The Walmart business model has turned the retail company into the largest supermarket chain in the United States, with more than 11,500 stores (including hypermarkets, supermarkets, and department stores), under 56 banners in 27 countries, and e-commerce websites in 10 countries. They employ approximately 2.2 million associates around the world (1.5 million in the U.S. alone) and serve nearly 270 million customers.
Walmart is also the largest company in the world by revenue, with an accumulated capital of more than 500 billion dollars. The brand, which is a publicly-traded and family-owned company under the command of the Waltons, involves a retail chain that, today, still has its business model heavily based on brick-and-mortar retail — but its e-commerce has been expanding rapidly.
The entire Walmart operation, since its founding in 1962, continues to follow the driving force of founder Sam Walton, “saving people money, so they can live better”. But how does this business model based on leading on price work? Let’s check it out!
Contents
Walmart’s Operations
The entire Walmart operation in the world is divided into three main segments:
- Walmart in the U.S.: Operates in all 50 American states and Puerto Rico. It represents more than 60% of the corporation’s sales, summing up physical and e-commerce stores;
- Walmart International: Covers operations in all 26 other countries, with supercenters, hypermarkets, supermarkets, warehouse clubs, and e-commerce (in 10 countries). This generates around 25% of net sales;
- Sam’s Club: This membership-only warehouse club is in 44 states of the U.S. and Puerto Rico (and in e-commerce). It represents about 12% of net sales. Sam’s Club offers grocery and consumables, home and apparel, technology and electronics, health and wellness, and also fuel and similar;
- Walmart Mobile App: In addition to the three main segments and their e-commerce, there is also a Walmart Mobile App (for iOS and Android). The app allows the customers to search and buy products from Walmart.com and even pay from their phones. The app also helps create shopping lists, check prices and availability, and even find the locations of the merchandise in the aisles. Locally, in the States, Walmart has 157 distribution facilities. Internationally, it operates through 188 distribution centers located in Argentina, Brazil, Canada, Central America, Chile, China, Japan, Mexico, South Africa, and the United Kingdom.
A brief history of Walmart
The bases for Walmart go back to 1950 when the founder Sam Walton bought his first variety store in Arkansas and turned it into the Walton 5-10 store. Before that, he has already worked as a manager of that kind of store and saw the potential of the market in the future. As his store became a great success, he decided to start his own discount stores and, in 1962, the first Walmart was opened.
Strategically, Sam noticed that most retailers were competing in the cities, so he positioned Walmart as a discount store for suburban and rural people. By 1967, Walmart would soon open 24 stores in Arkansas and reach more than $12m in sales. One year later, the expansion to other states would begin. In 1972, the company went public, and the revenues allowed the expansion to increase: in the following three years, there would be 125 stores in operation.
In 1983, after years of expansion and acquisitions, Walmart created the Sam’s Club, which later would become the most famous wholesale store in the United States. Five years after that, the first supercenter was opened, to offer everything under one only store. And, in the same year, it became the most profitable retailer in the country. In 1996, Walmart achieved its first $100 billion in sales within one year.
Who Owns Walmart
The Walmart Inc. company is, still up today, owned by the Walton family. Although the CEO position has been held by Doug McMillon officially since February 2014, Sam Walton’s eldest son, Samuel Robson “Rob” Walton — which had been Walmart’s chairman from 1992 to 2015 —, is still the president of the board.
Walmart’s Mission Statement
Saving people money so they can live better.
How Walmart makes money
Product Revenues
Retail sales encompass almost all of Walmart’s revenue and include products distributed under its own brand or other brands, both national and international.
Service Revenues
There is also a small percentage of Walmart’s revenue from services. These services are:
- Financial: Money orders and transfers, check cashing, bill payments, and prepaid cards;
- VUDU Movie Streaming: On-demand streaming service, by subscription, for watching movies and TV shows;
- Clinical: Some preventive and routine health checks, which can be performed without urgent or emergency care;
- Health insurance.
Walmart’s Business Model Strategy
Lead on Price
Perhaps the main characteristic of Walmart’s business model is the commitment to keep its prices as low as possible so that they are accessible to practically the entire population. To achieve this, Walmart has the largest network of suppliers in the world, from which they make purchases in large volumes, in order to guarantee a bargaining power that allows them to reach the lowest possible price.
Another tactic applied by the corporation is cross-docking, especially with regard to the Sam’s Club. It is an intelligent and organized redistribution system, in which the goods received in a warehouse, instead of being stored, are sent directly to the customer or point of sale. This allows for significant savings in logistics costs.
Differentiate on Access
When we think of Walmart, the image of big centers and supermarkets always comes to mind, but one of the corporation’s strategies is to diversify access to the population. For this reason, Walmart is investing in:
- Small-format stores, with fresh food;
- Digital marketing and retail, by enhancing its e-commerce experience and also connecting physical and digital (the customer can buy online and get in the store);
- And services that are difficult to access, being the only American retailer to have its own pharmacy stores and clinics, where it offers preventive health care checkups and wellness products.
Compete on Assortment
Walmart invests heavily in a variety of products and brands, from local products to international names, both in its brick-and-mortar and online.
Deliver a Great Experience
Walmart knows that the best strategy for customer retention is to offer them the best possible experience so that they can buy again in their stores. Plus, the company knows that satisfied customers rely on motivated employees. Therefore, it seeks for paying its employees well while investing in personnel training. Besides, Walmart has a policy of a money-back guarantee: It offers a 100% money-back guarantee if the customer is not satisfied with the services provided by the company.
It is worth remembering that the entire Walmart business strategy goes back to Sam Walton’s “10 rules for building a success”:
- Commit to your business;
- Share your profits with all your associates, and treat them as partners;
- Motivate your partners;
- Communicate everything you possibly can to your partners;
- Appreciate everything your associates do for the business;
- Celebrate your success;
- Listen to everyone in your company;
- Exceed your customers’ expectations;
- Control your expenses better than your competition;
- Swim upstream.
Walmart’s Business Model Canvas
Check out the Walmart’s Business Model designed in the Business Model Canvas below:
Walmart’s Customer Segments
Walmart’s customer segmentation is mainly accomplished due to its primary low-price strategy. Therefore, its customers tend to be people who are looking for low-cost but good quality products, whether they are low-income people or just looking for the best cost-benefit.
Walmart’s Value Propositions
The value proposition of Walmart is a reflection of its business policy: Providing its customers with a wide variety of products, at the lowest price and in the most convenient way possible.
Walmart’s Channels
Walmart’s channels are widely known: the brick-and-mortar stores themselves, their website, their mobile app, social and mass media.
Walmart’s Customer Relationships
Walmart’s customer relationship is also entirely based on its value proposition — cheap, good and varied merchandise, easily accessible, and with the best service. For this, the processes are as automated and simplified as possible.
Walmart’s Revenue Streams
- Services
- Retail Sales
Walmart’s Key Resources
Walmart’s biggest key resources are its own brick-and-mortar stores, its distribution, and storage system, its virtual infrastructure, with the e-commerce store and the mobile app, and, of course, its human resources.
Walmart’s Key Activities
Walmart’s key activities include, first, buying and delivering goods, while controlling the costs involved. In addition, the company invests in customer service, inventory control, and distribution management.
Walmart’s Key Partners
Walmart’s key partners are certainly its suppliers, as they are the ones that allow the company’s value proposition to be delivered, by guaranteeing low-cost products and services, as well as access to different parts of the world.
Walmart’s Cost Structure
Walmart’s cost structure is certainly not “lean”, as it has more than 11,000 stores (including supercenters) worldwide. However, its operations involve a financial discipline that allows reducing such costs to the maximum, so that these savings can be passed on to the final customer.
Walmart’s Competitors
- Albertsons: A food and drug retailer;
- Alibaba: E-commerce that operates in retail and wholesale;
- Amazon: The biggest online retailer in the world;
- Ascena Retail Group: An American retailer of apparel for women and tween girls;
- Carrefour: The global leader in the food retail industry, it operates and manages supermarkets, retail stores, cash and carry stores, e-commerce websites, and convenience stores, among others;
- Costco: A wholesale company with membership discount warehouses;
- eBay: An online auction and e-commerce platform that allows people and businesses to buy and sell goods and services;
- Giant Eagle: An American supermarket chain;
- Home Depot: A home improvement company selling garden products, house improvement products, and building materials;
- IKEA: A retail and wholesale company that designs and sells ready-to-assemble furniture, kitchen appliances, and home accessories, among others;
- Kroger: A company that produces and processes food products for sale in supermarkets, besides operating drugstores, convenience stores, retail food stores, jewelry stores, etc.;
- Lowe’s: A home improvement retailer that offers products for construction, maintenance, repair, remodeling, and decorating;
- Target: A merchandise retailer that sells foodstuffs and general products.
Walmart’s SWOT Analysis
Below, there is a detailed swot analysis of Walmart:
Walmart’s Strengths
- Brand: It is possibly the most recognized retail brand in the world, with millions of visitors every day.
- Global presence: Acquisitions and expansion all over the world is a great success;
- Low Prices: It is one of the cheapest shopping places on the planet;
- Supply chain: Walmart counts on a global supply chain and logistics system to ensure its distribution;
- Human Resources: Walmart invests heavily in training, developing, and managing its employees;
- Resource management: It successfully manages its information systems, supply chain, distribution facilities, in all its units;
- Market power: Its global reach and strong name have ensured its market power over suppliers and competitors.
Walmart’s Weaknesses
- Working conditions: Walmart has received some criticism when it comes to the workforce, such as low wages and poor working conditions;
- Profit margins: Its cost leadership strategy leads to thin profit margins for the business;
- Imitation: Walmart’s business model can be easily copied by its rivals.
Walmart’s Opportunities
- Expansion: It can reach or increase its presence in markets such as China, the Middle East, and Latin America;
- Alliances: It has a strong name to make partnerships with other major firms, or it can acquire small companies;
- Human Resources: As the workforce is one of the greatest assets, bringing innovation can build an interesting opportunity;
- Quality standard: Sometimes low cost means low quality. It can improve its quality standards to keep and attract new customers.
Walmart’s Threats
- Controversies: Walmart has been involved in some controversies, like a lawsuit for selling fake craft beer;
- Legal issues: Different political and legal issues can become a threat when operating in other countries;
- Competition: As the biggest retailer in the world, Walmart is always targeted by its competitors, which keep trying to overcome its performance;
- New entrants: Many small and online companies have entered the market offering similar products at similar prices;
- Technical problems: Customers have already complained about disorganization and technical issues with Walmart.com.
-> Read More About Walmart’s SWOT Analysis
Conclusion
It can be seen that even though Walmart’s business model is always seeking to update itself on the market and available technologies, the base of its business remains grounded on the initial idea of its founder about half a century ago: making people happy, by spending little.
With a giant chain of stores, a worldwide operation, and a team of more than 2 million workers, Walmart keeps in harmony between the beliefs of its founders, business strategies, and, above all, the experience and satisfaction of its audience.
