5C Analysis of Walmart
Walmart is the largest retail brand based in the US that has enjoyed enormous growth during recent years driven by a growing international footprint and increased focus on e-commerce and customer service. As a leading retail brand, Walmart’s competitive advantage has been attributed to its EDLP pricing strategy which has remained the primary driver of demand and popularity for Walmart. However, the large product range that the company sells including its private label brand Sam’s Club is also an important source of competitive advantage for the retailer. In recent years, the growth of digital technology has been driving higher competition from both physical retailers and e-commerce brands. Amazon is the largest e-commerce brand in the world and also among the leading competitors of Walmart. Other leading competitors in the US are Costco, Target, and several more including a few overseas brands operating in the US. With time, the company has grown its focus on human resource management resulting in a stronger brand image. However, the competition in the US retail industry has kept intensifying and apart from growing its international footprint, the company also grew ist investment in technology for improved sales, distribution, and customer service. This 5Cs analysis of Walmart will help you gain a better understanding of the competitive position of the company in the US and international retail industry as well as favorable and unfavorable factors that bring opportunities or challenges for the company.
What is a 5C Analysis?
5C analysis is a situation analysis technique. It involves the examination of the external environmental factors and various internal capabilities that affect the business operations of a company. It is an extension of the 3C analysis that originally included only three components - company, competition, and customers (Wikipedia). Later two more components were included in this analysis - collaborators, and climate. The integrated analysis covers some of the most important areas related to business operations and marketing and the insights generated from this analysis are highly valuable in terms of identifying key challenges affecting a business.
A 5C analysis of Walmart:
Walmart was founded in the year 1962 in Rogers, Arkansas, United States. The founder of Walmart was Sam Walton and right since the foundation, the company’s central focus was the customers and offering products at the lowest prices of all retailers based in the United States. The company’s focus on supply chain management and eliminating middlemen through direct sourcing from the manufacturers helped it establish itself on a strong footing and it did not take Walmart very long to become the favorite retail brand of America. Its focus on the supply chain has remained steady and with time, the company has improved its supply chain management practices through technology to grow its competitive advantage rooted in its EDLP pricing strategy. The central focus of the company is offering a large product range to its customers at the lowest price of all the retail brands. Its mission is - helping people save money so they can live better. It’s true that Walmart helps people save a lot of money by offering products at the lowest prices in the market. As of 2020, the company has around 11,500 stores and serves nearly 265 million customers each week through its retail stores and e-commerce websites under 56 banners in 27 countries. The company employs around 2.2 million people that are called Walmart associates. In 2019, its net revenue reached $524 billion from $514 billion in the last year. Its revenue touched the $5 billion mark for the first time in the year 2018. During the past five years, the company has been enjoying consistent growth in sales and revenue.
Operating model of Walmart:
Walmart’s operating model is organized on the basis of geographical markets. Its operations are divided into US and non-US operations mainly. However, the US operations of Walmart are divided into two reportable segments - Walmart US and Sam’s Club. The non-US operations of Walmart are called Walmart International. The leading international markets of Walmart include Mexico, the United Kingdom, Canada, and China. Walmart US is the largest reportable segment of the company that accounts for the largest chunk of Walmart’s revenue.
Walmart’s operating model includes its large retail network backed by a strong and well-managed supply chain and distribution network. Supply chain innovation has helped the company accelerate its growth rate and by employing innovative and sustainable supply chain management strategies, the company has successfully leveraged the power of a global supply chain to serve its customers around the world better. In recent years, the company has also increased its focus and investment in its people. The success of Walmart’s operating model is based on the following important pillars:
- Supply chain innovation
- Efficient Distribution system
- Technological innovation
- Customer service
- Human resources
Walmart US is the largest operating segment of the company that sells a vast range of merchandise at lower prices compared to other retailers. The three main categories of merchandise that it offers include grocery, health and wellness and general merchandise. Walmart also sells a large range of private label brands in both US and overseas markets.
Sam’s Club is Walmart’s warehouse club offering merchandise in five categories mainly:
- 1. Grocery and consumables
- 2. Fuel and other categories
- 3. Home and apparel
- 4. Technology, office, and entertainment
- 5. Health and wellness.
The three reportable segments of Walmart also sell on their e-commerce websites. Walmart introduced its first e-commerce initiative in 2000 with walmart.com and later in the same year, it added samsclub.com. To strengthen its operating model, Walmart has continued to improve its e-commerce capabilities. In 2007, the company introduced its site to store system that allowed customers to order products online and then pick their orders from one of the Walmart stores. Since 2016, the company has greatly improved its e-commerce capabilities through acquisitions of e-commerce brands. Apart from increasing its e-commerce reach, these acquisitions helped it add talent and knowhow that has proved vital to Walmart’s e-commerce growth in the last 2-3 years. In 2020, the contribution of e-commerce sales to the consolidated net revenue of the company was around 7%. Walmart launched free two-day shipping for walmart.com in 2017. It also established a technology incubator called Store No 8 whose core focus was to drive e-commerce innovation. In 2019, Walmart acquired a majority stake in Indian e-commerce firm Flipkart. With this acquisition, it also added ‘Myntra’, an e-commerce platform dedicated to fashion as well as ‘Phone Pe’, a digital transaction platform, both of which are a part of the Flipkart ecosystem.
Now, e-commerce is a very important pillar of Walmart’s operating model through which the company aims to drive faster growth and cater to a larger number of consumers worldwide. Moreover, the e-commerce segment of Walmart will remain key to maintaining the competitive position of Walmart in the US retail industry.
Walmart & the US Retail Industry
Walmart enjoys strong brand awareness not just in the US but also in many other markets of the world where it has kept growing its presence through local partnerships and overseas acquisitions. It acquired a majority stake in Flipkart, an Indian e-commerce brand in the year 2019. Its pricing strategy has also played a key role in marketing the brand and making it famous worldwide. Apart from that, its growing investment in technology and e-commerce has also helped it grow its brand awareness. The company’s main marketing channels are its stores and its websites and the size of its customer base has kept expanding over the past several years. Despite the intensifying competition in the US e-commerce industry, Walmart has managed to retain its leadership position through sustained focus on lower prices and consistently improving upon customer experience. Apart from innovative supply chain management, investment in its distribution network has also helped the brand strengthen its competitive advantage and serve its customers better. Amazon has risen as the leading global e-commerce brand and is among the main competitors of Walmart. While Amazon enjoys an enormous competitive advantage in e-commerce due to global brand awareness and a large distribution network, Walmart is also improving its e-commerce capabilities to mitigate the growing threat from Amazon. Costco and other leading retail brands like Target, Best Buy, and others that compete with Walmart in the US are also investing in strengthening their e-commerce presence which means higher competition in both e-retail and physical retail for Walmart and its private label brand Sam’s club.
Walmart’s Record Breaking Performance:
Over the past several years, Walmart has enjoyed record breaking financial performance. In fiscal 2018, the company experienced net revenue of more than $500 billion for the first time. In the latest fiscal year, Walmart’s net revenue has climbed to $524 billion. The contribution of ecommerce sales to the net revenue of the brand has also grown sharply. For the fiscal 2020, e-commerce sales contributed $35.9 billion to the net revenue of the brand. Ecommerce sales of the brand have grown by more than 40% in a single year. From $25.1 billion in 2019, the e-commerce sales of the company have grown to approximately $36 billion which is quite impressive in itself.
Of the consolidated net revenue of the company in 2020, it generated around 77% from its US operations and the remaining from non-US operations. US operations of Walmart generated around $402.5 billion in net revenues whereas the non-US operations generated $121.4 billion. The US operations of Walmart are divided into two segments including Walmart US and Sam’s club. Walmart US is also the largest operating segment of the company accounting for the highest part of its revenue each year.
During fiscal 2020, Walmart US generated $341 billion and Sam’s Club generated $58.8 billion. Grocery and general merchandise account for the largest part of the net revenue of Walmart US. Walmart US generated $190.6 billion from the sales of grocery and $109.6 billion from the sales of general merchandise. Health and wellness category accounted for $37.5 billion of the net sales of Walmart US segment.
Sam’s club generated $35.33 billion from the sales of grocery and consumables and $11.3 billion from the sale of fuel, tobacco and other categories. E-commerce sales of the Walmart US segment generated $21.5 billion during fiscal 2020 compared to $15.7 billion in fiscal 2019. Sam’s Club generated $3.6 billion worth in e-commerce sales in fiscal 2020 compared to $2.7 billion in 2019.
Walmart International segment had net sales worth $120.1 billion. It was the only segment to have experienced a decline in sales in fiscal 2020. The net revenue of Walmart International segment declined by around $700 million. Sales grew in Mexico and Central America but declined in Canada and the UK as well as China. Mexico and Central America generated $33.4 billion in net revenue compared to $31.8 billion last year. (Annual Report- fiscal 2020)
COMPETITORS of WALMART:
The US retail industry is marked by heavy competition. There are players from the US as well as overseas battling for market share in US retail. Competition in the industry has intensified with the growth of e-commerce and increased demand due to improved economic activity after the recession. Walmart has remained the undisputed leader in physical retail in the US. However, the challenge from the e-commerce leader Amazon has kept growing and to combat the challenge, Walmart is also strategically investing in its e-commerce infrastructure.
The number of competitors of Walmart is very large and includes both big and small players. Here are the most significant competitors of Walmart in the US.
The Kroger Company:
Headquartered at Cincinnati, Ohio, United States, The Kroger Company is among the largest food retailers in the US. Kroger has physical retail stores in 35 states of the US and the District of Columbia. It has maintained an extensive presence in the US market through its 2,758 supermarkets and multi-department stores supported by 45 distribution centers. Nearly half a million associates work for Kroger. The company also runs 1,560 supermarket fuel centers and 35 food production plants as well as 256 jewelry stores. The consolidated net sales of Kroger in 2019 reached $122.3 billion. The company enjoyed 2% same-store sales growth in fiscal 2019. Kroger has also kept investing in e-commerce for superior growth and during the last quarter of 2019, it experienced 19% growth in its e-commerce sales.
Costco is also among the leading US-based retail brands that operate warehouses in the US as well as some other international retail markets. Its operating model differs from Walmart & other retailers. However, Costco is also investing in technology for achieving growth in e-commerce. As a retail brand, Costco’s reputation is very strong which is mainly because of its customer focus and an organizational culture that values diversity, inclusion and satisfaction of customers, employees, and other stakeholders.
As of 2019, Costco operated 785 warehouses. The distribution of Costco warehouses worldwide was as follows: 546 in the United States and Puerto Rico, 100 in Canada, 39 in Mexico, 29 in the United Kingdom, 26 in Japan, 16 in Korea, 13 in Taiwan, 11 in Australia, two in Spain, one in Iceland, one in France, and one in China.
Like Walmart’s Sam’s Club, Costco also operates a private label brand called Kirkland Signature. In 2019, Costco had net sales worth $149.4 billion (growth of 6% compared to the same last year). Innovative supply chain management has helped Costco reduce its operating expenses and grow its competitive advantage while also sustaining the quality level it is known for.
Home Depot is the largest home improvement brand in the world. It has its headquarters at Atlanta, Georgia in the United States. The company offers a very large assortment of home improvement products as well as building material, lawn and garden products and home decor products. It also offers home improvement services. As of fiscal 2019, the company had 2,291 stores operational. The consolidated net sales of the company reached $110.23 billion in 2019 compared to $108.2 billion in 2018; yoy growth of around 2%.
Walgreens Boots Alliance:
Walgreens Boots Alliance (NASDAQ: WBA) is a US-based retailer that sells health and wellness products apart from beauty and lifestyle products. Together with its subsidiaries, the company is present across 25 countries. Its brick and mortar stores (including the companies in which it has an equity investment) are present in 11 countries. There were a total of 18750 such stores operational as of 2019. Walgreens also operates one of the largest global pharmaceutical wholesale and distribution networks, with over 4001 distribution centers that deliver to more than 240,000 pharmacies, doctors, health centers, and hospitals each year in more than 201 countries. In fiscal 2019, the company had consolidated net sales worth $136.9 billion.
Target Corporation is also one of the leading players in the US retail industry. It has its headquarters in Minneapolis, Minnesota, United States. It was founded in 1902 as Dayton DryGoods Company. However, the first Target store opened in Minnesota in 1962. The density of Target stores which are operational across all the 50 states of the US is so high that around 75% of the US population has a Target store within its reach. Target is a general merchandise retailer that sells a vast assortment of products. Its net revenue in fiscal 2019 reached $77.1 billion. The number of Target stores operational in 2019 reached 1871 and the number of distribution centers that support the retail store network of Target is 41. Target also owns 42 brands that are unique to the company.
Amazon is the largest ecommerce brand in the world with a global presence founded by Jeff Bezos and having its headquarters in Seattle, Washington, United States. Amazon has established a global sales and distribution network and apart from its ecommerce websites has also established a global network of global warehouses for supply and distribution.
The consolidated net sales of Amazon have more than doubled within just four years driven by growth in demand, technological innovation, and customer experience. While Amazon is also a leading cloud player, e-commerce accounts for the larger part of its revenue. Its business operations are divided into three reportable segments that include North America, International, and Amazon Web Services. In 2019, the consolidated net sales of Amazon climbed to $280.5 billion from $232.9 billion.
Lowe’s is the second largest home improvement brand in the world and ranked at the 40th place on the fortune 500 list as of 2018. The company serves more than 18 million customers each week in the US, Canada and Mexico. However, Lowe’s has been planning to exit the Mexico market. Its largest market is the United States that accounted for more than 90% of its revenue in 2018. Net sales of the company reached $71.3 billion in 2018. The company employs around 310,000 people. Lowe’s sells merchandise in 13 product categories ranging from appliances and tools to paint, lumber and nursery products. The company also sells more than 400,000 products online.
Best Buy is also one of the leading and well known retail brands in the United States. It sells merchandise in the following key categories: computing and mobile phones, consumer electronics, appliances, entertainment, services and other. Apart from the US, Best Buy also operates in Canada and Mexico. As of the end of fiscal 2019, the brand had 1187 large format and 51 small format stores in its domestic and international markets. There were a total 1,026 Best Buy stores operational in the US in 2019 and 212 in its international markets. The consolidated net revenue of the company was $42.9 billion in 2019 compared to $42.15 billion in 2018.
CUSTOMERS of WALMART:
Walmart is the most favorite retail brand of Americans because of its lower prices and the vast assortment of products it offers. So, obviously it is the people looking for a good bargain who will flock to its stores in the largest numbers. There have been two main reasons behind the faster growth of Walmart in the US and worldwide in the other markets where it operates. The first reason is a healthier economic activity and the second is the rise of middle-class consumers.
This is the largest segment of consumers who flock to Walmart more regularly and are among the most loyal customers of Walmart. However, the middle class is a very broad classification for Walmart consumers since the retail brand attracts a more diverse set of customers. However, according to sources the middle-class consumers have been shopping and traveling a lot at least before the outbreak of the novel Coronavirus which is currently eating into all the economic activity worldwide including the US and affecting businesses of all sizes including Walmart. Once the economic activity is back on track after the COVID-19 crisis is controlled and the employment level rises, middle-class people will again start flocking to the Walmart stores.
The best thing about Walmart is that middle-class consumers can find a vast range of products here at one stop that they need on a regular basis including food, fuel, apparel, medicines, and other products. However, from the middle class, there are many subsets that find Walmart most suitable for regularly shopping for their needs. Whether college students, working professionals, homemakers or even teens, they know Walmart has the right stuff that they want. As Arun Jain, professor of marketing research at the State University of New York at Buffalo noted, Walmart stores are a cultural phenomenon and a habit that middle-class consumers cannot break. The whole family goes there and talks since for most low and middle-income consumers it is more of a social ritual.
Professionals, Self-employed, and home-makers: Walmart also attracts customers heavily from these groups. Professionals who generally do not have sufficient time during the week to dedicate it to shopping like to visit Walmart on the weekends because the middle class and employed people, who are also price sensitive can make large purchases once during a month from the retailer. However, it is not just the prices or the vast assortment of products that draw them to Walmart but it is also because of the differentiated shopping experience it offers that brings them to Walmart. Professionals can shop for their personal needs as well as technology and other stuff they might need related to their jobs. The same is the case with the self-employed who would shop for their personal and business needs. Homemakers who have enough time to shop visit the stores more regularly and it is also because shopping at Walmart is an enjoyable experience and you also get to save a lot of money.
A large number of American small businesses also shop from Walmart. The biggest advantage of shopping from Walmart for small businesses is cost savings. These businesses can find a lot of stuff that they need for their operations under a single roof and at lower prices compared to other players. Apart from buying office supplies, technological merchandise, small businesses also have a vast selection to choose from. So, not just lower prices, small businesses also get sufficient variety which makes shopping from Walmart profitable for them.
Walmart had not been drawing many customers from this segment but the improvements the company made during recent years have led to more affluent consumers buying from Walmart. The high-end tech-savvy consumers are getting drawn to Walmart in larger numbers. Over the last three years, the company has focused on growing its e-commerce capabilities through acquisitions and by investing in technology. The e-commerce revenue of the company grew to more than 6% in the latest fiscal year and is expected to grow faster in the future as digital shopping trends continue to grow stronger.
Collaborators include the suppliers, distributors, agencies and partnerships. However, since its earliest days, the focus of Walmart was on reducing operating expenses and keeping all types of variable costs low in order to pass the cost savings to the consumers. Therefore, there is no role of agencies or middlemen in the business of Walmart. It sources directly from the producers which allows it to save money. The company has also established a strong distribution network inside the US and overseas which includes both online and offline distribution channels.
Walmart’s strategic supply chain management is the backbone of its business strategy since it is the company’s core source of business advantage. The company has also been investing in technology to grow its supply chain efficiency and to increase the savings it realizes from supply chain management.
Apart from that, Walmart manages its own fleet of trucks for logistics. This allows the company to save on transportation costs as well as time and thus operate its business ecosystem at higher efficiency. However, the company has also focused on managing its supply chain sustainably and forming strong and long term relationships with its supply chain partners. There are several critical things in its supply chain that the company has managed its focus on since its early days and which have led to the size of its competitive advantage growing bigger with time.
One of those critical factors is collaboration. Walmart established communication and relationship networks with suppliers to improve material flow with lower inventories. Its global network of suppliers, warehouses, and retail stores act almost like a single firm. Efficient inventory management is also a reason that the company has seen as much success in terms of SCM. One of its inventory management practices called cross-docking has been lauded by experts. This strategy eliminates the need for extra storage by direct transfer of goods between inbound and outbound logistics. The main advantages of cross-docking include lower inventory, reduced transportation costs and time, and higher overall efficiency. Walmart suppliers are located worldwide. However, for several key items, the company sources locally from where its stores are located.
In a 5C analysis, climate refers to the business environment of the company. A PEST analysis is most suited to conducting this analysis. The PEST analysis focuses on four important factors including political, economic, social, and technological factors, and how they impact the business and its growth. While the retail industry in the US and overseas is not as heavily regulated as many other industries, the political environment of the market still has a direct impact on the retail businesses. The economic environment and the social or technological factors are also affecting the retail industry more directly since globalization. You will read about these factors in detail in the following PEST analysis.
PEST Analysis of Walmart
Political factors have continued to gain importance in the context of the business industry worldwide. Industry-leading brands like Walmart have their supply chains located globally which means that the changes in the political environments of these regions also have a direct impact on their supplier networks resulting in costs of inventory going up or down. As in the vase of the US-China trade war, several companies experienced a growth in the prices of raw material mainly because of the tariffs imposed by the American government on Chinese goods. China is the leading source of raw materials for companies in several industries including retail. Moreover, the tax structures differ from market to market and international operations, as well as the revenue and income of businesses from their international operations, are affected by the local tax structures. Moreover, the ease of doing business is not the same worldwide as in the case of the US market. In light of the coronavirus problem and its impact on the economy, the US government has implemented a $2 trillion stimulus plan. However, in many other nations, businesses both big and small will not be getting as strong support from the government.
The level of economic activity has a direct effect on the sales and revenue of retail brands like Walmart. Over the last several years, the US and the global economy have experienced higher economic activity which has resulted in higher consumption. The rise of the middle class and higher employment levels have also resulted in higher consumption. Middle-class consumers form the largest customer segment of Walmart and also its largest source of revenue. Due to increased economic activity worldwide, the revenue of Walmart showed consistent growth over the last five years. When the economic activity is higher and people have extra income, they spend more on fashion and leisure items apart from the necessary items of consumption. This leads to growth in sales for retail brands. The reverse happens when the level of economic activity is low. When economic activity and level of employment are lower, people spend less resulting in diminished sales and revenue for retail brands. Coronavirus has brought economic activity around the world on its knees and a large number of companies have forecast lower sales and revenue for this quarter. Despite the stimulus from the US government, until the economic activity is back on track, and unemployment which has shot sharply up in the US is down again, retail brands will continue to lose sales and revenue. However, anything is possible only when the spread of coronavirus is controlled worldwide.
Social factors are also growing in relevance for the retail businesses. Their impact can be felt on sales as well as marketing. The changed demographic composition of the US population has led to a number of changes. The millennials are very different from the baby boomers in terms of their shopping habits. They are tech savvier and do a lot of shopping online. As a result more and more retail brands including Walmart are growing their investment in e-commerce so as to grow their share of business from digital shopping.
Other sweeping changes have also affected business operations and marketing of retail businesses. Businesses are focusing more on their social image and doing culturally sensitive marketing of their businesses. Walmart also invests heavily in corporate social responsibility so as to maintain a strong social image. Moreover, increased investment in human resources has helped Walmart improve its social image.
Technology has driven a lot of growth in the retail industry during recent years. There are a large number of areas from supply chain to sales and marketing where higher investment in technology yields positive results for the retail brands. Walmart has already remained a leader in terms of technological innovation in the area of physical retail and has been using various technologies successfully for efficiently managing its supply chain. To improve its e-commerce capabilities the company has kept growing its investment in e-commerce and also acquired a few brands like Flipkart. During fiscal 2019, the company also established Store No 8, a technology incubator whose core focus is to drive e-commerce innovation at Walmart. Technological innovation has been driving a lot of growth and competition across the retail industry. Amazon’s global e-commerce empire is a serious challenge for retail businesses in the US and abroad. However, Walmart has tried to combat the competitive pressure by growing its focus upon technological innovation. From sales to shipping and customer feedback, increased investment in technology is yielding highly positive results for Walmart in all these areas. The company is also focusing more on the use of digital channels including social media for promotions. The use of information technology systems for managing business operations has also grown a lot over recent years.