Wal-Mart

Wal-Mart Stores, Inc. {{nyse|WMT}}, founded by Sam Walton in 1962, is the largest retailer and the largest company in the world based on revenue. For the fiscal year ending January 31, 2005, Wal-Mart reported net income of US $10.3 billion on US $285 billion of sales revenue (3.6% profit margin). If Wal-Mart were its own economy, it would rank 33rd in the world, with a GDP between those of Ukraine and Colombia. It is the largest private employer in the United States, Mexico and Canada. It holds an 8.9 percent retail store market share— $8.90 out of every $100 spent in U.S. retail stores is spent at Wal-Mart.

Financial results

Wal-Mart is now the largest grocery chain in the U.S., with 14 percent of all grocery sales -- nearly twice the sales of Kroger ($95 billion vs. $51 billion). Wal-Mart also does 20 percent of the retail toy business. Sam Walton's family's holdings in Wal-Mart if combined would comprise the nation's largest fortune; at $100 billion combined they are significantly ahead of Bill Gates.

Related Topics:
Kroger - Bill Gates

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Wal-Mart went public in 1975. Since then its stock has climbed from 5 cents (split adjusted) to a high of $63 in March 2002. Its stock has dropped more than 20% since then, closing under $50 in August 2005.

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Different explanations have been offered for this success:

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• The company has always paid a great deal of attention to site selection; in the company's early years, Sam Walton would fly over small towns in a private plane to identify prospective locations. The company claims it analyzes potential locations to find those that would support "one and a half" stores.
• Wal-Mart benefits from economies of scale in manufacturing and logistics; the purchase of massive quantities of items from its suppliers combined with a very efficient stock control system help make Wal-Mart's operating costs lower than those of its competitors. They are leaders in the field of vendor managed inventory—asking large suppliers to oversee stock control for a category and make recommendations to Wal-Mart buyers. This reduces the overhead of having a large inventory control and buying department. Wal-Mart's vast purchasing power also gives it the leverage to force manufacturers to change their production (usually by creating cheaper products) to suit its wishes: a single Wal-Mart order can easily comprise a double-digit percentage of a supplier's annual output.
• One particular aspect of the economy of scale is the aggregation effect, used in other business such as The Home Depot and Wells Fargo, whereby Wal-Mart sells as many different items as possible. This allows the company to grow revenue over its fixed cost base (more sales out of the same store). This is why Wal-Mart began to sell low margin groceries.
• Information Systems: Wal-Mart helped push the retail industry to adopt UPC codes and bar-code scanning equipment. Also, Wal-Mart's focus on cost reduction has led to its involvement in a standards effort http://www.epcglobalinc.org/about/about_epcglobal.html to use RFID-based Electronic Product Codes to lower the costs of supply chain management. As of June 2004, it has announced plans http://www.walmartstores.com/wmstore/wmstores/Mainnews.jsp?pagetype=news&template=NewsArticle.jsp&categoryOID=-8300&contentOID=13926&catID=null&prevPage=NewsShelf.jsp&year=2004 to require the use of the technology among its top 300 suppliers by January 2006.
• Suppliers: A spokesperson for the company told the Wall Street Journal on Nov. 18, 2004 that it imported $15 billion worth of goods from China in the year that ended Jan. 31, 2004. About $7.5 billion were directly imported by Wal-Mart; the other $7.5 came indirectly through suppliers. In the same period net sales reached $256 billion, with $209 billion coming from U.S. operations. U.S. current account imports from China was reported as $152.4 billion during 2003 (http://www.bea.gov/bea/newsrel/tradannnewsrelease.htm). Mainland Chinese media place Wal-Mart as their 8th largest trading partner in front of Russia and the UK on the top-10 list.
• Cost Control: Wal-Mart watches very closely controllable expenses. Hourly associates can be reprimanded or terminated for having unauthorized overtime. Wal-Mart also squeezes out any inefficiencies in the business such as reducing paper used through computerization. Wal-Mart has closed stores as part of its effort to avoid the expense of hiring union workers.