Everything You Must Know About the Business Model of Walmart: World's Largest Retail Giant

Introduction

Walmart is the world's largest American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores.

Headquartered in Bentonville, Arkansas, the company was founded by Sam Walton in 1962 and incorporated on October 31, 1969. It also owns and operates Sam's Club retail warehouses. According to mantracare.in, as of January 31, 2020, Walmart had 11,484 stores and clubs operating in 27 countries under 55 distinct names.

The company operates under the name Walmart in the United States and Canada, as Walmart de México y Centroamérica in Mexico and Central America, Asda in the United Kingdom, as the Seiyu Group in Japan, and as Best Price in India. It has wholly owned operations in Argentina, Chile, Canada, and South Africa.

Since August 2018, Walmart only holds a minority stake in Walmart Brasil (formerly known as Grupo Big), with 20% of the shares, and private equity firm Advent International holds 80% ownership of the company.

The retail industry driven by Walmart stores is based on providing low prices for products and services.

The business model of Walmart comprises a number of strategies, including economies of scale, everyday low prices (EDLP), price leadership, international expansion, and e-commerce. Let's explore how Walmart became the largest retail mansion in this blog.

Brief History of Walmart

Walmart was founded by Sam Walton in 1962. He was a farmer's son who, after serving in the Army and working in various jobs, opened a store in Rogers, Arkansas.

Walton was determined to provide his customers with low prices and quality merchandise.

By 1970, the company also began expanding its product lines to include items such as clothing and home furnishings.

In the early 1990s, Walmart began expanding outside of the United States.

Today, Walmart operates more than 23 lakh employees and more than 11000 stores worldwide. The company has generated more than 572 billion dollars in revenue for 2022.

The Foundation Stones for Walmart’s Insanely Successful Enterprise Model

Walmart's success can be attributed to many factors, but a few key reasons are the culture of reverence and values that Sam Walton instilled in his company, as well as doing the basics of retailing correctly.

Additionally, Walton was known for his humility and perseverance, which helped him build Walmart into the powerhouse it is today.

The Walton family is now worth an estimated 215 billion dollars.

Avant-Grade Strategies that Handcraft the Walmart business model for Phenomenal Success

The Walmart business model is based on providing low prices for products and services while employing strategies such as economies of scale, everyday low prices (EDLP), price leadership, international expansion, and e-commerce.

These strategies allow Walmart to keep costs low while still making a profit so they can offer their customers everyday low prices.

These efforts eventually made Walmart the largest retailer in the world.

Additionally, Walmart’s outlet planning ensures that they have stores in every major city, so consumers have easy access to their products.

Finally, Walmart’s buying strategy is to buy directly from the manufacturing units, which allows them to get the best prices.

They also place multiple bulk orders for different products so they can get the best price for each product.

Let’s have a look at some key business transformation strategies of Walmart which allows the retail to perennially supply the cheapest products:

1. Pre-Season Buying

Walmart's pre-season buying strategy is to purchase the products before the season when they are needed.

This allows them to get the best prices because it is not in season**.**

2. Voluminous Purchases

Walmart's voluminous purchases strategy helps it to keep its prices low and deliver the cheapest products to its customers.

By buying in bulk, Walmart can get discounts from suppliers, which it then passes on to consumers.

Additionally, by distributing its stock across two separate units - wholesale and international - Walmart is able to keep its store costs down.

This allows it to offer lower prices than competitors.

In fact, the three important segments of Walmart, viz. Walmart U.S, Walmart International, and Sam's Club have been architected to offer the lowest price.

Walmart U.S. is a retailer that operates in the U.S. and provides customers with products and services that are not present physically in stores.

Walmart International is also divided into three sections which are retailers, wholesalers, and other small projects.

Sam's Club is the online platform of Walmart's company, i.e., "samsclub.com."

3. Lower Logistics Cost

In order to reduce its logistics cost, Walmart uses a principle called cross dock HUB spoking.

This principle allows Walmart to connect two vital dots - the first dot is the manufacturer and the second dot is the store. These two dots are connected amongst themselves by Walmart distribution centers.

The manufacturer loads and transfers items in bulk to the distribution centers.

With these distribution centers, cross-doc, HUB & Spoke distribution architecture is used. The items here are loaded in different trucks to be transferred to the respective retail stores that they have to be transferred to.

This significantly reduces the cost of transportation to several retail stores. Walmart also ensures that its manufacturers use the least amount of packaging material so that the lesser the packaging material, the more the domino effect of shelving.

4. Outlet Planning

Walmart plans its outlets by studying the buying behavior of the consumers in that particular area.

They identify what the people in that location are looking for and try to offer the best prices for those products.

Additionally, Walmart also looks for ways to keep its costs low so that it can continue to offer the lowest prices to its customers.

As a strategic move, Walmart opens big stores within small cities deliberately because the cost of real estate is cheap, which allows Walmart to open big stores with less capital investment. Additionally, small cities have a higher number of middle-class residents who are looking for affordable shopping options, and the store that offers the lowest prices tends to attract the most traffic.

5. Hyper-Clustering of Stores

By clustering its stores, Walmart is able to sell products at a lower price than if the stores were spread out.

This is because customers are more likely to travel to a Walmart store if there is one located close by, which allows Walmart to offer lower prices on its products.

On average, a Walmart store is located every 10 miles in the USA.

Additionally, the layout of Walmart stores puts the cheapest items in the front, which encourages customers to buy more items overall.

As a result of these strategies, Walmart has seen significant growth in stock prices over the past five years (about 67% YoY growth).

6. Psychological Factors

Walmart also knows that people hate to waste money. So, their stores are designed in a way that will make customers buy more than they intended to.

On average, every customer who enters a Walmart store spends between $30 and $50. This is because Walmart has taken care of customer buying behavior and leverages the same.

As you enter a Walmart store, you'll be provided with a trolley. This is done for your convenience, but it's also a psychological ploy.

Once you take the trolley and start walking through the store, your mind will initiate a buying behavior.

Because of peer pressure and self-esteem, you'll never walk out of the store with an empty trolley.

The products are placed in a way that makes you walk through every aisle.

And at the end of each aisle, there's usually a tempting product like candy or cigarettes.

7. Everyday Low Prices

As you move further into the store, you can find boards that list "Everyday Low Prices."

Looking closely at these prices, you'll notice that every price is written in whole numbers and decimals, for example, something like - 7 dollars and 68 cents; 9 dollars and 33 cents (usually odd numbers).

This is a psychological ploy to make you feel like you're not spending $8 or $10 on two items but rather making a $7 and $9 purchase.

Most people feel odd-number purchases are cheaper than even-number purchases, so this tactic tempts them to buy more.

8. Market Basket Analysis

Walmart uses market basket analysis to study the economic environment and then place its products in racks sequentially.

This encourages customers to buy more products since they are placed in a logical order. For example, 95% of people first buy cornflakes and then milk to go with it.

Walmart knows this and so places cornflakes first and milk next. This encourages customers to buy milk when they are already in the store buying cornflakes.

9. Vendor Managed Inventory

Walmart's use of VMI (Vendor Managed Inventory) ensures that its products never go out of stock.

By linking every Walmart store to the distribution centers near it, as well as to its suppliers, Walmart is able to track inventory levels in real time. This allows suppliers to timely replenish their stocks, ensuring that products are always available at Walmart stores.

10. Global Economy Impact Analysis

Walmart stores tend to increase the stock of consumable items by up to 50% during recessions, as these are typically the types of items that are bought more when people are struggling financially.

Conversely, they will stock fewer non-consumable, non-perishable items during good times as people are less likely to buy them. This allows Walmart to remain profitable regardless of the economic conditions.

How Walmart Overcame the Amazon Threat In Retail

So, how did Walmart manage to overcome the Amazon threat in retail? Let’s find out.

Well, first of all, Walmart tested its grocery delivery services way back in 2013, and the results were amazing. In 2017, Amazon acquired Whole Foods for $13 billion to enter the grocery delivery space. However, Walmart has been crushing Amazon in grocery delivery.

How do they do it?

In order to overcome the fierce market competition poised by Amazon, Walmart has been investing in its own e-commerce platform and delivery infrastructure. Apart from that, Walmart also offers a wider selection of products than Amazon, and it also offers lower prices. Walmart also has a strong presence in rural areas, which is where Amazon has been struggling to make inroads.

a) Large Inventory That Delivers Almost Everything Within Two Hours

Walmart offers a quick and convenient delivery service that beats Amazon's delivery times.

Walmart offers a large variety of items that can be delivered within two hours, while Amazon only delivers groceries.

b) Quality Control

Walmart's quality control was one of the main ways that it was able to overcome the Amazon threat in retail.

Walmart's quality control ensures that all of the products that are sold in its stores are of high quality, which gives customers confidence in what they are buying.

This is in contrast to Amazon, which does not perform any quality checks on approximately 70% of its products that are sold through its site by third-party sellers. This means that customers cannot be sure of the quality of the products they are buying, which can lead to disappointment and frustration.

By ensuring that all of its products meet a high standard, Walmart was able to provide an advantage over Amazon and remain the top retailer in the world.

c) Membership Fee

Amazon's free delivery within two hours is only for customers who have a prime membership, which costs $99 per year.

Walmart's express delivery, on the other hand, is free for all customers if they make a minimum purchase worth $35.

This lower threshold made Walmart more attractive to budget-conscious shoppers and helped it to attract more customers than Amazon.

d) Acing With Faster Reverse Logistics

If you order a non-grocery item from Amazon and wish to return it, it might take you 2-3 days.

And the entire cost of reverse logistics has to be borne by the seller who sold the product through Amazon.

However, with Walmart, if you have placed a return order for any product, then the Walmart store is just 10 miles away from you. So this entire process is very fast.

e) Sustainability

Walmart was able to overcome the Amazon threat in retail with its sustainability factor.

Walmart is highly profitable and has a stronger reputation than Amazon in retail.

Amazon is known for its cloud web services more than retail and e-commerce.

So, within a more fierce market competition scenario, Walmart can lower the prices of its commodities even further while maintaining its strong sustainability factor.

This will allow Walmart to maintain its competitive edge against Amazon and continue to be the top retailer in the world.

Key Business Lessons Learnt from Marketing Strategy of Walmart

The Walmart business model is largely successful due to the implementation of simple laws of retailing at an extraordinary scale.

The company has been able to provide value to customers within the non-luxury segment, which has resulted in customer loyalty.

Some of the key business marketing lessons that can be learned from Walmart are:

1. Focus on providing value to customers

Walmart has always focused on providing value to its customers by offering low prices and a wide variety of products. This has helped it to become the largest retail giant in the world.

2. Keep costs low

Walmart has been able to keep its costs low by using innovative methods such as using smaller stores, centralizing its procurement and distribution operations, and using self-checkout counters.

3. Embrace technology

Walmart has embraced technology very well and has been using it to improve its operations and provide a better shopping experience to its customers.

4. Be relentless in your pursuit of growth

Walmart has always been relentless in its pursuit of growth and has expanded rapidly into new markets. This has helped it to become the largest retail chain in the world.

In Conclusion

Walmart, the largest retailer in the world, has a very efficient business strategy that has helped it achieve this status. It is because of this strategy that Walmart will continue to grow in the future.

Walmart is the world's largest retailer, providing customers with exceptional service, low prices, and a wide range of merchandise. The company's success is based on its unique business model and the value proposition that it offers to customers.

The backbone of the Walmart business model is its focus on the future. It always looks ahead and adopts the latest technologies, and invests in renewable energy to stay ahead of the competition.

These factors have helped Walmart become the largest retailer in the world, and they will continue to help it grow in the future.

Another important factor that has contributed to Walmart's success is its low prices.

Walmart stores keep their prices low by negotiating better deals with suppliers and passing on the savings to consumers.

This has made Walmart a favorite among consumers and helped it gain market share from competitors like Amazon.