Walmart for the Exclusive Use of S. PARAMASIVAM, 2018
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For the exclusive use of S. PARAMASIVAM, 2018. MH0045 1259927628 REV: March 18, 2017 FRANK T. ROTHAERMEL DAVID R. KING Walmart “There is only one boss-the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”1 Sam Walton, Walmart Founder Tuesday, January 24, 2017 – “It is worse than I thought” muttered Walmart’s CEO, Doug McMillon. After reading the front page Wall Street Journal article on American shopping mall property own- ers increasingly walking away from mortgages because of the rapid growth in online shopping,2 he turned to look out the window of his Bentonville office and wondered about the future of Walmart. Customers were increasingly turning to online retailing, contributing to Walmart closing 269 stores worldwide in 2016.3 This was a first for the U.S. retail giant. While Walmart had a net gain in stores last year, store growth slowed and the make-up of U.S. stores shifted to either larger Supercenters or smaller Neighborhood Markets. Another adjustment was the 2016 purchase of online retailer Jet. com for $3.3 billion to bolster Walmart’s e-commerce presence.4 Further, CEO McMillon put Jet.com founder, Mark Lore, in charge of Walmart’s e-commerce operations to drive the retailer online initia- tive.5 However, Doug McMillon wondered: Am I doing enough? History of Walmart Established in 1962 and headquartered in Bentonville, Arkansas, Walmart is the largest retailer in the world (Exhibit 1). It serves nearly 260 million customers worldwide in over 11,500 stores sup- ported by 158 distribution centers. Walmart is also the world’s largest company in terms of revenues, earning $482.1 billion in 2016 (Exhibit 2).6 It has been the largest company in terms of revenues ten times since 1995.7 Walmart employs 2.2 million associates worldwide–1.5 million in the U.S. alone.8 Exhibit 3 displays Walmart’s key financial data. Sam Walton, who was born in Oklahoma in 1918, founded Walmart. During the 1930s, Oklahoma was one of the hardest hit states by the Dust Bowl, years of draught combined with severe dust storms, devastated many farms in Midwestern prairies. The Walton’s family farm was destroyed and they lost everything. This happened during Sam Walton’s formidable teenage years. As a result, Sam Walton promised himself that he would never be poor.9 His first job was in the retail industry at a J.C. Penny Professors Frank T. Rothaermel and David R. King prepared this case from public sources. The authors gratefully acknowledge Tapa Sitaula for research assistance. This case is developed for the purpose of class discussion. This case is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, and all errors and omissions, are entirely the authors. © by Rothaermel and King, 2017. This document is authorized for use only by SULOSHINI PARAMASIVAM in 2018. For the exclusive use of S. PARAMASIVAM, 2018. Walmart store in Iowa where he worked as a sales trainee. Walton’s emphasis on customer service was appar- ent early on, and his paperwork was generally a mess since he hated to make customers wait as he completed the paperwork.10 However, his retail career was interrupted when he joined the U.S. Army during World War II. Following the war, Sam Walton purchased his first store, a Ben Franklin franchise in Arkansas, with a $20,000 loan from his father-in-law and $5,000 he had saved.11 After expanding his portfolio to 15 Ben Franklin stores in less than two decades, his frustration over the chain’s manage- ment led Walton to abandon the chain. Walton had pushed for expansion into the rural market, but this was ignored by Ben Franklin. The first Walmart store opened in Rogers, Arkansas in 1962, and it was called Wal-Mart Discount City12 (The official name of the company today is Wal-Mart Stores, Inc.; but it is doing business under the name Walmart). At this time, Sears was already a household name and Kmart had also recently opened. These big names, however, failed to recognize the threat posed by Walmart focusing on the rural market as a discount store. By moving into small towns, Walmart was able to leverage a greater sales volume to offer lower prices than mom-and-pop stores. The focus on small towns has been a source of criticism for Walmart, but it offered these communities jobs and lower prices that are esti- mated to save American families roughly $2,500 annually.13 However, the main advantage Walmart had from targeting smaller towns is that the towns were unable to support another major competitor, so there was less competition making Walmart stores profitable. These small towns then provided Walmart a basis to expand. By 1969, there were 18 Walmart stores in Arkansas and Missouri, and by 1976, Walmart was a publicly traded company valued at more than $176 million. Sam Walton was the richest man in the U.S. from 1982 to 1988. By 1987, under Walton’s leadership, Walmart became the third largest American retailer after Sears and Kmart. In 1991, Walmart went international by opening a store in Mexico, and has since expanded to 28 countries. Walmart entered Canada in 1994, China in 1996, and into the UK in 1999. Exhibit 4 dis- plays the growth in Walmart stores over time, both domestically and internationally. In the 1990s, Walmart’s valuation passed $45 billion to supplant Sears to become the largest retailer in America14 and Walmart has retained that position by continuing to adapt its store formats. In the U.S., Walmart offers several types of stores, including Supercenters, Discount stores, Sam’s Club, Neighborhood Markets, and e-commerce. Supercenters are large stores (approximately 182,000 square feet) that are generally open 24 hours and employ about 300 associates each. Supercenters sell every- thing from groceries and fresh produce to electronics and home furnishings, with many including specialty shops such as banks and vision centers. The first Discount store was opened in 1962. The Discount stores reflect Walmart’s heritage and are smaller (approximately 106,000 square feet), they employ about 200 associates each, and they offer most products found at Supercenters. In 1983, Walmart opened Sam’s Club, a membership-only warehouse club operating in 48 U.S. states and Puerto Rico. Sam’s Club accounts for only 12 percent of Walmart’s revenue. In 1998, Walmart opened its first Neighborhood Market to provide quick purchasing and affordable groceries, merchandise, and a pharmacy to smaller communities. Neighborhood Markets are the smallest store (~38,000 square feet) and employ up to 95 associates. While it launched online shopping in 1996, Walmart was a relatively latecomer to e-commerce with a redesign of its website for e-commerce not occurring until 2006. Online order and in-store pickup were offered for the first time in 2007.15 By 2017, Walmart only had e-commerce website in 11 countries. 2 This document is authorized for use only by SULOSHINI PARAMASIVAM in 2018. For the exclusive use of S. PARAMASIVAM, 2018. Walmart Walmart’s Current Leadership The current leadership team at Walmart consists of Greg Penner as Chairperson, and Doug McMillon as President and CEO. Other notable executives include Greg Foran and David Cheesewright as Presidents and CEOs of Walmart U.S. and Walmart International, respectively. Rosalind Brewer is President and CEO of Sam’s Club and Neil M. Ashe is President and CEO of Global eCommerce and Technology. Walmart executives are generally recruited internally, and many have spent decades with the retailer. CHAIRPERSON GREG PENNER Walmart has seen three chairpersons so far – founder Sam Walton until 1992, his son Rob Walton from 1992 to 2015, and Rob’s son-in-law, Greg Penner from 2015. An MBA graduate of the Stanford Business School, Greg Penner was elected to the Walmart board in 2008 after working at Walmart for over a decade. His previous roles include senior Vice President and Chief Financial Officer for Walmart Japan. He also has knowledge of Walmart’s e-commerce and China business. Prior to work- ing for Walmart, he was an analyst at Goldman Sachs. The Walton family continues to have strong influences on Walmart because the Walton family owns about 51 percent of outstanding shares. After founder Sam Walton’s death in 1992, his son Rob Walton became the chairperson. Twenty-three years later, in 2015, Rob Walton’s son-in-law Greg Penner, despite objections from many shareholders, suc- ceeded him. A shareholder proposal, however, calling for an independent chairperson (i.e., one that is not related to the Walton family), received only 16 percent of votes. After the 2015 election, three of the 15 directors on Walmart’s board of directors had family ties to the Walton family.16 CEO DOUG MCMILLON After Sam Walton stepped down as CEO and President of Walmart in 1988, David Glass became the CEO. He was followed by H. Lee Scott, Jr. in 2000, Mike Duke in 2009, and Doug McMillon in 2014. Before becoming CEO of Walmart, Doug McMillon was the President and CEO of Walmart International from 2009 to 2014 and President and CEO of Sam’s Club from 2006 to 2009. McMillon has been at Walmart since he first worked at Walmart as a summer associate in 1984. Later, in 1990, he rejoined the company as assistant manager in an Oklahoma store. He has been on the Walmart board since 2009.