Starting with the establishment of the first store in 1962 in Rogers, Arkansas, Sam Walton together with his brother had managed to grow the firm to 32 stores spread across four states by 1969, when Wal-Mart Stores, Inc was incorporated, and subsequently to 330 stores spread across 11 states by 1980, culminating in 1,402 Wal-Mart Stores and 123 Sam’s Wholesale Club outlets covering 29 states by Jan 1990 with Sales of over $25.8 billion. In fact, back in 1977, Forbes magazine had ranked Wal-Mart first in the discount retailing industry based on parameters such as return on equity, return on capital, sales growth, and earnings growth. To understand the reasons behind such phenomenal performance it will be prudent to look at some financial performance parameters of Wal-Mart and its competitors, and then to look at how competitive forces act in this industry using Porter’s Five forces model.
b) During the same period, the performance figures of other major competitors as given in Exhibit 5 of the case show that Sears and Kmart had recorded an average annual sales growth rate of just 7.8% and 7.9% respectively, while Target had recorded 12.9%. This indicates that Wal-Mart was way ahead of competition in sales growth.
c) Wal-Mart also ensured that this sales growth was accompanied by excellent returns to stockholders by maintaining the profitability despite such growth in sales. Thus net earnings increased from $0.55 billion in 1981 to $1.90 billion in 1990, with EPS growing from $0.11 million to $1.90 million
d) On this count again Wal-Mart was way above competitors clocking an average growth rate of 30.3% on Return on Equity (ROE), and 32.9% on EPS as against Sears (11.1%; 8.0%), Kmart (13.5%; 12.6%), and Target (15.2%; 14%).
e) Wal-Mart had also managed its working capital very well with a current ratio ranging from a low of 1.66 to a high of 2.07 during this decade, primarily through excellent management of inventories, achieving an