PARTA Based on the virtual interview of Stephen Quinn Chief Marketing Officer, Wal-Mart US

Background: This interview was conducted to understand the effort put in place by WalMart for selecting a new market for expansion. After being highly successful in the US, WalMart has been on an expansion spree, thus is expanding into foreign destination. This interview was majorly focused on Wal-Marts feasibility study which is conducted to determine the profitability and capabilities of the new market.

According to Mr. Quinn, Wal-Mart relies heavily on the feasibility studies conducted by their knowledge partners to base their investment and expansion decisions in the international market. He further highlighted the following as the reasons that prompts Wal-Mart to conduct feasibility study (in particularly for foreign destinations):

To determine the capital requirement: According to Mr. Quinn, international expansion requires massive capital investment. Thus it is very necessary to determine the amount of capital which will be required to fund the expansion

To determine the profitability, existence of market and the return on investment: From an investors point of view it is very important that business expansion is commercially viable and profitable. Thus it is very necessary to prove it to the investors (either the banks, equity investors or other important stakeholders) that the business plan is definitely a hit and would provide a descent rate of returns on the investments made

To determine the risks associated with the business expansion (both operational, country and financial risks)

Requirement of other resources like human capital, technology, suppliers etc

According to Mr. Quinn, the outcome of the feasibility study conducted plays the deciding factor in their investment strategy. If the feasibility study conducted yields acceptable positive returns, the business expansion takes place; otherwise the expansion is put on hold. He further iterates that conducting a feasibility study gives them firsthand information on whether or not they will be successful with their expansion. Following are the ways in which the feasibility study is conducted for retail expansion:

Country and city analysis: It is very important to know the regulations pertaining to foreign investors, and the culture of that country, besides the prevailing political conditions. Further, given the enormous size of Wal-Mart, it is very much essential that the chosen location i.e. the city matches up with Wal-Marts business requirement i.e. has the right mix of target customers

Location and size of the new facility: Location and size of a retail destination plays a very important role in the success of the retail store. Thus it in order to conduct a location analysis it is very much essential to see the footfalls in that area, and have a clear discussion with the previous tenant or the tenants nearby to have their view on that location

Sales forecast: Mr. Quinn laid significant amount of stress on sales analysis, as this is the backbone of the entire feasibility study. Based upon the location, availability of target customers in the near vicinity of the upcoming establishment, seasonal fluctuations, ease of availability, ambience and neighbouring tenancy mix,

Gross margin: Again gross margin is one of the most important assumptions as it provides an idea about the operational performance of the company. Margins are largely determined by various factors like the mark-ups and markdowns, competition, supply chain efficiencies

Determining the amount of rent which should be paid according to the area where the store will be opened and assuming a fair increment each year

Capital investment decision: The net profit calculated is divided by the capital invested. This will give a fair idea about the performance of the store

According to Mr. Quinn, majority of the data which is used for the feasibility study are primary in nature. Further data which is used for forecasting various components are derived using the primary data and various statistical techniques. He further iterated that the assumptions used to conduct the feasibility study are very important and even the slightest deviation in the assumption could impact the final outcome of the project.

Thus it is very necessary to identify and establish the project risk properly. In order to assess the project risk it is very necessary to identify the risks which are related to the future outcome of the project. Besides this various other factors are taken into consideration such as the economic issues, technological issues, supply chain issues etc. For this purpose risk assessment matrix is used and employed. Below is an example of risk assessment matrix (not from the retail industry though).

As highlighted earlier it is very important that the assumptions that are used in the feasibility study are accurate or are at least close to being accurate. Accuracy of assumptions will ensure that the final result is not misleading, and gives a true picture of the business case. Thus Mr. Quinn states that the assumptions are often broken down into measurable chunks which can be measured to the actual numbers. Once the measurement in done, the variance can be determined and established. This variance can be used for readjusting the forecasted figures. For instance, yearly sales can be divided into monthly, weekly, and daily sales. This can be measured or compared with the actual. And thus the deviations if any can be recorded and used in the future forecast. In this way accuracy can be achieved. According to Mr. Quinn such kind of method is very much commonly used in merchandising. As comparing the recent trend gives a fair idea about the prevailing market conditions.

Once the entire analysis is conducted and the results are received, it is shared with the top management of the company. Based upon the research the management takes a decision. This document is further used as a stepping stone to this outcome and is often referred to by the management whenever a proper decision needs to be taken in this regards. Further, the document can be updated regularly so that the most recent trends are captured accordingly and accounted for.