The Business Strategy of Walmart – A Case study

Introduction:

Walmart has continued to retain the top position on the Fortune 500
list consecutively for several years. The brand’s growth is driven mainly by its
‘everyday low prices’ strategy and the large assortment of merchandise it offers. Its
online sales in the United States have also grown fast driven by the company’s
investment in technology and customer experience. Walmart started as a small
discount retailer in Rogers, Ark in 1945. Since then, it has spread throughout the
U.S. and to several other parts of the globe. It is investing heavily in technology so
that its customers can shop from anywhere anytime. It is in a bid to win market
share away from its rivals Amazon, Target, and Costco. However, not
just Walmart but its rivals are also investing in e-commerce and several of them
had also accomplished significant growth in sales and customer engagement
through online channels. Wrestling market share from either Amazon or other
players will be a difficult task for Walmart which is known for its aggressive
customer acquisition tactics. Its acquisition of Flipkart, an Indian e-commerce
brand was a key step in this direction to find faster growth in the e-commerce
segment. At the core of Walmart’s business model is price leadership. The brand
has led the U.S. retail market through its lowest prices. Today, it operates more
than 11,300 physical stores and several e-commerce websites under 58 banners in
more than 27 countries (Walmart Annual Report, 2019). The focus of Walmart is
now on creating a seamless experience for its customers whether they are shopping
from their mobile devices or inside the stores. The brand employs around 2.2
million workers whom it calls associates. 1.5 million Walmart associates are
working in the US. This is a discussion of the business strategy of Walmart and
how it has helped the brand prosper and find robust growth.

Everyday Low prices

The cornerstone of Walmart’s business strategy is its everyday low prices. The
brand sells a very large range of products and its focus always remains on selling
products at the lowest prices in the market. The millennial customers are interested
in three things. They are convenience, low prices, and product quality. From
grocery and entertainment to several more, Walmart provides a large assortment of
products. The strategy is to attract customers with lower prices and keep them
engaged with discounts and shopping convenience. Its low prices strategy is really
great in terms of customer retention and the reason is that American shoppers are
somewhat obsessed with low prices. Many of them will not shop unless there is a
discount or sale attached. The millennial customers are even more addicted to
lower costs and shopping convenience. They would like to shop on their own terms
and would not shop unless there is a big discount like 50 or 70%

With time, Walmart’s obsession with lower prices has grown stronger. Now,
Walmart is looking for more growth and a larger share of the retail pie in the US as
well as abroad. To acquire more growth, it is aggressively investing in improved
customer experience. However, the way it has managed to keep its prices as low is
the biggest challenge before its competitors trying to wrestle market share from
Walmart. In 2017, it has invested even more into lowering its prices and that has
helped it generate better revenue, more than $485 billion. Again in 2018 and 2019,
Walmart’s growth story has continued. It grew its distribution network to bring
more convenience to its e-commerce customers. Net revenue grew to $500.3
billion in 2018 and $514.4 billion in 2019. It reduced prices on key items in select
markets. Consumers have grown addicted to lower prices and the retailers offering
the least prices are enjoying immense growth. All these factors have resulted in
price deflation and a further drop in prices across the retail industry seems
inevitable. Overall, the level of competition is going to be tougher and since some
non-U.S. brands have also entered the industry with low-cost offerings, there will
be even more competition. Walmart is in the lead position and it is now even
aggressive about prices and sales.

Walmart has decided to fight not only on the basis of prices but to get an even
bigger share of the pie, it will focus more on customer convenience. It is why the
company has placed extra focus on operational flow and customer service across
its stores. Among the several things that have helped Walmart grow its business is
also its reputation for being the most customer-friendly brand. The question is –
“what are the most important factors that are driving Walmart’s growth”?

Four Important factors driving growth of Walmart

Investopedia notes four factors that have driven the growth of Walmart’s modern
retail model. While the philosophy is still the same that was there since the
foundation of the brand, the retail giant has kept modernizing its operations whose
role in the efficient model of Walmart has grown bigger with time.
 • Large sales volume made possible by a large customer base and scale of
operation.
• A highly efficient supply chain system that maximizes productivity and
reduces outlays.
• Low operational and overhead costs
• Use of bargaining power to grab the least prices from the suppliers (a very
important strength for a large scale retailer that plays the most important role
in its price advantage).
Large sales volume: The largest retailer of the world has grabbed the largest
market share in the retail industry based on its pricing strategy. There are two more
things about it. They are its widespread operations and a large and varied
assortment of products. These things imply deeper penetration into the retail
market. Out of its more than 11,000 stores, 4,600 are there in the U.S. (2017). If
customers can find almost everything at a store at the lowest prices and with the
same convenience that everyone wants, then such a retailer can easily become the
American customer’s favorite. This is how Walmart achieves very large sales
volumes. With time, Walmart’s focus on customer convenience has kept rising and
that is because fighting just on the basis of prices is not enough. When the focus is
on higher growth, you must compliment lower prices with higher customer
convenience. So, Walmart built multiple store formats. Its three formats
are: Supercenters, Discount Stores, and Neighborhood Markets

Walmart’s Supply Chain Innovation for competitive advantage

Researchers often highlight the role of innovative supply chain management in

retail. Walmart’s more than 150 distribution centers have played a central role in
strengthening its business. Its distribution system is one among the largest in the
world and serves a large number of stores, clubs and also caters to the customers
directly. Its transportation system has a fleet of 6,100 tractors, 61,000 trailers, and
more than 7,800 drivers. This network of Walmart’s distribution centers ships
general merchandise, dry groceries, perishable groceries, and other specialty
categories to its consumers daily. Walmart has also kept six disaster distribution
centers that are placed strategically across the US and are stocked well that in case
a natural disaster happens, help can be sent without any delay to the communities.
The shipping centers employ more than 600 people each who upload and unload
more than 200 trailers every day. Each of them is 1 million square feet in size or
larger. They are built to cover a circle of more than 150 miles radius and supports
90 to 100 stores.

An important part of Walmart’s supply chain management is its logistics

management. There are several great facts to know about Walmart’s logistics
strategy. It owns a private fleet of trucks and employs a team of skilled truck
drivers. Its fleet is one of the largest and safest. These drivers drive 700 million
miles every year to deliver to the stores and clubs. With its large team of drivers,
Walmart constantly works to ensure that they move merchandise in a responsible
and sustainable manner. The focus is again on efficiency and on reducing empty
miles. So, Walmart advises its drivers to follow the most efficient routes. This way,
it achieves three things – minimum wastage of time by driving minimum empty
miles, low fuel consumption and maximum merchandise delivery with least
environmental impact. From 2005 to 2014, Walmart achieved 87.4% higher
efficiency for its logistics fleet. In this way, the leading retail brand has been able
to maximize its efficiency using such optimization techniques.
Walmart has also focused on the use of technology for better results from its
business. Its supply chain system is considered to be the most advanced and
efficient in terms of technology. It was a pioneer in terms of using barcodes and
RFID for a better inventory management system. Inventory management is a
crucial part of managing a great retail system. If you know how much of what is
needed when, you can manage a large retail system efficiently. Walmart has also
managed a more effective and efficient supply chain system by managing a direct
relationship with the manufacturers. In this way by eliminating suppliers and
handing them over the responsibility to manage inventory in its warehouses, the
brand managed smoother inventory flow with lower irregularities and better
availability of products on the shelves. This has also led to higher cost-
effectiveness and better savings which can be transferred to the customers in the
form of lower prices of products. A shared database between the company and its
suppliers helps manage a better supply of inventory. All the required information
from PoS (Point of Sale) data to warehouse inventory and the retail sales data is
stored in the shared database from where it is relayed to all the participants in the
entire system. This easy sharing of data is enabled by the private satellite system
Walmart owns.

Lower Operational Costs

Walmart had managed low operational and overhead costs but the pressure was on
the employees and suppliers. However, owing to high pressure from various
sources in recent years, it made several improvements to make its image in the
market and among its customers better. It has also increased its hourly wages for
employees and improved work conditions. Earlier they were subjected to very
high-pressure work conditions and paid lower salaries. The situation has grown a
lot better after Walmart made changes to its HR strategy. However, based on its
financial strength, Walmart can pay its employee higher wages and still retain a
larger part of its profits. Its financial clout also helps it bargain for very low prices
from its suppliers. These profits are then passed to the customers in the form of
lower prices. Thus, size and scale have helped Walmart achieve a strong
competitive advantage.

International Presence:

Around the world, Walmart sells high-quality goods and fresh and nutritious food
at low prices and thus saves its customers precious money. Prices can be an
important differentiator and cost leadership is the biggest source of competitive
advantage for Walmart. Now, it is growing at a large scale and has expanded to the
foreign markets. Its international wing operates 6,200 retail stores in 27 countries
and under 67 banners. From Japan to Chile, its operations are spread far and wide
and more than 800,000 of its associates serve more than 100 million customers a
week. The brand is also investing in social and environmental initiatives in each of
the markets it serves. Sam’s club is an important brand of Walmart of which 650
are in the US and 100 in foreign nations. It targets families and entrepreneurs.
Sam’s club employs around 100,000 associates in the US and the average size of
each club is 134,000 square feet. The products and services it offers include high-
quality bulk groceries, consumables, general merchandise, specialty services,
including travel, auto buying, pharmacy, optical, hearing aid centers, tire and
battery centers, and a portfolio of business operations support services. The main
focus of its products and services are the small business owners and it serves
around 500,000 of them every day. A large part of its target audience is made of
the microenterprises that have less than seven employees. Sam’s club also supports
their growth through business initiatives, philanthropy, research, and stakeholder
engagement.

Technological Innovation for better customer service

Walmart has also advanced boldly into e-commerce. It has a global e-commerce
segment with its base in Silicon Valley, California that leads all the online and
mobile innovation for Walmart. The innovation center of Walmart has some
brightest minds working to create a seamless experience for shoppers whether they
are shopping online, from mobile devices or in stores. Along with data and social
insights, these data scientists are working to deliver a more personalized
experience to its customers. In this way, it has transformed the shopping
experience for its customers. Its main websitereceives more than 100 million
unique visitors every month and this number has kept growing every year.
Walmart has also worked to connect the online and in-store experience and using
its mobile apps and shipping options like Home free, site to store, pick up today,
shop from the store and same-day delivery, the brand has made shopping even
convenient for the customers. Customers have unique needs and Walmart is using
a variety of services to fulfill these unique needs. Its size and scale help it serve its
customers more effectively and the use of cutting edge technology has helped it
bring customer service to the next level. In this way, using price leadership and
technological innovation, the brand has created a strong retail system that is more
effective and efficient than the competitors.

Growing presence around the world:

The number of Walmart stores internationally has grown fast. In 2017, the retail
giant had total 11,695 stores of which 6,363 were located overseas and 5,332 were
located in the United States. The highest percentage of its stores outside the U.S.
are located in Mexico where there are 2,411 Walmart Stores (2017). Apart from it,
the United Kingdom had 631, Canada 410, and Brazil 498 stores operational in
2017. Walmart is also increasing its presence in China where it had 439 stores
operational in 2017. The Asian economy is growing at a very fast rate which
makes China and India important markets for Walmart. It is buying a controlling
stake of roughly 77 percent in Indian e-commerce brand Flipkart to penetrate the
Indian market. The brand is paying around $16 Billion for this purchase. Without
this deal, the legal barriers would have made entry difficult for Walmart.
Moreover, India has a very large retail market and plenty of scope for Walmart.
The company’s presence in India will be a formidable challenge for the existing
big and small retail brands there. Walmart’s entry into the Indian market also
means lower prices and higher competition for the local brands.

Conclusion:

There are several reasons that Walmart has proved good for America. One of them
is how it has been helping people save money. It has helped millions of its
customers save more and that is possible by merging a few things. Scale, size,
technology and shopping convenience have helped Walmart generate the
advantage which you call popularity or brand loyalty. However, to achieve this
kind of advantage is not as easy because Walmart too had to cut down on overhead
and operational costs. In recent, years it changed its HR strategy and grew more
focused on employee welfare. This was a smart step since poor reputation in terms
of HR can translate into a loss of market share in the longer run. Now, it is working
even aggressively for achieving business growth and maintaining lower prices.

Its international expansion has also happened fast and the most crucial thing is that
Walmart despite being the leading retailer brand is concerned about competition.
The retail market of the U.S. has kept growing hyper-competitive. Several non-
U.S. brands have also entered the market and some are also armed with a price
advantage. Walmart could beat more of the competitive pressure given that it
focuses more on groceries. Its competitive advantage has kept growing stronger
with time and since the brand is now concerned for its social image, it is investing
in employees, social responsibility, and community welfare. The pressure that used
to be associated with a job at Walmart has also reduced. So, overall Walmart has
grown better for America and now it is targeting the same success abroad.