The Operations of Wal-Mart Company

Introduction

The operations of Wal-Mart Company started back in the 1940s through the retailing career of Sam Walton and in his job in the stores of JC Penney where he worked for eighteen months after graduating from the University of Missouri. It was in this store where he was able to meet JC Penney who was the founder of the store.

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In 1945 Walton managed to get a franchise and lease from George Scharlott which was one of the several chains under the operations of Butler brothers which was a regional retailer and he managed to make an increase in annual sales by $ 45000 within a period of three years. With such progress, Walton expected to have his lease renewed but P.K. Holmes, his landlord failed to renew it in his favor and therefore Walton had to relocate by the end of 1950. Before the year ended Walton bought a store in Bentonville in a town called Ozark with a population of about 3000 residents which was to be headquarters for the largest retailer in the world.

Walton was a typical and ambitious businessman who made effort to have better deals from those who supplied him. He discovered that one method of increasing his sales was to pass on most of his savings to the customers and pocket very little. This strategy saw him owning 11 eleven stores by 1962 and out of inspirations of successes made by other discount store chains, he opened a store in Rogers, a discount chain of his own. It was at this time when his assistant who was in charge of purchase by the name Bob boggle proposed the name Wal-Mart for the chain and after five years it had 24 stores in the whole of Arkansas with the sales increasing to $12.6 million.

In 1968 the company had its first stores in Sikeston, Oklahoma, and Missouri which were all outside Arkansas. More locations of the chains were set in small towns which amounted to 78 by the year 1974. They were all networked to improve communication and ordering and within three years, sales had tripled and reached $475 million from $167.5 million with the stores more than double and reaching 153. The growth of the chain was dramatic and by 1990 the annual sale has reached $25,800,000,000 with the number of stores increasing to1, 528. (Summers, 1997 pp35-39)

The company had its first stock split in1971 selling at $47 and its operation extending to five states: Oklahoma, Arkansas, Louisiana, Kansas, and Missouri. The company later moved to Texas in the year1975 with a total of 125 stores and associates amounting to 7, 500 and sales reaching $340.3 million. In 1977, it had its first corporate acquisition and assumed ownership of Mohr-Value stores based in Michigan which was now under its operation and in 1978, wal-mart owned Hutcheson, a shoe company. In the same year, the company made several branches to capture new markets and launched its jewelry divisions and pharmacy.

Wal-Mart made $1.248 billion in sales out of its276 stores by 1979 with associates reaching 21,000. In the following year, the company made its fourth split in stock with a $50 market price and also introduced its logo which is currently being used. In1981 the company explored the southeastern markets of the United States and opened stores in South Carolina and also in Georgia owning 92 big K stores.

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Two years, later Wal-Mart opened the first Sam’s club store which was a membership-based warehouse club in Oklahoma, and other new stores in New Mexico, Indiana, and North Carolina implementing in all its stores “people greeters” and in the year 1984 it entered the market in Virginia. In the year 1987 when the company was celebrating its 25th anniversary, it had 1,198 stores, 200,000 associates, and sales reaching $15.9 billion. In the same year, the company also completed its satellite network, an investment that cost it $24 million which was able to link all its operating units. At that time the satellite was the largest among the private networks and it allowed the central office in tracking sales and deliver instant communication to the stores. (Wilburn, 2001 pp56-64)

Sam Walton, the founder of the company stepped down in 1988 as the chief executive officer and in his place, David Glass took over. However, Walton continued to be the chairman of the board of directors but the company restructured positions in the senior management by appointing most executives to higher responsibilities. Sam Walton passed away in 1992 and he was succeeded by his son as the chairman of the board of directors managing the presence of the company in 45 states. In 1998, the company launched its television network as a way of advertisement of its commercial products in its stores and it was estimated that every month, there were about 130 million viewers who watched the network every time they visited the store for an average of eight minutes.

Legal challenges

In recent years, Wal-Mart has been faced with several lawsuits, the majority of which are class actions where the employees have sued the company for not paying their wages. It has also been accused of discriminating against its employees in terms of which job one does or how wealthy one is and also according to the race where black Americans have been denied jobs. There have also been several lawsuits where women have sued the company for discriminating against them. However, this has not affected the company financially because in the year 2007 it made 378,799 hundreds of million dollars which was a rise for the company. (Grapth, 1998 pp37-45)

Strategic management

After the death of Sam Walton, Wal-Mart Company continued to grow steadily and the executive is still relying on the company’s traditional philosophies which were left behind by him. At the same time, the executives ensure they are ahead of technology which has ever been changing as well as adapting the current methods of the business environment to keep pace with the other competitors. Although the organization has been facing a lot of controversy over different issues, it has a bright future especially if it strikes a balance between its profit and its social/ethical responsibilities.

Reason for the success of Wal-Mart

Wal-Mart has good strategies which are well implemented and based on the talents of the late Sam Walton. Sam was talented in discount retailing and this made the company the largest retailer in the world, leading in sales. In 1989 the company was named ‘retailer of the decade’ and it has also been in the fortune’s list of top tens of the most admired companies. Even after the death of its founder who succumbed to bone cancer after a long struggle with the disease in 1992, the company has been making significant growth.

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The philosophy of Wal-Mart

The company makes strategic decisions and takes the innovation to implement them making many people regard Walton as the century’s entrepreneur. Sam Walton cared for his customers, employees/associates, and community as a whole with good management guidelines which are still adhered to by the company’s executives left in the management in order to maintain the market position it holds. One of the good qualities Walton had was that he had simple tastes and took a keen and special interest in those people he interacted with. His belief was guided by three principals: the value of customer and service, partnership with the company’s associates, and involvement with the community. (Cleeland, 2003 pp13-23)

Value of the customer

In all the literature of Wal-Mart, the word ‘always’ is common because Sam believed that customers were always right and this is the philosophy that drives Wal-Mart stores even today. Walton used to say that the secret behind the success of Wal-Mart is the desire to excel customer’s expectations all the time every day. This was one of the deepest and guiding principals that earned him tremendous goodwill in his business and enabled him to overcome stiff completion in the markets.

Value of Wal-Mart’s employees

Walton referred to his employees as associates and his greatest desire was to empower and enrich them through training. He listened to his employees and challenged them to propose their ideas in order to improve the company. Employees propose a suggestion for reducing costs in their program called ‘Yes We Can Sam’. Some of the savings made by the employees could be used to construct new stores for example the store in Texas. The company’s goal is to ensure that employees have appropriate tools so as to deliver efficiently and the technology is not seen as a substitute for employees but as a means through which the employees can succeed in the market.

Wal-Mart value for the community

The popularity of Wal-Mart has been attributed to its identity by the residents of its hometown. One of its traditions by Walton was to greet every customer who is entering a store and every store to reflect the customers and community values. The company gets involved in many outreach programs involving the community launching various national efforts by way of development grants which has made it to be recognized more by its customers and therefore increasing its popularity. (McGrath, 2005 pp33-38)

Key features in implementation of Walton’s strategies

The company’s approach lays emphasis on establishing a solid relationship between suppliers and its employees. It recognizes the importance of noting intricate details in the layout of the stores and techniques to merchandise, capitalizing on saving opportunity in every cost, and creation of a high spirit in performance. This formula provides customers with access to goods that are of high quality and available all the time wherever the customers need them. It also develops a cost structure enabling competitive pricing and maintenance of a reputation to ensure absolute trustworthiness.

The stores operate under the philosophy of low price every day which makes it better in containing cost and this has made the company to be the leader in the industry in passing on its savings to the customers. The company has always been improving its business processes with central management and heavily investing in them to earn it paybacks that are long-term.

Walton proved himself as a visionary leader because he was able to learn quickly from successes as well as failures of his competitors and this is why he was referred to as a leader in adapting, testing, and applying cutting-edge approaches for merchandise. The company has heavily invested through a unique cross-docking system of inventory and this approach has enabled it in achieving economies of scale, therefore, reducing its sales cost. This system ensures continuous delivery of goods to the stores in 48 hours without further inventory. Expenses that would otherwise be incurred through sales promotions are eliminated by operating at low prices. Managers also get more control of the store from the cross-docking system.

Wal-Mart Company also owns a transportation system that helps the company to ship goods in 48 hours to the stores from the warehouses which means it can replenish the shelves in the store much faster than its competitors. It has a computer system that is sophisticated than any other owned by the private sectors and this system uses a massively parallel processor in tracking the movement of stocks and therefore updating the company with the fast market changes. All updates concerning sales are disseminated through a system of an advanced satellite. (Abend, 1997 pp24-35)

The company deals with purchasing agents who are much focused and ensures that everybody always knows the one in charge and this is Wal-Mart. it negotiates for the best prices with its vendors and looks forward to commitment to merchandise of high quality. Even when it negotiates for low prices it does that closely with its suppliers maintaining mutual respect to develop along with term partnership which will benefit both parties. The company has an automated system for reordering goods that links its computers in the distribution centers and the stores which is able to sense an item that is low in the stocks. This system sends a supply order through a satellite to any nearby Procter and gamble factory and this P&G factory responds by shipping the required item to a distribution center or even directly to the store.

The company’s founder Sam Walton used a policy ‘Buy America’ which gave him national attention. This policy encouraged the buyers and managers of merchandise in stocking the store with products which were made in America which demonstrated the long-term commitment of the company to its customers in ensuring that they buy American goods all the time as long as they could meet the same quality as those counterparts’ goods from outside America.

Environmental concerns of Wal-Mart

The company has a well-managed prototype store in Kansas designed to take care of the environment with stores that have environmental education as well as recycling centers. The company also has a low-cost policy in acquiring its facilities which enables it to furnish its offices all over including those in the headquarters in an economical and simple manner. It conserves energy by connecting temperature controls through a computer and then to headquarters and therefore it is concerned with society. (Jacob, 2004 pp37-44)

Success of Wal-Mart

The company’s sales approximated to $115 billion in1996 which was a 30.6 % compared to the previous year and it was projected that with such a high rate of increase in its sales, it would reach $334 billion in the year 2000. The challenge that Wal-Mart has is to operate more stores with fewer expenses and this is one of its strategic issues with an aim in increasing sales per unit square foot and make a corresponding decrease in its cost of operation.

However, the trend in its operation has indicated that there has been an increasing rate of about 27.7% in its operating expenses in recent years. This will however be counteracted by the benefits the company is reaping from its heavy investment in technology and so it will operate an increased number of stores with constant low expenses. The company’s cost of sales has been the same as its sales but with the company taking advantage of its power in buying, the cost of sales will be below. (Jain, 2002 pp15-24)

The future of Wal-Mart

Depending on how the company will manage its plans in the expansion will determine its future. For example in the future, the company will require justifying any expansion plan with a growth in sales that is consistent so as to offset the interest that results from increasing debts and other operating expenses. One of the risks that are ahead of the company is the lack of a guarantee for it to remain as the leader in the industry or even maintain its current strong position in the business. The fact that any bad thing in business no matter how little is able to wipe out a lot of good things means that the company has to think well of every move before executing it in its operations.

The success of the company has been based on a single business strategy without much dependence on diversification in order to sustain growth in its operation. However, this strategy carries its risk in that, if the company stagnates as a result of an economic downturn, it would have a difficult time in achieving profit performance similar to its past. Again, if the company continues to rely on Sam’s vision in its expansion of the business, it will finally reach the ‘ceiling’ in the near future and if this happens, its growth might slow down and there will be a need for the company to divert its attention and concentrate on diversification to sustain its future growth. (Daron, 2001pp23-29)

Social responsibility of Wal-Mart

Wal-Mart Company is facing objection from its merchants to have entered into their locales because of its capabilities in out pricing smaller competitors and therefore threatening smaller stores in its neighborhood. Such small stores survive only if they are offering merchandise that is unavailable elsewhere and this makes it very difficult for them to survive.

Wherever Wal-Mart opened its stores, it drove away from the neighboring merchants out of their operations and as a result, rural communities are keen to ensure that the company does not enter their market to an extent that the war has now been waged through the internet. This has made the future roads for the company rough demanding its managers to give their expansion strategies a second thought because it is not profitable for a company to operate its business in a community that is not friendly to it.

Conclusion

The business market has been changing and this poses a major challenge to the retailers in both small and large companies and retailers need to recognize the implications of the ‘buyers’ market. Several retailers are offering customers a wide of experiences in shopping and there is no single company that can offer all of them. It is therefore important for the management of any given company to make proper definitions of the markets which it is targeting, directing its effort towards the solution of the specific problems of that particular market.

There is a close relationship between modern technology, consumer attitude, and demographics all trying to come up with new rules to improve success. This means the future success of the organization will be determined by how much understanding its retailers are on the new rules, customer’s expectations, and the specific needs to satisfy the customers. Currently, Wal-Mart Company has a culture that is customer-driven and if it continues with it, even in the next century it will still be the leading company. (Emek, 2005 pp45-51)

References

Daron A. (2001): Good jobs versus bad jobs: journal of labor economics pp. 23-29.

Emek b. (2005): wal-mart’s effect on retail prices: journal of urban economics pp. 45-51.

McGrath S. (2005): what do we know about Wal-mart? New York University pp. 33-38.

Jain A. (2002): supermarket pricing survey: UBS Warburg global equity research publication pp. 15-24.

Jacob K. (2004): hidden cost of wal-mart jobs: university of California pp. 37-44.

Abend J. (1997): the supply chain heavyweight champ: supply chain management review pp. 24-35.

Cleeland N. (2003): An empire built on bargains remakes the working world: Los Angeles times pp. 13-23.

Grapth T. (1998): the location of wal-mart and Kmart supercenters: the professional geographer pp. 37-45.

Wilburn K. (2001): The regional impact of wal-mart entrance: review of regional studies pp. 56-64.

Summers L. (1997): reflections on the inter-industry wage structure: Basil Blackwell pp. 35-39.

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