Walmart is the leading retail brand of the United States with more than 11,000 stores in various formats located across its 50 states. Founded by Sam Walton in 1962, the company now serves customers across 27 countries under its 58 banners through its physical retail and e-commerce channels. Over the past several years, Walmart has continued to invest in developing its sales and distribution network so as to offer its customers higher convenience. Walmart’s formidable strength as a leading retail brand lies in its vast assortment of products including private label brands and its pricing strategy. These have continued to drive the popularity of the brand higher. However, the rise of Amazon and other e-retail brands has also come as a major challenge for the company. While the number of challenges in the retail industry has grown, Walmart has also grown its focus upon the customer experience and innovation to maintain its market share and position. Apart from that, it is also investing in branding and marketing to strengthen its image and competitive advantage.
Established retail brand:
Walmart is a well-established retail brand and apart from being the most popular retail brand in the US, it is also well known in the other corners of the world. Over time, the company has acquired heavy popularity and recognition which has continued to grow with its global expansion. Apart from its low prices, its focus on customer service and product quality has also led to higher trust. Higher trust and recognition have also translated into higher sales for the company. The net revenue of the brand reached higher than $514 billion in fiscal 2019. Today, the company serves more than 275 million customers every week through its 58 banners in 27 nations. Walmart has also continued to grow its e-commerce business and international business through acquisitions. In 2019, the company acquired a majority stake in the Indian e-commerce brand Flipkart. While the United States is the largest market of Walmart, the company is also investing in strengthening its foothold in the other leading markets globally.
International sales & distribution network:
Walmart has established a large and international sales and distribution network which is an important source of competitive advantage for the brand. While the US is Walmart’s largest market, it has successfully expanded its business overseas to many leading markets. Now, it sells its products across 27 countries under 58 banners. The company operates more than 11,300 stores globally apart from its e-commerce sales channels.
Wide range of products and private label brands:
Another leading strength of Walmart is a large array of products it sells. The company sells products in three leading categories in the United States which include health and wellness, grocery and general merchandise. These three categories include a vast array of products for domestic use. However, Walmart also sells a large number of private label brands.
The private-label brands sold by Walmart include:
“Athletic Works,” “Bonobos,” “Equate,” “Everstart,” “George,” “Great Value,” “Holiday Time,” “Mainstays,” “Marketside,” “ModCloth,” “No Boundaries,” “Onn,” “Ozark Trail,” “Parent’s Choice,” “Time and Tru” and “Wonder Nation.” The Company also markets lines of merchandise under licensed brands, some of which include: “Better Homes & Gardens,” “Farberware,” “Russell” and “SwissTech.”
Apart from the private label brands that it sells in the US, the company has also developed market-specific brands that include “Aurrera,” “Cambridge,” “Lider,” “Myntra,” “Jabong,” “PhonePe,” and “Extra Special.” Some of the private label brands that the company markets and sells globally include “Equate,” “George,” “Great Value,” “Holiday Time,” “Mainstays,” “Marketside,” and “Parent’s Choice”.
Walmart’s membership-only warehouse club called Sam’s Club also sells merchandise in five categories that include 1. Grocery and consumables 2. Fuel and other categories 3. Home and apparel 4. Technology, office and entertainment 5. Health and wellness.
Walmart has enjoyed strong e-commerce growth in recent years. In fiscal 2019, the net revenue of Walmart from e-commerce channels grew to $25.1 billion which was less than 5% of its total net revenue for the year. Walmart US, the US retail segment of the brand generated $15.7 billion in net sales from e-commerce channels. Sam’s Club generated $2.7 billion in 2019 from e-commerce. According to a report by eMarketer, the percent share of Walmart in the US e-retail would be 5.3% (eBay 4.7%) in 2020. While Amazon tops the chart with a 37.3% share in 2019 and 38.7% in 2020, Walmart is becoming a significant player in the US e-commerce.
Supply chain network and logistics management:
Another leading strength of Walmart’s business is its strong and global supply chain network. Supply chain management has enabled the company to earn a competitive edge over its rivals. Apart from helping it cut costs and obtain products at lower prices, its supply chain management strategy is a source of competitive advantage for the brand which has helped it control its operating expenses and manage an international business empire with higher efficiency. Supply chain management has been a central focus of the company right since its early days since Sam Walton wanted to keep prices as low as possible by eliminating the middlemen. Apart from efficient inventory management and its own private logistics, the company has gained a sustainable competitive advantage through global sourcing.
As a retailer and operator of a warehouse club, the company utilizes a large network of suppliers from the US and abroad to serve its customers worldwide. The number of suppliers in its international supply chain network exceeds 100,000. Walmart depends on its own private logistics for distribution in the US. According to sources, it employs around 8,000 drivers who drove around 740 million miles in 2019. Apart from that, the company owns more than 6000 tractors, 53,500 trailers, and 5600 refrigerated trailers. In this way, an integrated supply chain and logistics network has helped the company maintain higher operational efficiency as well as gain a competitive edge over the rivals.
Pricing strategy and bargaining power:
The pricing strategy of Walmart is its key source of competitive advantage and popularity for the brand and has helped it achieve its leadership position in the US retail industry. The entire industry recognizes that Walmart has a wonderful pricing strategy; one that it has managed to sustain well amid pressures. Walmart’s EDLP pricing strategy has been studied widely across business colleges and universities. The other side of the EDLP pricing is EDLC which is its strategy to reduce costs. As a leading retailer that buys in bulk from manufacturers directly, it also holds immense bargaining power which arises from its buying power. Direct sourcing has helped the company eliminate costs and bring good quality products to its customers at lower prices. If the company has managed to sustain its position despite heavy competition from the e-commerce brand Amazon, it is because of low prices. Lower prices in the retail industry mean higher customer loyalty. Coupled with a large assortment of merchandise in several categories, Walmart’s price advantage translates into enormous sales and revenue.
Poor Reputation in HR Management
While Walmart has made several important improvements to its HR policy and strategy including increasing the wages for Walmart workers, the company still has not managed to build a strong reputation in the area of HR. In the past, the company paid its workers lower wages compared to the other retailers as a part of its strategy to minimize operating expenses. The company was highly criticized for its HR practices. The situation has improved slightly during recent years but it is going to take the company more time and dedication to employee welfare for improving its reputation in the area of HR.
Lower Profit Margins:
While lower prices in the retail industry can help you generate enormous sales and find more customers easily, there is also a downside to selling at lower prices. The company has to manage with lower profit margins and therefore there is enormous pressure on the staff to sell more to the customers. Walmart invested around $3.5 billion in advertising in 2019. Due to the lower profit margins, the company has to continuously cut down costs which may sometimes mean being less generous in terms of staff salaries and perks as well as strict in terms of performance. Overall, the pressure related to cutting costs is higher and the managers have to watch for lowering expenses across all areas of operations continuously.
Imitable Business model:
Despite its profitability and attractiveness, the business model of Walmart is not inimitable and can be adopted by other brands with slight modifications. The business model of Walmart is simply based on lower prices and higher sales formula. However, this formula has also been used by other retail brands across the industry on a smaller scale. Despite its strengths, the business model of Walmart can be imitated.
Walmart has made a series of small and big acquisitions including the acquisition of a controlling stake in India’s e-commerce business – Flipkart.com. While entering overseas markets under the Walmart brand name may not always be as lucrative, local partnerships or acquisitions can help the company gain a strong foothold. Apart from India and China, several more markets in the Asia Pacific region have shown strong economic growth and the company can gain market share in these markets simply through acquisitions. Walmart is a cash-rich retail brand and it can use its cash flow to acquire smaller brands that will aid its faster international expansion.
E-commerce will continue to drive the growth and expansion of retail brands in the US. The competitors of Walmart in the physical retail industry like Costco and Target are also investing heavily in e-commerce to grow sales and revenue. Walmart is investing in e-commerce as well and building new capabilities that will help it serve its e-commerce customers more efficiently. Not just in the US, but in the overseas markets too, e-commerce will continue to drive faster growth for Walmart.
Expanding internationally into more markets can also bring new growth opportunities for Walmart. Walmart US is the largest segment of the company which generates the highest part of its net revenue. The company can pursue and achieve faster growth by expanding its e-commerce and physical retail business into newer markets. Expanding internationally will also help reduce the company’s dependence on the United States market.
Competitive Threat from Other Retail & E-commerce brands:
The threat of competition for Walmart from other physical retail and e-commerce brands has kept growing over time. While Amazon has risen as a major contender in the field of e-commerce and holds a lion’s share, other retail brands like Costco and Target are also among the leading rivals of Walmart. Growing competitive pressure from the rival brands increases the operating expenses of a brand including its advertising expenses. Walmart is also investing more in e-commerce and technology to serve its customers better.
Growing regulatory challenges are also a key threat before retail brands including Walmart. While many of these brands have a large part of their supply chain in Asia and mainly China, the trade wars between the two nations led to higher tariffs and increase supply chain expenses. Other regulatory pressures in the US market are also creating additional pressures on physical retail brands like Walmart.
Growing costs of raw material and labor:
Operating expenses have kept growing for the company year on year driven by the growth in costs of raw material and labor. The Operating, selling, general and administrative expenses of Walmart were $107.15 billion in 2019, compared to $106.5 billion in 2018 and $101.9 billion in 2017.
The costs of labor have also grown a lot at Walmart as the company increased the hourly wages it pays to its workers. While the company is known for managing its operating costs well, higher costs of raw material and labor can lead to higher operating costs and reduced operating income. The operating income of Walmart was $22.8 billion in 2017 and fell to $20.44 billion in 2018 and again rose to $21.96 billion in 2019.
Other Sources: Walmart Annual Report 2019.
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|APA.||Pratap, A. (2020, February 25). Walmart SWOT Analysis 2020. Retrieved from https://notesmatic.com/2020/02/walmart-swot-analysis-2020/|
|MLA.||Pratap, Abhijeet. Walmart SWOT Analysis 2020. 25 Feb. 2020, notesmatic.com/2020/02/walmart-swot-analysis-2020/.|