An Analysis of WalMart:
Financial, Investment and Ethical
The most obvious problem in any analysis of Walmart is simply one of scale. In the fiscal year 2011 the company had total revenues of US$419 billion. If Walmart was a nation and its sales compared to national Gross Domestic Product it will fall between number 29 Colombia with GDP in 2010 of $431 billion and Malaysia with the 30th largest GDP at $416 billion. (CIA Worldfactbook. 2011) It has more than 2.1 million employees that would which would make it about the size of Latvia, the 141st country in terms of population. (CIA Worldfactbook. 2011) Unlike most corporate giants, its world headquarters is in a rural community with only about 35,000 inhabitants: Bentonville, Arkansas.
The company has stores in 15 countries under 60 different identity banners. (Walmart Corporate, 2011) It sells virtually anything a person might have an interest in buying and tries to offer highly competitive prices in every case. Its combination of incredible buying power and a sophisticated global supply chain provides it with the ability to offer highly competitive prices while maintaining good mark-ups and cost controls. The table below, on the following page, details information about WalMart International operations. While it is claimed that the company has operations in 15 countries only ten are included in the information on which the table was based. It obviously excludes the US, and apparently four or five countries are combined under the heading of Central America. What it makes clear is that WalMart is a truly multinational company. It also provides some indication concerning the complexity of the accounting, which is involves reporting in multiple currencies and converting these to American dollars for financial reporting purposes. With the volatility of the dollar in recent years the problems presented by conversions are substantial. A detailed discussion of the accounting and financial ramifications of this problem is outside the scope of this project.
By comparison, the table bon the following page summarizes the number and size of units within the US Segment of the company.
Description of WalMart Operation
What is clear with WalMart is that it is in the final analysis the quintessential “Big Box” retailer. The company does business in six broad categories. In total they provide virtually all the necessities and most of the luxuries anyone could want so long as quality is not a crucial criterion. WalMart does sell watches, but not Rolex or Patek Philippe. They do not sell autos or yachts, but inflatable rubber boats are available in the sporting goods department.
- Groceries consist of a full line of grocery items including meat, produce, deli bakery, dairy, frozen foods, alcoholic and non-alcoholic beverages, floral products and dry groceries. They also provide a full selection of health and beauty aids, baby products, household chemicals, paper goods, cleaning and laundry products, and pet supplies.
- The entertainment area includes electronics, toys, cameras and photo supplies, photo processing, cellular phones and cellular service plans, and seasonal merchandise.
- Hardline merchandise consists of stationary, books, automotive accessories hardware and paint, sporting goods, fabrics and craft supplies.
- Health and wellness products include pharmacy and optical services plus the “off the shelf items’ carried by most US grocery and drug stores from toothpaste to Band-Aids.
- Apparel includes clothing for women, girls, men, boys, infants plus jewellery, shoes, and accessories such as handbags and wallets.
- The home department provides a complete line of home furnishings, housewares, small appliances, bedding, home decor, outdoor living and horticulture.
There is very little a consumer might want to buy that cannot be found in in a Walmart store. Until recently, WalMart did not offer major appliances, but this year there are indications that they are adding this category according to website AppliancesAdvisor.com focusing on General Electric products. GE has already developed a service to manage Home Depot’s entire appliance fulfilment regardless of brand. (ApplianceAdvisor.com, 2011) Presumably, one of the historic reasons for WalMart’s reluctance to get into the major appliance business is the large amounts of sales floor and warehouse space required.
Within the WalMart organisation there is a more or less parallel operation known as Sam’s Club”, a sort of belated recognition of the founder of the WalMart company Sam Walton. It is a club with a membership that allows its members to shop in Sam’s Club stores at what are presumably wholesale quantities at even lower prices and discounts than those offered in WalMart. Sam’s Clubs also offer online shopping and various services related to shopping. For example, an order placed on line will be ready and waiting for the customer to pick it up when the store opens the following morning.
It is difficult to explain the difference between a Sam’s Club store and a conventional WalMart store without sounding like a membership sales brochure. It is not the function or intent of this project to promote or condemn the Sam’s Club concept. The physical design of a Sam’s Club is different from a WalMart store in that displays are different and less elaborate. Typically, sales are of bulk amount, and displays are either directly from pallets or in bins. A primary competitor in the US is Costco Wholesale, another membership sales operation. The basic theme of both operations is huge quantities of merchandise available at low prices. The merchandise may be either private label such as, “Great Value”. “Equate”, “Ol’Roy”, Spring Valley,” “Parent’s Choice,” “Marketside,” “Oak Leaf,” “Prima Della,” “Everstart,” “Faded Glory,” “No Boundaries,” “George,” “Athletic Works,” “Secret Treasures,” “Puritan,” “Hometrends,” “Mainstays,” “Ozark Trail,” “White Stag” and “Canopy.” In addition the company features a number of well know and respected national brands such as, “General Electric,” “Black & Decker,” “Rival,” “Disney,” “Better Homes & Gardens,” “OP,” “Starter,” “Danskin Now” and “Just My Size.”
Sam’s Clubs are essentially a US Operation. There are 609 stores in operation across the United States that generate and annual volume of $49.5 billion in 81,202 square feet of selling space. This in itself is a major business by most measures, but it must be realized that Sam’s club represents only a fraction of WalMart’s business
As the table above indicates the nature of the underlying business varies little from year to year. The nature of the business is in most respects similar to a supermarket and more than half of total sales result from supermarket type merchandise. Many customers find a certain level of excitement in shopping in stores such as Neiman Marcus or Harrods, but it is difficult to imagine a customer with the attitude, ”Oh, Boy! We are going to shop at WalMart today!” The underlying strength of WalMart is a shopping experience similar to eating at an all you can eat buffet where a glutton can eat three entire chickens. One roast, one fried and one boiled if that is his or her desire. The customer can gorge him or her self on any type of merchandise they want in any quantity they can pay for from an extensive selection. This is the underlying appeal of WalMart. The customer walks in confident that they can satiate their desire for almost any sort of merchandise at low prices and with a minimum of effort. The customer is also confident that he or she can walk into a WalMart store almost anywhere and the shopping experience will be approximately the same. The price tickets may be in Chinese, but the basic format is constant.
The table above also demonstrates an underlying problem for the basic US WalMart operation. While the overall company has produced some sales growth, the basic underlying WalMart US operation has been stagnant for the most recent five years covered in table. Any upward progress in this period can be attributed to the Sam’s Club operation and primarily to the new operations outside the United States. This is a classic example of the importance go globalisation in the modern business environment.
A basic Business Analysis of Wal-Mart
A basic analysis of the financial situation of WalMart indicates much what would be expected in the global and particularly the US economic environment since the end of 2008 or 2009. The contribution to revenues from the WalMart stores has been almost perfectly stagnant. The situation in the Sam’s Club operation has been similar if not quite as negative. Any actual growth within the company can be attributed entirely to WalMart International with most of that attributable to 2011 results. It should be pointed out that among other elements WalMart is a significant retailer of gasoline and other petroleum products and price fluctuations in the oil industry have been substantial, but a detailed analysis of the effects would not be a productive element in this project. They would have some marginal impact on the numbers in the table below.
What is obvious is that most of the company’s results have been stagnant in recent years. The only positive element was the international sales. A large part of the progress in the international area can be attributed to the progress of UK operation ASDA. Since its acquisition by Walmart it has become the UK’s number two supermarket chain following Tesco. It now accounts for about 40% of WalMart’s international revenues.
A summary of the basic analysis of WalMart
What is clear is that WalMart is the largest company in the Fortune 500 in terms of revenues. It is seventh in terms of earnings as presented on the Fortune 500 list. (CNN Money, 2011) It is a relatively simply operation, a “big box” retailer with an all-pervasive presence in the United States and a growing presence in the balance of the world. There is little that is extraordinary about its operations other than sheer scale. It is relatively profitable and quite profitable in terms of income as a proportion of sales compared to peers in the retail industry. It is operated efficiently and competently. The source of some of this efficiency involves some questions of ethical standards and operating policies in the twenty-first century business environment. It is not the place of intent of this project to judge its standards or actions. It is the intent to raise some policy questions and questions concerning the propriety of past actions and policies.
What follows is far from a complete list of questions concerning policy or actions. The particular questions discussed have been selected on a judgemental basis, and there is obviously considerable room for difference of opinion as to the selection of topics and their presentation.
Corporate Social Responsibility and Governance
The concept of corporate governance and corporate social responsibility can probably be traced back to the development of joint stock companies in seventeenth century. (Mees, 2010) Adam Smith introduced the concept of other people’s money when he argued that social wealth is the result of each citizen pursuing his or her own self interest. This is the basis of Smith’s guiding hand, (Smith 1776) which can be associated with the current concept of enlightened self-interest. Smith is in some ways also the father of the concept of mass production with his case study on the production of pins. He foresaw the problems of cartels and public companies and felt that business people would have a tendency to develop schemes to control the market place to their own advantage. He in effect predicted the collapse of Lehman Bros and the development of Goldman Sacs a couple of centuries prior to the reality. Berle and Means seemed to envision the same problems in The Modern Corporation and Private Property. (Berle & Means, 1932) The upshot of this background is that the exploitation of both employees and customers is hardly an original idea. Conversely, every business will try and turn situations to their own advantage in order to make a profit, which is their “raison d’être”. The question facing every business executive is the ethical limit, which is permissible in this quest. If the management of WalMart has crossed the line that the reader sees as permissible that is a personal decision on the parts of both the executive and the reader.
Wal-Marting across America
In 2006 a scandal erupted about a “blog” concerning Wal-Marting across America. The underlying idea was for a couple in a recreational vehicle traveling across America to write blogs based on “RV-ing” across America using WalMart parking lots as places to park and spend their nights. (CNNMoney, 2006) The substance of the blog was a down-homey diary of a couple traveling in their RV from one WalMart to the next. It was presented as an independent blog about happy Wal-Mart Employees. In a Bloomberg Businessweek article called “Wal-Mart’s Jim and Laura: The Real Story” the question is raised, “…Sound like a great Wal-Mart publicity campaign? Anyone familiar with Wal-Mart and its reputation for being quite stingy with wages and benefits will roll their eyes at such a rosy picture. In fact, some critics are so sceptical that they wonder whether Jim and Laura are real or whether they were concocted at the company’s headquarters in Bentonville, Ark.” (Gogoi, 2006) A labour historian and associate professor at Colorado State University challenged the writers to reveal themselves and who paid them and for their recreational vehicle, gas, expenses etcetera.
The upshot of the investigation was an admission by Richard Edelman; a public relations executive who finally issued a statement, “I want to acknowledge our error in failing to be transparent about the identity of the two bloggers from the outset. This is 100% our responsibility and our error; not the client’s.” The client was obviously WalMart and Edlman’s prgamosatons is a long time WalMart public relations consultant. This is used as a lead in for the entire question of the ethics and credibility of WalMart as an organisation.
The same Bloomberg/Businessweek article points out other conflicting elements in the WalMart statement of policies. For example WalMart fought against a Chicago city ordinance that would have created a minimum wage of $10 per hour by 2010. WalMart threatened legal action if the ordinance was enacted while claiming that their average wage was $10.11. Why fight an ordinance that would presumably have little or no impact on your business? This is the same organisation that “did not hire” the Edelman public relations firm to have blogs written about how their employees loved them. The Businessweek article states, “So are Laura and Jim real people? Or part of an elaborate publicity stunt? It turns out they are for real. However, their story, told in full, with certain financial payments disclosed, does not reflect as well on Wal-Mart as perhaps the company would like. The tale of how they started the blog reveals how hungry Wal-Mart is to find people who have anything positive to say about the company. And little wonder. Seemingly every week Wal-Mart is being attacked by politicians, union leaders, workers, or community groups over its pay and benefits or rapacious expansion.” (Gogoi, 2006)
Some questions concerning WalMart social sustainability programs
WalMart has long had problems with its public image and its commitment to social sustainability programs. The object in this situation is simply to present
some of the “facts”, or more properly popular viewpoints. The underlying question is why the customer would purchase a completely fungible item from WalMart as opposed to the XYZ big box store down the road selling the identical product in the identical manner at approximately the same price. It is effectively a “given” that WalMart suffers from serious image problems in its treatment of its employees and its impact on the community. It is the “Darth Vader” of the retail business. How does it compete with the “Snow White” store?
Rachel Cernansky writes for “treehugger’, admittedly not an unbiased source, but is generally respected in terms of its accuracy in reporting what it considers important facts. In a recent article she points out that WalMart has been in the spotlight for the past few years both for its initiatives and its own efficiency measures that are raising the bar for the industry at large. Many people view these efforts with a high level of scepticism based on the company’s historic less than stellar reputation in the areas in question. This is an attempt to view the situation fairly and reasonably.
One of the most recent announcements in terms of social responsibility is the company’s effort to promote “healthy foods”. The program includes the reformulation of thousands of food products to contain lower levels of sodium, sugar, and trans fats, lower the prices of healthier food choices like fruits and vegetables, create a packaging label with “strong criteria” to help customers identify healthy foods, build stores in underserved communities to combat food deserts and increase charitable support for nutrition programs. A food desert is a location in poor communities where fresh produce for example is often scarce, and the offerings in food stores are of healthy products are insufficient.
A part of this WalMart program is a front of the package label concerning its contents and food value. The claimed objective of the plan is to create strong criteria that will help customers identify nourishing and healthy food products and avoid foods that contain large amounts of objectionable elements such as artificial preservatives, fats and sugars. It can be argued that WalMart is attempting to stay ahead of the industry wide effort and to “influence” the F.D.A. program to establish voluntary guidelines for front-of-the-package labelling. The program is also purported to build stores in underserved communities and increase charitable support for nutrition programs.
The other side of the WalMart front of the package labelling initiative is that by establishing its own criteria it is attempting to stay ahead of the regulatory process. The Treehugger article quotes the New York Times, “It’s not just Walmart—the New York Times reported recently on industry-wide efforts to “influence the F.D.A.’s continuing effort to establish voluntary guidelines for front-of-package labelling.” The executives that made the announcement invoked Michelle Obama’s campaign against obesity. The fact is that the industry plan emerged after months of discussion with the White House and the Food and Drug Administration broke down. The point of diversion was that the government wanted to emphasise “harmful” ingredients such as sodium, calories, sugars and fat while the industry wanted to emphasise the beneficial ingredients including vitamin, mineral and proteins. In defence of WalMart, “The administration concluded that “in the end, the label was going to be confusing, because those things would be included out of context, and it could make unhealthy foods appear like they had some redeeming quality,” said an official who was not authorized to discuss the talks and spoke on condition of anonymity. For example, the official said, “ice cream would be deemed healthy because it would have calcium in it.” The suggested label with critical negative information is
shown below. It is presumably similar to the WalMart proposed label that received accolades from Mrs Obama.
As a result, the industry’s plan received only tepid approval from Mrs Obama. This is in stark contrast to her enthusiastic support of a healthful eating initiative introduced by WalMart, which pledged to reformulate its store-brand foods and devise an easy-to-understand label showing which foods were more healthful. The plan, similar to a number of other alternative plans, sets specific targets for lowering trans fats, sodium, and added sugars in a broad array of foods — including rice, soups, canned beans, salad dressings and snacks like potato chips — packaged under the company’s house brand, Great Value. (Neuman, 2011) What is clear here is that WalMart is not entirely a villain or a hero. Like most of the world it is neither black nor white, rather a shade of grey. The underlying question is how dark grey is it, and how different from many other major corporations?
Wal-Mart and it contribution to governmental lobbying
In the measurement of corporate shades of grey one of the criteria is their attempt to influence government actions through lobbying and political contributions. It is interesting that prior to 1998 WalMart had no political action committee and hired no lobbyists. Company founder Sam Walton did not believe that such activities benefitted his customers. According to Bloomberg Businessweek WalMart has re-entered the political arena in the twenty first century in a substantial manner. What the article by Pallavi Gogoi makes clear is that as opposed to contributions at the national level the company has concentrated on local politics to a considerable degree. According to Ms Gogoi over the four elections prior to the publication of the article in 2006, WalMart has been steadily increasing it contributions to California State and local politicians as they have been increasingly taking on more important roles on key issues concerning WalMart’s operations on subjects as varied as local minimum wage and required health-care benefits to zoning for big-box retailers. She quotes Bruce Freed, co-director of the Centre for Political Accountability, a non-profit group that tracks corporate political spending. “They’ve gone from zero to warp speed in political giving all across the board…” As of the 2006 date of the article, “Wal-Mart has become one of the most active corporations in the U.S. At the federal level, Wal-Mart is already the No. 1 corporate political contributor, giving $943,455 in the 2006 election cycle, followed by General Electric’s $788,711 and Anheuser Busch’s $671,644, according to the Centre for Responsive Politics, another nonpartisan watchdog.”
In a more recent article by Kari Lydersen of “IN THESE TIMES” a labour oriented web site it is pointed out that in the past few years WalMart has mitigated its image as a “Big Box” bully or super villain. It has achieved this as it faces one of the largest gender based lawsuits in history and countless other allegations of exploitative labour practices. Ms Lydersen indicates that as a part of this effort WalMart has attempted to portray itself as a politically moderate organisation. It is claimed that following a 2008 meeting telling managers that a vote for Barack Obama would be tantamount to inviting labour unions into WalMart the company launched a media initiative that claimed it was donating as much or more to Democrats as it was to Republicans in the 2010 elections. Ms Lydersen cites a notoriously “anti-WalMart” web site, “Wal-Mart Watch” that compares company rhetoric to company actions. Several of the posting on this site are included as appendices to this project. They do provide some valuable information as long as the reader understands that they are propaganda as opposed to unbiased factual reporting.
Summary and Conclusions
Ordinarily, when an academic project attempts a corporate analysis the final conclusions involve the investment merits of the company in question. In this case the investment merits of the largest retailer in the world and a highly profitable and will financed company are not the underlying questions. As a matter of fact the stock performance of the company has been good as indicated on the chart below, and in spite of the market actions of the past decade or so the price as remained surprisingly stable.
The first question is the outlook for the company involved and its recent performance history. WalMart can be likened to a huge bowl of mediocre vanilla ice cream. Its growth history in recent years has been very moderate and much of it can be attributed to its expansions to markets outside the United States. The company and its industry can be viewed as a situation in transition as more and more retail volume moves from conventional retail stores to the Internet. Walmart may, in years to come, find itself in much the same position as the multitude of small local merchants that have been put out of business by the increasing importance and power of the big box retailers. It may be made increasing redundant by the Internet retail community.
The second question is the ethical considerations involved in investing in a company whose positions on corporate responsibility are less than forthright and meet the ethical standards of the prospective investor. In this respect no real conclusion is reached by this analysis, but a number of questions are raised.
The conclusion is that this is a huge company that has two options; the first is to reinvent itself as some sort of new entity other than just another big box retailer that does little different from its peers, only more of the same. The second is to become a model for the new business of the twenty first century where the supply chain and the business are melded into a single entity and the result will be a new form of the traditional vertically integrated company. If it fails to achieve either it is doomed to become another Sears Roebuck or Woolworth five and ten cent store. Both were leaders in their heyday and are still around in one form or another, but seldom even mentioned as zombies from the economic past. A brief examination of some of the material presented in tabular form in the early part of this analysis, particularly that for the traditional WalMart stores in the US are already showing the first signs of “zombiesm.” Sears and Woolworth were once “Blue Chip” companies too.
ApplianceAdvisor.com. (2011) “ GE Major Appliances to Sell at Walmart: EXCLUSIVE” Recovered 16/06/2011 from: http://applianceadvisor.com/content/ge-major-appliances-walmart-exclusive8200
Berle, A. Means, G. (1932) The Modern Corporation and Private Property, Macmillan, New York,
Cernansky, R. (2011) “Are WalMart’s Eco-Efforts Enough? Balancing Sustainability & Social Responsibility at America’s Largest Retailer” Treehugger. A Discovery Company. Recovered 18/06/2011 from: http://www.treehugger.com/files/2011/01/walmarts-eco-efforts-enough-balancing-sustainability-social-responsibility.php
CIA World Factbook (2011) US Government, Washington DC, Recovered 06/45/2011 from: https://www.cia.gov/library/publications/the-world-factbook/
CNN Money (2011) Fortune 500 Our annual ranking of America’s largest corporations. Recovered 17/06/2011 from: http://money.cnn.com/magazines/fortune/fortune500/2011/full_list/index.html
CNNMoney (2006) “Wal-Mart PR firm pulls fake blog stunt, and runs for cover” The Browser 15/10/206. Recovered 17/06/2011 from: http://money.cnn.com/blogs/browser/2006/10/wal-mart-pr-firm-pulls-fake-blog-stunt.html
Gogoi, P. (2006) “Wal-Mart’s Jim and Laura: The Real Story” Bloomberg Businessweek 09/10/2006 Recovered 17/06/2011 from: http://www.businessweek.com/bwdaily/dnflash/content/oct2006/db20061009_579137.htm
Gogoi, P. (2006) “Wal-Mart’s Rising Political Payouts” Bloomberg Businessweek 28/9/2006. Recovered 17/06/2011. http://www.businessweek.com/bwdaily/dnflash/content/sep2006/db20060928_251244.htm
Lydersen, K. (2011) “Report: Walmart Tries to Hide Right-Wing Donations. In These Times 09/06/2011. Recovered 18/06/2011 from: http://www.inthesetimes.com/working/entry/11479/report_walmart_tries_to_hide_right_wing_donations/
Mees, B. (2010) “Corporate Governance as a Movement” AAHANZBS Conference 2010. Recovered 17/06/2010 from: http://ses.library.usyd.edu.au/bitstream/2123/7058/1/Mees.pdf
Neuman, W. (2011) “Food Makers Devise Own Label Plan” The New York Times 24/01/2011. Recovered 18/06/2011 from: http://www.nytimes.com/2011/01/25/business/25label.html?_r=2
Smith, A (1776) “The Wealth of Nations” London, Dent and Sons 1910. P. 17
Stolberg, S. (2011) “Wal-Mart Shifts Strategy to Promote Healthy Foods” The New York Times 20/01/2011. Recovered 18/06/2011 from: http://www.nytimes.com/2011/01/20/business/20walmart.html?_r=1
Walmart Corporate (2011) “About Us” Recovered 15/06/2011 from: http://walmartstores.com/AboutUs/
Walmart Corporate (2011) “WalMart to Begin Selling Major Appliances. Recovered 16/06/2011 from: http://phx.corporate-ir.net/phoenix.zhtml?c=112761&p=irol-newsArticle&ID=115558&highlight=
WalMart FORM10K (2011) “WalMart WAS-MART STORES INCE Recovered 16/06/2011 from: http://markets.financialcontent.com/mi.sacbee/quote/filings/quarterly?Symbol=321%3A984101
WALMART WATCH (2011) “ASDA EMPLOYEES IN WAL-MART” United Food and Commercial Workers International Union. Recovered 17/06/2011 from: http://walmartwatch.org/get-the-facts/asda-employees-in-wal-mart/
This is a synopsis of the work, “WHAT’S RIGHT? WALMART’S WORDS VS. WALMARTS POLITICAL PRIORITIES. A complete copy of the work that is apparently well researched and cited at or close to academic standards can be found at: http://walmartwatch.org/files/2011/06/WW-Political-Giving_0602.pdf
In this report, Walmart Watch examines the political expenditures of WalMart’s political action committee, Wal-Mart Stores Inc. PAC for Responsible Government, which makes contributions to candidates and other political action committees at multiple levels of government. While companies are not permitted to contribute directly to candidates at the federal level and thus act through political action committees, they are able to contribute in state elections, an opportunity Walmart regularly seizes. Additionally, we analyzed the campaign spending of the Walton family.
Primary findings include:
- WalMart’s PAC and the Walton family continue to give overwhelmingly to the GOP.
- The primary area of increasing support for Democratic Party candidates is among conservative Democrats in the House of Representatives.
- Blue Dog Coalition Democrats and members of the Tea Party are overrepresented in Walmart PAC political giving while Progressive Caucus Democrats are significantly under-represented.
- Democrats supported by Walmart were much more likely to oppose key elements of President Obama’s political agenda.
At the state level, the company and family further wield their vast resources to undermine the interests of WalMart’s core customers (working families) and associates.