Wal-Mart Case Analysis
Wal-Mart is the biggest retailer in U.S. and also one of the largest companies in retail. It is well-known for its low-cost structure and has been doing very well. It is currently the market leader with investments in various types of stores: discount, supercenters and warehouse stores. However, it faces threats from competitors in the retail industry, and needs to maintain its competitive advantage and capitalize on areas for growth in the future. Strategic options being considered are expanding into organic products, and “upscaling”.
How does Wal-Mart’s financial performance compare with that of its competition?
In 1993, Wal-Mart was the top discount store with respect to sales. It had $44.9 billion in sales, up from 38.2 billion in 1992. This represented is the largest growth in sales (17.5%) compared to its top competitors (See Exhibit 3 in case). Wal-Mart also had the highest return on equity and earnings/share growth compared to its competitors (five-year average – See Exhibit 4 in case). For the warehouse stores, they were also the top sellers with $14.75 billion in 1993 (See Exhibit 7 in case). For supercenters, it is the second best seller with $3.5 billion, behind Meijer in 1993 (See Exhibit 11 in case). Overall (combining all categories of stores), Wal-Mart is the market leader, in terms of sales compared to its competitors that have all categories of stores.
In terms of profitability, for discount stores, Wal-Mart is less profitable compared to its competitors in this same category. Exhibit 5 in the case shows that in 1993 Wal-Mart had a gross profit of 24.9% of sales whereas the average (weighted by estimated sales) gross profit of its competitors was 27.2% of sales. However in the supercenters (which include supermarkets in the store) when comparing to average supermarket competitors, Wal-Mart supercenters make an EBIT margin of 6.2% compared to the average supermarket at 3.5%....