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Wal-Mart Stores

Wal-Mart Stores (NYSE: WMT) is the world's largest retailer primarily operating in the U.S. The company was founded in 1945 and is headquartered in Bentonville, Ark.

Company Description

The world's biggest retailer. The world's biggest discount retailer. The world's best supply chain company. There are several accolades for this extremely successful and competitive company. Founded in 1945 by Sam Walton in the mid-west, it rapidly grew to a dominating role in retail, offering low prices on thousands of items.

The positives

Operating on a razor-thin net margin (averaging 3.38% from 1998 through 2007), the company makes its money by selling a lot of stuff and controlling costs. In its pursuit in doing this, they have improved their logistics train, nearly tracking every item from pickup to sale, and putting together an excellent web of distribution centers. Other companies have copied many of Wal-Mart's innovations to reduce their own costs.

The company pioneered the "just in time" inventory concept, only ordering what is needed and selling and getting rapid delivery of those items. This has the effect of lowering inventory for Wal-Mart, by passing the costs of holding lots of inventory back to its suppliers.

It uses technology extensively to track and control inventory. By doing so, it has forced its suppliers to do the same.

Its cash conversion cycle hovers around 10 days. This is the time it takes to convert cash into inventory, then into sales, then into cash again. For a retailer, this extremely fast and points to the excellent management and inventory control the company practices. This number has come down from the mid-40s in the 1990s to the teens in the early 2000s.

Because of its low prices, it tends to do well, certainly better than other retailers, during times of economic trouble.

The negatives

Because of its pricing power -- being so large, it can demand, and often get, cut rate prices from manufacturers -- when it moves into an area, smaller local retailers either have to come up with a new way to compete (service, offering items not available at Wal-Mart, etc.) or else see their customers move away. Small retailer can rarely compete on price, due to their own cost structures.

It has also been said that Wal-Mart can cause manufacturers to sell it products below their own costs. Some manufacturers might have compensated by producing two lines of products: cheaper, lower quality stuff to sell to Wal-Mart and more expensive, higher quality stuff to their other customers. Others have caved in, doing what the company wanted even while declining into mediocrity.

Its employees remain non-unionized and are held up as icons of underpaid, no benefit labor. The company has been attempting to change that image by offering more benefits. The Onion has spoofed the company, playing off its "rolling back" prices idea used in its advertising, to claim that Wal-Mart was "rolling back" hourly wages.

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