Walmart Sources of Competitive Advantage

Walmart Sources of Competitive Advantage

Introduction:

Walmart is the largest retail brand in the United States, which has remained at the top of the fortune 500 list for several consecutive years. It has enjoyed enormous growth during the recent years driven by a strong focus on innovation and customer experience.

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. As of January 2024, Walmart had 10,616 stores operational across the globe and 368 distribution centers.

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 the US in 18 countries as of January 2024. Sam’s Club is a membership only warehouse club with operations in 44 U.S. states and in Puerto Rico. Walmart’s 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. There is a very large segment of consumers that also include small and large businesses in the US and several more international markets that trust Walmart. The company’s strong focus on selling at lower prices and offering superior customer service compared to the other retailers has helped it maintain consumers’ trust and a leadership position in the US retail market. Its strong brand equity has helped the company find faster growth in the area of ecommerce as well. Lower pricing, product quality as well as customer service have played an important role in helping the brand manage strong brand equity. Strong brand equity means higher popularity as well as stronger 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, helping the brand generate higher sales and revenue. However, despite its leading position, its focus on customer experience and quality is not reduced. It is always working to make the Walmart experience as distinct and perfect as possible.

Pricing strategy :-

The pricing strategy adopted by Walmart is among the core pillars of its business model and a leading source of sustainable competitive advantage for the brand. It is also the core attraction of Walmart’s business for Walmart customers in the US and other markets. The ‘EDLP’ or ‘Everyday Low Pricing’ Strategy adopted by Walmart is the primary reason that 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 attracts individual customers as well as small and large businesses. Another major advantage emerging from its pricing strategy is that it gives the company a unique identity as well. It has helped the brand establish itself as a customer oriented brand. The EDLP strategy offers a dual advantage. It attracts new customers and helps retain existing ones. However, affluent families also like shopping in bulk from Walmart. The company offers a large range of products including private label brands that attract both middle class and higher income segment consumers. 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).

Supply chain management :-

Another key strength of Walmart is its strong supply chain management which drives higher operational efficiency, superiro sales, higher customer satisfaction and supports Walmart’s EDLP strategy. A well optimized supply chain has helped the company maintain its price leadership in the US retail market. The company has completely eliminated middle men from its supply chain and buys directly from the producers which helps it source products at very low prices. 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. It is why Walmart is able to bargain for significantly lower 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 global retail network includes total 10,616 operational retail units. In January 2024, Walmart had 5,214 stores operational in the United States and 5,402 stores operational interationally . To support its retail network, it has also established 368 distribution facilities globally of which 192 are located in US and 176 internationally. 30 of its distribution facilities located in the US are dedicated to the operations of Sam’s Club. 

The main international markets where the company operates its retail and wholesale units as well as e-commerce websites include Africa, Canada, Central America, Chile, China, India, and Mexico. The company also operated previously in the United Kingdom and Japan but sold off its operations there in the first quarter of 2022. Through its large retail and e-commerce network, the company serves more than 255 million customers every week across 19 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 10,616 retail stores and numerous e-commerce websites in 19 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 80.5% 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 and private label products:-

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 find such a large collection available at 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. It has continued to improve the shopping experience at Walmart and Sam’s Club stores through the use of AI and Robotics.

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. I

Its focus on innovation will help accelerate the process of buying and checkout and customers will be able to save both time and money. Walmart has already achieved several major milestones in this area. Customer convenience is a top priority at Walmart and has led to strong customer loyalty. A memorable shopping experience helps retain customers for longer and attract new ones as well. The tech savvy millennial generation especially wants things to happen faster and with higher convenience. So, this strategy also works to attract them and being their favourite. Higher customer loyalty has helped the company strengthen its market position and competitive advantage.

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 in 2018. In 2023, its revenue was higher than $600 billion and in 2024, the company generated $648.1 billion in total revenues. This is not just great financial performance 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. The company has acquired Vizio in 2024. Its financial leverage allows it to invest in new technologies to make shopping a better experience and improve its level of customer service. Walmart’s 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 retail brand in the United States. However, it has also strengthened its market presence in overseas markets and its number of international retail stores has crossed 5,400. At the core of its business model is the EDLP pricing strategy which is 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. It also deals in an enormous product range. Moreover, its focus on customer service and innovation have helped it strengthen its distinct advantage. To strengthen its global presence and extend its business empire further, 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, it would be able to perform well for several coming years.

Sources:

Walmart Annual Reports