
21,215
60,553
45,565
11,027
958
4,886
20,482
56,434
42,140
10,611
-100
4,729
20,491
53,791
39,637
10,354
315
4,493
20,184
51,760
37,810
9,618
1,205
4,175
20,102
Costco
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
87,048
77,739
8,682
1,542
6,638
26,761
76,255
67,995
7,840
1,323
5,638
23,815
69,889
62,335
7,252
1,086
5,405
21,979
70,977
63,503
6,954
1,283
5,039
20,682
63,088
56,450
6,273
1,083
4,879
19,607
58,963
52,745
5,732
1,103
4,569
17,495
51,862
46,347
5,044
1,063
4,015
16,514
47,146
42,092
4,598
882
3,644
15,093
41,693
37,235
4,097
721
3,339
13,192
37,993
33,983
3,576
700
3,127
11,620
Safeway
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
43,630
31,837
10,659
518
2,470
15,074
41,050
29,443
10,448
591
2,623
15,148
40,851
29,157
10,348
-1,098
2,509
14,964
44,104
31,589
10,662
965
2,591
17,485
42,286
30,133
10,381
888
2,798
17,651
40,185
28,604
9,981
871
2,643
16,274
38,416
27,303
9,898
561
2,766
15,757
35,823
25,228
9,423
560
2,741
15,377
35,553
25,019
9,231
-170
2,642
15,097
32,399
22,303
7,719
-828
2,493
16,047
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Exhibit 3 (continued)
WAL-MART AND COMPETITORS — FINANCIAL RESULTS, 2002-2011
FISCAL YEAR
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
Amazon.com
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
48,077
37,288
9,773
862
4,992
25,278
34,204
26,561
6,131
1,406
3,202
18,797
24,509
18,978
4,300
1,129
2,171
13,813
19,166
14,896
3,452
842
1,399
8,314
14,835
11,482
2,689
655
1,200
6,485
10,711
8,255
2,057
389
877
4,363
8,490
6,451
1,560
432
566
3,696
6,921
5,319
1,112
440
480
3,249
5,264
4,007
896
271
294
2,162
3,933
2,940
813
64
202
1,990
Dollar General
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
14,807
10,109
3,207
767
2,009
9,689
13,035
8,858
2,902
628
1,765
9,546
11,796
8,107
2,737
339
1,520
8,864
10,458
7,397
2,449
108
1,415
8,889
5,571
4,000
1,325
-5
1,289
8,656
9,170
6,802
2,120
138
1,432
3,041
8,582
6,117
1,903
350
1,474
2,992
7,661
5,398
1,706
344
1,377
2,841
6,872
4,854
1,497
301
1,157
2,653
6,100
4,376
1,297
265
1,123
2,333
Dollar Tree
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
6,631
4,252
1,596
488
867
2,329
5,882
3,769
1,458
397
803
2,381
5,231
3,374
1,344
321
680
2,290
4,645
3,053
1,226
230
676
2,036
4,243
2,782
1,131
201
641
1,788
3,969
2,612
1,046
192
605
1,873
3,394
2,222
889
174
577
1,798
3,126
2,013
819
180
615
1,793
2,800
1,787
719
178
526
1,480
161
114
55
-11
438
1,304
Big Lots
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
5,202
3,132
1,635
207
825
1,641
4,952
2,940
1,577
223
762
1,620
4,727
2,807
1,532
201
731
1,669
4,645
2,788
1,524
155
737
1,432
4,656
2,816
1,515
151
748
1,444
4,743
2,852
1,622
113
758
1,721
4,430
2,698
1,596
16
836
1,625
4,375
2,598
1,606
30
895
1,734
4,174
2,428
1,616
91
830
1,785
3,869
2,237
1,485
77
776
1,642
Fred's Inc.
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
1,842
1,315
451
30
313
596
1,788
1,289
434
24
294
571
1,799
1,296
450
17
302
545
1,781
1,291
445
11
320
551
1,767
1,272
425
27
305
516
1,589
1,141
380
26
304
498
1,442
1,036
338
28
275
465
1,303
935
317
34
240
414
1,103
798
262
28
194
346
911
661
218
20
164
284
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Exhibit 3 (continued)
WAL-MART AND COMPETITORS — FINANCIAL RESULTS, 2002-2011
FISCAL YEAR
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
Sears
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
41,567
30,966
10,664
(3,147)
8,407
21,381
43,326
31,448
10,571
150
9,123
24,268
44,043
31,824
10,654
297
8,705
24,808
46,770
34,118
11,060
53
8,795
25,342
50,703
36,638
11,468
826
9,963
27,397
53,012
37,820
11,581
1,490
9,907
30,066
48,911
35,505
10,759
858
9,068
30,573
19,701
14,670
4,156
1,106
3,281
8,651
17,072
13,084
3,577
248
3,238
6,084
6,181
4,762
1,421
(862)
4,431
6,660
Walgreen
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
72,184
51,692
16,561
2,714
8,044
27,454
67,420
48,444
15,518
2,091
7,378
26,275
63,335
45,722
14,366
2,006
6,789
25,142
59,034
42,391
13,202
2,157
7,249
22,410
53,762
38,518
12,093
2,041
6,791
19,314
47,409
34,240
10,467
1,751
6,050
17,131
42,202
30,414
9,364
1,560
5,593
14,609
37,508
27,310
8,055
1,360
4,739
13,342
32,505
23,706
6,951
1,176
4,203
11,406
28,681
21,076
5,981
1,019
3,645
9,879
CVS
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
107,100
86,539
14,231
3,457
10,046
64,543
96,413
76,156
14,092
3,424
10,695
62,169
98,729
78,349
13,942
3,696
10,343
61,641
87,472
69,182
12,244
3,212
9,153
60,960
76,330
60,222
11,314
2,637
8,008
54,722
43,814
31,875
9,497
1,369
7,109
20,570
37,006
27,105
7,882
1,225
5,720
15,283
30,594
22,563
6,577
919
5,454
14,547
26,588
19,725
5,439
847
4,017
10,543
24,182
18,113
4,863
717
4,014
9,645
Carrefour
Sales
COGS
Operating expenses
Net income
Inventories
Total assets
106,205
84,827
18,255
-2,878
8,949
62,636
105,212
83,595
17,634
444
9,140
70,110
112,336
88,990
19,112
646
8,716
67,369
113,648
89,789
18,759
1,990
9,005
68,061
107,352
84,432
17,867
2,677
8,974
67,865
101,801
79,981
16,851
2,640
7,907
62,116
97,352
76,613
15,986
2,556
7,985
60,440
94,963
74,557
15,535
2,542
7,346
55,257
92,111
71,391
15,000
2,537
7,437
51,048
89,815
69,498
14,923
2,303
7,479
50,866
96,608
88,585
2,657
4,235
5,013
74,847
90,233
82,928
2,421
3,704
4,327
72,971
86,137
79,449
1,979
3,434
4,232
73,018
74,992
69,237
1,628
3,377
3,853
47,826
67,609
62,471
1,438
3,011
3,062
39,332
62,556
57,755
1,308
2,499
2,321
35,774
53,696
49,518
1,161
2,136
2,075
31,956
53,206
45,861
1,343
1,744
1,896
29,431
45,367
39,285
1,145
1,500
1,779
26,163
40,675
35,315
1,027
1,316
1,440
21,493
Tesco plc
Sales
COGS
SG&A
Net income
Inventories
Total assets
Sources: Mergent, various company annual reports. Note that Tesco plc’s calculation of COGS (which includes some operating expenses) may not be directly comparable to other
firms’ COGS figures. Tesco’s SG&A for 2002-04 have been estimated using figures from 2005-11. Kmart Holdings Corporation purchased Sears, Roebuck and Co. on November
17, 2004, and the new firm was renamed “Sears Holding Corp.”
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9B12D010
Exhibit 4
COMPETITORS — DESCRIPTION
Target Corporation
Target operates as two reportable segments. Its Retail Segment includes its merchandising operations, including its
online business. Its Credit Card Segment provides the Target Visa and the Target Card credit cards, as well as the
Target Debit Card. Target’s Canadian segment consists of its leasehold interests in Canada. It operates Target general
merchandise stores and SuperTarget® stores, providing a range of general merchandise and food. The company’s
merchandise includes household products, hardlines, apparel and accessories, food and pet supplies and home
furnishings and decor. As of January 28, 2012, Target had 1,763 stores in 49 states and the District of Columbia.
Kroger Co.
Kroger operates retail food and drug stores, multi-department stores, jewelry stores and convenience stores. It also
manufactures and processes some of the food for sale in its supermarkets. As of January 29, 2011, Kroger operated,
either directly or through its subsidiaries, 2,460 supermarkets and multi-department stores, 1,014 of which had fuel
centres. In addition, as of January 29, 2011, it operated through subsidiaries 784 convenience stores and 361 fine
jewelry stores. Additionally, 87 convenience stores were operated through franchise agreements. These convenience
stores offer an assortment of staple food items and general merchandise and, in most cases, sell gasoline.
Costco Wholesale Corp.
Costco Wholesale operates membership warehouses. Its products include sundries, such as candy, snack foods,
tobacco, alcoholic and nonalcoholic beverages and cleaning and institutional supplies; hardlines, such as appliances,
electronics, health and beauty aids, hardware, office supplies, cameras, garden and patio, sporting goods, toys,
seasonal items and automotive supplies; food, such as dry and packaged foods; softlines, such as apparel, domestics,
jewelry, housewares, media, home furnishings and small appliances; fresh food, such as meat, bakery, deli and
produce; and ancillary and other, such as gas stations, pharmacy, food court, optical, one-hour photo, hearing aid and
travel.
Safeway Inc.
Safeway is a food and drug retailer in North America, with 1,678 stores at December 31, 2011. Its U.S. retail
operations are located principally in California, Hawaii, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the
Chicago metropolitan area and the Mid-Atlantic region. Its Canadian retail operations are located principally in
British Columbia, Alberta and Manitoba/Saskatchewan. Its stores provide an array of grocery items tailored to local
preferences. Most stores provide food and general merchandise and include specialty departments such as bakery,
delicatessen, floral, seafood and pharmacy. The majority of stores provide Starbucks coffee shops and adjacent fuel
centres.
Amazon.com
Amazon.com serves consumers through its retail websites. It provides merchandise and content purchased for resale
from vendors and those provided by third-party sellers; it also manufactures and sells the Kindle e-reader. It provides
services such as Amazon Web Services; fulfillment; miscellaneous marketing and promotional agreements, such as
online advertising; and co-branded credit cards. It has two principal segments: North America, which consists of retail
sales of consumer products and subscriptions through North America-focused websites; and International, which
consists of retail sales of consumer products and subscriptions through internationally focused locations.
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9B12D010
Exhibit 4 (continued)
COMPETITORS — DESCRIPTION
Dollar General
Dollar General is a discount retailer. As of February 25, 2011, it operated 9,414 retail stores located in 35 states in the
southern, southwestern, midwestern and eastern United States. It provides a selection of merchandise, including
consumables, seasonal, home products and apparel. Its products portfolio includes home cleaning supplies, food,
beverages and snacks, personal care products, pet supplies, decorations, toys, batteries, small electronics, greeting
cards, stationery, prepaid cell phones and accessories, gardening supplies, hardware, and automotive and home office
supplies, as well as a selection of home products and apparel products.
Dollar Tree, Inc.
Dollar Tree is an operator of discount variety stores providing merchandise at the fixed price of $1.00. Its
merchandise mix consists of consumable merchandise, which includes candy and food and health and beauty care,
and household consumables such as paper, plastics, house chemicals and frozen food; variety merchandise, which
includes toys, housewares, gifts, party goods, greeting cards, softlines and other items; and seasonal goods, which
include Easter, Halloween and Christmas merchandise. At January 28, 2012, it operated 4,252 stores in 48 states and
the District of Columbia, as well as 99 stores in Canada under the Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant
and Dollar Bills names.
Big Lots, Inc.
Big Lots is a broadline close-out retailer. Its merchandising categories consist of Consumables, which include food,
health and beauty, plastics, paper, chemical and pet departments; Furniture, which includes the upholstery, mattresses,
ready-to-assemble and case goods departments; Home, which includes domestics, stationery and home decorative
departments; Hardlines, which include electronics, appliances, tools and home maintenance departments; Seasonal,
which includes lawn and garden, Christmas, summer and other holiday departments; and Other, which includes toy,
jewelry, infant accessories and apparel departments. At January 29, 2011, it operated a total of 1,398 stores in 48
states.
Fred’s Inc.
Fred’s operates discount general merchandise stores and pharmacies. Its stores generally serve low, middle and fixed
income families located in small- to medium-sized towns. It also markets goods and services to its 24 franchised
stores. Its stores stock over 12,000 purchased items that address the needs of its customers, including brand name
products, its label products and off-brand products. Its FRED’S brand products include household cleaning supplies,
health and beauty aids, disposable diapers, pet foods, paper products and a variety of food and beverage products. As
of January 29, 2011, it had 653 retail stores and 313 pharmacies in 15 states primarily in the southeastern United
States.
Sears Holding Corp.
Sears Holdings is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It
is a broadline retailer with 2,172 full-line and 1,338 specialty retail stores in the United States operating through
Kmart and Sears and 500 full-line and specialty retail stores in Canada operating through Sears Canada Inc., a 95%owned subsidiary. As of January 28, 2012, it operated three reportable segments: Kmart, Sears Domestic and Sears
Canada.
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Page 22
9B12D010
Exhibit 4 (continued)
COMPETITORS — DESCRIPTION
Walgreen Co.
Walgreen, together with its subsidiaries, operates a retail drugstore chain. It sells prescription and non-prescription
drugs as well as general merchandise, including household products, convenience and fresh foods, personal care,
beauty care, photofinishing and candy. Its pharmacy, health and wellness services include retail, specialty, infusion
and respiratory services, mail service, convenient care clinics and worksite clinics. In addition, its Take Care Health
Systems, Inc. subsidiary is a manager of worksite health centres and in-store convenient care clinics. As of August 31,
2011, it operated 8,210 locations in 50 states, the District of Columbia, Puerto Rico and Guam.
CVS Caremark Corporation
CVS Caremark, together with its subsidiaries, is a pharmacy health care provider in the United States. Its segments
include Pharmacy Services, which provides a range of pharmacy benefit management services including mail order
pharmacy services, specialty pharmacy services, plan design and administration, formulary management and claims
processing; and Retail Pharmacy, which sells prescription drugs and a range of general merchandise, including overthe-counter drugs, beauty products and cosmetics, photo finishing, seasonal merchandise, greeting cards and
convenience foods. As of December 31, 2011, it had 7,300 CVS/pharmacy® retail stores.
Carrefour S.A.
Carrefour is a distribution group based in France. It engages in retailing business primarily in Europe, Asia, and Latin
America. It operates under four main grocery store formats: hypermarkets (offers food and non-food product lines);
supermarkets; hard discount (offers a reduced range at discount prices); and convenience stores, which included Cash
& Carry stores (which are conveniences stores for professionals) and E-commerce. Some of its trade names are
Carrefour, Carrefour Market, GB, GS, Dia, Ed, Shopi, Marche Plus, 8 a Huit, Proxi, Promocash and Docks Markets.
As of December 31, 2010, it operated 15,937 stores worldwide.
Tesco plc.
Tesco is engaged in retailing and associated activities. Its core U.K. segment consists of four different store formats:
Express, Metro, Superstore and Extra, as well as one trial format called Homeplus. Its Non-Food segment includes
merchandise such as electricals, home entertainment, clothing, health and beauty, stationery, cookshop and soft
furnishings, and seasonal goods such as barbecues and garden furniture in the summer. Its Retailing Services segment
consists of several operations, including Tesco Personal Finance, Tesco.com and Tesco Telecoms. Its International
segment operates in 13 markets outside the United Kingdom in Europe, Asia (including India) and North America.
Source: Mergent.
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Page 23
9B12D010
Exhibit 5
WAL-MART STOCK PRICE
Wal-Mart Stock Price
February 2002 to February 2012
180
160
140
120
100
US$
WMT
S&P 500
80
60
40
20
2/1/2012
8/1/2011
2/1/2011
8/1/2010
2/1/2010
8/1/2009
2/1/2009
8/1/2008
2/1/2008
8/1/2007
2/1/2007
8/1/2006
2/1/2006
8/1/2005
2/1/2005
8/1/2004
2/1/2004
8/1/2003
2/1/2003
8/1/2002
2/1/2002
0
Source: Yahoo! Finance.
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