Walmart: The Challenge of Managing Relationships with Stakeholders (Case 8)

Walmart Strategy With sales over $312 billion in 2006 and approximately 1.7 Million employees worldwide ( 1.3 million of these in US), Wal- Mart saves the average family an estimated $2329 per Year. Over 138 Million people visit Wal- Mart every week, 84% of Americans have shopped in the Past year. People living in households (income < $30,000 a year) its highest mark 3 basic beliefs: * respect for individual *service to their customers *striving for excellence How well the firm implements these beliefs is the focus of this case EDLP “Everyday Low Price”, Wal- Mart saves $ 100,000 billion a year, Wal- Mart’s entrance into markets lower food prices 25 percent, including competitors’ price cuts and lowers total payroll wages by 5% per person. Effective use of logistics management Effective inventory control Bargaining power over suppliers Global Expansion for new market opportunity Wal- Mart has excelled at market orientation which is focusing on consumers, defeating competitors, increasing shareholder value. Although Wal- Mart tops as the largest company in Fortune 500, it is not included Fortune 100 best companies to work.. Since for Wal- Mart 1st customers and 2nd Employees. As EDLP, Low prices are vital..

HISTORY AND GROWTH OF WAL-MART The company has grown from a small chain to over five thousands stores in 10 countries. Principle offices are in Benronville, Arkansas. In 1945 in Newport, Arkansas Sam Walton, the stores founder, opened a franchise Ben Franklin variety store. In 1962 the first Wal- Mart discount city was opened. In 1984 first three Sam’s club were opened. In 1999, first neighborhood market was opened. Two Segments 1) Walmart Store 2) Sam’s Club World’s largest retailer (Three Formats) -Discount Store (2,640) 100,000 square feet -Supercenter (2,396) 187,000 square feet -Neighborhood Market (435) 43,000 square feet ( - Sam’s Club (670) 128,000 square feet International Initiatives started in 1992 - First it was started with the 50% joint venture in Mexico (Cifer ) and in 1998 they acquired the company. (It become Wal- Mart de Mexico Allocation of Wal-Mart Stores all around the world: * Mexico (774) * Argentina (11) *Brazil (295) *Canada (278) *Germany (88) * China- Japan (more than 450) *South Korea (16) * Puerto Rico (54) *UK (315)

Relationships with Supplier Stakeholders Wal-Mart is focused on keeping its costs low It demands its suppliers consistently lower prices of products from one year to the next by at least 5 percent. Use of Technology for Low Cost (RFID) Ensures that a product can be tracked Driving force in operational efficiency that lowers costs Cost of RFID technology was much larger for suppliers than to Wal-Mart because suppliers needed to buy RFID tags continually while all Wal-Mart needed was a system to read the tags Tags help to keep shelves stocked and curbs the loss of products as they travel 16% reduction in stockouts, 67% drop in replenishment times Suppliers are notified when products are sold and ensure that enough of a product is always on store Results in time and labor savings Why suppliers need Wal-Mart Dial Corporation 28% Revlon 22% Clorox 23% P&G 17% Kraft 12% Kelloggs 12% If they lost Wal-Mart account, they would almost have to double their remaning sales just to stay even

Relationships with Supplier Stakeholders Benefits to suppliers They become more efficient and streamlined, which helps their other customers too, as they improve their system for Wal-Mart Many companies believe supplying Wal-Mart is the best thing fot their business Opposite Views There are few who believe that Wal-Mart is hurting their business. Ex: Snapper (a company making high quality residential and commercial lawn equipment) Wal-Mart was incompatible with the company’s strategy of high quality and high prices Wal-Mart tried to convince Snapper to make a low-cost version Affects of Wal-Mart’s lower price strategy Many suppliers move production to cheaper locations to remain suppliers to Wal-Mart China and Wal-Mart partnership 10% of the U.S. trade deficit with China Wal-Mart (China’s 8th largest trading partner, ahead of Australia, Canada and Russia

What is Wal-Mart Doing to Improve Its Reputation? GLOBAL ETHICS OFFICE Established on June 1, 2004 June 4, 2004, Wal-Mart released a revised “Global Statement of Ethics” to communicate their ethical standarts to all Wal-Mart facilities and stakeholders Ethics Office provides guidance in making ethical decisions Reporting of a suspected ethics violation by calling the Ethics Helpline Follow the rule at all time Be honest and fair Never manipulate Avoid conflicts of interest between work and personal affair Never discriminate against anyone Never act unethically Never ask someone to act unethically Seek assistance if you have any questions about the “Statement of Ethics” Cooperate with any investigation of a possible ethics violation Report ethics violations or suspected violations

Stakeholder Orientation?

Ethical issues involving Wal-Mart Employees Low Benefits Discrimination Unions Class-Action Lawsuits

Wal-Mart Critiques

Environment Experimental stores Environmental Friendly Stores at Mc Kinsey, Texas and Aurora, Colorado. Stores should produce examples of the way that building owners, scientists, engineers, contractors, landscape designers can work together to create stores that: saves energy Conserve natural sources Reduce pollution Stores like living laboratories, testing experimental technologies and proucts which Wal-Mart hopes to use in future stores what they have learned. Wal-Mart Acres for America Energy Conservation Measures Daylight Heating and cooling Lighting Efficiency Program Plastic Sandwich Bale Kids Recycling Challenge 2005 News Environmental Award

Wal – Mart Image Improving image among customers: Web site www.Wal–MartFacts.com to counter claims made by its critics. Sections on community impact, an associate center, key topics, “do you know” and “talk with us” and also a list of awards and recognition that Wal-Mart has received. Aim is to reduce misperceptions and ensure customers are better informed about the “misleading” news. Ad by CEO H.Lee Scott in more than 100 newspapers: Letter by him for the public to hear and call for the congress to increase the minimum wage. Hiring public relations firm: Hill and Knowlton. Wal-Mart and the Economy Driving force in U.S economy: saves $2329 a year for working famlies on average; meaningful to lower income and retired customers. Low prices due to higher levels of capital investment in distribution and inventory control assets, operational excellence, advanced informational technology, low import prices from China and greater efficiency in it’s whole supply chain. Hurricane Catrina Response was fast, efficient and significant. Positive effect. The Future…

Questions? 1)Evaluate how Wal-Mart has ranked and responded to various stakeholders? 2)Why do you think Wal-Mart has recently had a number of ethical issues that have been in the news almost constantly? 3) What do you think Wal-Mart could do to develop an improved ethical culture and respond more positively to its diverse stakeholders?

Thank you for listening BERK EYUPOGLU EMRAH ŞAT İLKER DİNÇAY SUZAN TERZİOĞLU