VRIO Analysis of retail brand Walmart:
Walmart is the leading retailer of the United States whose main competitive advantage comes from its EDLP strategy. EDLP means everyday lower prices. The retail industry in the United States has grown highly competitive and apart from the e-commerce leader Amazon, physical retail brands including Costco, Target, Best Buy, and several more domestic and international retail brands are competing directly with Walmart for market share. However, the performance of Walmart and its e-commerce business has continued to improve every year. The main reason is that the leading position of Walmart in the US retail industry is based on several sustainable sources of competitive advantage including a large supply chain network, low pricing strategy, extensive retail presence in the United States as well as focus on customer service.
Walmart’s differentiated business model is also an important source of advantage for the retail brand as well as its large range of products. The company was incorporated in 1969 in Delaware and since then it has grown into the largest retail brand of the US with the highest number of retail stores. The number of Walmart retail stores was higher than 11,300 and it employs more than 2.2 million associates worldwide. The company has divided its business operations into three main reportable segments that include Walmart US, Walmart International, and Sam’s Club. Walmart US is the largest of all three segments accounting for the highest part of the company’s revenue.
This is a VRIO analysis of Walmart analyzing its leading core competencies and how they have helped the company achieve sustainable competitive advantage:
Leading Core Competencies of Walmart:
- Large and global supply chain network:- One of the leading strengths and a core source of competitive advantage for Walmart is its large and global supply chain. As a retailer and warehouse club operator Walmart utilizes a large and global supply chain that includes more than 100,000 suppliers located in various corners of the globe. This provides the company access to a very large range of merchandise which is not available with any of its competitors. Its large and global supply chain is a source of sustainable competitive advantage for the brand.
- Strong bargaining power leading to price advantage:- Walmart is the leading retailer of the United States with strong purchasing power. It buys from its suppliers globally in bulk. Each week the company serves nearly 275 million customers in 27 countries through its more than 11300 retail stores and e-commerce channels. For fiscal 2019, the net revenue of Walmart was $514.4 billion. As a large buyer of merchandise, the company holds very strong bargaining power which allows it to buy products in bulk at very low costs from its suppliers and then pass the price advantage to customers globally. This core competency is also a source of sustainable competitive advantage for the brand.
- Efficient inventory management:- Walmart has always been a leader in terms of supply chain and inventory management. Its network of global suppliers, warehouses, and retail stores behaves like a single firm. The company has also used several more tactics for efficient inventory management including cross-docking and use of technology to manage the right inventory levels. Apart from reducing the costs of inventory management and transportation, cross-docking has also allowed Walmart to reduce transportation time and eliminate other inefficiencies which can make the costs of inventory management grow. Effective inventory management has also helped Walmart build sustainable competitive advantage and retain its price leadership in the retail industry.
- Brand equity:- As the leading retail brand of the United States, Walmart enjoys stronger brand equity than all other players in the US retail industry. Strong brand equity has also translated into higher customer loyalty and strong financial performance for Walmart. The strong brand equity of Walmart is based upon several pillars including lower prices, customer service, and customer engagement. All these factors have translated into superior customer experience as well as higher brand recognition and overall popularity. Its brand equity is an important factor that has made challenging the might of Walmart in the US and abroad difficult for all leading domestic and international retail brands. Its brand equity is a source of sustainable competitive advantage for the brand. It is valuable, rare, inimitable as well as organized.
- Ecommerce Growth:- The threat from leading e-commerce players Amazon as well as other e-commerce brands in the local markets worldwide like Alibaba has grown. Walmart started investing in e-commerce some years ago and within these years, the e-commerce business of Walmart has experienced rapid growth. While e-commerce may still be making a small contribution to the overall net revenue of Walmart, in the longer-term its overall impact will be sizeable. In 2019, Walmart earned more than $25 billion from e-commerce sales when its net revenue was above $514 billion. Investing in the Indian e-commerce brand Flipkart has also proved profitable for Walmart. However, there are several e-commerce players including the e-commerce leader Amazon and the other physical retailers are also investing in e-commerce for sales growth. Moreover, while it is a valuable resource, it is not rare or inimitable and so offers a temporary competitive advantage compared to the rivals.
- Technological innovation:- In recent years, Walmart is investing a lot in technological innovation to grow its revenue and competitive advantage in the industry. Walmart is investing in several areas to improve customer experience including inventory management, delivery, merchandising, e-commerce, and other areas. Customers are now utilizing omnichannel shopping and apart from in-store purchases, they are also buying products online. Investing in technology has helped Walmart reduce friction for its customers as well as grow customer and employee engagement apart from expanding market share in several key markets. However, it is not just Walmart but its competitors including Amazon and other leading players like Costco are also investing in technology to maximize customer and employee satisfaction. It is why while technology is a valuable resource, it is not rare or inimitable leading to temporary advantage for Walmart. However, in the longer term, Walmart might be able to strengthen the competitive advantage arising from technology further. It is now using alphabots to help associates with pick-up and delivery related to online sales.
- Human resources :- In recent years, Walmart has also grown its investment in human resource management. Apart from increasing the hourly wages, the company is also investing in other areas to maximize employee satisfaction. The company employs more than 2.2 million associates worldwide. It is using technology to train them better, help them find faster growth opportunities as well as reduce their workload. Overall while the company has been able to gain higher employee satisfaction, its image in terms of HR management has also improved a lot. The physical retail industry has grown highly competitive and employees are an important source of competitive advantage for the brand. However, there is enough competition in the areas of HR too in the retail industry and every player tries to attract highly talented employees to find faster growth and to strengthen its competitive advantage. However, investing in HR has still helped the company achieve competitive parity.
- Large product range:- Walmart apart from its lower prices is also known for the largest product range in the entire industry. Walmart US sells three main categories of merchandise which include Grocery, health and wellness and general merchandise. Grocery consists of a complete range of grocery items including meat, produce, natural & organics, deli & bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, floral and dry grocery, as well as consumables such as health and beauty aids, baby products, household chemicals, paper goods, and pet supplies. The health and wellness range of products includes pharmacy, optical services, clinical services, and over-the-counter drugs and other medical products. The general merchandise range consists of entertainment products as well as hardlines, apparel, home, and seasonal products.
- Private label brands:- Walmart’s one of the leading strengths is the sales of private label brands. The company markets and sells a large range of private label brands, some of which are international and some are market-specific. In fiscal 2019, the company enjoyed strong growth across its private label segment. Some of the leading private brands that Walmart markets and sells globally include “Equate,” “George,” “Great Value,” “Holiday Time,” “Mainstays,” “Marketside,” and “Parent’s Choice,”. Apart from that, there are several market-specific brands including “Aurrera,” “Cambridge,” “Lider,” “Myntra,” “Jabong,” “PhonePe,” and “Extra Special.” This allows the company to offer its customers more diverse choices and helps attract customers in larger numbers. It has helped the company achieve competitive parity.
|Supply Chain||✓||✓||✓||✓||Sustainable advantage|
|Bargaining power||✓||✓||✓||✓||Sustainable advantage|
|Inventory management||✓||✓||✓||✓||Sustainable advantage|
|Brand Equity||✓||✓||✓||✓||Sustainable advantage|
|Product Range||✓||✓||✓||Competitive Parity|
|Private Label brands:||✓||✓||✓||Competitive Parity|
Pratap, Abhijeet. “VRIO Analysis of retail brand Walmart.” Notesmatic, Jan. 2020, notesmatic.com/2020/01/walmart-vrio-analysis/.
Pratap, A. (2020, January). VRIO Analysis of retail brand Walmart. In Notesmatic. Retrieved from https://notesmatic.com/2020/01/walmart-vrio-analysis/