Running head: STRATEGIC INITIATIVE 1

Strategic Initiative
Finance for Business/370











Strategic Initiative
Short-term liquidity and long-term profitability are essential objectives for a successful
business. The modest beginnings and impressive 50-year growth of Walmart Stores, Inc. are an
STRATEGIC INITIATIVE 2

example of such practice. Walmart Stores, Inc. reflects decades of continued positive return for
investors in its annual report and presents a five-tiered strategic plan. The Walmart Store, Inc.
2012 Annual Report lists these initiatives as 1) Developing our people; 2) Driving the
productivity loop; 3) Winning inGlobal eCommerce; 4) Reinvigorating our customer-focused
culture; and 5) Leading on social and environmental issues (p. 3). This essay will focus on two
initiativesdriving the productivity loop and reinvigorating our customer-focused culture.
These two initiatives are tied to short-term and long-term financial concerns, and expansion
strategies. The following details the organizations financial planning surrounding the
initiatives, the risks involved in the ideas, and the effect on revenues and expenses.
Driving the Productivity Loop
One can speculate that long-term objectives coupled with prudent short-term tactics are
the reason for the success of the Walmart Stores, Inc. Strategic planning provides the framework
for the vision of the Walmart management team. With strategic planning the team determines
where to spend money for expansion, cut costs to reduces expenses, and invest profit for
sustainably. Supporting this framework is the short-term and long-term financial plans a
successful business needs to operate. According to Titman, Keown, and Martin (2011),
The primary objective of both short- and long-range financial planning is the estimation of the
firms future financing needs (p. 564). In the case of Walmart, these financial goals and
reviews are based on a positive record of providing lower prices, generating increased sales,
expanding into new markets, and using operating expenses to fund growth. According to the
Walmart 2012 Annual Report, We are very proud that we have leveraged operating expenses
for two consecutive years. Walmart is operating for less, so we can sell for less and drive
increased sales (p. 4). In this example the management of Walmart takes a long-term two-year
STRATEGIC INITIATIVE 3

initiative of expense cuts and applies the savings to short-term price point initiatives. The
companys sales increase, the expenses are lower, and the long-term objectives of the company
are realized.
Reinvigorating Our Customer-Focused Culture
Another initiative tied to growth and expansion is revisiting the focus on the Walmart
customer. Again, long-term financial strategies are tied to the short-term investments of the daily
customer experience. As the Walmart Stores 2012 Annual Report states, Our Global Customer
Insights group is developing world-class analytics to identify customer trends and support
merchandising and marketing decision-making within the business (p. 5). The company is
looking ahead and dealing with todays customer with tomorrows shopping habits in mind.
This is a clear indicator that the company uses short-term tactics to support long-term goals. The
funding for the analytics programs happens today and the result supports financial initiatives in
the future. These initiatives may include expansion into new markets, new store designs, and
different pricing structures to meet the demands of the customer moving forward.
Expansion is a long-term goal supported by short-term revenue increases. Because a new
Walmart store is an average investment of over $25 million, every potential site is critically
analyzed and reviewed by Walmarts real estate committee (Walmart Stores, Inc, 2012). The
decision to build a new store is based, primarily, on the expected return on investment (ROI).
Investopedia (2012) defines return on investment (ROI) as A performance measure used to
evaluate the efficiency of an investment or to compare the efficiency to a number of different
investments (para. 1). This measurement looks at the gain on the investment minus the cost of
the investment divided by the cost of the investment. The yield from the investment is the
determining factor in pursuing one investment over another, or not making the original
STRATEGIC INITIATIVE 4

investment. For instance, Walmart may want to expand into a market with a new store that will
cost $25,000,000 to build. The expected yearly sales revenues for the first year are $26,000,000.
Clearly, the ROI is positive. However, the company may also choose to refurbish an existing
building for $21,000,000 and realize a larger profit margin in the first year. The company may
use the increased profit to invest in the companys stock portfolio or make further expansions.
Here another short-term tactic supports a long-term goal.
Keeping with the initiative of expansion and making a bigger presence in urban areas,
Wal-Mart looks at the high costs of doing business in those markets. Many of these locations are
smaller in size and have forced Walmart to rethink their product lines in these new locations.
There is a price of doing business in urban areas and retailers are now willing to come into
cities on the cities terms with all the zoning headaches, high rents, and odd architecture
(Clifford, 2012). The expansion into the cities will affect the strategic planning of Wal-Mart.
They must consider union wages, new product lines, information systems, and other daily
expenses, such as security, rent, and the limitations of the actual footprint of the store. By
moving into these urban locations, Wal-Mart must also consider the costs of learning about their
new customer base and cater to individuals they wish to do business with.
The initial cost of the expansion initiative will be high but urban areas are an untapped
resource and could prove fruitful for Walmart. The challenge will be learning the culture in each
location and adapting the stores to meet the needs of the surrounding environment.

The Risk Factors
Timing is a risk that must be considered. In todays economy, consideration of risk is
essential. If Walmart were to open a store in an area, where another Superstore already exists or
STRATEGIC INITIATIVE 5

was scheduled to open shortly, expected returns may prove negative. Choosing the correct
prototype also can be risky. If an incorrect prototype, such as a larger box store is chosen in a
more transient community, Walmart may not have a large enough customer base to support the
store.
A global expansion is also risky because it also increases pressure in the economy
locally. Local economies fluctuate more commonly than the United States market; however, with
proper monitoring and regulation for unpredictable performances changes in the markets these
risks are less likely to cause and threats.
An initiative Walmart can use that involves little risk is the initiative of extending store
hours. Consumers who work normal business hours are willing, find it more convenient, and
prefer to shop in the evening hours. Walmart can use short-term financial analysis tools such as
Inventory Turnover Ratio to measure the success of such an initiative. The current ratio analysis
involves dividing Cost of Goods Sold by Inventories (Titman, Keown, & Martin,, 2011). In
this case, Walmart can analyze the result and determine if the store generates enough profit to
support the added expenses. These expenses may include, utilities, payroll expense, and
increased inventory costs. Returns from these ventures may prove that it is worth extending
store hours.
Conclusion
Walmart is an example of how an organized and well-managed company can continue to
grow in a declining economy. Walmart can see short-term cost-effective opportunities as a way
to affect pricing structures and promote positive long-term growth. The strategic initiatives of
driving the productivity loop and reinvigorating a customer-focused culture illustrate the
companys long-term vision supported by short-term and long-term financial tactics. As the
STRATEGIC INITIATIVE 6

Walmart Stores 2012 Annual Report states, Looking ahead, we have a clear understanding of what
we need to do at Walmart to drive long-term shareholder value and deliver on our mission (p.
5). The company takes the risks into account, uses prudent financial practices to leverage short-term
gains in achieving long-term goals.

















References
Clifford, S. (2012). The New York Times. Retrieved from
STRATEGIC INITIATIVE 7

http://www.nytimes.com/2012/07/26/business/retailers-expand-into-cities-by-opening-
smaller-stores.html?_r=1&ref=walmartstoresinc
Investopedia. (2012). Return on Investment. Retrieved from
http://www.investopedia.com/terms/r/returnoninvestment.asp#axzz223HnTVf4
Titman, S. , Keown, A. J. & Martin, J. D. (2011). Financial management: Principles and
application (11
th
ed.). Upper Saddle River, NJ: Pearson/Prentice Hall. Retrieve from the
University of Phoenix eBook Collection database.
Walmart. (2012). Investor Relations. 2012 Annual Report. Retrieved from
http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-reportsannual