Stakeholders and Wal-Mart, an analysis

1. Wal-Mart, a history of success.

In 1962, Sam Walton expanded his retail career by opening the first Wal-Mart Discount City Store in Arkansas. Walton had had significant success with a discount shop he called “Walton’s Five and Dime Store” in Bentonville by putting sales volume before prices. Accepting a slightly lower margin, he had managed to drive out the competition and achieve an image of low prices without compromising quality. Walton continued the growth of his Bentonville store at accelerated pace and soon expanded to 24 stores across Arkansas, reaching $12.6 million in sales.

The company was incorporated as Wal-Mart Stores, Inc. on October 31, 1969. In 1970, it opened a home office and first distribution center in Bentonville. It had 38 stores operating with 1,500 employees and sales of $44.2 million. It began trading stock as a publicly-held company on October 1, 1972, and was soon listed on the New York Stock Exchange. The first stock split occurred in May 1971 at a market price of $47. By this time, Wal-Mart was operating in five states: Arkansas, Kansas, Louisiana, Missouri, and Oklahoma; it entered Tennessee in 1973 and Kentucky and Mississippi in 1974. As it moved into Texas in 1975, there were 125 stores with 7,500 employees and total sales of $340.3 million.

The growth continued, indicating that Wal-Mart’s strategy was solid. In 1987 there were 1,198 stores with sales of $15.9 billion and 200,000 associates. In 2006, Wal-Mart was 67th most profitable corporation (profits divided by total revenue), behind retailers Home Depot, Dell, and Target, and ahead of Costco and Kroger. Today Wal-Mart employs more than 2 million associates worldwide, including more than 1.4 million in the United States with over $374 billion in sales worldwide for the fiscal year ending Jan. 31, 2008

With success often come concerns over the way this is achieved. Labor unions, religious organizations and environmental groups have criticized Wal-Mart for its policies and business practices. Other areas of criticism include the corporation's foreign product sourcing, treatment of product suppliers, environmental practices, the use of public subsidies, and the company's security policies . Wal-Mart has also been criticized for some of the products that it carries. Diverse groups have accused Wal-Mart of selling anti-Semitic, anti-black, anti-Christian or other objectionable materials or of not selling products like “The Daily Show's America (The Book)” that depicted a US Supreme Court judge nude, calling it censorship.

Despite the criticism, Wal-Mart seems to stick to the core strategies that carry its success.


2. Wal-Mart strategies and their impact.

The way that Wal-Mart Stores Inc. creates growth is summarized by the company’s new slogan:

“Save money, Live better”

When Sam Walton created Wal-Mart, he declared that three policy goals would define his business: respect for the individual, service to customers, and striving for excellence. By choosing clearly identifiable strategies and sticking with them, Wal-Mart has achieved de-facto cost leadership and sustainable value for the company’s shareholders.

Wal-Mart achieves Cost Leadership by four main strategic goals .

1. Dominate the Retail Market wherever Wal-Mart has a presence.
2. Growth by expansion in the US and Internationally.
3. Create widespread name recognition and customer satisfaction with the Wal-Mart brand, and associate the retailer with the reputation of offering the best prices.
4. Branching out into new sectors of retailing such as pharmacies, automotive repair, and grocery sales.

Wal-Mart management strategy emphasizes its workforce and its corporate culture. It wants to create an image of a morally conservative, religious, and family-oriented business. Wal-Mart emphasizes how it listens to the needs of its workforce as stated in the “factsheets” on the corporate website. Store employees are called “associates” and are treated part of the Wal-Mart family. Wal-Mart states that “Unlike the employees of many of our retail competitors, Wal-Mart associates – both full and part-time – can become eligible for health benefits”. However; the bulk of Wal-Mart's employee base that work at Wal-Mart stores are part time workers who are paid the local minimum wage. Most employees are not entitled to any benefits, as it takes a part-time employee over five years to become eligible for benefits, profit-sharing, or other such compensation . On April 17, 2006, Wal-Mart announced it was making a health care plan available to part-time workers after 1 year of service, instead of the prior 2 year requirement.
Wal-Mart's corporate management strategy involves selling high quality and brand name products at the lowest price. To keep costs low, Wal-Mart negotiates deals for merchandise directly from manufacturers, eliminating the middleman. This often leads to accusation that Wal-Mart misuses its market power to deliberately underpay its suppliers. In Walton’s philosophy, the essence of successful discount retailing is to cut the price on an item as much as possible, lowering the markup, and earn profit on the increased volume of sales. However, when the markup is as low as the company can bear, the burden is often transferred to the supplier, who is depended on Wal-Mart to sell his products. In a modern globalized society, Wal-Mart no longer buys its products on the domestic market but in low-wage countries with often questionable labor practices. More than 70% of the goods sold in Wal-Mart are manufactured in China .

3. What are the stake holder groups and what are their expectations?

A large company like Wal-Mart has a diversity of stake holders, each with their own agenda. Like any commercial entity, the first group is most important for the company’s survival. Stakeholder groups can be divided into internal and external stakeholders:

1. Internal stakeholder interests:

1.1 Shareholders.

As a listed company, Wal-Mart is accountable to its shareholders. Despite growing revenue, share price development has been trailing over the years, only recently picking up. Shareholders are most interested in profit generation and dividend, although in recent times there have been calls for more transparency. Wal-Mart donates generously to political causes without detailing exactly who they are donating to, or how much. Wal-Mart says that full disclosure is already required in many states, but the proponents for this resolution would prefer a centralized source for determining Wal-Mart's state-based political contribution levels. However, as long as the share price of Wal-Mart has a positive trend, shareholders remain upbeat.

1.2 Employees

Wal-Mart’s strategy in keeping prices low translates into an effective “low as possible” wage strategy. Associates at Wal-Mart have often little education, work part-time and have little or no alternative job perspective. Labor conditions and wage are for most an important factor. Recently Wal-Mart has faced issues on both which has led to criticism by labor unions and other external stakeholder group. By the end of 2005, Wal-Mart had launched the website Working Families for Wal-Mart to counter criticisms. Additional efforts to counter criticism include launching a public relations campaign. In reality, the core issues haven’t been addressed yet since they can impact Wal-Marts bottom line severely. Wal-Mart claims to listen to its employees but doesn’t seem to engage their staff.

1.2 Management

Although management is part of a company’s employee corps they can have different interests and priorities. In 2007 when Wal-Marts growth seemed to come to a halt, the company re-organized its top management layers rigorously. It is this groups responsibility to turn the core strategies into practice while at the same time balancing stakeholder interests.

1.3 Suppliers

Suppliers are often seen as external stakeholders. In the case of Wal-Mart, the connection between suppliers and the company is so close that they can be considered internal. Wal-Mart’s cost leadership strategy means that the company will offer only a minimal margin to its suppliers. For a lot of suppliers, Wal-Mart is their major, if not only, customer. As mentioned before, Wal-Mart buys the majority of its products in China. The US labor market just can’t compete with the low wages and large workforce available. Suppliers often use questionable local labor practices to be able to offer the lowest possible price to Wal-Mart. Wal-Mart has been accused of using market power to force its suppliers into self-defeating practices. For example, it is argued that Wal-Mart's constant demand for lower prices caused Kraft Foods to "shut down thirty-nine plants, to let go [of] 13,500 workers, and to eliminate a quarter of its products ”.

2. External stakeholders.

2.1 Customers and the community

Suppliers and customers are both defined as product market stakeholders. In Sam Walton’s eyes, the customer is the most important stakeholder for the company. The demands and priorities of Wal-Marts customers are conflicting creating the largest and potentially most important issues. In an economic downturn, the results of Wal-Mart improve showing that customers shop at Wal-Mart because of the low prices. To maintain low prices, Wal-Mart needs scale, which means opening large stores in small places. This results in a perceived negative impact on communities. Additional, Wal-Mart is often seen as an unfair competitor because local stores can’t compete against the company’s low prices. The recent media attention has focused on the negative aspects although a recent study has shown that the impact of Wal-Mart on small local stores is less than is assumed. It is suggested that Wal-Mart even has a positive impact on small business. A study conducted in 2006 argued that while Wal-Mart's low prices caused some existing businesses to close, the chain also created new opportunities for other small business, and so "the process of creative destruction unleashed by Wal-Mart has no statistically significant impact on the overall size of the small business sector in the United States. "

2.2 Unions and NGO’s

Wal-Mart has been criticized for its policies against labor unions. Other nongovernmental organizations have accused Wal-Mart of using sweatshops and child labor in low wage countries. Wal-Mart's anti-union policies also extend beyond the United States. The documentary Wal-Mart: The High Cost of Low Price, shows one successful unionization of a Wal-Mart store in Jonquière, Quebec (Canada) in 2004. Wal-Mart closed the store five months later because the store had become unprofitable due to the costs of union demands. The priorities of unions are sometimes conflicting. If Wal-Mart fires employees and closes a store it will result in un-employment and loss of benefits. However if they insist on higher wages and better benefits, the result will be unprofitability, causing the store to close.

4. How does Wal-Mart manage stakeholder issues and expectations?

After Wal-Mart’s labor and supplier issues became publicized the company hired public relations firm Edelman to interact with the press and respond to negative or biased media reports. It has used TV commercials emphasizing the health benefits of Wal-Mart associates. Wal-Marts efforts are mainly focused on the positive affect the company can have. In October 2005, Wal-Mart announced it would implement several environmental measures to increase energy efficiency. After Hurricane Katrina struck, Wal-Mart gave $20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals and the promise of a job for every one of its displaced workers.

The real issue however is that Wal-Mart’s cost leadership strategy doesn’t leave room for higher than minimal wages or excellent labor conditions. Wal-Mart argues that it provides millions with jobs and passes on the saving to millions more.

5. What can Wal-Mart do to improve?

Like many large and not-so-large companies, Wal-Mart has been caught by its own success. As employer and supplier of millions it is open to criticism and needs to be aware of that. By engaging stake holders early and by being transparent in its actions many issues can be prevented. Modern consumers and other stakeholders need to be taken seriously. This doesn’t mean cater to every whim but major problems can’t be covered up anymore in the internet age. Customers on the other hand need to be aware that higher wages, better benefits and labor conditions mean higher prices because Wal-Mart’s margin is already minimal. So far, there hasn’t been a competitor that leveraged on an ethical way of business and cost leadership. Wal-Mart can leverage its market advantage to divert a fraction of the savings it now passes on to the consumer to improve the outstanding issues as long as it can explain to the customer why it is doing so.