Analyzing Walmarts Competitive Advantage

What lies behind Walmart’s robust business model and market leadership?

Walmart is the undisputed leader in physical retail and has claimed the top spot in the Fortune 500 global list for a consecutive ten years. The company has experienced global expansion and a lot of financial growth over the previous decade. It is also expanding its presence in e-retail in the US market through a strong focus on technology and providing the customer a superior experience and better shopping options.

Walmart is a US based retail brand and generates a large part of its total net sales from the US market. However, it has also expanded overseas and has a strong international footprint. As of the end of 2022, the company had total 10,623 stores operational worldwide that included 5,317 in the US and 5,306 internationally (Walmart Form 10K 2023).

Walmart’s leadership in physical retail continues unchallenged and the company has now moved to omnichannel retail to cater to changing consumer demand and shopping patterns. It has experienced healthy ecommerce sales growth over the past few years. The retail giant has maintained a strong competitive position in the US and overseas markets and there are several factors driving its competitive edge.

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While technology has fueled faster growth of the company over the past few years, there are many more factors like EDLP pricing, strong footprint across the US and the world as well as several others that contribute to Walmart’s competitive advantage.

In this post, we will take a look at the main factors behind Walmart’s critical competitive edge driving its leadership position in the retail sector.

Walmart’s competitive advantage lies in a combination of key factors that contribute to its success in the retail industry. Here are some aspects that describe Walmart’s competitive advantage:

Everyday Low Prices (EDLP):

Walmart’s commitment to offering Everyday Low Prices is a fundamental component of its competitive strategy. By maintaining consistently low prices, Walmart aims to attract a broad customer base, emphasizing value and affordability. The central focus of the business model adopted by Walmart is value for money as the company itself claims that it wants people to save money so they can live better.

The cost leadership strategy can be a key driver of demand and sales and long term success in the retail sector. Some other leading players too in the retail sector like Costco and Target Corporation aim to offer their customers products at lower prices. However, in terms of cost leadership, Walmart is considered the most aggressive of all the players in the US and global retail sector.

The EDLP pricing strategy has become a key component of its competitive strategy and now a part of Walmart’s identity. It is also hailed as the primary factor driving Walmart’s popularity among various customer segments. Well, who does not want to save money. Walmart targets a broad range of individual customers and families as well as small businesses that shop for their needs from Walmart. Every business wants to cut down costs and save money and Walmart makes it possible for a large number of small businesses that buy necessary supplies from Walmart.

In an effort to target the small businesses and not for profits more effectively, Walmart has combined additional privileges with its EDLP pricing to service the small businesses more effectively. Eligible small businesses can get free shipping with no minimum and can save more money. This has helped the company attract more small businesses, expand its customer base and solidify its market position against other leading players targeting small businesses like Amazon.

Walmart’s Efficient Supply Chain Management:

Walmart has developed one of the most efficient and sophisticated supply chain systems in the retail industry. Through advanced technology and logistics, the company can optimize inventory, reduce lead times, and minimize costs, allowing it to pass on savings to customers. Without the backing of its strong and resilient supply chain, Walmart would not have seen as much success and been in the leadership position in retail sector. A lot of things depend on supply chain efficiency in this era. Resilient supply chains are not just a source of competitive advantage, they also differentiate a business from others and help it find long term success.

Walmart’s supply chain management strategy is distinct in several regards and the company has paid a lot of attention to improving supply chain efficiency through technology and other resources. It has also adopted various methods that drive higher supply chain efficiency like cross-docking, modern inventory management systems, and its own logistics department that has thousands of trucks. Increased competition in the retail sector has also led to a higher focus on supply chain management by all the retail leaders. Whether it regarding controlling costs, catering to customer demand efficiently, adapting to changing market dynamics or maximizing customer satisfaction, the role of supply chains in retail sector is paramount.

Retail brands have to focus more on supply chain and inventory management, since they can experience abrupt changes in demand patterns. The demand for certain products can be abruptly high during the holiday seasons. Without the use of data and analytics, or AI based modern supply chain management and optimization systems, it is difficult for retailers to maintain end to end visibility in their supply chains. It is why Walmart has invested in building a robust supply chain equipped with modern technological infrastructure. Data and analytics are helping Walmart manage inventory with higher efficiency and cater to customer demand better.

According to Walmart, its AI powered inventory management system plays a crucial role in providing the customers what they need, when and where they need it, and at the costs they expect of Walmart. The retail brand leverages historical data and pairs it with predictive analytics to strategically place in-demand items during high demand seasons across its distribution and fulfillment centers and stores. It helps to cater to increased demand and provide an optimized shopping experience to customers.

Apart from its data management system that is key to the efficiency of Walmart’s inventory management system, Walmart has also strategically made investments in important aspects of its supply chain operations. Its supply chain optimizations include automated facilities, department-ready freight, Next-Gen fulfillment centers, and store-based fulfillment which when combined with instore technology available to Walmart associates and Walmart’s massive last mile delivery network ensures that items are delivered to the customers in an efficient and timely manner. Walmart has also adopted AI/ML models to improve inventory flow. Its extreme focus on supply chain efficiency helps it minimize costs for customers, ensure efficient delivery and highest level of customer satisfaction.

Scale and Global Presence:

Walmart’s sheer size and global reach contribute to its competitive advantage. The company’s extensive network of stores and distribution centers enables economies of scale, purchasing power, and logistical efficiency, which smaller competitors may find challenging to match. Both inside the US and in its overseas markets, the company has maintained a strong presence through its network of stores and various online shopping channels. The company is serving its customers worldwide through both online and offline channels with more delivery options. As of the end of 2022, the company has more than 10,600 stores operational worldwide with around half in the US and half located overseas.

A key thing to note is that Walmart has maintained several ecommerce websites and the largest one among them is walmart.com. The company also had more than 4,600 pickup locations and more than 3,900 same-day delivery locations in the US at the beginning of 2023. The company has been investing in supply chain automation and there were 163 distribution centers located strategically throughout the US in 2023 to serve Walmart stores. The company also had 34 dedicated ecommerce fulfillment centers in 2023 (Walmart form 10K 2023).

Internationally, Walmart operated in 19 countries outside the US in 2023. It had 5,306 stores operational internationally at the end of 2022. Walmart international serves its customer through several formats which are mainly classified into retail and wholesale and include supercenters, supermarkets, hypermarkets, warehouse clubs (including Sam’s Clubs) and cash & carry, as well as eCommerce through walmart.com.mx, walmart.ca, flipkart.com, walmart.cn and other sites. Walmart is also experiencing fast ecommerce growth in China through its partnership with jd.com and JD Daojia.

Private Label and Exclusive Brands:

Walmart has invested in developing private label and exclusive brands, offering products that are only available at Walmart. These brands provide the retailer with higher profit margins and create a point of differentiation from competitors. Private labelling offers several advantages for Walmart. First of all, the retailer owns the private label brand and second it can tailor the products to fit its own brand and style. Apart from that, the profit margins are higher on private labels.

Over time, when these private labels become established or well recognized brands, they can become a significant source of revenue for the company. Walmart owns several private labels in various categories including food, grocery and fashion. For example, Sam’s choice is Walmart’s private label premium food brand, while Great Value is its private label grocery brand. Walmart owns more private label brands including apparel brands like George, Terra & Sky, Time & Tru and others. Walmart sells an expansive range of products in its private label brands providing its customers the option to buy products with quality matching the national brands but priced much lower. Several other retailers have also developed their own private labels due to the hefty profit margins.

Technology and Innovation:

Walmart leverages technology and innovation to enhance its operations and customer experience. Investments in data analytics, inventory management systems, e-commerce capabilities, and other technologies contribute to improved efficiency and adaptability. Walmart has been investing in tech a lot over the past several years. Some analysts even argue that it is slowly transforming itself in to a tech brand.

Since it acquisition of the Indian e-retail brand Flipkart, the company has made several more strides in terms of tech related acquisitions and innovation. It has strengthened its own ecommerce capabilities and serves its customers through several ecommerce channels including Walmart.com. It has also invested in technological resources in other areas like supply chain automation, inventory management (where it is utilizing AI/ML models to understand and cater to demand changes) and in other operational areas from logistics to sourcing.

Rather than depending completely on AWS, Azure or GCP for its cloud technology related needs, the company is investing in developing infrastructure in house. It is why some analysts argue that the company is slowly transforming itself into a tech brand. Walmart has evolved fast over the past ten years from being the world’s largest physical retailer to becoming the world’s largest omnichannel retailer. The company has been investing heavily in innovation to strengthen its edge against its leading ecommerce rival Amazon.

Customer-Centric Approach:

Walmart focuses on understanding and meeting customer needs. The company’s emphasis on customer satisfaction, convenience, and a wide product assortment contributes to a positive customer experience, driving loyalty and repeat business. Walmart has always followed a customer centric approach to business. Customer satisfaction is extremely important for Walmart and the company trains its staff to provide superior customer service. In all the aspects of its business operations including store operations, and online retail, the company is investing in providing a superior customer experience. You can attract customers through lower prices but to retain them you need to offer value which includes lower costs, excellent service and excellent quality. These three components are essential to maximize customer satisfaction and brand loyalty. Walmart has invested in these three crucial elements and therefore enjoys strong demand and has a large base of loyal customers.

Omni-Channel Retailing:

Walmart has successfully embraced omni-channel retailing, integrating online and offline channels to provide customers with a seamless shopping experience. The combination of physical stores and a robust e-commerce platform allows customers to shop in various ways. Walmart’s faster growth over the recent years can also be attributed to its strategic move towards omnichannel retailing. As a part of omnichannel retailing, customers can shop from stores, from online channels and then get items delivered to their doors or from an online channel and then pickup from the nearest store or fulfillment center. It has improved the shopping experience for Walmart customers and helped the retail giant tap into new customer segments.

Low-Cost Operations:

Walmart maintains a strong emphasis on cost control throughout its operations. This includes efficient store layouts, effective labor management, and cost-effective procurement practices, contributing to overall operational excellence. Operational efficiency has renamed a key focus area for Walmart. However, since its early days the company has also been emphasizing lower operational costs which was essential to maintaining its cost leadership in the market. One of the key areas where it has been able to achieve significant cost advantage through optimization is supply chain management. However, the company also used to focus on cutting down costs in other significant operational areas. In recent years, Walmart has increased its minimum wage but previously, it was known to save on personnel costs also. Walmart has optimized and streamlined business processes to reduce costs while also maintaining operational efficiency.

Community Engagement:

Walmart actively engages with local communities, which is evident in its store locations, philanthropic initiatives, and support for local businesses. This community-focused approach helps build goodwill and strengthens the company’s image.

Diverse Product Offerings:

Walmart offers a diverse range of products, including groceries, electronics, apparel, household goods, and more. The breadth and depth of its product assortment attract a wide customer base, positioning Walmart as a one-stop shop for various needs. What is Walmart dealt in a limited range of products despite offering very low prices? It would not have been where it is today but much behind. If Walmart is a leader in the retail sector with the largest customer base, it is because it deals in a vast assortment of goods across several categories including grocery, fashion, electronics, medical products, home improvement products and so on. Its product range is much larger compared to any other retail brand in the US or across the globe. So, it is able to target customers across diverse segments with different needs.

The vast product range also provides another important advantage to Walmart. If the company sells some products at very low margins, then it is able to sell some of them at relatively better profit margins. The product margins are not the same across all product categories. Walmart attracts a large number of customers who buy both the low margin and high margin products since they can find it all under one roof. So, a vast product assortment serves to bring in more customers as well as higher profits.

Aggressive Expansion and Acquisition Strategy:

Walmart has pursued an aggressive expansion strategy, continually opening new stores and entering new markets. Additionally, strategic acquisitions, such as the purchase of Jet.com and Flipkart, have enabled Walmart to strengthen its e-commerce capabilities and global presence. The company has made several acquisitions in its history. However, the acquisitions made over the past decade were mainly aimed at improving its technological or ecommerce and delivery capabilities. In 2022, Walmart acquired Alert Innovation. The company has renamed it Walmart Advanced Systems and Robotics (WASR). It is a Boston based team of engineering and tech experts specializing in developing cutting edge technology solutions for Walmart. The focus of WASR is on developing innovative solutions to transform the retail environment and improve customer experience. Walmart has also been aggressively expanding its global footprint over the past several years to grow its customer base and for market expansion.

Walmart’s competitive advantage is a result of its relentless focus on cost leadership, operational efficiency, technological innovation, and meeting customer demands. The combination of these factors has allowed Walmart to establish itself as one of the world’s leading and most successful retailers.

Other sources: Walmart form 10K 2023.