Can Walmart Possibly Fail

David Koehler

April 24, 2006

Corporate Finance

"Can Wal-Mart Possibly Fail"

The Wal-Mart story is one that is sweet and simple led by small town man with a hard work approach. The one thing that Sam Walton valued was the idea of hard work. He was your every day hard working man that had an idea that would change the retail world forever. In 1985 when Forbes magazine named the Walton "richest man in America", he surely was not your prototypically billionaire (Walton 1992). No, he did not reside in the financial capital of the world, New York, nor did live in the million-dollar mansion; his residence was in the little town in Arkansas called Betonville. His business principles were started at a very young age from his first couple of jobs. From his first venture as a milk boy, Sam always understood the value of the dollar and this knowledge of the dollar carried him very far in life, as we will discover later. If there was a penny lying on the street, Sam was the first to pick it up. Through my research of Wal-Mart's dominance, I found Sam's extensive background in athletics played a major part in Wal-Mart's success. He was always one step ahead of his competition in whatever he did set out to do.

When answering the question, Can Wal-Mart actually fail? First I will examine the factors that led to their supremacy. The Wal-Mart family has always kept their finances very private. They never liked to be in eye of the public. Their old fashion approach to business from the start still remains in the company today. The family owns almost half of all the Wal-Mart stock on the market, thus making it hard for another entity to takeover the company. Sam always knew where his stock was. He was the never the person that wanted to live the high life. He always believed this is why so many companies have failed in the past and continue to fail in the future. Many owners with large percentage shares of stock in their company sell their stock for quick profit. They continue to sell, their stake in the company drops and then a takeover can occur.

Money never meant much to Sam personally. As long as he had a place to live, plenty of room for his dogs and cats, and groceries on the table, Sam was content. He never let things grow out of perspective. This has enabled him to put all his available resources into a company that knew would succeed. On numerous occasions he and his management team would frequently visit his stores creating personnel high for his employee and customers.

Today when many executives are out for only themselves, buying whatever personal item they choose, Sam was different. For Wal-Mart, it took sales of nearly $40 billion and rapid expansion all over the US, to make Sam finally buy a corporate jet (Walton 1992). On business travel he still remained very nimble. He did not stay in lavish hotels or eat at expensive restaurants. He cited this as one of the main things that were wrong with American business today (Walton 1992). Many people ask the question today, how a company that generates over $50 billion in profits still can follow a restricted budget. The principle is simple "we believe the value of the dollar" We exist to provide value to our customers, in addition to quality and service; we must make our customers save money. Every time we save them a dollar, we are one step above our competitors (Walton 1992, p. 12). Since the first Wal-Mart opening in 1960 in a little town in Rogers, Arkansas, their achievements have been astronomical. Based on a small town principle, Wal-Mart grew to world's largest retail chain, with its nearest competitors far behind. Teamwork served as the Wal-Mart principle. When many other large corporations were headed by people who thought by themselves, only for their sake, Wal-Mart focused on the company as a whole.

One area in which Wal-Mart could possibly fail is in the area of customer service. Being the world's largest retail chain, Wal-Mart main focus of attention is price leadership. When focusing only on price leadership, there might be a tendency for them to focus on one thing that many consumers look for in a retail store. From experience, Wal-Mart is my choice when it comes to price; however, if I crave the personal attention related the product purchasing I will choose another store. Yes, customer service has the potential to hurt them somewhat; however I do not believe it is enough to cause them to fail. The reasoning behind my thinking is simple. The average Wal-Mart customer chooses because of price and price alone. Where else can you shop and find everything that you desire, and not worry about if you are getting the lowest price.

With all the recent news surrounding the accounting practice of many corporations, there is definitely a possibly Wal-Mart could fail in this area. When retail earning is announced every quarter, Wal-Mart is the company that all other retail chains are compared against. Because of publicity that follows many large corporations, Wal-Mart is in the public spotlight on a daily basis. Any discovery of accounting fraud mentioned in Wal-Mart's earning will definitely hurt the company in many ways. As with companies like Enron, Worldcom and Tyco, leaders in their respective industries, public exposure to their erroneous accounting practices have led to the demise of these companies. Not only were these companies scrutinized for their financial errors, other major accusations were discovered in the process.

Society perception of Wal-Mart varies on many different levels. Many view it as a one stop shop where you can find anything you desire at the lowest possible price and other view it on a very different level. They see it as corporation that put many "mom and pop" stores out of business because of the corporate greed that surrounded the company. Wal-Mart was viewed by some as the devouring corporate beast of corporation that ruthlessly stomps on workers, neighborhoods, competitors and suppliers. Despite its claim to that it slashes profits to the bone in order to deliver "Always Low Prices", Wal-Mart banks about $7 million a year in profits, making it among the most profitable entities on the planet. Ignoring the needs and prosperity of the community is a hallmark of Wal-Mart.

The one thing that Wal-Mart did different than it competitors was buy directly from their manufacturer. By doing this and buying in mass qty from their manufacturers, the small business is left on the street with no way of competing .The small business goes out of business, thus changing the way society shops. In this whole process, many small and large retail chains alike fell victim of the Wal-Mart beast. Many people