Can you answer the case discussion questions? CLOSING CASE The Evolution of Wal$-$Mart Wal$-$Mart is one of the most extraordinary success drive $2$ to $3$ hours to a major city. This meant that stories in business history. Started in $1962$ by Sam a small town with a population of $25,000$ actually Walton, Wal$-$Mart has grown to become the world's had a catchment area containing $100,000$ people. largest corporation. In $2014,$ the discount retailer$-$ Wal$-$Mart grew quickly by pricing its products whose mantra is $$Everyday low prices"$$had sales lower than those of local retailers, often putting of more than $$475$ billion, close to $11,000$ stores in them out of business. By the time its rivals realized $27$ countries, and more than $2\mathrm{.}2$ million employees. that many small towns could support one large dis$-$ Some $8\%$ of all retail sales in the United States are count general merchandise store, Wal$-$Mart had al$-$ made at a Wal$-$Mart store. Wal$-$Mart is not only ready pre$-$empted them and had spread out to small large; it is also very profitable. Between $2005$ and towns across America. $2014,$ the company's average ROIC was $14\mathrm{.}1\%$ Over time, the company became an innovator in better than its well$-$managed rivals, Costco and information systems, logistics$,$ and human resource Target, which earned $11\mathrm{.}8\%$ and $11\%,$ respectively. practices. Actions taken in these functional areas Wal$-$Mart's persistently superior profitability is resulted in higher productivity and lower costs as based on a number of factors. In $1962,$ Wal$-$Mart compared to rivals, which enabled the company to was one of the first companies to apply the self$-$ earn a high ROIC while charging low prices. Wal$-$ service supermarket business model developed by Mart led the way among U$.$S$.$ retailers in developing grocery chains to sell general merchandise. Unlike and implementing sophisticated product$-$tracking rivals such as K$-$Mart and Target that focused on systems using bar$-$code technology and checkout urban and suburban locations, Sam Walton's Wal$-$ scanners. This information technology enabled Mart concentrated on small, southern towns that Wal$-$Mart to track what was selling and adjust its were ignored by its rivals and which had enough de$-$ inventory accordingly so that the products found in mand to support one large discount store. Walton each store matched local demand. By avoiding over$-$ realized that, in rural America, people would drive stocking, Wal$-$Mart did not have to hold periodic an hour to Wal$-$Mart in a small town rather than sales to shift unsold inventory. Over time, Wal$-$Martlinked its information system to a nationwide net$-$ by configuring their own production schedules for work of distribution centers in which inventory sales at Wal$-$Mart. was shipped from vendors, and then shipped out By the $1990$s$,$ Wal$-$Mart was already the largest on a daily basis to stores within a $400-$mile radius. seller of general merchandise in the United States. To The combination of distribution centers and infor$-$ keep growing, it started to diversify into the grocery mation systems enabled Wal$-$Mart to reduce the business, opening $200,000-$square$-$foot supercenter amount of inventory it held in stores, and thus to stores that sold groceries and general merchandise devote valuable space to selling and to reduce the under the same roof. Wal$-$Mart also diversified into amount of capital it had tied up in inventory. the warehouse club business with the establishment With regard to human resources, Sam Walton of Sam's Club. The company began expanding inter$-$ set the tone. He held a strong belief that employ$-$ nationally in $1991$ with its entry into Mexico. Today, ees should be respected and rewarded for helping Wal$-$Mart generates $$175$ billion in foreign sales. to improve the profitability of the company. Under$-$ For all its success, Wal$-$Mart is now encoun$-$ pinning this belief, Walton referred to employees as tering very real limits to profitable growth. The "associates.$$ He established a profit$-$sharing plan U$.$S$.$ market is saturated, and growth overseas has for all employees and, after the company went pub$-$ proved more difficult than the company hoped. The lic in $1970,$ a program that allowed employees to company was forced to exit Germany and South purchase Wal$-$Mart stock at a discount to its market Korea after losing money there, and it has faced value. Wal$-$Mart was rewarded for this approach by difficulties in several developed nations. Moreover, high employee productivity, which translated into rivals Target and Costco have continued to improve lower operating costs and higher profitability. their performance, and Costco in particular is now As Wal$-$Mart grew, its sheer size and purchas$-$ snapping at Wal$-$Mart's heels. ing power enabled it to drive down the prices that it paid suppliers and to pass on those savings to Sources: "How Big Can It Grow?" The Economist $($April $17,2004)$: $74-78$: "Trial by Checkout." The Economist $($June $26,2004)$: customers in the form of lower prices which en$-7476$; Wal$-$Mart $10-$K$,2013,$ www$.$walmartstores.com; R$.$ Slater, abled Wal$-$Mart to gain more market share and The Wal$-$Mart Triumph $($New York: Portfolio Trade Books, $2004)$: hence lower prices even further. To take the sting "The Bulldozer from Bentonville Slows: Wal$-$Mart." The Economist out of the persistent demands for lower prices, Wal$-($February $17,2007)$: $70,$ K$.$ Perkins, "Wal$-$Mart still faces chal$-$ Mart shared its sales information with suppliers lenges, but its scale should allow it to compete amid fierce rivalry." Morningstar, December $2,2014.$ on a daily basis, enabling them to gain efficiencies CASE DISCUSSION QUESTIONS $1.$ What was Sam Walton's original strategic vi$-$ sion for Wal$-$Mart? How did this enable the company to gain a competitive advantage? $2.$ How did Wal$-$Mart continue to strengthen its competitive advantage over time? What does this teach you about the source of a long$-$term competitive advantage? $3.$ By the early $1990$s$,$ Wal$-$Mart was encoun$-$ tering limits to growth in the US$.$ How did it overcome these limits to growth? Explain how the expansion moves that Wal$-$Mart made in the $1990$s made economic sense and helped to create value for the company's shareholders. $4.$ Wal$-$Mart is once again encountering limits to growth. Why do you think this is the case? What might Wal$-$Mart do to push back these limits$?5.$ How much of Wal$-$Mart's strategy do you think was planned at the outset, and how much evolved over time in response to cir$-$ cumstances? What does this suggest to you about the nature of strategy development?