Business Model of Walmart
Walmart, the US-based retail giant has enjoyed strong growth over the past several years. The company has also experienced impressive growth and rising demand across the e-commerce segment bolstered by the growing use of digital technology.
Walmart’s investment in e-commerce and digital technology over the past several years is paying off. The company has strategically invested in technology and human resources to overcome the rising competitive pressure from the e-commerce giant Amazon.
However, the retail industry in the US is marked by intense competition and other leading physical retail brands are also extending their reach and growing their market penetration through investment in digital commerce.
Costco, Target, and other physical retailers are also enjoying the benefits of e-commerce. In the longer term, customer experience and technology will remain the main factors affecting growth momentum in the US retail industry.
The core pillar of Walmart’s success is its business model. Sam Walton had focused on some key factors when he laid the foundation of Walmart and one of them was managing operations and prices in a manner to benefit the customers the most.
Since then Walmart’s business model has evolved a lot and the company has acquired a strong competitive position in the United States. The company has also expanded overseas to 28 markets.
Walmart Reportable Business Segments:
Walmart’s retail empire is divided into three main segments apart from e-commerce. The largest business segment of Walmart based upon revenue is Walmart US followed by Walmart International and Sam’s Club. Walmart US, the largest business segment of Walmart accounts for the highest sales and revenue of the company.
This segment includes only the domestic part of Walmart’s business. The largest of all the markets where Walmart operates is the United States. Walmart International includes the part of Walmart’s business that is located overseas. Sam’s Club is the premium segment of Walmart’s business.
Walmart is the largest physical retail brand located in the United States. Its largest individual market is the US where the company is present across all the 50 states as well as Washington D.C. and Puerto Rico.
This segment operates under several brands including Walmart and Walmart neighborhood as well as several e-commerce brands including walmart.com, jet.com, and many more. Historically, Walmart US has remained the best performer among the three segments of the company.
The gross profit rate (which Walmart defines as gross profit/net sales*100) of Walmart US has been the best of all the three segments. It is also the best performing segment in terms of net sales and operating income.
This segment offers an integrated omnichannel experience to its customers that includes both online and offline channels. It combines online and offline channels to provide a superior shopping experience to its customers.
Walmart US has combined pickup and delivery services including "Walmart Pickup," "Pickup Today", "Grocery Pickup", "Grocery Delivery," and "Endless Aisle" with retail to provide a seamless buying experience to its customers.
During fiscal 2020, Walmart launched Next Day Delivery to more than 75 percent of the US population. The company also launched delivery unlimited in the same fiscal year from 1,600 locations. it also expanded Same Day Pickup to around 3,200 locations.
Walmart US operates three large store formats in the US including supercenters, discount stores, and neighborhood markets. The Walmart Supercenters are the largest store formats that are an average of 178,000 sq feet in size. The Walmart Discount stores are 105,000 square feet in size. The neighborhood markets of Walmart US are 42,000 square feet in size. Walmart US sells merchandise in three strategic categories that include grocery, health and wellness, and general merchandise.
The general merchandise category includes entertainment, hardlines, apparel, home furnishing products, and seasonal merchandise products. Walmart US sells a large range of branded merchandise. It sells a vast assortment of products created by its private label brands. Several of the large format retail stores run by Walmart US are operational round the clock. Generally, it is the largest quarter of the year that is the busiest season for Walmart US. (Walmart’s fiscal year ends on Jan 31.)
Walmart US also faces a lot of competition. The categories of retailers that compete with Walmart include the ones operating discount, department, retail and wholesale grocers, drug, dollar, variety and specialty stores, supermarkets, hypermarkets, and supercenter type stores as well as e-commerce stores.
Walmart’s US operations are supported by a large web of distribution facilities that are located throughout the United States at key locations. There are 156 distribution facilities established by Walmart in the US that support its domestic operations. The merchandise customers buy from Walmart US stores are shipped mainly through these distribution facilities. Walmart has also established 33 dedicated e-fulfillment centers that it uses to ship merchandise customers buy from its e-commerce platform centers.
The chart below shows the net sales of Walmart US in billions.
Walmart International is the second largest segment of Walmart and operates in 26 countries. The Walmart International segment operates through the company’s wholly-owned or majority-owned subsidiaries. It operates several store formats that are mainly divided into three categories including retail, wholesale, and others.
The store formats used by Walmart International include supercenters, super-markets, hypermarkets, warehouse clubs (including Sam’s clubs), and cash and carry as well as several e-commerce platforms.
The e-commerce platforms of Walmart International include walmart.com.mx, asda.com, walmart.ca, flipkart.com, and several other sites. The omnichannel experience offered by Walmart integrates retail stores and e-commerce through services like click and collect in the United Kingdom or online marketplaces like Flipkart in India. In terms of merchandising, Walmart US and Walmart International follow a similar strategy. Apart from leveraging the US-based private label brands, the company has also developed market-specific brands. By forming strong relationships with the local and regional suppliers, Walmart International has ensured that it offers its customers national brands at lower prices. It utilizes a total of 221 distribution facilities that are located in Argentina, Canada, Central America, Chile, China, Japan, Mexico, South Africa, India, and the United Kingdom. It uses these distribution centers to process and distribute both domestic and international products to the Walmart International retail operating units. For the distribution and shipping of products bought from its e-commerce channels, Walmart International utilizes its 90 dedicated e-fulfillment centers as well as 1900 e-commerce sort centers in India.
Sam’s club is a warehouse club and also operates samsclub.com. It is operational in 44 states in the US as well as Puerto Rico. Sam’s Club memberships include a spouse/household card that does not involve any extra cost. However, the plus members of Sam’s Club are eligible for cash rewards. Plus memberships include cash benefits of $10 for every qualifying purchase of $500 and the customers can earn as much as $500 each year in rewards that they can use for purchases, membership fees, or redeem for cash. Moreover, the plus members are eligible for free shipping on most of the merchandise that they buy from samsclub.com. There is no minimum order size for the plus members and they can also receive discounts on prescriptions, glasses, and contact lenses.
Just like Walmart US and Walmart International, Sam’s Club also offers an omni-channel experience to its customers that integrates physical retail and e-commerce. Its members have access to a large assortment of products. Sam's Club sells merchandise in five main categories including grocery and consumables, health and wellness, fuel and other, home and apparel, as well as technology, office, and entertainment. Member’s Mark by Sam’s Club offers a large assortment of carefully curated premier quality products. Sam’s Club continues to grow its assortment of products every year. In 2019, the sales of Member’s Mark were higher than $12 billion driven mainly by growth across the private brand portfolio.
Business Growth Strategy of Walmart:
To achieve faster growth, Walmart is following an omnichannel retail strategy that will help it penetrate the market deeper in the US as well as several international markets. As customers are moving towards digital channels for shopping, Walmart’s focus on technology has grown to provide its customers with a seamless buying experience. Price leadership has been and will continue to remain a cornerstone of Walmart’s successful business model. Each week the company serves nearly 265 million customers through its more than 11,500 retail stores and 56 banners in 27 countries. While focusing on disciplined growth and investment in digital technology, the company is also trying to make its business model stronger by investing more in its associates and strengthening the trust customers place in Walmart. The focus of the company is to help people around the world save money and live better lives.
Walmart’s E-commerce Business:
The first e-commerce initiative of Walmart (walmart.com) was launched in 2000. Since then it has taken several bold steps that have enabled it to strengthen its position in digital commerce. After launching walmart.com, the company also launched samsclub.com. In 2007, the company launched its site to store service. As a part of this service, Walmart customers could make purchases online and then pick merchandise from one of the nearest Walmart’s physical retail stores. With time, the company made some acquisitions and also formed strategic alliances that helped it build better growth momentum in terms of e-commerce.
In 2016, Walmart acquired jet.com in the United States and also formed a strategic alliance with jd.com in China, taking its e-commerce initiative a step ahead. The company has been following the same track and made a number of acquisitions in the United States to grow its e-commerce capabilities there and improve its reach through digital commerce. After acquiring jet.com, the company also acquired shoes.com, Moosejaw, Bonobos, and many more digital consumer brands. Walmart further boosted its e-commerce initiatives by adding free shipping from walmart.com on more than 2 million items. During the same year, Walmart also created a technology incubator named Store No.8 whose main focus was to speed up e-commerce innovation at Walmart.
To expand its e-commerce business overseas, Walmart acquired a majority stake in Flipkart in August 2018. Flipkart is an Indian e-commerce marketplace that also includes Flipkart, Myntra, and Jabong. In the United States, the company has continued to extend its e-commerce presence by adding more grocery pickup and delivery locations. In many of its international markets also the company is able to provide its customers with an omnichannel experience by offering a mix of physical and digital retail. Over the coming years, Walmart plans to further boost its e-commerce capabilities through continued investment in technology and acquisitions.
Role of Supply Chain in the Business Model of Walmart:
The supply chain of Walmart is a central pillar on which the operational efficiency and business success of the retail brand rests. Walmart has always maintained a heavy focus on maintaining supply chain efficiency through technology and by building strong relationships with suppliers. The cost-efficiency of the retail brand arises mainly from its supply chain management strategy. The company sources directly from the producers and eliminates the need for middlemen. In this way, it substantially reduces the costs of merchandise. By buying in bulk from the producers, it has been able to maintain lower prices.
An important aspect of Walmart’s supply chain strategy is its use of technology to reduce complications related to inventory management. The company uses cross-docking, an inventory management system that reduces the time required for the transportation of merchandise. Cross-docking reduces the time lost between inbound and outbound logistics. As a part of cross-docking, inbound trucks are unloaded directly into outbound trucks. It eliminates inefficiencies from the Walmart supply and distribution system and also saves the retailers billions in the form of saved storage costs. The EDLP pricing strategy of Walmart requires it to reduce expenses in all aspects of business and by managing supply chain efficiency, the retailer saves substantial costs related to transportation, storage and inventory management.
Competitive Advantage in the business model of Walmart:
Walmart is the largest physical retailer in the United States. The company has acquired several sources of sustainable competitive advantage and continues to strengthen its competitive position through investment in technology, human resources and continuous expansion of its merchandise range as well as an increased focus on customer experience. The main source of competitive advantage for the company is its lower pricing strategy that continues to drive higher footfall across Walmart stores compared to the rival businesses. Here we will discuss some leading sources of competitive advantage for Walmart that have continued to support its fast growth and international expansion.
EDLP or everyday lowest prices is the pricing strategy utilized by Walmart. It is also the main attraction of the company which brings customers flocking to Walmart stores regularly. The company has been following this strategy since its early days and offering its customers lower prices than its customers. The company manages its supply chain and operations in a manner to keep operating expenses low and passes on the benefits to the customers.
The brand image of Walmart is also one of the leading strengths of the company. It is a customer-oriented brand that has always placed its main focus on the convenience and satisfaction of the customers. Apart from selling a large assortment of products, the company has always been aggressive in terms of lower prices and customer price. This has helped the company gain strong popularity in the United States. While the popularity of the company has kept growing stronger over time, the only grey area was HR management. However, in recent years, apart from raising hourly wages, Walmart has also grown its investment in the training and development of its associates. This has also helped the company strengthen its image in the market.
The United States is the largest market of Walmart and accounts for the highest share of its revenue. Walmart has maintained an extensive presence throughout the US as well as several more international markets. The company operates 5,355 retail stores in the US as well as 6,146 internationally (as of Jan 31, 2019). In the United States, the retail format that the company uses the most is the supercenters. The company operated 3,571 supercenters in total as of Jan 2020 in the United States. Texas had the highest concentration of Walmart Supercenters at 392. Outside the US, the company had the highest number of stores operational in Mexico (2,408) as of Jan 2020.
Sourcing and supply chain management:
Walmart’s supply chain management strategy is also one of the core pillars of its competitive business strategy. It has helped it achieve a competitive advantage that is very difficult for rivals to match. Right since the foundation of the company, its focus was on managing prices. A key step in this direction was managing the supply chain in a manner that helped reduce costs and grow profits. Sam Walton formed a strategy that focused on eliminating middlemen and sourcing directly from the producers. In this way, the company was able to significantly reduce costs. Walmart has kept making improvements in the area of supply chain management to achieve higher efficiency. The company-owned fleet of trucks plays a significant role in distribution. Walmart’s investment in technology for inventory management and in other areas including distribution and delivery has also helped it achieve higher efficiency and offer its customers higher convenience.
Customer experience is of paramount importance for managing a retail brand’s competitive position. It is one of the most significant factors that affect brand image and popularity directly. By investing in customer experience, the company has maintained its leading market position in the physical retail industry. People love shopping at Walmart because of the distinctive experience the company offers. Walmart offers a large assortment of good quality merchandise. However, not just product quality, the company also maintains a heavy focus on customer service for retaining customers. Technology is an important pillar of its business strategy and by investing in digital technology (including e-commerce websites and apps), the company is offering its customers superior omni-channel shopping experience.
Distribution and logistics:
The integrated omnichannel retail experience that Walmart offers mixes e-commerce and physical retail with various delivery options in several markets. However, a strong distribution and logistics system has helped the company bring higher efficiency to its business model. The company owns a large part of its distribution and logistics system in its domestic market. It has a large fleet of company-owned trucks that the company utilizes for delivery and distribution. Apart from that, it has established a large web of warehouses and e-fulfillment centers that also support distribution and delivery throughout the US and internationally.
Financial Performance of Walmart in the last two years:
Walmart’s performance in the last three years has been nothing less than stellar. Its net revenue climbed past $500 billion in 2018 for the first time. In 2019, the net revenue of Walmart climbed to $514.4 billion. In fiscal 2020, the net revenue of the company climbed to around $524 billion.
Walmart Performance during fiscal 2019:
In 2019, net sales of Walmart US segment grew by $13.2 billion compared to last year. Net sales of Walmart US grew to $331.7 billion in 2019 from $318.4 billion in 2018. The increase in net sales happened mainly due to the growth in comparable store sales of 3.7% in 2019 compared to 2018 driven by growth in average ticket size and traffic. Growth in e-commerce sales contributed positively to comparable-store sales.
Walmart International segment experienced a growth of $2.8 billion or 2.3% in 2019. Walmart acquired a majority stake in Flipkart in the third quarter of 2019. However, Flipkart sales still added substantially to the net sales of Walmart International and remained the primary driver of growth for this segment. Apart from that comparable sales saw positive growth across most of the international markets of Walmart. However, Walmart also sold a majority stake in Walmart Brazil that led to a net reduction of around $3.1 billion in net sales of Walmart International which offset this segment’s revenue growth to some extent. The impact of currency fluctuations was around $0.7 billion.
The Sam’s Club segment of Walmart experienced a decrease of around $1.4 billion or 2.3% for fiscal 2019. The factors that affected the decline in revenue during 2019 included closure of 63 clubs as well as reduced tobacco sales since Walmart decided to not sell tobacco across certain locations. Ecommerce sales also contributed around 0.9% to the net sales of Sam’s Club.
Walmart performance during fiscal 2020:
The net revenue of Walmart Inc grew to $524 billion in 2020 from $514.4 billion in 2019. Walmart's net revenue includes net sales as well as membership and other income. In fiscal 2020, the net revenue of the company grew by $9.6 billion or 1.9% compared to the previous year. The increase in Walmart's net revenue was driven mainly by the growth in net sales. Comparable sales grew positively across Walmart US and Sam's Club. Apart from that, Flipkart also contributed to the growth of Walmart's net sales. Walmart's US segment experienced a growth of $9.3 billion or 2.8% in net sales during fiscal 2020 compared to the previous year. However, the gross profit rate of Walmart US decreased by 14 basis points in 2020.
Walmart International segment experienced a decrease in sales of $0.7 billion or 0.6% during 2020 compared to the previous fiscal. The gross profit rate of Walmart International decreased by 136 basis points in 2020 compared to the previous year.
Sam's Club experienced an increase of 1.6% in net sales compared to the previous year. The net sales of Sam's Club grew by $1 billion in 2020 compared to 2019 and reached $58.8 billion.
Data and financial performance analysis based on the annual report of Walmart (form 10K for 2020)
Analysis of Walmart's Operations based on the 4Vs model:
Operations and operational processes are like the fundamental building blocks of organizations that have a significant influence on the productivity of the organization and the quality of the organizational output as well. Focusing on operational efficiency has helped businesses find faster market growth as well as maximize output. Many times, if the efficiency of processes is low then it is mainly because the organization has adopted a poor operational design. Processes across business organizations and industries can differ significantly and that is why all processes must be managed differently. Some of the leading differences between various processes are due to the technologies and the level of know-how involved. Different processes require different production equipment as well as different skills and know-how. However, apart from these things, the difference also lies in the nature of the demand for the products and services these processes produce. There are four particular characteristics of demand that have a significant impact on process management and which are as follows:
- The volume of the products and services produced
- Variety of products and services produced
- Variation in the demand for products and services.
- Degree of visibility that customers have of the production of products and services
Volume of products and services:
Does the business being discussed produce a large amount of the same products and services or only various items in small volumes? If the volume of output is high, it indicates repeatability or high-level familiarity of the processes. Many times since a large business produces more and more of the same thing, it helps the business gain a significant competitive advantage compared to the smaller ones.
In the case of Walmart, while the company sells several private label brands too, it does not produce the products it sells. it sources from thousands of suppliers from all over the world and mainly in the US as well as some Asian countries. However, the assortment of products that the company sells is indeed very large and despite that, the company competes on the basis of prices. The volume of products sold by the company is very large and it also sources form its suppliers in very large volumes which have helped the company keep product prices low for its consumers. Production is indeed not an operational aspect for retailers like Walmart that depend mainly on their suppliers for the products they sell. So, production efficiency is in fact immaterial in the case of retailers like Walmart, Costco, or even Amazon. In the case of the private label brands that retailers like Walmart or Costco or Target sell, they generally outsource the production to external suppliers that produce it to the company's specifications. However, despite sourcing from a very large number of suppliers, the company tries to maintain its quality standards and lower prices as compared to rival retailers.
Variety of processes (products and services produced):
Variety is related to the various types of activities that are being performed by the company and how well it manages the various processes. The level of operational complexity is very high when it comes to a mixed model manufacturer that is engaged in lots of changeovers between processes. It means apart from having to choose from a very wide range of inputs, the company has to handle the additional complexity of matching specific customer requirements in terms of products and services. Generally, the high variety processes are more costly as compared to the lower variety processes.
For example, Walmart is the leading retailer in the United States. However, the company is not engaged in complex production processes. Its main operations include running retail stores, managing its sourcing or suppliers network as well as distribution and warehousing. However, the company has managed the efficiency of its processes in all these areas very well and apart from a large range of retail stores in various formats, the company also runs e-commerce websites and a fulfillment network to cater to the needs of the customers that shop online from its website.
The company sells a wide assortment of products including products its private label brand Sam's Club through both physical and online channels. However, in most areas from supply chain management to distribution and sales the operations of the company follow a fixed format. Its associates operate the retail stores and the company also has a dedicated fleet of company-owned trucks that continue to replenish the stores. Since the company does not have to handle high variety processes, both operating expenses and the level of operational complexity remain low for the brand.
Variation in demand of products and services:
In fact, demand variation is among the most challenging aspects of business operations. It is easier for businesses to manage the processes when the level of demand is predictably constant. However, when demand can fluctuate significantly, then managing processes becomes somewhat complex. If demand is predictably constant, it is easier to gear resources to efficiently cater to the existing demand, Moreover, businesses can plan operational activities including marketing and sales or after-sales services in advance.
On the other hand, if the level of demand varies significantly or can be highly variable or even unpredictable, then resources will need to be adjusted over time. What is even worse is that if demand can soar unpredictably, extra resources need to be devoted to the process such that it provides a capacity cushion that can easily absorb the unexpected demand. Let's take a simple example of seasonal variations in retail and e-commerce. Demand for a large range of products surges suddenly during the festive season including gifts, electronics, home decor products as well as fashion products. Another important factor that can cause a variation in demand for specific products and services is the level of competition in the market. If the overall level of competition in the market is very high, the companies have to care a lot to maintain the demand for their products and services and that may require a large annual investment in marketing as well as technology (in the areas of e-commerce and fulfillment). Apart from that in order to maintain the level of demand for their products and services, the companies like Walmart also have to focus a lot on customer experience, innovation, as well as product quality since any decline in these areas, can lead to a corresponding decline in customer loyalty as well as demand.
Seasonal variations in demand for the products sold by Walmart is not something surprising. Demand for a large range of products especially surges a lot during the holiday season and these products will fly off the shelves in no time. However, the company always remains ready for such variations. In recent years, it has also expanded its fulfillment capabilities a lot and that helps the company handle the growing number of orders being placed online on walmart.com or samsclub.com. Walmart also employs a large number of part-time associates who help shoulder the extra pressure during the holiday season. Moreover, the company generally is aware of the products and services whose demand can suddenly grow during the holiday season and accordingly manages its inventory as well as other necessary factors including the number of associates in each store.
Visibility of processes:
This is also a rather complex aspect of business operations to grasp. It denotes that aspect of business operations that is easily visible to the customers. The businesses that work with consumers directly may have more visible processes. For example, the healthcare and retail industry have more visible processes. However, the same is not true about an automobile business. Customers generally do not have a very clear view of the production and distribution processes of automobile brands. They cannot peep into everything that goes on before the finalized cars reach the showrooms. This is the only aspect of automobile operations that they are generally familiar with. It is also true about businesses like Apple inc. However, when it comes to businesses like Amazon or even Facebook, these are highly customer-facing businesses or customers have very high visibility into their operations. These are also some businesses for which transparency and accountability matters a lot. However, even in the physical retail industry, accountability and transparency have become of paramount importance because of the growing focus on the brand image as well as customer trust and customer experience.
As in the case of Walmart, the most visible aspect of its operations are the store operations as well as the fulfillment of home delivery. These are not just the most visible aspects of Walmart's operations but they are equally important in terms of marketing and branding since customer service has an important or significant level of impact on the marketing of the retail brands. Customers do not visit Walmart stores only for the sake of shopping but there is also an emotional connection between the buyers and Walmart stores who would like to spend their time on the weekends or on holidays roaming inside the Walmart stores. You will easily come across families shopping together at one of the large format Walmart stores. So, store operations are the most visible aspect of Walmart's business operations. Retail brands like Walmart place a strong focus on customer service since sales and business growth as well as the popularity of the brand are affected to a large extent by the level of customer service and customer convenience that the brand offers.
Five Operational Performance Objectives
To run an organization, a well-defined set of operations performance objectives is essential. There are five basic performance objectives applicable to all types of business operations. These five basic operations objectives include cost, dependability, flexibility, quality, and speed. There are both internal and external implications of these five performance objectives. Moreover, the internal effects of these performance objectives have a definite impact on cost.
This is the first leading operational performance objective. It refers to consistent performance according to your customer’s expectations. Quality also affects customer satisfaction to a significant extent. However, the meaning of quality can vary across industries and businesses. Suppose there is an automobile business and there is another technology business. The same quality standards would not apply to each of the two businesses. Quality can acquire different meanings in different settings or industry environments. While in some industries, the level of staff friendliness is a leading parameter on which to measure quality, product efficiency is the main indicator of quality for another. However, no matter whatever industry a business belongs to, customers appreciate quality cannot be denied. Quality can, therefore, bear a direct and major influence on customer satisfaction as well as organizational performance. Nevertheless, quality is also related to a company’s image and apart from making certain things easier for the business like customer acquisition, it can also increase an organization’s profitability.
In the context of Walmart's business that includes both physical and online retail, quality means product quality as well as customer service and also the overall customer experience. Walmart is an international business and apart from its millions of customers that the company serves in the United States, it is also present in several more markets where it serves its customers through both physical and online channels. So, overall there are several elements that together define quality for a large physical retailer like Walmart. However, when it comes to retail including both physical and online retail, price is an important determining factor in terms of quality. In the case of Walmart, the everyday lower prices are its leading source of popularity as well as customer loyalty for the brand and also the reason that it has grown into the largest physical retailer in the United States.
Walmart follows a competitive pricing strategy which is a key aspect of its overall customer experience. The company sells a vast assortment of products and it sources from millions of suppliers all over the world. Walmart also uses its financial strength as well as clout in the retail industry to source products at lower prices and then passes the benefit to the customers in several countries including the United States. While there is significant competition in the retail industry coming Walmart's way from both physical and online retailers, the company has very well managed t retain its leadership position by placing a consistent focus on product quality as well as customer service.
However, another important aspect of quality that Walmart is well known for is its customer service. This is an important area of focus for Walmart and the company has continued to perform very well on this parameter right since its beginning. Apart from selling a vast range of good quality products, Walmart has also built a strong reputation in terms of customer service. Another important factor that supports quality on Walmart's online shopping platforms is its use of innovative and industry-leading technology that helps the brand offer its customers seamless shopping experience. In fact, quality is one of the core pillars of Walmart’s business strategy which has helped the company acquire and maintain its leading position in the retail industry. Even in the area of e-commerce Walmart's position has strengthened such that it is one of the leading rivals of Amazon, the largest e-commerce brand in this area.
As the industry has evolved speed has become more and more integral to business performance and growth. In fact, you cannot imagine an operational performance without speed. Now in nearly every industry speed matters just as much as quality. Customers want that products are delivered to their doorsteps faster. In this era where a large range of services are delivered and consumed online including a large range of technology and entertainment services, speed matters a lot and sometimes it can be a leading differentiating factor for a company. A company that brings ideas to the table and products to the shelves faster than its competitors usually finds itself ahead of the others in the market. In some industries where services have to be consumed instantly, speed matters more than ever. Apart from that, in some industries, businesses need to keep the shelf filled with the latest items in order to engage their customers and it is also a reason that speed is important.
Walmart has always placed a heavy focus on both speed and efficiency since these two factors are integral to running its business profitably. Some years ago, the company also stepped into e-commerce and acquired the Indian e-commerce brand Flipkart. Apart from that, it is also delivering e-commerce services in its domestic market. Walmart has also maintained a supply chain management model that fosters higher speed and more efficiency so that products are brought to the stores faster from the suppliers. Walmart is facing heavy competition from Amazon as well as the US-based physical retail brands like Costco and Target. In order to manage the competitive pressure, it is investing in e-commerce as well as growing its digital fulfillment network. Its fulfillment network also plays an important role in ensuring that tasks are carried out and products are delivered to the customers' doorsteps faster.
Dependability or reliability is in itself considered a sign of quality in this era. Dependability, reliability, or trust are synonymous with brand equity which is an important strength for any industry-leading brand including Walmart. How dependable your business is or how much your customers trust your brand affects your brand equity. However, there are several factors that affect dependability in each industry. For example, while the quality of raw materials and the final product will have a direct impact on the dependability of a business, in the other it is the timeliness of delivery of services that will affect dependability.
Keeping the promise you made to your customers also affects dependability. There is another factor that has kept growing in importance for businesses as well as customers in the twenty-first century and which also affects dependability is the overall level of customer experience. Brands that offer a superior customer experience overall are considered to be more dependable by the customers. Apple and Amazon are two great examples that have maintained very high-level customer loyalty because they deliver superior customer experience. However, with increasing competition in the physical retail industry, retailers like Walmart, Costco, and Target are also focusing more than ever on customer experience in order to retain their competitive position in the US retail industry.
As in the case of Walmart, customer service and customer experience have always remained an integral part of its business strategy. The company is known for being obsessive with lower prices which is the main factor affecting the popularity and customer loyalty of Walmart. However, just lower prices are not enough to maintain customer loyalty in this era since the other retailers like Costco or Target also focus on offering their customers lower prices. Walmart has also made customer service an important focus area to engage its customers and retain the level of customer loyalty it enjoys. Customer service is also a differentiating factor for Walmart and dedication to customer service differentiates the Walmart brand from other US-based retailers. Moreover, Walmart is a highly trusted brand for the US-based consumers and the trust that the customers place in the brand because the company has remained dedicated to product and service quality since its beginning.
Flexibility means the ability to change what, how, and when operations do. There are four types of flexibility in general that are applicable to business operations. They include product/service flexibility, mix flexibility, volume flexibility, and delivery flexibility. Product/ service flexibility means the ability to introduce new or customized products or services. Mix flexibility means the ability to widen the product/services mix to cater to the customer needs better. Volume flexibility denotes the ability to change the output level to produce different quantities of products/services over time. Delivery flexibility on the other hand means the ability to change the timing of delivery. Overall, flexibility is an important aspect of operational performance and superior flexibility also denotes superior performance. Flexibility can also acquire different meanings in different industrial environments. For example, in a healthcare environment, the ability to introduce new types of treatment and to widen the range of available treatments or the ability to adjust more patients and reschedule appointments can all be a sign of flexibility. However, in the case of the automobile or retail industry, flexibility can mean different things.
As in the case of Walmart, its flexibility is reflected in the large product/services mix it offers as well as its global expansion. Walmart sells a vast range of products and the company has continued to expand its product range over the years in order to cater to the needs of a larger customer segment domestically as well as internationally. Overall, Walmart is a highly flexible company. Its flexibility is driven by several factors including its sales distribution network, its physical and technological infrastructure, a large pool of talented employees as well as its ability to understand customer needs and to deliver a seamless customer experience.
Cost in terms of operations performance mainly means the operating expenses incurred by businesses. However, the proportion of various operating costs can vary from industry to industry. For example, staffing costs may represent the largest costs for a transportation company but the costs of raw material may be the largest group of operating costs for an automobile brand. In the case of most companies, if their operating expenses are low, they can also keep the prices low for their customers. Not all companies compete in the market on the basis of price. Some companies compete on product quality, other companies compete on the basis of customer service and others on the basis of marketing or all of these factors. However, even the companies that do not compete on the basis of prices, they too are interested in keeping their operational costs low. If a company can reduce its operating expenses that will help it increase its profits because a penny saved equals a penny gained. The way in which operations need to be managed in order to keep operating expenses low requires focusing on areas where the company incurs the highest operating expenses.
Walmart's cost of sales is its largest group of operating expenses. During fiscal 2020, the total cost of sales of the company grew to $394.6 billion as compared to $385.3 billion in 2019. operating selling, general and administrative expenses of the company were $108.8 billion in fiscal 2020. Its cost of sales constitutes the largest group of operating expenses for the company because it sells a large assortment of products that it sources from suppliers located in various corners of the globe apart from the United States. However, the company also uses its clout in the retail industry and its financial strength to source products at lower prices and pass on the benefit to the customers in the form of lower prices.