Business & Finance essay
For the exclusive use of R. FRENCH, 2020. - 426 - 24 - For the exclusive use of R. FRENCH, 2020. 716-426 The Inexorable Rise of Walmart? 1988–2016 For the exclusive use of R. FRENCH, 2020. The Inexorable Rise of Walmart? 1988–2016 716-426 9-716-426 M A Y 1 1 , 2 0 1 6 JOHN R. WELLS GABRIEL ELLSWORTH The Inexorable Rise of Walmart? 1988–2016 Retail history is very clear: those that are unwilling or unable to change go away; those that get ahead of the curve will thrive. That is why we are taking decisive steps now to change and grow our business. — Doug McMillon, Walmart CEO, October 20151 On October 14, 2015, discount retailer Wal-Mart Stores, Inc. (“Walmart”), the world’s largest company by revenue, surprised investors by announcing that it expected flat sales growth for 2015 and growth of only 3% to 4% over the coming three years. Profits would also fall due to significant investments in people and technology. The company’s stock price dropped 10% on the news, the largest one-day decline since 1998 (see Exhibit 1). On February 18, 2016, Walmart reported that revenues for 2015 had dropped 0.7% to $482.1 billion, the first decline in Walmart’s history.2 The company also downgraded its sales forecast for the coming year, suggesting sales would now be flat. Meanwhile, online retailer Amazon was growing rapidly and, despite being less than one-quarter of the size of Walmart, now boasted a higher market capitalization. Moreover, in April 2016, Alibaba of China announced that it had passed Walmart in global sales to become the biggest retail platform in the world.3 To add to Walmart’s woes, in the United States traditional dollar discount stores and convenience outlets were gaining ground, and wage rises were putting pressure on profits. Meanwhile, international markets continued to underperform. Indeed, some analysts had suggested that Walmart retreat to its U.S. home base to improve performance. Many feared that this was the end of the 50+ year inexorable rise of Walmart. However, CEO Doug McMillon remained determined to get the company back on track and vowed to eschew short-term profits and invest in the future. Investors were not impressed. They had waited a long time for improvements; in 2015, Walmart generated three times the sales and profits it had achieved in 1999 (see Exhibit 2), and yet the stock price had barely changed. Patience was running out. Discount Retailing in the United States: A Brief History Discount retailing originated in the early 20th century, but the industry rose to prominence in the 1960s. Beginning in the 1930s, most state legislatures and Congress had passed laws supporting a manufacturer’s right to set prices for its products, a practice known as resale price maintenance (RPM). Nevertheless, consumers began to visit traditional full-service stores to gather information about products and then purchase them from no-frills discounters. These discounters took gross Professor John R. Wells and Research Associate Gabriel Ellsworth prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. At the time this case was written, Professor John R. Wells had an equity investment in the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2016 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. margins as low as 20% and on average 25%, compared to 35% for traditional department stores, hoping to gain in higher stock turns what they sacrificed in markup. Congress effectively outlawed RPM in 1975, expanding the possibilities for discounters to capture market share. By that time, discounters had already come to stay: Kmart, Target, and Walmart were all born in 1962.[footnoteRef:1] Nationwide sales at discount department stores grew from $6.0 billion in 1962 to $83.2 billion in 1986.4 [1: Walmart changed its brand name from “Wal-Mart” to “Walmart” in 2008. This case uses “Walmart.” ] Walmart’s Origins and First 25 Years (1962–1987)[footnoteRef:2] [2: For more detailed information, see John R. Wells and Travis Haglock, “The Rise of Wal-Mart Stores Inc. 1962-1987,” HBS No. 707-439 (Boston: Harvard Business School Publishing, 2008). ] Sam Walton worked as a J. C. Penney management trainee after college. In 1945, he bought a Ben Franklin franchised variety store in Newport, Arkansas. He had wanted to run a store in St. Louis, but his wife, Helen, was not willing to live in a town with more than 10,000 residents.5 In 1950, after Walton’s landlord denied a renewal of the lease, Walton opened another Ben Franklin franchise in Bentonville, Arkansas, this one called Walton’s Five and Dime.[footnoteRef:3] The Waltons liked the location because it was closer to Helen’s family and to neighboring states where Sam could hunt quail. [3: “Five and dime” stores ostensibly sold every item for a nickel or a dime, although their operators often wandered from this rigid pricing structure. ] Walton experimented relentlessly. After reading that two Ben Franklin stores in Minnesota used a self-service shopping model with cash registers at the front, Walton traveled by bus to visit them and was persuaded to adopt the new format. Walton’s Five and Dime was the third self-service variety store in the United States, and it proved very successful.6 By 1960, Walton operated 15 outlets, the largest independent variety store chain in the country, but he was not satisfied. Believing discounting was the way of the future, he tried to persuade his franchisor to enter the discount business, but he was rebuffed; according to the conventional wisdom of the day, discount stores needed to serve areas with at least 50,000 people to be viable.7 Defying conventional wisdom, in 1962 Walton struck out on his own and opened the first Walmart discount store in Rogers, Arkansas. Walton instructed his discount store managers, “No matter what you pay for [an item], if we get a great deal, pass it on to the customer.”8 The stores pursued an everyday low price strategy (EDLP), eschewing promotional sales to save on advertising.9 Walmart’s expansion strategy “was simply to put good-sized discount stores into little one-horse towns which everybody else was ignoring.”10 Procurement was challenging because of Walmart’s remote locations, so Walton was forced to build his own distribution centers.11 He then built new stores around each new center until that market area was “saturated” before moving on to the next neighboring territory. By contrast, other early discounters like Kmart grew by “sticking stores all over the country.”12 Walton later reflected on the early years, “We didn’t have systems. We didn’t have ordering programs. We didn’t have a basic merchandise assortment. We certainly didn’t have any sort of computers … so much of what we did in the beginning was really poorly done.”13 Walton tracked his competitors carefully, admitting, “Most everything I’ve done I’ve copied from somebody else.”14 He also visited his own stores regularly, encouraging employees (called “associates”) and seeking out ideas for improvements.15 As Walmart grew, Walton inculcated similar habits in his regional vice presidents, who were all based at company headquarters in Bentonville. They travelled out to their 2 stores Monday through Thursday, with a target to identify a new idea to cover the cost of their trip, and met at headquarters with Walton on Saturday mornings to share what they had discovered.16 Walton and his fellow executives ensured that no Walmart employees would unionize.17 After a union attempted to make inroads in the late 1960s, Walton took the advice of a labor attorney to “devote time and attention to proving to people that you care.”18 In 1971, on the advice of his wife, Walton launched a profit-sharing plan for all employees.19 Walmart went public in the over-the-counter market in 1970 and began trading on the New York Stock Exchange in 1972. The funding allowed Walton to continue the regional roll-out of discount stores, but he also experimented with other formats. In 1974, Walmart added Save-Co Building Supply and Home Improvement Centers. This concept proved unsuccessful, and the last store was closed in 1978. Walton also exited the Ben Franklin stores after 32 years as a franchisee. Meanwhile, in 1978, Walmart launched pharmacy, auto service, and jewelry departments.20 In 1983, Walmart opened the first Sam‘s Club. Walton had become interested in warehouse clubs after he was invited to invest in one and received a tour of a Price Club led by founder Sol Price. The clubs charged a membership fee and offered members a limited range of merchandise at very low prices—gross margins were on the order of 10%, compared to 25% for a discount store. However, inventory turns and sales per square foot were much higher.21 In 1987, Walmart launched Hypermart USA, inspired by the European hypermarket concept that had impressed Walton during a trip to Brazil in the early 1980s. The first store was 220,000 square feet and carried 60,000 SKUs, combining a supermarket, discount store, fast food, and services including a beauty salon and an optician. A trade publication called the Hypermart USA opening “the biggest news in discount retailing” of the year.22 The format proved ineffective. Walmart opened only four stores as part of the hypermarket experiment, instead investing in Supercenters (see below). For the fiscal year ended January 31, 1988,[footnoteRef:4] Walmart was the second-largest discounter in the United States with revenues of $16 billion compared to Kmart’s $26 billion. Target stores were in third place with sales of $5 billion.23 (See Exhibit 2b and 2c.) [4: Walmart’s fiscal years ended on January 31 (i.e., “fiscal 2000” was the year ended January 31, 2000, for example). All years mentioned in this case are calendar years unless otherwise noted. For financial comparisons with competitors, the fiscal year most closely overlapping with the calendar year in question has been chosen. ] David Glass, 1988–1999 On February 1, 1988, after 26 years as CEO, Sam Walton stepped down, and David Glass took over. Walton remained chairman. Before joining the company in 1976, Glass was general manager of a supermarket chain. At Walmart, he served as CFO and chief operating officer (COO) before becoming CEO. Two milestones marked the beginning of his tenure. In 1990, Walmart became the United States’ largest retailer, surpassing Kmart.24 Two years later, Walton died. However, Glass carried out much of the founder’s vision for the United States and also began expanding abroad. (See Exhibit 3 for an overview of changes in store formats, locations, and offerings from 1987 to 2015 and Appendix A for information on Walmart’s competitors.) Glass experimented with many new formats, but his primary focus was on Supercenters. At 126,000 square feet, Supercenters were 40% bigger than the typical Walmart and included a full line of groceries in addition to an expanded assortment of the general merchandise normally offered in 3 Walmart stores. Some analysts doubted whether Walmart could be competitive in food retailing, but Glass claimed that Supercenters’ groceries were profitable.[footnoteRef:5] Moreover, his CFO reported that generalmerchandise sales grew 20% to 30% when a Supercenter replaced a discount store. The first Supercenter opened in March 1988. By 1993, Walmart had opened 30 outlets, ranging in size from 116,000 to 188,000 square feet. New Supercenters included hair salons, optical services, and one-hour photo processing. They carried about 100,000 SKUs. A Supercenter needed a local customer base of 76,000 people to be viable compared to 150,000 for a discount store.25 By 1998, the Supercenter count had reached 441, many of which were former discount stores converted to the new format. Walmart stopped adding its traditional discount stores after 1996. One analyst noted, “By merely adding 35%40% to the floor space of a traditional discount store to create a supercenter, [Walmart sees] sales essentially double once the supercenter reaches maturity in four or five years.”26 [5: For their fiscal years ended January 1988, leading grocers Kroger and Safeway reported operating margins of 2.3% and 2.4%, respectively, compared to Walmart’s 7.4%. Their gross margins were 22.4% and 24.8%, compared to Walmart’s 23.5%. ] Glass continued to invest aggressively in Sam’s Clubs (see Exhibit 4), often located next to discount stores “to exploit the marketing synergy between both concepts.”27 One analyst estimated that 45% of Sam’s Clubs’ sales were cannibalized from other Walmart stores. Sam’s Club continued to innovate its product offering, including a telephone-based car-buying service, introduced in 1988. Walton suggested a merger with the industry number-two, Price Club, but was turned down. In 1993, Price Club merged with third-place Costco, and Walmart acquired 91 clubs from Kmart instead.28 Glass also experimented with convenience formats, including 60,000-square-foot Home Town Stores (modernized versions of 700 old discount stores with a food offering), which he began opening in 1996. He began adding gas stations at stores the same year, and in 1998, he introduced a 40,000square-foot Neighborhood Market format offering 20,000 to 23,000 SKUs at prices lower than traditional supermarkets’ in convenient locations. These stores included drive-through pharmacies.29 In addition, Glass introduced a number of store-within-store concepts and exited several small retail formats, some of which had been introduced before he took over (see Exhibits 3a and 5).30 In 1996, with the advent of Internet retailing, Walmart began experimenting with online selling and cut its capital budget by 5%, looking to reduce store building and remodeling costs. In June 1998, 0.7% of Internet users visited Walmart’s website from their home computers, compared to 8.1% for Amazon.com. In 1999, Walmart announced a “strategic alliance” with America Online to provide Internet access. However, Walmart’s online initiatives struggled, and, just days before Glass left office, Walmart announced that it was partnering with a Silicon Valley venture-capital firm to spin off its website as a separate company.31 During his tenure, Glass began expanding the scope of Walmart’s private-label offering. In 1991, Walmart launched a premium food private label, Sam’s American Choice. Great Value, offering generic food labels, was added in 1993. By the end of 1993, Walmart had more than 10 store brands across all categories, and apparel was 25% private-label. Supercenters carried 450 to 550 private-label food items.32 Glass also made changes to the company’s supply chain. In 1991, he eliminated brokers and manufacturers’ representatives, partly because a new computer system enabled manufacturers to see Walmart’s store and warehouse inventories. Walmart continued to operate a hub-and-spoke network of distribution centers, but it reduced the number of varieties it carried of some items to simplify stock-keeping. The company began using data mining to customize the selection at each store, which required close coordination with suppliers.33 4 International Expansion, 1988–1999 In addition to aggressive domestic expansion, Glass took Walmart international. In 1991, the company entered Mexico via a joint venture with the country’s largest retailer. In 1994, Walmart moved into Canada by purchasing 120 stores from Woolworth Corporation. The next move was to South America in 1995, but there Walmart faced challenges from the longer-established Carrefour. In 1997, the international division became profitable for the first time, although analysts estimated that the company had lost $48 million in South America. Later that year, Walmart entered Europe by acquiring Wertkauf’s 21 hypermarkets in Germany. These stores averaged 110,000 square feet. Subsequently, Walmart added Interspar’s 74 stores, averaging 73,000 square feet, making it the fourth-largest hypermarket retailer in Germany. At the time, German hypermarkets were suffering competition from private-label hard discounters such as Aldi and Lidl. Aldi operated thousands of small, local stores offering about 1,000 SKUs of private-label merchandise at very low prices. In 1999, Walmart acquired Asda, the United Kingdom’s third-largest supermarket chain, for $10.8 billion, at a 19% premium to the share price. At the end of fiscal 2000, Walmart had 458 stores in Mexico, 232 in the United Kingdom, 166 in Canada, 95 in Germany, and 38 in other foreign markets.34 Controversies In late 1992, NBC’s Dateline alleged that Walmart mislabeled merchandise as American-made and that its supply chain included child labor in Bangladesh. Walmart at first defended its “Buy American” program but then discontinued it in 1998.35 Position in 1999 In 1988, when founder Sam Walton handed the reins to new CEO David Glass, Walmart had just become the United States’ most profitable retailer. Over the next 12 years, Glass grew the business tenfold, and the stock price boomed. By 1999, Walmart was the world’s largest retailer, with sales of $165 billion. Kroger and Sears followed with $45 billion and $41 billion, respectively.36 International sales represented 14% of total revenues. (See Exhibits 2a and 3.) Lee Scott, 2000–2008 There’s no limit to Wal-Mart’s growth. — Lee Scott, 200337 In January 2000, Lee Scott was appointed CEO. He had worked for 16 years in logistics, led merchandising from 1995, and become COO in 1999.38 Shortly after he took over, Walmart’s stock price stalled in line with the dotcom bust of 2000, and it remained flat throughout the rest of Scott’s tenure despite the fact that under his leadership, the company grew domestic sales 135% and international by over 340%. Scott continued to add aggressively to the U.S. Supercenter count while opening Neighborhood Market convenience stores, but the early 2000s saw a steady decline in same-store sales growth for the discount stores: 5.9% in 2001, 5.7% in 2002, 3.9% in 2003, and 2.9% in 2004.39 In response, in 2005 Walmart sought greater efficiencies, moved regional managers from Bentonville to their markets, and began tailoring stores to their locations. The company also tried to “improve the store experience to appeal to a more sophisticated consumer.”40 However, American shoppers struggled to adjust to the remodeling of hundreds of stores, reduced inventories, and new store schedules. Same-store sales 5 growth reached 3.0% in 2005 but dropped to 1.9% in 2006 and 1.0% in 2007. To broaden its appeal, Walmart targeted higher-income shoppers. A new 200,000-square-foot Texas Supercenter featured $400 wines, a fresh sushi bar, and a café with Wi-Fi. In a departure from a traditional retail approach, the most popular departments, grocery and health and beauty, were placed next to each other instead of on opposite ends of the store. These moves failed to reignite growth. Walmart’s ad agency told the company that its historical strengths made an upmarket move challenging.41 After the dotcom bust of 2000, Walmart took back control of its Internet operations, buying back the shares that it did not already own in Walmart.com. After a number of technical difficulties, in the fall of 2001 it launched the Wal-Mart Connect service with AOL, but subscribers had only reached 500,000 by 2004.42 Meanwhile, Walmart continued to struggle with online sales while Amazon grew rapidly. To drive sales, Scott moved to widen Walmart’s product offering. A 2002 joint venture to sell used cars from Walmart parking lots, emulating CarMax, failed, but gasoline stations at stores continued to prove popular, and the count reached 1,277 stations by July 2005. A foray into banking was blocked by local opposition, but Walmart added basic financial services such as check cashing, wire transfers, money orders, and a branded pre-paid payments card for low-income customers. In 2003, Walmart also took on Netflix with the launch of a DVD rental service, but it abandoned this effort in favor of a partnership with Netflix in 2005. Meanwhile, in 2004 Walmart launched the Music Downloads service. Each song cost $0.88, compared to $0.99 on Apple’s iTunes Music Store, which had opened in 2003. In 2007, Walmart added a movie download service, the only one at the time to have deals with every major studio. Although it undercut iTunes, the movie service closed before the end of the year.43 (See Appendix A for information on Walmart’s competitors from 2000 to 2008.) International Moves, 2000–2008 During his tenure, Scott took Walmart into six new Latin American countries. He also entered Japan, investing in Seiyu (Japan’s fourth-largest supermarket chain) in 2002. Walmart announced a joint venture with India’s Bharti Enterprises in 2006. The venture faced local opposition, and the first store did not open until 2009. The stores in India were “cash and carry” outlets known as Best Price.44 In 2006, Walmart announced its first exit from a major international market: South Korea, which it had entered in 1998. Korean shoppers were not inspired by marketing efforts focused on dry goods instead of food and beverages, and they had not warmed to warehouse-like store interiors. Later in 2006, Walmart announced its departure from Germany, where it had struggled because of price competition from the native hard discounters, inconvenient and undesirable locations, and cultural differences.45 “Defender-in-Chief” Scott had to grapple with controversies. A sex-discrimination lawsuit filed in 2001 became the largest class-action suit in American history before the Supreme Court sided with Walmart in 2011. Workers sued for being forced to work off-the-clock. Critics lambasted Walmart for low wages and meager health benefits. The Justice Department alleged that Walmart knowingly used cleaning contractors who hired illegal immigrants. Walmart estimated that it received coverage in 2,165 print articles per week in 2004, up from 950 in 2001. The board decided that the company needed to defend itself more proactively and tasked Scott with leading the efforts. Some attributed the 20% drop in stock price in the early 2000s to Walmart’s image issues. Walmart launched an environmental sustainability program in 2005. Scott brought in outside executives as part of his effort to turn around Walmart’s domestic operations.46 6 The End of the Scott Era In 2007, Wall Street expressed concerns about diminishing returns to additional Supercenters, which sometimes cannibalized existing stores, and the company responded by reducing expansion plans and repurchasing shares. Later in the year, Walmart returned to emphasizing low prices with its new tagline, “Save Money. Live Better.” The 2008 recession proved a blessing. Almost all retailers suffered same-store sales declines, but Walmart stores in the United States posted a gain of 3.2%.47 By 2008, Walmart had grown to over $405 billion in sales. Carrefour of France was the world’s next-biggest retailer with revenues of $130 billion, followed by Metro AG of Germany with $100 billion.48 International sales represented 25% of Walmart’s total revenues. (See Exhibits 2a and 3a.) Mike Duke, 2009–2013 Mike Duke became CEO on February 1, 2009. Before joining Walmart’s domestic logistics department in 1995, Duke had worked at Federated Department Stores and The May Department Stores Company. Beginning in 2005, he headed Walmart’s international division, where he hired more native-born managers.49 Duke’s tenure was marked by a battle to arrest same-store sales declines in Walmart’s larger stores in the United States in 2010, 2011, and 2013. Duke cut the rate of new openings of Supercenters and reduced the number of discount stores while adding Neighborhood Markets, more than doubling the count during his tenure. He also experimented with other convenience formats, including Walmart Express. The first Walmart Express store, opened in 2011 in Gentry, Arkansas, was 15,000 square feet and stocked 13,000 items, with meals placed upfront. Inspired by the company’s small stores in Latin America, Walmart Express was for “urban offense and rural defense,” according to executives. As of 2013, stores featured fresh food, pharmacy, and gasoline, and the smallest were 10,000 square feet. In early 2014, there were 20 stores, and management said the focus of the pilot was “the rural quick-trip.”50 Walmart tried another, even smaller, convenience store, Walmart on Campus, at the University of Arkansas in 2011. Another outlet was added at Georgia Tech in 2013. The 2,500-square-foot store offered basic groceries, beauty products, school supplies, and a full-service pharmacy. The fourth location opened in early 2014.51 Meanwhile, Walmart continued to grapple with its online business, trialing same-day grocery delivery in San Jose, California, in 2010. The test was later extended to general merchandise. In 2011, Walmart announced the reorganization of its e-commerce efforts: country e-commerce managers would now report to country heads rather than to a global e-commerce team. Operations would be more integrated. The company decided subsequently to use stores to support online sales. In 2011, Walmart acquired Silicon Valley startup Kosmix for $300 million to form @WalmartLabs. In the 1990s, Kosmix had created the predecessor to Amazon Marketplace, a platform for third-party vendors. Internet Retailer estimated Walmart’s 2012 online sales at $7.7 billion, compared to Amazon’s $61 billion. Walmart had lost its pricing edge in many cases, and most shoppers no longer thought that Walmart offered the lowest prices. As of 2013, Walmart.com sold 5 million SKUs, 20% of which Walmart owned itself and 80% of which were sold by third parties.52 The music downloads store failed to capture significant market share from Apple and was closed in 2011. Walmart experienced more success with digital movie downloads after its 2010 acquisition of Vudu, which offered rentals and purchases online. With a 5.3% share, Vudu was the third-most- 7 popular service, behind iTunes and Netflix and ahead of Amazon’s and Sony’s offerings. Whereas Netflix offered unlimited DVD rentals and streaming for a monthly subscription, Vudu allowed users to rent or own specific titles, charging different prices for different films.53 International, 2009–2013 In 2010, Walmart’s international stores outnumbered U.S. stores for the first time. In 2012, Duke indicated a focus on improving profitability abroad. This was a longstanding challenge: in 2004, Walmart generated operating profits in only four out of its nine foreign operations, according to one scholar’s estimates, and those were the four countries closest to Bentonville. Duke took Walmart into 12 new countries, all in Africa. UBS estimated that in the second quarter of 2014, the international division accounted for 33% of Walmart’s square footage and 19% of profits.54 With the exception of Mexico, Walmart’s market share of retailing in its international markets was much lower than at home. (See Exhibit 6.) Controversies The New York Times alleged in 2012 that Walmart had bribed officials to enable its expansion in Mexico. The company faced labor protests on the home front. A fire in a Bangladesh factory that had made Walmart clothing killed 112 people. Five months later and also in Bangladesh, the Rana Plaza building collapsed, killing more than 1,100 workers. Executives said little about these controversies at the June 2013 shareholder meeting; according to the Times, such reticence was typical.55 Position in 2013 Between 2008 and 2013, Walmart’s sales grew an average of 3.3% per year, and most believed the early growth days were over. Nevertheless, over the period, Walmart added over $70 billion in revenues, the equivalent of Target’s total annual sales. International sales represented 29% of Walmart’s total revenues. (See Exhibits 2a and 3a and Appendix A.) Doug McMillon, 2014 Onwards Doug McMillon was appointed CEO on February 1, 2014. An Arkansas native, he started his Walmart career in 1984 as an hourly summer associate in a distribution center. He worked as an assistant store manager and a buyer trainee in merchandising before leading Sam’s Club from 2006 to 2009 and Walmart International from 2009 to 2014. Unlike Mike Duke, McMillon had firsthand experience working for the company during Walton’s life.56 McMillon continued to open Supercenters in the United States, albeit at a slower pace, while experimenting with more convenience formats. (See Exhibits 7a and 7b for store photographs.) In March 2014, the company opened its first Walmart-to-Go convenience store in Bentonville. It was 5,200 square feet and offered gasoline, fresh and packaged foods, a deli counter, coffee, and household basics. Meanwhile, Walmart announced that it would stop using the Walmart Express brand, renaming the 21 existing outlets, all around 10,000 square feet, as Neighborhood Markets. Neighborhood Markets were larger at an average of 38,000 square feet, but the company said that customers used the two formats similarly, primarily for “fill-in grocery, last-minute meals,” and pharmacy.57 Walmart planned to add “gas bars” to many Neighborhood Markets.58 Having been outpaced by Costco for the five previous years (see Exhibit 4), Walmart began repositioning Sam’s Clubs to distance them from the rest of Walmart, focusing on products that 8 appealed to wealthier consumers. Walmart was testing high-end Sam’s locations to compete with Whole Foods.59 (See Exhibit 7c for a photograph of a Sam’s Club.) Meanwhile, the company revived its efforts to enter banking, announcing in September 2014 a partnership with Green Dot to provide low-cost checking accounts under the GoBank brand. GoBank would use a proprietary system, instead of the screening used by banks, to evaluate potential customers; Green Dot indicated that almost any adult who cleared an identification check would be able to open an account. In 2015, the company launched its own mobile payment system, Walmart Pay, for the Apple iOS and Android operating systems.60 McMillon continued to invest in online retailing, where industry growth in the United States was estimated at 12.7% in 2015. Four years after the formation of @WalmartLabs, Walmart had bought 14 Internet companies and added 600 e-commerce personnel each year. The CFO expected e-commerce to generate positive cash flow by 2017. In 2014, Walmart published online sales figures for the first time: they were $10 billion, a 30% increase over the previous year. Walmart was the fourth-largest Internet retailer in the United States in 2015, with a 3.0% market share. As of early 2015, Walmart.com matched Amazon’s prices on 63% of products, but for the most popular items, Amazon’s prices were 4% lower. Walmart’s mobile shopping app had 24 million active users in October 2015, up 20% on a year earlier.61 Domestic Competition In 2014 and 2015, Costco was putting pressure on Sam’s Clubs, and the dollar stores and hard discounters (see Appendix A) were continuing to grow, but the most pressing competition for Walmart was coming from Amazon. The largest Internet retailer in the United States (see Exhibit 8b), in 2015 Amazon generated $107 billion in revenues. It offered 526 million SKUs, 83% of which were sold by third parties. As it grew its distribution network, Amazon was obliged to collect sales tax in an increasing number of jurisdictions: 26 states, home to more than 80% of the U.S. population, as of November 2015. This was slowly removing a cost advantage that averaged 6% of sales. In July 2015, Amazon’s market capitalization surpassed Walmart’s. In October 2015, Amazon’s mobile active users rose 64% to 49 million from the previous year.62 International In 2014, Walmart International was the second-largest retailer in the world after Walmart U.S., accounting for 28.2% of Walmart’s sales and 22.7% of operating income. Mexico was the most important foreign market and “a phenomenal business,” according to the CFO.63 (See Exhibit 7d for photographs of a Walmart-owned store in Mexico.) The company announced in 2013 that it would close 50 unprofitable stores in Brazil and China and focus on northern Brazil and southern China. In Canada, Walmart sought to increase same-store sales through aggressive pricing. Asda, Walmart’s subsidiary in the United Kingdom, was struggling in the face of cutthroat small-store hard discounters. Meanwhile, Walmart continued its African expansion, entering Kenya in 2015 through its subsidiary Massmart. While Walmart’s commitment to its international operations remained firm, the disparity in profitability between its U.S. and foreign operations was not lost on many observers, leading some to suggest that Walmart should simply focus on the Americas.64 Pressure on Profits Revenues rose 1.9% in 2014 compared to 3.3% in 2013, and operating profits were up 1.0% versus 3.3% the previous year. In February 2015, McMillon announced that Walmart would raise its minimum wage in the United States to $10 per hour over the next year, restructure store management 9 to bring employees closer to their supervisors, and commit more resources to help associates advance their careers. These efforts would cost $1 billion in 2015 but would create “a better store experience.”65 The changes raised concerns among analysts. More bad news was to come. On October 14, 2015, McMillon announced that investments in people and technology would drive profits down for three years. He commented, “We can deliver stronger financial performance in the short term simply by running our core business better. But that won’t be enough. To win we must run the business well today and change the business for the future. We will lead and not just manage.”66 The direction that he set for change was to create a “seamless experience” for consumers however they chose to shop with Walmart. McMillon reassured shareholders, “Walmart is uniquely positioned to win the future of retail. We have a combination of strengths and assets to build on and we are preparing the Company for the future. Our investments in people, our stores and our digital and e-commerce capabilities are the right ones.”67 He identified three critical elements of his strategy: · “Win with stores.” McMillon argued that customers loved shopping in stores because they could see and feel the goods and gain instant gratification from purchasing on the spot. However, he said that stores must change, making it just as easy for customers to top-up with a few items as stock-up with a full basket. In-store experience must also improve, so investments in staff were necessary. Delegating more responsibility to department managers to run their own businesses had had a positive impact on performance and would increase. · “Add capabilities to our supply chain.” Walmart’s supply chain was designed to deliver in bulk to stores, but e-commerce demanded the ability to move and control individual items. The logistics pipeline would be upgraded to handle the new requirements. · “Build deeper digital relationships with our customers.” McMillon saw opportunities to grow much stronger relationships with customers using digital information on their buying habits. Walmart’s store-plus-online customers spent over $2,500 per year with the company, compared to $1,400 for store-only customers and $200 for the online-only.68 McMillon argued that Walmart was still a growth company but that this growth was on a much larger base, so the percentage increases looked small. He identified four major drivers of growth: 1. Price leadership. Walmart had always offered the best prices, and its price competitiveness must be restored. 2. Convenience. Consumers appreciated convenience, and Walmart would provide it. Neighborhood Markets enabled fast top-up shopping. Customers could also order online and pick up from the store without leaving their cars (click-and-collect). 3. Excellent merchandising. Walmart sought to offer the goods that customers wanted, including fresh foods and health and wellness products. For example, in organic produce Walmart U.S. was growing twice as fast as the industry average. 4. Strength in high-priority markets and demographics. Walmart was focused on countries with the most growth in customer spending, especially the United States and China. Middle- and upper-income customers would account for most of the spending growth in the future. McMillon promised, “We will be the first to deliver a seamless shopping experience at scale. No matter how you choose to shop at Walmart -- in stores, online, mobile, or a combination of them -- it will be fast and easy.”69 Regarding online competitors, McMillon asked analysts, “Will it be easier for an e-commerce company to build out a massive store network and create a customer service culture at scale, or are 10 we better able to add digital and supply-chain capabilities and leverage our existing stores?”70 He answered his own question: “We like our chances.”71 Drop in Sales On February 18, 2016, Walmart reported that revenues for 2015 had dropped 0.7% to $482.1 billion, blaming the fall on the impact of a strong U.S. dollar. Walmart expected sales to remain flat in 2016, although in October 2015 it had predicted 3% to 4% growth. It had revised its estimate because of 269 store closures, announced in January, as well as currency impacts.72 The share price fell 3% on the news. The company could expect challenging questions from shareholders at the annual meeting scheduled for June 3. 11 For the exclusive use of R. FRENCH, 2020. For the exclusive use of R. FRENCH, 2020. 716-426 The Inexorable Rise of Walmart? 1988–2016 For the exclusive use of R. FRENCH, 2020. The Inexorable Rise of Walmart? 1988–2016 716-426 This document is authorized for use only by RODERICK FRENCH in 2020. This document is authorized for use only by RODERICK FRENCH in 2020. This document is authorized for use only by RODERICK FRENCH in 2020. 716 - 426 - 12 - For the exclusive use of R. FRENCH, 2020. For the exclusive use of R. FRENCH, 2020. For the exclusive use of R. FRENCH, 2020. This document is authorized for use only by RODERICK FRENCH in 2020. This document is authorized for use only by RODERICK FRENCH in 2020. This document is authorized for use only by RODERICK FRENCH in 2020. Exhibit 2 Financial Information for Walmart (in millions of dollars) Fiscal year closest to calendar year 1987 1999 2008 2013 2015 Net sales 15,959 165,013 401,244 473,076 478,614 Walmart U.S. 13,248 108,721 255,745 279,406 298,378 International 22,728 98,645 136,513 123,408 Sam’s Club 2,711 24,801 46,854 57,157 56,828 Membership and other income 105 1,796 4,363 3,218 3,516 Total revenues 16,064 166,809 405,607 476,294 482,130 Cost of sales 12,282 129,664 306,158 358,069 360,984 Gross profit 3,678 35,349 95,086 115,007 117,630 Operating and SG&A expenses 2,599 27,040 76,651 91,353 97,041 Operating income 1,183 10,105 22,798 26,872 24,105 Walmart U.S. 8,419 18,763 22,351 19,087 International 817 4,940 5,454 5,346 Sam’s Club 759 1,610 1,975 1,820 Interest 114 1,022 1,900 2,216 2,467 Income from continuing operations 1,069 9,083 20,898 24,656 21,638 Net income 628 5,377 13,400 16,022 14,694 Gross margin 23.0% 21.4% 23.7% 24.3% 24.6% Operating margin 7.4% 6.1% 5.6% 5.6% 5.0% Walmart U.S. 7.7% 7.3% 8.0% 6.4% International 3.6% 5.0% 4.0% 4.3% Sam’s Club 3.1% 3.4% 3.5% 3.2% Profit margin 3.9% 3.2% 3.3% 3.4% 3.0% Capital employed 3,388 44,546 108,039 135,406 134,962 Return on capital employed 34.9% 22.7% 21.1% 19.8% 17.9% Operating income / assets 14.4% 14.0% 13.1% 12.1% Walmart U.S. 46.2%a 22.2% 22.6% 18.5% International 3.2% 8.2% 6.4% 7.3% Sam’s Club 21.2%a 13.0% 14.1% 13.0% Source: Casewriter, based on data from annual reports and Forms 10-K. Note: Segment operating margins are calculated as segment operating income divided by segment net sales, because Walmart did not report total revenues by segment. a For fiscal 2000, Walmart reported large values of assets not allocated to any of its three segments. Beginning in fiscal 2008, Walmart significantly reduced the assets it reported in the “Other” category and allocated more assets to the Walmart U.S. and Sam’s Club segments. Therefore, domestic data for 1999 and 2008 are not comparable. The reallocation did not substantially affect asset values for the international segment, so international data are assumed to be comparable. 13 716-426 The Inexorable Rise of Walmart? 1988–2016 Exhibit 2 Financial Information for Walmart and Competitors Fiscal year closest to calendar year 1987 1999 2008 2013 2015 Walmart Revenue (mil) $16,064 $166,809 $404,254 $476,294 $482,130 Gross margin 23.5% 22.3% 24.8% 24.8% 25.1% Operating margin 7.4% 6.1% 5.6% 5.6% 5.0% Net income (mil) $628 $5,377 $13,381 $16,022 $14,694 Profit margin 3.9% 3.2% 3.3% 3.4% 3.0% Inventory turn 4.6x 6.6x 8.8x 8.0x 8.1x Sales per store (mil) $13 $42 $51 $44 $42 Sales per sq. ft. $269a $385 $440 $433 $420 Sales per employee (000) $88 $146 $193 $216 $210 Target Revenue (mil) $5,306 $26,080 $64,948 $72,596 $73,785 Gross margin 26.5%† 31.7%† 28.6% 30.1% 29.5% Operating margin 6.1% 7.8% 6.8% 5.9% 7.0% Net income (mil) $228† $1,144† $2,214 $1,971 $3,363 Profit margin 2.1%† 3.4%† 3.4% 2.7% 4.6% Inventory turn 4.8x† 6.1x† 6.7x 5.8x 6.0x Sales per store (mil) $17 $29 $39 $38 $41 Sales per sq. ft. $168 $253 $292 $286 $308 Sales per employee (000) $82† $120† $185 $198 $216 Costco Revenue (mil) $1,401 $27,456 $72,483 $105,156 $116,199 Gross margin 8.5% 12.0% 12.4% 12.6% 13.0% Operating margin 0.8% 3.1% 2.8% 2.9% 3.1% Net income (mil) $5 $397 $1,283 $2,039 $2,377 Profit margin 0.4% 1.4% 1.8% 1.9% 2.0% Inventory turn 8.3x 10.9x 12.6x 11.6x 11.3x Sales per store (mil) $33 $94 $142 $166 $169 Sales per sq. ft. $296b $712b $997 $1,158 $1,177 Sales per employee (000) $280 $392 $529 $572 $567 Kmart Revenue (mil) $25,627 $35,925 $16,219 $13,194 $10,188 Gross margin 27.6% 21.8% 23.3% 21.7% 21.1% Operating margin 4.5% 3.6% 1.1% (2.7%) (2.9%) Net income (mil) $692 $403 $53‡ ($1,365)‡ ($1,129)‡ Profit margin 2.7% 1.1% 0.1%‡ (3.8%)‡ (4.5%)‡ Inventory turn 3.3x 4.0x 3.9x‡ 3.9x‡ 3.7x‡ Sales per store (mil) $7c $17 $12 $11 $11 Sales per sq. ft. $173 $232 $125 $120 $113 Sales per employee (000) $78 $133 $144‡ $145‡ $141‡ Source: Casewriter, based on data from published sources. 2 Includes Target’s parent company Dayton Hudson’s other formats. 3 Data for Kmart’s parent Sears Holdings Corporation (Kmart merged with Sears in 2005). Note: Costco revenues, including membership fees, were used to calculate sales per store, square foot, and employee. a Walmart reported the building area for its two principal formats (Wal-Mart stores and Sam’s Clubs) only, so the actual sales per square foot were slightly lower than indicated here. b Estimates based on average warehouse size. c Includes Kmart’s specialty retail group, whose store formats generated $2 million per store, compared to Kmart stores’ $10 million. 14 Exhibit 2 Financial Information for Walmart and Competitors Fiscal year closest to calendar year 1987 1999 2008 2013 2015 Walmart Revenue (mil) $16,064 $166,809 $404,254 $476,294 $482,130 Gross margin 23.5% 22.3% 24.8% 24.8% 25.1% Operating margin 7.4% 6.1% 5.6% 5.6% 5.0% Net income (mil) $628 $5,377 $13,381 $16,022 $14,694 Profit margin 3.9% 3.2% 3.3% 3.4% 3.0% Inventory turn 4.6x 6.6x 8.8x 8.0x 8.1x Sales per store (mil) $13 $42 $51 $44 $42 Sales per sq. ft. $269a $385 $440 $433 $420 Sales per employee (000) $88 $146 $193 $216 $210 Dollar General Revenue (mil) $588 $3,888 $10,458 $17,504 $20,369 Gross margin 28.0% 28.2% 29.3% 31.1% 31.0% Operating margin 3.1% 9.0% 5.9% 10.0% 9.6% Net income (mil) $7 $219 $108 $1,025 $1,165 Profit margin 1.1% 5.6% 1.0% 5.9% 5.7% Inventory turn 2.8x 5.2x 4.7x 4.6x Sales per store (mil) $1 $1 $2 $2 Sales per sq. ft. $136 $178 $213 $220 Sales per employee (000) $112 $144 $174 $180 Family Dollar Revenue (mil) $675b $2,751 $6,984 $10,391 $10,489c Gross margin 35.2% 33.4% 33.6% 34.2% 33.8% Operating margin 6.5% 8.1% 5.2% 6.6% 5.0% Net income (mil) $27 $140 $233 $444 $285 Profit margin 4.1% 5.1% 3.3% 4.3% 2.7% Inventory turn 3.2x 4.5x 4.7x 4.3x Sales per store (mil) $1 $1 $1 Sales per sq. ft. $151 $183 $181 Sales per employee (000) $97 $159 $179 $175 Amazon Revenue (mil) $1,640 $19,166 $74,452 $107,006 Gross margin 17.7% 22.3% 27.2% 33.0% Operating margin -36.4% 4.1% 1.0% 2.1% Net income (mil) ($720) $645 $274 $596 Profit margin -43.9% 3.4% 0.4% 0.6% Inventory turn 6.1x 10.6x 7.3x 7.0x Sales per employee (000) $216 $926 $635 $464 Source: Casewriter, based on data from published sources. a Walmart reported the building area for its two principal formats (Wal-Mart stores and Sam’s Clubs) only, so the actual sales per square foot were slightly lower than indicated here. b All Family Dollar data in this column are for the year ended August 31, 1988. Data for the previous year were not available. c All Family Dollar data in this column are for the year ended August 30, 2014, the last year available (Dollar Tree purchased Family Dollar in 2015). 15 For the exclusive use of R. FRENCH, 2020. The Inexorable Rise of Walmart? 1988–2016 716-426 a For the exclusive use of R. FRENCH, 2020. b For the exclusive use of R. FRENCH, 2020. The Inexorable Rise of Walmart? 1988–2016 716-426 a This document is authorized for use only by RODERICK FRENCH in 2020. This document is authorized for use only by RODERICK FRENCH in 2020. This document is authorized for use only by RODERICK FRENCH in 2020. 716 - 426 - 16 - Exhibit 3 a Changes in Walmart’s Sales, Operating Income, Store Formats and S izes, and Geographies, 1987 – 2015 McMillon CAGR 201 5 0.6 % $479 2.7 % $355 - 4.9 % $123 $24 $21 $5 - 5.3 % - 7.3 % - 1.0 % 4.0 % 5,229 - 6.7 % 442 1.8 % 655 2.7 % 3,465 28.4 % 633 34 1.6 % 6,299 Mexico 2,360 UK 621 Brazil 499 - 1.7 % 149 - 0.5 % 104 0.0 % 134 - 0.3 % 178 2.5 % 42 Campus 4; To Go 5 59 0.4 % Kenya E ntire U.S.; 27 int’l 201 3 Duke CAGR 2009 – 201 3 $473 $337 $137 3.3 % 2.2 % 6.7 % $27 $24 $5 3.3 % 3.6 % 2.0 % 4,835 508 632 3,288 384 23 2.6 % - 10.6 % 1.0 % 4.7 % 20.2 % 11.1 % 6,107 Mexico 2,199 UK 576 Brazil 556 - 0.4 % 154 - 0.5 % 105 0.1 % 134 - 0.8 % 179 ( 40 est.) Express 15 (est.); Campus 4 59 - 3.4 % DC; Botswana, Ghana, Lesotho, Malawi, Mozambique, Namibia, Nigeria, South Africa, Swaziland, Tanzania, Uganda, Zambia Entire U.S. ; 26 int’l 200 8 Scott CAGR 2000 – 200 8 $401 $303 $99 10.4 % 8.7 % 17.7 % $23 $20 $5 9.5 % 9.3 % 22.1 % 4,258 891 602 2,612 153 0 4.0 % - 7.5 % 3.0 % 15.4 % 40.9 % 15.3 % 3,615 Mexico 1,197 Japan 371 UK 358 157 108 133 186 42 3.1 % 1.5 % 1.0 % 0.3 % 70 - 0.8 % Chile, Costa Rica, El Salvador, ( Germany ) , Guatemala, Ho nduras, India, Japan, ( Korea ) , Nicaragua 50 states, PR; 14 int’l 1999 Glass CAGR 1988 – 1999 $165 $142 $23 21.5 % 20.0 % $10 $9 $1 19.6 % 18.6 % 2,993 1,801 463 721 7 1 7.8 % 4.1 % 15.3 % 1,004 Mexico 458 UK 232 Canada 166 120 95 122 181 ( 40 est.) 270 5.3 % 3.7 % 1.3 % 75 27 states & PR; Argentina, Brazil, Canada, China, Germany, Korea, Mexico, UK 50 states, PR; 8 int’l Fiscal year closest to calendar 198 7 $16 $16 Net sales ( ) bil U.S. International $1 $1 Operating profit (bil) U.S. International 1,215 1,114 84 0 0 17 Store count (U.S.) Discount stores Sam’s Clubs Supercenters Neighborhood Markets Other (see Notes) 0 Store count ( int’l ) Largest markets U.S. store size ( 000 sq . ft . ) 64 Discount stores 61 Sam’s Clubs 104 Supercenters Neighborhood Markets Other (see Notes) 220 Int’l store size (000 sq. ft.) 23 states: NM – MN – WV – FL Geographies c overed entered ( exited ) Source: Casewriter, based on data from published sources. Note s : Store size figures are averages ; U.S. overall average may exclude minor formats for which Walmart did not report data . Other stores in 1988: 12 dot Dis count Drug, 3 Helen’s Arts and Crafts, and 2 220,000 - sq. - ft. hypermarkets. Other store in 2000: 1 hypermarket. Other stores in 2014: 19 Express and 4 on Campus. Other stores in 2016: 5 on Campus, 1 T o Go , and unique Puerto Rico formats . PR stores reported under International segment in 2000 and 2009. Unallocated corporate overhead decreased tota l operating profit. 716 - 426 - 17 - 716 - 426 - 18 - Exhibit 4 Comparison of Costco and U.S. a Sam’s Club s Costco Sam ’ s Club Aug - 15 Jan - 16 113,666 56,828 11.1 % 3,624 1,820 3.2 % 3.2 % 649 1,152 87 166 134 144 98.7 87.6 655 480 206 3,700 Costco Sam ’ s Club Sep - 13 Jan - 14 102,870 57 ,157 10.6 % 3 ,053 1 ,975 3.0 % 3.5 % 680 1 ,133 90 162 134 143 90.8 84.0 632 451 183 3,700 Costco Sam ’ s Club Aug - 08 Jan - 09 70 ,977 46 ,854 10.5 % 1 ,969 1 ,610 2.8 % 3.4 % 585 976 78 139 133 142 72.7 80.1 602 398 114 4,000 Costco Sam ’ s Club Aug - 99 Jan - 00 26 ,976 24 ,801 10.4 % 860 3.2 % 440 700 54 92 122 132 38.5 56.3 463 221 49 71 4,000 † Costco Price Club b Sam ’ s Club Aug - 87 Aug - 87 Jan - 88 Fiscal year ended 1 ,370 3 ,236 2 ,711 Sales ($ mil) 8.7 % 8.9 % Gross margin 144 11 Operating profit ($ mil) 0.8 % 4.5 % Operating margin 311 824 290 † Sales per square foot ($) 32 95 33 Sales per store (mil $) 104 113 † 116 † Average store area (000 ) sq. ft. 8.7 4.7 † 3.9 † Total area (mil sq. ft.) 84 34 39 Store count ( ) U.S. 0 1 3 Store count ( int’ l) 3,200 SKUs per warehouse Source: Casewriter, based on data from annual reports and Forms 10 - K. † E stimate. Note s : Total r evenues also included membership fees, which are not shown above because the companies did not report them consistently. Gross and operating m argins are calculated on the sales figures shown above . Sam’s Club operating income excludes unallocated Walmart c orporate overhead. Walmart did not report cost of sales or gross profit for the Sam’s Club segment, and it did not report operating income in fiscal 1988 or fiscal 2000. S ales per store are calculated using total sales including online sales . a Non - U.S. Sam’s Clubs were reported under Walmart’s international segment along with other store formats . A ll Sa m’s Club data above are for the U.S. only, except for the international store count, which Walmart stopped reporting after fiscal 2000. Costco data includ e international stores, except that Mexican joint - ve nture operations are excluded for fiscal 1999 and fiscal 2008, when they were reported separately. b Price Club and Costco merged i n 1993 . For the exclusive use of R. FRENCH, 2020. For the exclusive use of R. FRENCH, 2020. For the exclusive use of R. FRENCH, 2020. This document is authorized for use only by RODERICK FRENCH in 2020. This document is authorized for use only by RODERICK FRENCH in 2020. This document is authorized for use only by RODERICK FRENCH in 2020. Exhibit 5 Chronology of Important Walmart Events 1988–1999a 1988 First Supercenter opened 1988 Sold its 3 Helen’s Arts & Crafts outlets 1990 Sold its 14 dot Discount Drug stores 1990 Opened first Bud’s Discount City store, selling distressed merchandise in former Walmart locations 1993 Acquired 91 warehouse clubs from Kmart after number-two Price Club rejected an overture from Walton 1995 Launched Wal-Mart.com 1995 Launched CareMail Parcel Centers (stores-within-stores) 1996 Launched Wal-Mart Travel Centers (stores-within-stores) 1996 Online sales began 1996 Home Town Stores/Hometown U.S.A. launched to modernize 700 smaller discount stores (60,000 square feet) 1996 First gasoline stations added at stores 1997 Launched OneSource supplements and natural remedies stores-within-stores 1997 Most Bud’s Discount City stores closed, having failed to make adequate returns 1998 Neighborhood Market format tested (40,000 square feet) 2000–2008b 2000 Joint-ventured with California firm to create Wal-Mart.com as a separate company 2000 Converted the last remaining Hypermart USA to a Supercenter 2000 Phased out OneSource nutrition centers 2001 Bought back the shares it did not own in Walmart.com and launched Wal-Mart Connect service with AOL 2002 Partnered with Asbury Automotive to sell used cars from its stores 2002 Acquired 35% stake in Seiyu in Japan, with option to increase ownership to two-thirds 2002 Launched basic financial-services offering 2003 Ended car-selling experiment after Asbury lost $6 million 2003 Announced online DVD rental service 2004 Launched Music Downloads service in competition with Apple 2005 Abandoned DVD rental in favor of a partnership with Netflix 2006 Announced joint venture with Bharti in India 2006 Announced exits from South Korea and Germany 2007 Launched and then closed movie download service 2009–2013c 2010 Began test of same-day grocery delivery in San Jose, California 2010 Acquired Vudu (online movie rentals and purchases) 2011 First Walmart Express (15,000-square-foot convenience store) 2011 First Walmart on Campus (3,500-square-foot convenience store on college campus) 2011 Closed music downloads service 2011 Acquired Kosmix for $300 million to form @WalmartLabs 716-426 The Inexorable Rise of Walmart? 1988–2016 2014–2015d 2014 First Walmart-to-Go opened (5,200 square feet with gas station, fresh food, deli, household basics) 2014 Announced partnership with Green Dot to offer banking products 2015 Launched Walmart Pay, a mobile payment system Source: Casewriter, based on sources cited in footnotes. a Judith VandeWater, “Wal-Mart Takes Washington by Store,” St. Louis Post-Dispatch, March 2, 1988, p. 1C; “Wal-Mart Plans to Sell Art Stores to Michaels, Exiting Crafts Business,” Wall Street Journal, April 14, 1988; Wal-Mart Stores, January 31, 1988 10-K (Bentonville, Arkansas: Wal-Mart Stores, 1988), p. 4; “Wal-Mart Stores Report 28.5% Rise in Net Income,” Journal Record (Oklahoma City), February 28, 1990; Louise Lee, “Facing Superstore Saturation, Wal-Mart Thinks Small,” Wall Street Journal, March 25, 1998, p. B1; John Dicker, The United States of Wal-Mart (New York: Penguin, 2005), p. 12; Carole Healy, Dorothy Kroll, David E. Salamie, and Jeffrey L. Covell, “Wal-Mart Stores, Inc.,” in International Directory of Company Histories, Volume 141, ed. Jay P. Pederson (Detroit: St. James Press, 2013), p. 495; John Helyar and Ann Harrington, “Sol Price On Off-Price,” Fortune, November 24, 2003; Stephanie Strom, “Wal-Mart Stores to Buy PACE Warehouse Clubs,” New York Times, November 3, 1993; Bob Ortega, “Warehouse-Club War Leaves Few Standing, And They Are Bruised,” Wall Street Journal, November 18, 1993, p. A1; “Wal-Mart tests waters for Internet, delivery service,” Discount Store News, July 3, 1995, p. 3; Pete Hisey, “The next vacation’s just a Wal-Mart away,” Discount Store News, February 19, 1996, p. 37; Robert Scally, “Wal-Mart Online celebrates 2nd birthday,” Discount Store News, August 10, 1998, p. 8; Louise Lee and Kevin Helliker, “Humbled Wal-Mart Plans More Stores,” Wall Street Journal, February 23, 1996, p. B1; David Smith, “Wal-Mart, Dillard’s stock prices jump,” Arkansas Business, April 1, 1996, p. 1; Pete Hisey, “Wal-Mart brings more food into its discount stores,” Discount Store News, September 16, 1996, p. 7; “Wal-Mart Enters Gasoline Retailing with Gary-Williams Deal,” Octane Week, August 12, 1996; Sandy Shore, “Highlands Park gas station is strictly do-it-yourself operation,” Colorado Springs Gazette Telegraph, August 31, 1996, p. E1; Mike Duff, “Gasoline at retail: To pump or not to pump?” DSN Retailing Today, July 25, 2005; Michael Wilke, “Halls Brand Will Move into Natural Remedies,” Advertising Age, June 23, 1997, p. 1; Richard Tomkins, “Wal-Mart threatens mayhem,” Financial Times, October 7, 1998, p. 30; Wal-Mart Stores, 1999 Annual Report (Bentonville, Arkansas: Wal-Mart Stores, 1999), p. 10. b “Wal-Mart, Accel Partners to Launch Wal-Mart.com, a New Independent Company Based in Silicon Valley,” PR Newswire, January 6, 2000; “Planned conversion means end to Wal-Mart’s 10-year Hypermart experiment,” Associated Press, May 22, 2000; “Pharmacy an Integral Part of Wal-Mart’s Operation,” Chain Drug Review, August 28, 2000, p. 18; Ann Zimmerman and Amy Merrick, “Kmart and Wal-Mart Aim to Purchase Balance of Shares in Their Internet Sites,” Wall Street Journal, July 24, 2001, p. B2; “Kmart Completes Purchase of BlueLight.com,” Dow Jones News Service, August 1, 2001; Sherman Fridman, “AOL & Wal-Mart Team On Rural Internet Access,” Newsbytes News Network, December 16, 1999; Peter Loftus, “Wal-Mart To Launch Low-Priced ISP With AOL Support,” Dow Jones Newswires, June 1, 2001; Chuck Bartels, “Walmart.com to roll out unlimited Internet access for less than $10,” Associated Press Newswires, June 1, 2001; Earle Eldridge, “Five Wal-Marts test out used car sales,” USA Today, April 23, 2002, p. B1; Bayan Rahman and Mariko Sanchanta, “Wal-Mart develops a taste for Japan,” Financial Times, May 3, 2002, p. 13; Mike Troy, “Wal-Mart tests business center,” Discount Store News, October 7, 2002, p. 7; Neil Buckley, “Wal-Mart to offer discount financial services,” Financial Times (FT.com), January 7, 2003; Donna Harris, “Asbury ends Wal-Mart experiment,” Automotive News, July 14, 2003, p. 1; Leslie Walker, “Wal-Mart Follows The Netflix Model,” Washington Post, June 15, 2003, p. F7; “Wal-Mart Launches Test of Low-Price Digital Music Downloads,” PR Newswire, December 18, 2003; Laura Heller, “Wal-Mart tunes in to music downloads,” DSN Retailing Today, January 5, 2004, p. 1; “Wal-Mart Officially Launches 88-Cent Online Music Downloads,” PR Newswire, March 23, 2004; Michael Barbaro, “WalMart to Give Up DVD Rentals in Deal With Netflix,” Washington Post, May 20, 2005, p. E1; Nitin Luthra and Kris Hudson, “Wal-Mart Makes Move Into India,” Wall Street Journal, August 7, 2007, p. A2; Mike Troy, “Wal-Mart cuts losses, exits South Korea,” DSN Retailing Today, June 12, 2006; Choe Sang-Hun, “Wal-Mart Selling Stores And Leaving South Korea,” New York Times, May 23, 2006, p. 5; Jonathan Birchall and Jung-a Song, “Wal-Mart to sell Korean stores,” Financial Times, May 23, 2006, p. 22; Mark Landler and Michael Barbaro, “No, Not Always,” New York Times, August 2, 2006, p. 1; Jennifer Netherby, “Wal-Mart puts low-price stamp on downloads,” Video Business, February 12, 2007; Matt Richtel and Brad Stone, “Wal-Mart ends movie downloads,” International Herald Tribune, January 2, 2008, p. 11. c Anne D’Innocenzio, “Wal-Mart is testing same-day delivery for online orders for winter holidays in 4 markets,” Associated Press Newswires, October 9, 2012; Miguel Bustillo and Karen Talley, “For Wal-Mart, a Rare Online Success,” Wall Street Journal, August 29, 2011, p. B1; Alissa Skelton, “Wal-Mart, Seeing a Niche, Introduces Small-Store Format,” New York Times, June 3, 2011, p. 7; Karen Talley, “Wal-Mart Takes Small-Store Concept To Maximum Degree,” Dow Jones News Service, December 22, 2010; Miguel Bustillo, “Wal-Mart Shakes Up Its Online Business,” Wall Street Journal, August 13, 2011, p. B1; Jack Neff, “Walmart seeks boost from tech with Labs,” Advertising Age, September 12, 2011, p. 6. d Susan Thurston, “Tampa Firm Designs Walmart to Go Store,” Tampa Bay Times, May 27, 2014, p. 1A; Hiroko Tabuchi and Jessica Silver-Greenberg, “Finding a Door Into Banking, Walmart Prepares to Offer Checking Accounts,” New York Times, September 24, 2014, p. 3; Phil Wahba, “Walmart Launches its Own Mobile Payment System,” Fortune, December 10, 2015, http://fortune.com/2015/12/10/walmart-mobile-payment/, accessed December 2015. 20 Exhibit 6 Leading Retailers in Countries with Dedicated Amazon Websites, 2015 Australia Brazil Canada Wesfarmers Ltd Casino Guichard-Perrachon SA George Weston Ltd Woolworths Ltd (Australia) Wal-Mart Stores Inc Wal-Mart Stores Inc Metcash Ltd Carrefour SA Empire Co Ltd Aldi Group Lojas Americanas SA Metro Inc Harvey Norman Holdings Ltd Cencosud SA Costco Wholesale Corp JB Hi-Fi Ltd Magazine Luiza SA Canadian Tire Corp Ltd Myer Ltd Natura Cosméticos SA Home Depot Inc, The Apple Inc Raia Drogasil SA Liquor Control Board of Ontario Woolworths Holdings Ltd (South Africa) Botica Comercial Farmacêutica Sears Holdings Corp Chemist Warehouse Ltd Máquina de Vendas SA Hudson’s Bay Co China France Germany Alibaba Group Holding Ltd Carrefour SA Edeka Zentrale AG & Co KG JD.com Inc E Leclerc Schwarz Beteiligungs GmbH China Resources Enterprise Ltd ITM Entreprises SA Aldi Group Suning Commerce Group Co Ltd Casino Guichard-Perrachon SA Rewe Group GOME Electrical Appliances Holding Auchan Group SA Metro AG Wal-Mart Stores Inc Système U Centrale Nationale SA Amazon.com Inc Auchan Group SA Schwarz Beteiligungs GmbH dm-Drogerie Markt Bailian Group Co Ltd Adeo Groupe Tengelmann Group, The Beijing Xiao Mi Co Ltd Louis Delhaize SA eBay Inc Belle International Holdings Ltd Kingfisher Plc Otto Group India Italy Japan Flipkart Online Services Pvt Ltd Coop Italia scarl Seven & I Holdings Co Ltd Jasper Infotech Pvt Ltd CONAD AEON Group Future Group Selex Gruppo Commerciale SpA Lawson Inc Tata Group Auchan Group SA FamilyMart Co Ltd Reliance Group Esselunga SpA Yamada Denki Co Ltd Amazon.com Inc Carrefour SA Rakuten Inc Godrej Group Gruppo Eurospin Japan Consumers Coop. Union Aditya Birla Group Sigma Società Cooperativa Amazon.com Inc K Raheja Corp Crai Secom Spa Uny Group Holdings Co Ltd Avenue Supermarts Ltd Internationale Spar Centrale BV Wal-Mart Stores Inc 716-426 The Inexorable Rise of Walmart? 1988–2016 Mexico Netherlands Spain Wal-Mart Stores Inc Royal Ahold NV Mercadona FEMSA Jumbo Supermarkten BV El Corte Inglés Organización Soriana Schwarz Beteiligungs GmbH Carrefour Grupo Coppel Aldi Group Dia El Puerto de Liverpool Blokker Nederland BV Eroski, Grupo Grupo Comercial Chedraui Sperwer Holding BV Auchan Group Controladora Comercial Mexicana Hutchison Whampoa Ltd Inditex Farmacias Similares Metro AG Schwarz Beteiligungs GmbH Corporativo Fragua Hema BV Adeo Groupe Casa Ley Walgreens Boots Alliance Inc Consum, Sociedad Cooperativa United Kingdom United States Tesco Plc Wal-Mart Stores Inc J Sainsbury Plc CVS Health Corp Wal-Mart Stores Inc Kroger Co Wm Morrison Supermarkets Plc Walgreens Boots Alliance Inc Amazon.com Inc Amazon.com Inc John Lewis Partnership Plc Target Corp Marks & Spencer Plc Costco Wholesale Corp Co-operative Group Ltd, The Albertson’s Inc Dixons Carphone Plc Home Depot Inc, The Walgreens Boots Alliance Inc Lowe’s Cos Inc Source: Retailing Company Shares, Euromonitor International, accessed April 2016. Notes: This table includes all countries for which Amazon had dedicated websites as of April 2016. Some company names have been simplified. 22 Exhibit 7a Photograph of Supercenter Source: Walmart. For the exclusive use of R. FRENCH, 2020. The Inexorable Rise of Walmart? 1988–2016 716-426 For the exclusive use of R. FRENCH, 2020. For the exclusive use of R. FRENCH, 2020. The Inexorable Rise of Walmart? 1988–2016 716-426 19 This document is authorized for use only by RODERICK FRENCH in 2020. This document is authorized for use only by RODERICK FRENCH in 2020. 19 This document is authorized for use only by RODERICK FRENCH in 2020. 716 b Photograph of Neighborhood Market Source: Walmart. 716 c Photograph of Sam’s Club Source: Walmart. 716 d Photographs of Walmart’s Bodega Aurrera Express Store, Escobedo, Mexico For the exclusive use of R. FRENCH, 2020. - 426 - 24 - For the exclusive use of R. FRENCH, 2020. - 426 - 24 - For the exclusive use of R. FRENCH, 2020. - 426 - 24 - This document is authorized for use only by RODERICK FRENCH in 2020. Exhibit 7 This document is authorized for use only by RODERICK FRENCH in 2020. Exhibit 7 This document is authorized for use only by RODERICK FRENCH in 2020. Exhibit 7 716 Source: Neal Morton, “In Mexico, H - E - B plays catch - up,” San Antonio Express - News , July 3, 2015, http://www.expressnews.com/business/article/In - Mexico - rivals - face - complaints - of - favoritism - .php 6358781 , accessed December 2015 . © Jerry Lara/San Antonio Express - News/ZUMAPRESS.com . Exhibit 8a Market Shares of the Leading Grocery Retailers in the United States, 2014 Walmart Kroger Costco Safeway Publix Albertsons H-E-B Whole Foods Target Peapod Freshdirect Instacart Others 24.5 12.9 7.6 6.2 4.3 3.9 3.4 2.4 2.2 0.1 0.08 0.02 0 5 10 15 20 25 30 Market Share (%) 32.3 35 Source: Kantar Media and Syndy, via Statista. Notes: Kroger figure excludes fuel. Safeway, Albertsons, and H-E-B figures based on total company revenue (estimate for Safeway). Target figure based on estimate. Peapod, Freshdirect, and Instacart were online-only. Exhibit 8b Most Popular Retail Websites in the United States, September 2015 97 87 80 60 38 33 32 30 23 Amazon Sites eBay Wal-Mart Apple.com Sites Target Corporation Best Buy Sites The Home Depot Etsy Kohl's Macy's 0 20 40 60 80 100 120 140 160 180 Unique Monthly Visitors (millions) 188 200 Source: comScore via Statista. 28 Appendix A Walmart’s U.S. Competition Domestic Competition, 1988–1999 Kmart The S.S. Kresge Corporation, a nickel and dime variety chain, launched its first discount format store, Kmart, in 1962. Within four years Kmart had become the leading discounter in the United States, a position it held for over 20 years. In fiscal 1988, Kmart remained 60% larger than Walmart in sales, but operating profits were about the same. By fiscal 1991, Kmart and Walmart were the same size, although Walmart was much more profitable. Each reported sales between $32 billion and $33 billion. Kmart’s growth slowed sharply, and three years later the company suffered a net loss of $974 million. In 1999, Kmart’s sales were $36 billion, while Walmart delivered $167 billion. Kmart’s pricing strategy, according to its CEO, combined “the best elements” of Walmart’s EDLP and Target’s promotions. With a “high/low strategy,” Kmart priced products featured in weekly circulars 10% below Walmart’s levels and most other items 1% to 2% higher.73 Target Dayton Hudson Corporation, a department store chain, opened its first discount store, Target, in 1962. In 1988, it operated 317 Target stores in 24 states and generated $5.3 billion in revenues, making it about one-fifth the size of Kmart. In 1990, Target added its first superstore, Target Greatland, a 166,000-square-foot outlet in Minnesota. By the end of the decade, Target was in 44 states. In fiscal 2000, it reached $33.7 billion in sales, just short of Kmart, but its operating profits were more than twice as high. It cultivated its brand image carefully, hosting fashion shows, advertising in glamour magazines, and hiring Michael Graves to design proprietary tea-kettles, in an effort to differentiate itself from other discounters. The strategy garnered praise, though one consultant feared that creating “the quality of a department store” could make customers forget about the low prices that should attract them to Target (or “Tar-jay”).74 Costco Costco was founded by Jim Sinegal and Jeffrey Brotman in 1983. Sinegal had worked for Sol Price, who pioneered warehouse clubs in 1976 when he opened Price Club. By 1987, Costco reached $1.4 billion in sales. In 1993, after Price turned down an offer from Sam Walton, Price Club and Costco merged. Direct competition with Sam’s Club began in 1996, when Costco entered Atlanta. In 1999, Costco’s sales reached $27 billion, $2 billion more than Sam’s Club’s. Costco’s sales and operating income per store were approximately twice those of Sam’s Club. (See Exhibit 4.) Costco frequently introduced new benefits for its different membership levels, often bringing new concepts to the industry, and it tended to attract more upscale customers than Sam’s did.75 Dollar stores Although small, dollar stores represented an ever-present threat to discounters. They were a throw-back to the nickel-and-dime stores of old, but everything was priced at a dollar. The top two chains, Family Dollar and Dollar General, had combined sales in 1988 of $1.3 billion, but this total rose to $7.7 billion by 2000. Dollar stores often targeted urban and rural locations with stores of about 10,000 square feet, while the large discounters focused on more affluent suburbs and superstore formats. Dollar stores offered a broad selection of staples, often private-label, at low, simple price points.76 Domestic Competition, 2000–2008 Kmart After filing for bankruptcy in 2002, Kmart merged with Sears, Roebuck and Company in 2005. This did little to restore its fortunes, and by 2008, Costco and Target were each four times Kmart’s size.77 29 Target In 2006, Target overtook Meijer to become the country’s second-largest supercenter operator by number of stores. It expanded designer partnerships, succeeding with Mossimo Giannulli and Isaac Mizrahi, who released a wedding collection including bridal gowns. Target opened its first food distribution center in 2008, and revenues that year reached $64.9 billion.78 Costco In 2005, Costco overtook Target in sales, becoming the country’s second-largest retailer of general merchandise. It became a popular source of high-end televisions and the nation’s leading wine retailer. In response, Sam’s Club worked to upgrade its offerings, but it remained less upmarket than Costco. Costco also grew its private-label offering, which reached almost 20% of sales.79 Dollar stores As dollar stores continued to gain share in the early 2000s, Walmart tested a section in its stores called Pennies-n-Cents. In 2008, the top three chains (Dollar General, Family Dollar, and Dollar Tree) had combined sales of $22 billion.80 Online Amazon added to its original categories of books, music, and videos, creating distinct “stores” within its website such as gourmet food, sporting goods, jewelry, and health and personal care. It also expanded its platform for third-party merchants to sell items, launched digital music downloads to compete with Apple’s iTunes, and created the Kindle e-reader. Amazon’s revenues reached $19.2 billion in 2008, surpassing Kmart’s $16.2 billion. Amazon had an advantage over multichannel retailers like Walmart in that it did not collect sales tax in most states.81 Domestic Competition, 2009–2013 Kmart continued to struggle with a succession of CEOs who failed to turn it around, and sales dropped to $13.2 billion by 2013. Target lost momentum during the 2008 recession, and its growth stalled thereafter. Meanwhile, Costco went from strength to strength, becoming the world’s secondlargest retailer after Walmart in 2013 with revenues of $105 billion. Meanwhile, the U.S. dollar-store market grew 46% to $48 billion from 2008 to 2013.82 Hard discounters The hard-discount concept emanated from Germany, where Aldi and Lidl were the early pioneers. They offered a very narrow line of 1,000 to 2,000 SKUs, mostly private-label groceries, sold at prices 30% to 40% below those of U.S. regional chains. With very limited service and fast throughput, they promised to meet 80% to 90% of the average consumer’s weekly shopping needs with a quick shopping trip to a convenient location. Early leaders Aldi and Save-A-Lot attracted relatively little attention in the United States until around 2008, when customer traffic increased amid the economic downturn. In response, Aldi sped up its U.S. expansion, growing from 780 stores in 2004 to almost 1,300 in 2013.83 Online Amazon continued to grow rapidly, nearly quadrupling its revenues to $74 billion over the 2008–2013 period. It launched the AmazonBasics private label in 2009. It acquired online shoe and fashion retailer Zappos in 2009 and online baby care, health, and beauty retailer Quidsi in 2010. In 2010, media sales accounted for less than half of Amazon’s revenues for the first time. Also that year, Amazon Studios opened, inviting Internet users to submit films and scripts for potential monetary awards and development by Warner Bros. Pictures. In 2011, Amazon introduced the Kindle Fire. In 2013, it expanded its AmazonFresh grocery delivery service beyond Seattle and announced Amazon Prime Air, an effort to deliver packages using aerial drones.84 Source: Casewriter. 30 Endnotes 1 Doug McMillon, President and CEO, remarks made at Walmart’s 22nd Annual Meeting for the Investment Community, New York, October 14, 2015. From transcript provided by Thomson Reuters, http://cdn.corporate.walmart.com/76/40/f31e53ff4c7399860f3a8486b7ab/2015-analyst-meeting-transcript.pdf, accessed December 2015. 2 FY 2016 Q4 Earnings Results, press release, February 18, 2016, on Walmart website, http://s2.q4cdn.com/056532643/files/doc_financials/2016/Q4/Q4 - FY16 - press - release - final.pdf, accessed April 2016; Shelly Banjo, “The End of an Era At Walmart,” Bloomberg Gadfly, March 31, 2016, http://www.bloomberg.com/gadfly/articles/2016 - 03 - 31/walmart - s - first - ever - sales - drop - marks - new - era, accessed April 2016. 3 Debra Borchardt, “Alibaba GMV Tops Wal-Mart Sales, H&M Sales Up,” WWD, April 6, 2016. 4 David W. Boyd, “From ‘Mom and Pop’ to Wal-Mart: The Impact of the Consumer Goods Pricing Act of 1975 on the Retail Sector in the United States,” Journal of Economic Issues 31 (March 1997): 224, 229–230; “Retail Price Maintenance Policies: A Bane for Retailers, but a Boon for Consumers?” Knowledge@Wharton, August 8, 2007, http://knowledge.wharton.upenn.edu/article/retail - price - maintenance - policies - a - bane - for - retailers - but - a - boon - for consumers/, accessed November 2015; Vicki Howard, From Main Street to Mall: The Rise and Fall of the American Department Store (Philadelphia: University of Pennsylvania Press, 2015), p. 171; Isadore Barmash, “Discount Stores Cite Price Study,” New York Times, April 28, 1965, p. 69; Arthur Markowitz, “Retailing Leadership: A Quarter-Century History of the Discount Industry,” Discount Store News, September 14, 1987, p. 53. 5 Howard Rothman, 50 Companies That Changed the World (Franklin Lakes, NJ: Career Press, 2001), p. 52. 6 Sam Walton and John Huey, Sam Walton: Made in America, reissue ed. (New York: Bantam, 1993), p. 43. 7 John Huey, Sarah Smith, and David J. Morrow, “Wal-Mart: Will It Take Over the World?” Fortune, January 30, 1989, p. 56. 8 Sam Walton and John Huey, Sam Walton: Made in America, reissue ed. (New York: Bantam, 1993), p. 66. 9 Karen Paxton, “Everyday Low Prices: Winning Strategy or Net Profit Drain?” Discount Store News, May 26, 1986, p. 15; Mike Troy, “‘Sales’ could undercut Wal-Mart’s EDLP image,” Discount Store News, November 3, 1997, p. 14; “EDLP Policy Was There From the Beginning,” MMR: Mass Market Retailers, December 8, 2003, p. 105. 10 Sam Walton and John Huey, Sam Walton: Made in America, reissue ed. (New York: Bantam, 1993), pp. 139–140. 11 Bob Ortega, In Sam We Trust: The Untold Story of Sam Walton and How Wal-Mart Is Devouring America (New York: Random House, 1998), pp. 62–63. 12 Sam Walton and John Huey, Sam Walton: Made in America, reissue ed. 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Hayes, “Wal-Mart Net Jumps By 31.8%,” New York Times, February 28, 1990; Mike Troy, “Big boxes abet continental divide,” DSN Retailing Today, July 10, 2000, p. 57. 37 Ann Zimmerman, “Wal-Mart Says Potential Growth Has ‘No Limit,’” Wall Street Journal, October 1, 2003, p. B5. 38 “Wal-Mart Stores, Inc. Realigns Management Responsibilities,” PR Newswire, October 9, 1995; Emily Nelson, “Logistics Whiz Rises at Wal-Mart,” Wall Street Journal, March 11, 1999, p. B1; Ann Zimmerman, “Wal-Mart Boss’s Unlikely Role: Corporate Defender-in-Chief,” Wall Street Journal, July 26, 2005, p. A1. 39 Wal-Mart Stores, 2003 Annual Report (Bentonville, Arkansas: Wal-Mart Stores, 2003), p. 20; 2004 Annual Report, p. 19; 2006 Annual Report, p. 22. 40 Ann Zimmerman and Kris Hudson, “How U.S.-Store Chief Hopes to Fix Wal-Mart,” Wall Street Journal, April 10, 2006, p. B1. 41 Kris Hudson, “Wal-Mart Shifts Executives, Streamlining U.S. Oversight,” Wall Street Journal, March 31, 2007, p. A7; Jonathan Birchall, “Wal-Mart Pursues ‘the Selective Shopper,’” Financial Times, March 23, 2006, p. 48; Jonathan Birchall, “Wal-Mart looks beyond the aisle,” Financial Times, September 1, 2006, p. 10; Michael Barbaro, “Is Wal-Mart Too Cheap For Its Own Good? An Ad Agency’s Tough Report Says The Retailer Puts Off Some Shoppers,” New York Times, May 30, 2007. 42 Ann Zimmerman and Amy Merrick, “Kmart and Wal-Mart Aim to Purchase Balance of Shares in Their Internet Sites,” Wall Street Journal, July 24, 2001, p. B2; “Kmart Completes Purchase of BlueLight.com,” Dow Jones News Service, August 1, 2001; Sherman Fridman, “AOL & Wal-Mart Team On Rural Internet Access,” Newsbytes News Network, December 16, 1999; Peter Loftus, “Wal-Mart To Launch Low-Priced ISP With AOL Support,” Dow Jones Newswires, June 1, 2001; Chuck Bartels, “Walmart.com to roll out unlimited Internet access for less than $10,” Associated Press Newswires, June 1, 2001; David A. 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B1; Donna Harris, “Asbury ends Wal-Mart experiment,” Automotive News, July 14, 2003, p. 1; Mike Troy, “Wal-Mart tests business center,” Discount Store News, October 7, 2002, p. 7; Neil Buckley, “Wal-Mart to offer discount financial services,” Financial Times (FT.com), January 7, 2003; Jonathan Birchall, “Wal-Mart plans ‘MoneyCenters,’” Financial Times, June 21, 2007, p. 23; Leslie Walker, “Wal-Mart Follows The Netflix Model,” Washington Post, June 15, 2003, p. F7; Michael Barbaro, “Wal-Mart to Give Up DVD Rentals in Deal With Netflix,” Washington Post, May 20, 2005, p. 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