Introduction and Overview s2

I. Introduction and Overview a. A Brief Description of the Company and Its History

Walmart.com references that the company, “started [in the mid-1900’s] with an understanding of what consumers want from a retailer.

Sam Walton's original Walton's Five and Dime, now the Wal-Mart Visitor's Center Bentonville, Arkansas.

"The secret of successful retailing is to give your customers what they want," Sam wrote in his autobiography. "And really, if you think about it from the point of view of the customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience.

"You love it when you visit a store that somehow exceeds your expectations, and you hate it when a store inconveniences you, or gives you a hard time, or pretends you're invisible."

While other discounters such as Kmart quickly expanded across the country in the 1960s, Sam was able to raise the funds to build only 15 Wal-Mart stores. Wal-Mart got the boost it needed in 1970, when its stock was offered for the first time on the New York Stock Exchange. The public offering created the capital infusion that grew the company to 276 stores by the end of the decade. By focusing on customer expectations, Wal-Mart was growing rapidly in 11 states.

In the 1980s, Wal-Mart became one of the most successful retailers in America. Sales grew to $26 billion by 1989, compared to $1 billion in 1980. Employment increased tenfold. At the end of the decade there were nearly 1,400 stores. Wal-Mart Stores, Inc. branched out into warehouse clubs with the first SAM'S Club in 1983. The first Supercenter, featuring a complete grocery department along with the 36 departments of general merchandise, opened in 1988. Wal-Mart had become a textbook example of managing rapid growth without losing sight of a company's basic values. In Wal-Mart's case, the basic value was, and is, customer service.

Ironically, technology plays an important role in helping Wal-Mart stay customer focused. Wal-Mart invented the practice of sharing sales data via computer with major suppliers, such as Proctor & Gamble. Every time a box of Tide is rung up at the cash register, Wal-Mart's data warehouse takes note and knows when it is time to alert P&G to replenish a particular store. As a result, Wal-Mart stores rarely run out of stock of popular items.i b. An overview of the industry and where the organization fits within the industry (above or below the industry average, within the industry norm, etc.). Does the company’s standing in the industry help or hinder its success?

Wal-Mart’s standing both helps and hinders its success. According to Hoovers.com, “Department and discount stores in the US have combined annual revenue of about $475 billion. Major companies include Wal-Mart, Target, Sears, JC Penney, and Federated. The industry includes 10,000 companies that operate 40,000 stores. The industry is highly concentrated: the 20 largest companies operate 26,000 stores and hold 95 percent of the market.

In the Competitive Landscape, demand depends largely on consumer income and interest rates. The profitability of individual companies is closely linked to correct merchandising. Big companies [like Wal-Mart] have large efficiencies of scale in purchasing, distribution, and advertising. Small companies can compete effectively by offering different brands or types of merchandise.

Products, Operations, Technology: Actual store operations are similar for all companies in the industry, and revolve around merchandising and supply chain management; A typical department or discount store may sell hard goods, like tools, furniture, and appliances, and soft goods like clothing, towels, and sheets. Other major categories of goods are electronics, jewelry, toys, drugs, and groceries. (Companies often have different definitions of goods). The size of a store can vary from 30,000 to more than 200,000 square feet. Department stores are often anchor tenants in malls, receiving favored lease terms. Discount stores more often favor stand-alone locations, partly because of their large size. [Most Wal-Mart stores are “standalone”]

Each company usually has a specific merchandising strategy: deciding what categories of goods to sell and which items to sell in each category, to attract a particular kind of customer. The merchandise mix varies considerably at different companies, with traditional department stores usually selling a higher percentage of soft goods. Wal-Mart gets about 20 percent of its revenue from the sale of soft goods, 20 percent from hard goods, 10 percent from drugs, 10 percent from electronics, and 25 percent from groceries. Dillard's, a more traditional department store chain, gets more than half of its revenue from sales of soft goods.

Companies in the industry can be stratified by price, with conventional department store operators selling higher-priced goods, discounters selling lower-priced goods, and warehouse clubs selling goods at rock-bottom prices. The distinctions are sometimes blurred. Some large companies operate a number of chains, each targeting a slightly different type of customer. The mix of goods sold is seasonal. Women's apparel, in particular, has a fall and spring selling season and is subject to shifts in fashion. Because of the Christmas season, many stores build inventories in late fall and generate close to a third of revenue in fourth quarter. Supply chain management includes supplier relationships, product distribution, and inventory management. A large company like JCPenney buys from 2,600 suppliers (both manufacturers and distributors), and may carry 50,000 different SKUs (stock keeping units). Although companies may have long-term relationships with suppliers, there are few long-term contracts. Goods are usually bought on credit. Costco sells many items so quickly that it receives sales revenue before it has to pay suppliers. Companies with multiple stores usually resupply each store from one or several distribution centers. Warehouse clubs, like Costco, cut costs by eliminating distribution centers and receiving goods at each store directly from the manufacturer.

According to Net-temps, The rich get richer: Wal-Mart continues to grow and grow. It’s the biggest retailer around, by far, and leads the market in category after category. Because of its immense size, Wal-Mart has economies of scale that other retailers can’t match. Also because of its size, Wal-Mart has bargaining power that other retailers can’t match—meaning it can get the products that line its stores’ shelves more cheaply than competitors can. These factors allow Wal-Mart to offer prices too low for competitors to match.

Wal-Mart has single-handedly altered the face of the retail industry. It’s created a growing gap between higher-end retailers, which charge higher prices for fancier goods with the understanding that they’ll reach only a limited market, and mass-market retailers, which have had to slash prices and in many cases completely change the way they do business in an effort to keep up with Wal-Mart.

Wal-Mart’s business model is incredibly effective. Indeed, in 2004 the company had revenue of $256 billion, more than four times the revenue of Home Depot, the retailer with the next-largest revenue that year.ii

Computer systems: have become essential for department and discount stores, both for supply chain management and to collect marketing information. Wal-Mart pioneered sophisticated computerized inventory control systems that are now widely imitated in the industry. Such systems use point-of-sale (POS) terminals to capture detailed information about each item sold, produce automatic reordering from suppliers, and generate management reports that show which items are selling well or poorly. Wal-Mart recently pioneered the use of radio-frequency identification tags (RFID) to track shipments from suppliers.iii c. Possible Major Concerns or Issues

Bianchi & Swenney (2004) reference that Wal-Mart’s major concerns or issues are related to worker treatment:

Overtime: Wal-Mart faces 38 state and federal lawsuits filed by hourly workers in 30 different states, accusing the company of systematically forcing them to work long hours off the clock. A July 2000 internal audit of 128 Wal-Mart stores found that 127 stores were "not in compliance" with company policies concerning workers being allowed to take breaks.

Gender Discrimination: Despite the fact that 65% of Wal-Mart’s hourly employees are women only about 30% of management is female. Female workers on average earn 4.5- 5.6% less than men for the same work. Male management trainees make an average of $23,175 a year, compared with $22,371 for women. On June 19, 2001 current and former female Wal-Mart employees filed a massive nationwide sex discrimination class action lawsuit against Wal-Mart Stores, Inc in the U.S. District Court. The suit is seeking class action status and will make the largest class action lawsuit ever, with well over one million participants.

Managers: Wal-Mart store managers are salaried workers who earn bonuses based on their stores’ earnings. Since the corporation dictates the inventory and operating expenses to a large degree, one of the few ways managers have to cut costs is by keeping a tight lid on wages. Wal-Mart expects its managers to increase sales each year, yet decrease labor costs by two tenths of a percent from the prior year's figures. This may be a large factor in high worker turnover rates, low health care participation, low wages, and failure to pay overtime.

Labor Rights: Wal-Mart regularly suppresses its workers' democratic right to organize through management techniques, labor busting teams, and unfair intimidation. Federal labor law charges have been filed on behalf of Wal-Mart workers in 25 states. From 1998 through 2003 the National Labor Relations Board (NLRB) filed more than 45 complaints accusing Wal-Mart managers in more than two dozen stores of illegal practices. When meat cutters at a Jacksonville, Tex., Wal-Mart voted for UFCW Local 540 representation in February 2000, the company refused to recognize the union, and suddenly eliminated the meat cutter job function and switched to case-ready “boxed” meat. So extreme was its desire to prevent unionization that Wal-Mart not only eliminated the butcher function in that particular store, but in every single store in the entire nation: all to prevent eleven employees from being unionized. After a lawsuit and three years of litigation the case was resolved in favor of the workers who had their union recognized. However, only one of the original workers from the meat-cutting department was still there and is the only member of the local.

Worker Turnover: On average, worker turnover at a Wal-Mart store is 50% per year. Some stores average as much 100% turnover per year. The result is an endless cycle of entry-level workers, ineligible for health benefits and receiving the lowest or close to the lowest possible wage. This is important to take into account, given that Wal-Mart frequently points out to detractors that it has no wage structure or wage caps and that two-thirds of management started as hourly wage workers.

Health Care: Despite Wal-Mart’s attempts to show otherwise, it appears that its health care program offers incomplete coverage in a number of ways and comes at great expense to its “associates”. The first great failing of Wal-Mart’s Health care program is the fact that it only provides benefits to between 41-46% of employees (as compared to a national average of 66% of workers at other large firms and 53% of retail workers in any sized firm). High premiums, of as much as 20% of yearly income, also characterize the plan. Then there are the enormous gaps in coverage that ultimately force the employees who are able to afford the plan to pay out of pocket expenses, or turn to publicly funded health care to meet their medical needs. In addition, Wal-Mart places huge barriers in the way of those who attempt to insure spouses or family members under their plans. d. An ethical situation potentially facing the company and suggestions on how to deal with the situation

The ethical situation facing the company is the same as its major concerns or issues. People can make or break a company and Wal-Mart should consider repairing its employee relations to succeed better in the marketplace. According to Nettemps, “More and more individuals and organizations are starting to say that the company’s growth comes with major costs—to workers, to communities, and to governments. The company is facing serious accusations about its employment of illegal aliens. It’s been called to task for paying extraordinarily low wages—only 38 percent of full-time employees are able to afford to purchase a Wal-Mart health insurance plan. The U.S. Equal Employment Opportunity Commission has filed more disability discrimination lawsuits against Wal- Mart than any other corporation. It is the target of the largest class-action suit for sexual discrimination ever filed against a private employer. It’s been scolded by industry observers for fighting unionization of employees tooth and nail (most recently, the company decided not to open a planned store in Canada rather than deal with unionization efforts), even while it’s allowing unionization of employees in China in order to gain a foothold in that country. It has been accused by many of radically changing the communities it enters, by pushing smaller retailers that have deep ties to the community out of business and by putting downward pressure on wages in the community. Already loud, the outcry against Wal-Mart is getting louder.”iv

Wal-Mart could deal with the situation by “listening” to people in order to give them what they want; it appears to operating on a single-side (focusing on profits only instead of “people and profits” jointly) without considering its workers on the other side. Perhaps they should only build stores in remote or rural places where customers will need to commute to shop; and they could jointly increase their online e-business at the same time. This way, employment and small businesses would be unaffected by their presence in populated areas. In the case of workers, the company should consider hiring individuals as private contractors if it is having too many problems with regular workers. It should however, increase wages and offer exceptional health and fringe benefits to its employees: both full and part-timers. Even if wages weren’t increased significantly, employees with excellent medical benefits and stock plans for themselves and their families would potentially be much happier overall; and their joy will benefit, rather than hinder the company.

II. Journal Entries a. Flexible Budget

According to MAAW the flexible budget is: A static amount (a) is established for fixed costs and a variable rate (b) is determined per activity measure for variable costs, i.e., Y = a + bX

The static amount (a) includes both discretionary and committed costs while the flexible part (b) includes engineered costs per X value.

The static part: salaries, depreciation, property taxes and planned maintenance. The flexible part: direct material, direct labor and variable overhead. Also, some costs related to sales reps such as sales commissions and travel. Flexible budgets are based on a cost function such as Y = a + bX, where Y represents the budgeted cost, or dependent variable. The constant "a" represents a static amount for fixed costs and the constant "b" represents the rate of change in Y expected for a unit change in the independent variable X. The expression "bX" is the flexible part of the budget cost function. The flexible budget technique is used for planning and monitoring all types of costs. The static amount "a" includes both discretionary and committed costs, while the flexible part "bX" includes various types of engineered costs. The flexible characteristic of the technique enables the flexible budget to play a key role in both financial planning and performance evaluation.v b. Answer the following question: How might increased sales or increased revenue impact your organization’s pricing strategy and market potential?

Cost behavior is defined as how costs react when the level of activity (or volume) changes. Identifying how different costs react as the level of activity changes is very important, since it allows management to determine how the total costs will be affected by planned levels of activity. While many costs vary directly with changes in activity, others are not affected. In order to make various operating decisions, management must consider how the level of activity will affect the total costs incurred by the organization. Increased sales or revenues would not necessarily impact Wal-Mart’s pricing strategy and market potential because currently they offer low prices and are the industry’s leader. I would however, recommend that they use their surplus to increase worker’s wages and fringe benefits. Happy people mean better business. III. Conclusion and Recommendations a. Provide a sound, qualitative conclusion of the information you have gathered

In conclusion, Wal-Mart should focus on its people especially Worker Turnover. b. Provide any recommendations to help the organization achieve its goals faster or better

According to WakeUpWalmart (n.d.), the organization can make simple changes (which focuses on increasing profits for workers, rather than shareholders):

“ Wal-Mart has a responsibility to all Americans to set the standard for customers, workers and communities, and to help build a better America.

The truth is that Wal-Mart has let America down by lowering wages, forcing good paying American jobs overseas, and cutting costs with total disregard for the values that have made this nation great. Wal-Mart has needlessly exploited illegal immigrants, faces the largest gender discrimination lawsuit in history, forced workers to work in an unsafe environment, and -- incredibly -- broken child labor laws.

America's largest employer must reflect America's values. But, Wal-Mart will never change on its own. Lee Scott, Wal-Mart's CEO, mistakenly thinks he only answers to a few wealthy shareholders who own Wal-Mart stock. Lee Scott is wrong. Wal-Mart and Lee Scott must answer to the American people.

We are the ones who shop at Wal-Mart.

Together, we have the power to change Wal-Mart.

Together, we can hold Wal-Mart accountable and improve our America.

Wal-Mart's Vision for America vs. Our Vision for America

What is the "Wake-Up Wal-Mart" campaign all about?

Well, there are two visions for America: Wal-Mart's America, where profits come before people, and our vision, where people come first.

 In Wal-Mart's America, workers are paid poverty level wages even when they work full-time.

 In our America, workers are paid a living wage with proper health and retirement benefits.  In Wal-Mart's America, wealthy companies shift their health care costs onto taxpayers like you and your families.

 In our America, corporations live up to their responsibility and provide their employees with adequate and affordable health care coverage.

 In Wal-Mart's America, suppliers are forced to make their goods cheaper even if it means shipping U.S. jobs overseas.

 In our America, we value U.S. jobs and companies that buy and sell "Made in America."

 In Wal-Mart's America, women are paid less than men.

 In our America, women and men are treated equally - fair pay for everyone. vi c. Include any other considerations viable to the success of the organization

This paper outlines multiple suggestions for Wal-Mart’s improvement. Chiefly, better wages, benefits, and working conditions would be the chief consideration viable to the success of Wal-Mart. i http://www.walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=5 ii http://www.net-temps.com/jobs/fulltime/wetfeet.htm?index=0 iii http://www.hoovers.com/department-stores-&-discount-stores-/--ID__172--/free-ind-fr-profile-basic.xhtml iv http://www.net-temps.com/jobs/fulltime/wetfeet.htm?index=0 v http://www.maaw.info/Chapter9ForPrinter.htm vi http://www.wakeupwalmart.com/change/