The eCommerce industry celebrates constant growth, and Walmart is one such shop. However, these markets especially marked a significant change in 2020 when the pandemic struck the globe. Before this, Amazon was the major attraction among people, but when merchants moved their businesses online, several retailers emerged at the forefront with their eCommerce strategic innovations. The 59-year-old retailer, Sam Walton, has also made the most of this circumstance by bringing forward his business model to advance his marketplace.
Let’s explore Walmart’s journey toward success from zero to estimate what the future holds for it.
A Brief Overview of the organization
Sam Walton established Walmart in 1962, intending to provide affordable products and exceptional customer service. They continued to build a successful business and are ranked #1 on the Fortune 500 after going public in 1970. Yet, following this, it witnessed its worst stock slide after more than 25 years, which took Walmart towards difficulty. Linking to this, Bloomberg Analysts has also predicted a 6-12% decrease in Walmart’s financial performance in the forthcoming year. However, with its broad range of merchandise at minimal prices, Walmart has been leading the markets for years, even today, despite economic ups and downs.
What Business Model Do They Employ to Generate Money?
Walmart is one of the largest consumer-based retailer stores in the US, so we can reasonably say that it follows the Business-to-Consumer (B2C) business model. The model comprises three primary units; Walmart US, Walmart International, and Sam’s Club, with the latter being a membership-only warehouse club.
The 4 Ps of Marketing: Product, Price, Place, and Promotion
A multi-retail store, Walmart, has a wide range of products, from everyday products, like groceries, clothing, and furniture, to entertainment equipment and technology. Due to this, setting a fixed price for a particular product domain is challenging.
However, the company does offer several promotional discounts on celebrations and events. For good measure, it also treats its customers with various incentives like coupons and lucky draws.
The enterprise has over 10,000 stores in more than 20 countries worldwide, hence can be classified as a global organization. Due to it being a globally renowned company, it has a massive promotion service. They attract their customers majorly through competitive pricing, catchy slogans, and social or billboard advertisements. Seasonal promotions are also common, such as Halloween discounts that promote the company.
The company only provides the data for segment profits, measured according to the operating incomes. Here, operating incomes imply a unit that excludes expenses such as loans and taxes while displaying the net income. For instance, the company reported a segment profit of $5.9 billion last quarter, which included a $677 million loss. It also reported an additional $1.3 billion in revenue generated besides the three primary units.
Let’s discuss the three units further in detail.
1. Walmart US
Walmart US is by far the largest Walmart segment. It represents all the stores in the fifty US states and Puerto Rico. The operating income reported for the last quarter of $105.3 billion in net sales was $5.2 billion. This figure represents 79% of all operating income and 69% of its net sales generated in this period. The company showed an increase of 0.3% over the previous quarter.
2. Walmart International
Walmart International comprises all supermarkets, hypocenters, warehouses, and e-commerce sites owned by Walmart all around the world. You can find this global enterprise across Africa, Asia, Central America, and elsewhere around the globe. For good measure, it has reported an operating income of $877 million on a net sale of $27 billion in the last quarter. This figure represents 13% of operating income and 18% of its net sales for the previous quarter. The company reported a 13% and 23% decline in both values, respectively, and was the only segment to represent a loss in this period.
3. Sam’s Club
This exclusive club is a membership-only club that operates all across the US. Unlike the aforenamed units, membership income majorly contributes to the unit’s operating income, which also includes an e-commerce market. This unit made an operating income of $549 million on net sales of $19.2 billion in the previous quarter. It implies a contribution of 8% to the company’s operating income while contributing an immense 17% to the net sales. Sam’s club was the largest growing segment in Walmart in the last quarter, with a reported increase of 41% in operating income and a 16% increase in sales.
Walmart US is by far the most profitable of all three segments as lesser sales generated more income in the last quarter and are growing steadily. Walmart International is doing well in the market. Yet, the segment is declining rapidly, as it reported an extremely steep loss last quarter. On the other hand, Sam’s Club is an upcoming unit in Walmart’s business model. It generated a very low profit-to-sales outcome in the last quarter. However, if we compare it to previous quarters, this ratio has increased and has the potential to grow further.
Potential in e-Commerce
Walmart’s eCommerce revenues increased by 79% in 2020 and 1% in 2021, as the market marked a significant rise last year. With 13% of its sales coming from online channels, Walmart is currently the second-largest online retailer in the United States.
Walmart is catching up to Amazon in online sales, although still far behind. When analyzing the factors of Walmart’s successful eCommerce performance, it turned out storefronts are the key to eCommerce success. Who would have guessed that the key to selling goods online would be having a network of stores? Because of its foresight, Walmart began testing a grocery pick-up service in 2013—nine years ago. This decision has changed everything for Walmart because 90% of Americans reside within 10 miles of Walmart.
Online shoppers adore the convenience, but they desire to control: command over where and how their internet orders are delivered. The COVID-19 epidemic was the best time to illustrate this. Sincerely, we have always been part of that majority who had never used curbside collection or adored this idea before the pandemic. Only 7% of American consumers tried curbside pick-up in February 2020. Yet, by June 2020, that number had increased to 22%, making curbside pick-up one of the fastest-growing delivery options. Walmart’s pick-up services eliminate the need to wait and wonder when your Amazon item will arrive precisely.
Historical Background
In its beginning years, Walmart faced a greater backlash, calling for reconsidering its business model. Walmart paid the employees the statutory minimum to keep their expenses low. However, this offered little motivation to work and meet customer expectations. It may be the rationale that Walmart, a company focused on providing exceptional customer service, received complaints about its strategy for dealing with its clients. Furthermore, their everyday low prices were embarrassingly low. Doug McMillon, CEO of Walmart, responded to all the accusations by stating that the business will continue to get stronger despite anything. Entrepreneur McMillon suggested holding optimistic behavior and reestablishing the company’s business model.
Challenges Marking a Hard Time for Walmart
Walmart has faced several challenges, including strong market competition, a negative image, prohibitions on business acquisitions and joint projects, and strict societal practices in overseas markets. The rationale is the retail businesses that have embraced a low-price strategy encountered tough competition. Walmart is one of these as they attended a heated competition across North America, particularly Canada and Mexico. ShopKo, Giant Tiger, Soriana, Costco, Meijer, Kmart, and Commercial Mexicana are just a handful of their rivals. Above all, other small grocery and retail businesses have successfully surpassed Walmart and created a position for themselves in eCommerce industries.
Moreover, there is also fierce competition in overseas markets. Due to the intense competition from other respectable retailers and grocery stores, it has only been capable of controlling 2% of the German food market, for example. So, Walmart ceased its business in South Korea because of fierce competition. If we go back to the 1900s, Walmart invaded the South Korean market in 1997 but left in 2006 because of failing to develop a dominant position.
Walmart struggled with a poor reputation based on its sexual abuse controversies, low prices, and poor wages. There are multiple accounts of employee exploitation. In all the company’s stores worldwide, sexual discrimination was widespread. Therefore, growing in nations strictly holding traditional customs and regulations became problematic for Walmart. It led them to administrative problems, due to which they had to cease their expansion plan. Low wages also harmed the retailer’s credibility.
Even though the company employed hundreds of thousands of people, their salaries were so low that it barely accommodated individuals with huge families. Strict government rules in overseas markets, contentious interactions with suppliers, cultural barriers, and financial difficulties in purchasing from other firms and employing workers were a few other difficulties that this startup faced.
Walmart’s Revenues
Yet, now, winning over all its challenges, this 1962-founded retail organization, headquartered in Bentonville, Arkansas, is leading the eCommerce market with more than 11,500 outlets throughout eight countries. Its goods are broad-spectrum, including smartphones, equipment, domestic appliances, pharmaceuticals, building supplies, cosmetics, foodstuffs, and more. It reaches more than 265 million people every week, maintaining a sophisticated eCommerce platform. Walmart has 3 million employees globally and marked revenues of $524.4 million in 2020. Walmart sells items online and in clothing stores. It is the operator of Sam’s Club, a subscription merchant with amenities and shops throughout the US, and Flipkart. Sam’s Club’s e-commerce revenues rose by 47% in the first few months of 2021, and global e-commerce sales have increased by 49% overall at Walmart.
Walmart In The Constant Competition With Leading Marketplaces
Walmart should preserve its market share from powerful rivals, including Amazon, Target, Costco, and Home Depot.
1. Amazon
It is Walmart’s biggest opponent besides being a juggernaut in the online retail world. A statistical report estimated that Walmart would grow by 146% from its own 1 million vendors by 2022. Yet, despite its popularity, Walmart Marketplace has still been overshadowed by Amazon. Amazon has more than 2 million sellers in its US third-party marketplace, and in 2020, the market generated $19 billion in revenue. The reports estimate that the conclusion of 2022 will mark 7.5 million vendors for Amazon worldwide. Amazon US already accounted for 40% of all e-commerce transactions. Nevertheless, Walmart’s US internet revenues rose by 79%. So, the chances are considerably high that Walmart will surpass Amazon anytime in the foreseeable future.
2. Target
With a sales forecast of $78 million in 2020, Target would position itself among the third-largest discount merchants internationally. The company competes with Walmart online and in-store and operates 1,868 shops throughout North America. Pharmaceuticals make 24% of Amazon’s revenue, 20% from clothes, 20% from nutrition & drink, and 19% from home furnishings. Target seized a $6 billion market share from rivals in 2020 and experienced a 20% revenue rise compared to Walmart’s 9% growth. In the US, Walmart makes nearly five times as much money as Target. Above all, Walmart’s US comparative sales dropped by 8.7% in 2020, whereas Target’s climbed by 19.3%.
3. Costco
Competition for members-only distributor Costco originates from Walmart and its subsidiaries. Comparable to Sam’s Club, Costco offers a range of products via warehouses and internet shopping channels. The international wholesale powerhouse has 804 facilities, notably 558 in the US, and produced $163 billion in sales in 2020. With a 90% renewal rate, it had 107.1 million cards in 2020. The annual sales of Costco in 2020 were around one-fourth of those of Walmart. Its number of stores is less than one-fifth that of Walmart. Nevertheless, Costco opened 16 locations in 2020 and 20 to 22 in 2021. Costco is a prominent competitor of Walmart because it attracts budget-conscious shoppers.
4. Kroger
Kroger, the leading global food store, revenues reached $132.5 billion during the fiscal year that ended in April 2021, marking an increase of 8.4% year over year. The company employs 450,000 people and runs 2,764 department shops in the US. Kroger built fulfillment centers, each costing more than $50 million. By the end of 2023, the new fulfillment centers will increase Kroger’s $10 billion in digital sales by a factor of two, according to CEO Rodney McMullen.
Key Services
Walmart, renowned for being an all-in-one retailer, offers products in many different categories. Groceries and apparel are two things that Walmart is known for selling. Additionally, electronics are for sale. Among other things, Walmart sells jewelry, movies, books, and music downloads. In addition to everyday furniture, the store also provides baby supplies and sports equipment.
Plan And Strategies Incorporated In The Business Model
Throughout its 50-year history, Walmart has gained extensive customer support through everyday low prices and reliability to its customers. The following are some tactics employed by Walmart to maintain its position at the top:
1. Supply Chain Management
Walmart has strengthened its supply chain management strategy by reducing costs and operational expenses and is seeking to do more in the coming years. It is significant to note that Walmart was the first eCommerce market that provided sellers control over resource management. It employs Vendor-managed inventory (VMI) that eliminates overstock to balance out variations in inventory flow. Walmart was one of the first businesses to use software-based inventory management techniques. This system incorporates cloud computing in which data, including storage inventory, real-time transactions, and in-store point-of-sale, get stored and provide knowledge to suppliers about the need to supply goods.
2. Reduced Cost
Walmart can influence vendor involvement and cut pricing thanks to its enormous scale and economic activity. Up to 70% of the sales of certain general merchandise companies come from Walmart. Without Walmart as a sponsor, these businesses would not have been able to exist. It gives Walmart total control over its price policies and how-to manual.
Walmart has the potential to save costs by running its truck network and enhancing its transit network. Walmart has employed the storage technique of cross-docking that aided the cargo in real-time to move from an incoming truck to a departing truck. It eliminates the need for expensive warehousing and enables quick relocation of the items. So, due to lower product costs and improved inventory control, Walmart could treat the customers packed at lower prices.
3. Business Strategy of Walmart
For about 50 years, Walmart has continued to operate on the same corporate tenet of everyday low prices. By volume, Walmart is the biggest retailer in the nation, having stores all over the place. Walmart appeals to its customers globally thanks to its four main types of outlets—bargain shops, superstores, Sam’s Clubs, and local markets. Walmart has about 11,500 retail stores. The customer base of Walmart is immense; each week, more than 260 million people visit its brick-and-mortar stores and online shopping portals. It has made Walmart achieve $559 billion in revenue in 2020. Credit goes to its enormous customer base. Walmart generates revenue by selling goods and services like VUDU streaming and financial, clinical, and health insurance solutions to consumers and companies.
4. The Strategy of Cost Leadership
Walmart is unquestionably the most well-known cost leader, having used a cost-leadership strategy to grow into the greatest firm in the world. Walmart advertises with slogans like Always Low Prices, Save Money and Live Better to announce that the corporation prioritizes affordable goods. Walmart also makes the most of its enormous sales volumes to market the goods at a razor-thin profit margin. Walmart’s value-chain strategy supports its cost-cutting aim.
Walmart’s inbound (receiving) and outbound (delivering) logistics represent one of the greatest distribution network accomplishments in business. If we break down Walmart’s inbound logistics, we find that they utilize the lowest product line connections by working directly with manufacturers. They establish long-term strategic relationships with suppliers and emphasize large-batch purchases. They also use cross-docking for efficient management, which entails unpacking goods from an inbound truck into an outbound truck without stopping to store them in between.
Conclusion
With this detailed analysis, we can extract that Walmart is continuously struggling to improve and grow. Yet, its base is intact in serving customers with the best and easing their eCommerce experience. Walmart’s widespread stores, 2 million employees, strategic business model, and focus ensure the audience’s satisfaction.
