Walmart Sources of Competitive Advantage

Author- | Posted- | Updated: January 1, 2019 |

Walmart Sources of Competitive Advantage

Introduction:

Walmart is the leading retail brand of United States. It has enjoyed enormous growth during the recent years. In 2018, its revenue surged past 500 Billion dollars. The number of Walmart’s stores including both US and international has also grown a lot in the recent years. For years, Walmart has been able to sustain its distinct advantage of being the most popular and leading retail chain of US. United States is its main market but its international presence and revenue have  grown impressively over the recent years. The US based retail giant was incorporated in Delaware in 1969. However, Sam Walton had founded the business long back in 1945. Its first international initiative  began in 1991 with its entry into the Mexican market. Now, Walmart is a global business divided into three main reportable segments – Walmart U.S., Walmart International and Sam’s Club. The largest business segment is Walmart US with operations in all 50 states. The company operates its retail and wholesale units as well as e-commerce websites in U.S., Africa, Argentina, Brazil, Canada, Central America, Chile, China, India, Japan, Mexico and the United Kingdom. Walmart International has operations outside US in 27 countries. Sam’s Club is a membership only warehouse club with operations in 44 U.S. states. Walmart U.S. operates super-centers in 49 states, discount stores in 41 and other small formats including neighbourhood markets in 36 states. Number of Walmart employees in 2018 was 2.3 million with 1.5 million in US and 0.8 million outside US. Number of  Walmart retail units in 2018 reached 11,718 with 5,358 in United States and 6,360 located internationally. Its key sources of competitive advantage include Brand equity, EDLP Pricing, supply chain, retail network, product range, customer service & its financial performance.

Brand equity :-

Walmart has maintained strong brand equity. A very large number of buyers like to buy from Walmart and trust the brand. Since always apart from the low prices, Walmart has focused on customer service and winning the customers’ trust. The result is that it is not just the most trusted retailer of US but also the most loved one. Prices, product quality as well as customer service have played an important role in managing such strong brand equity. Strong brand equity means higher popularity as well as customer loyalty. Overall, the result is higher sales and revenue without having to spend much on marketing. In this way brand image and equity are important sources of competitive advantage for Walmart also helping it generate higher sales and revenue. However, despite its leading position, its focus on customer experience and quality as not reduced. It is always working to make the Walmart experience as distinct and perfect as ever.

Pricing strategy :-

The pricing strategy adopted by Walmart is among the core pillars of its business model. It is also the main attraction of its business. The ‘EDLP’ or ‘Everyday Low Pricing’ Strategy adopted by Walmart is the primary reason the the customers have kept flocking to Walmart over all these years. Lower pricing strategy has also helped it overcome the competitive pressures and become the retailer of choice of United States. The middle class customers want products at affordable prices and Walmart suits the needs of United States middle class.The price advantage offered by Walmart is not just its primary attraction but also the core sure of its competitive advantage. Another major advantage emerging from its pricing strategy is that it gives the company a unique identity as well. Walmart is known to favour its customers the most; more than any other retailer. Its mind-blowing prices attract new ones and also help at retaining existing customers. However, affluent families also like shopping in bulk from Walmart. Apart from its middle class customers, it has also added products and features that attract the higher income customers. Jet.com complements Walmart.com’s offerings to appeal to higher-income, urban, millennial customers.  

In its annual report, Walmart notes, “Our strategy is to lead on price, invest to differentiate on access, be competitive on assortment and deliver a great experience. Leading on price is designed to earn the trust of our customers every day by providing a broad assortment of quality merchandise and services at everyday low prices (“EDLP”). EDLP is our pricing philosophy under which we price items at a low price every day so our customers trust that our prices will not change under frequent promotional activity. Price leadership is core to who we are. Everyday low cost (“EDLC”) is our commitment to control expenses so those cost savings can be passed along to our customers” (Annual Report, 2018).

Walmart competitive advantage

Supply chain management :-

If the brand has been able to sustain its low price advantage the reason is it has smartly managed a large supply chain. It buys in bulk form a large number of suppliers which offers it higher bargaining power allowing it to ask for the lowest prices on all products. The global supply chain of Walmart includes more than 100,000 suppliers which are located around the globe. In several cases Walmart buys products from producers near the store or Club. Products sold in the fresh category are mostly purchased from producers in close proximity to the retail stores. For most suppliers, the purchases Walmart makes represent a significant part of their annual sales. The company is able to obtain products from them on highly favourable prices. Walmart being their largest client is also their most favoured one. In turn, the company passes this advantage on to the customers. These suppliers are subject to standards of business conduct related to local laws, labor standards, product quality and similar more. Moreover, Walmart has focused on technology to make its supply chain efficient and is also working to raise its level of supply chain transparency. It has strategically placed 157 distribution facilities for its Walmart U.S. segment all throughout U.S. It shipped around 78% of Walmart U.S. purchases of its store merchandise through its distribution facilities. Walmart has total 179 distribution facilities in U.S. of which 157 are dedicated to Walmart U.S. and 22 to Sam’s club.

Retail network :-

The company has managed a large and global network of retail stores. Its large retail chain has total 11,718 retail units located globally. Out of these, the number of retail units located inside U.S. was 5,358 in 2018. The number of international retail units was 6,360 during the same period. To support its retail network, it has also established 367 distribution facilities globally of which 179 are located in US and 188 internationally. The main international markets where the company operates its retail and wholesale units as well as e-commerce websites include Africa, Argentina, Brazil, Canada, Central America, Chile, China, India, Japan, Mexico and the United Kingdom. Through its large retail and e-commerce network, the company serves more than 270 million customers every week. Walmart has e-commerce sites operating under 65 banners in 28 countries. Apart from bringing a very large  assortment of products  on affordable prices for its millions of customers, it has also made them accessible through its large network of more than 11,700 retail stores and e-commerce websites under 65 banners in 28 countries. In this way, the brand has been able to significantly expand its user base globally. A large and global retail network offers a distinct competitive advantage which is bigger and stronger in size than any of its rivals apart from the e-commerce leader Amazon. Walmart’s strategic acquisition of around 70% stake in Indian e-commerce leader Flipkart has enabled it to grow its presence in one of the most significant e-retail markets.

Large product range :-

Walmart offers a very large assortment of products. The Walmart U.S. segment is a mass merchandiser of consumer products. It operates under the “Walmart,” “Wal-Mart” and “Walmart Neighborhood Market” brands, apart from walmart.com and other eCommerce brands. Walmart U.S. sells merchandise in three strategic segments including grocery, health and wellness as well as general merchandise. The grocery line includes meat, produce, natural & organics, deli & bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, floral and dry grocery, as well as consumables like health and beauty aids, baby products, household chemicals, paper goods and pet supplies. Under the health and wellness category it sells pharmacy, optical services, clinical services, and over-the-counter drugs and other medical products. The line of general merchandise includes entertainment products, home/seasonal products, hardlines and apparel. The line of entertainment products offered by Walmart includes electronics, cameras and supplies, photo processing services, wireless, movies, music, video games and books. Hardlines includes stationery, automotive, hardware and paint, sporting goods, outdoor living and horticulture related products. Under the apparel category, Walmart sells apparel for women, girls, men, boys and infants, as well as shoes, jewellery and accessories. The last category is of home/seasonal products which includes home furnishings, housewares and small appliances, bedding, home decor, toys, fabrics and crafts and seasonal merchandise.

The Walmart U.S. segment also offers fuel and financial services and related products, including money orders, prepaid cards, wire transfers, money transfers, check cashing and bill payment. Grocery and general merchandise constitute the largest range of products  sold by Walmart accounting for 56% and 33% of total merchandise sales respectively. A significant portion of the merchandise sold in Walmart U.S. stores includes brand name merchandise. Its relationship partners like Lord & Taylor have enabled it to grow and complement its range of products with branded products and experiences. It also grew its line of branded offering through the acquisition of Bonobos. In this way, Walmart has created the best retail experience for its customers and they will hardly fid such a large collection available any of the rival brand stores. this is a significant strength differentiating Walmart from the competitors and offering it a unique advantage.

Customer service :-

Customer service has always been an important focus for Walmart. The company has always tried to make shopping at Walmart a superior experience. Apart from dedicated staff who are trained well at customer service, it is investing in more things which can  make shopping at one of its stores a very distinct and unique experience.Walmart is investing in technology to make shopping experience more pleasant than ever and more appealing to the modern shoppers. In this regard, it also partnered with google to offer voice shopping. To make shopping safer it has implemented leading technologies in its stores and supply chain to promote the highest freshness, quality and safety in the food, and to improve the safety of its operations worldwide. It is also focusing on making the shopping experience more fun and delightful than ever. Walmart is all set to provide an easy, fast, friendly and fun shopping experience for its customers whether they are shopping in stores, online, on their mobile devices, with their voice or with virtual reality, augmented reality or whatever tech comes next. Its focus on innovation will help accelerate things around and customers will be able to s ave both time and money. Walmart has already achieved several major milestones in this area. Customer convenience is a top priority at Walmart and a distinct advantage. A memorable shopping experience helps retain customers for longer and attract new ones as well. The tech savvy millenial generation especially wants things to happen faster and with higher convenience. So, this strategy also works to attract them and being their favourite.

Financial performance:-

Walmart’s financial performance has continued to strengthen, offering it extra leverage in terms of research and innovation as well as marketing and customer service. Its revenue surged past 500 Billion dollars in 2018. This is not just great performance financially but also enables Walmart to increase its assortment of products by acquiring new brands. In 2017, it acquired ModCloth and Bonobos. Apart from that Walmart has also extended the product line sold through its online stores a lot in the past year. Its financial leverage allows it to invest in new technologies to make shopping a better experience and improve its level of customer service. Its financial strength allows it to strengthen the other advantages including its price advantage. Overall, Walmart is in a significantly stronger position compared to its rivals in the retail industry.

Conclusion:

Walmart is the leading and most popular brand of United States. However, it has also grown its presence in more countries and its number of international retail stores has crossed 6300. At the core of its business model is the EDLP pricing strategy which s also its core strength. The company sources from more than 100,000 suppliers from around the globe. being their largest client, it is able to source products at significantly low prices which advantage is then passed on to the customers. Its product range is also significantly large. Moreover, its focus on customer service and innovation has also helped it strengthen its distinct advantage. To strengthen its global presence and extend its business empire farther the retail giant is focusing on growing the benefits it offers through its e-commerce channels. In every way, Walmart is in a very strong position and despite challenging economic situations and fast changing consumer trends would be able to perform well for several coming years.

Sources:

Walmart Annual Report 2018

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.