Walmart Sources of Competitive Advantage
Walmart Sources of Competitive Advantage
Walmart is known as America’s favorite retail brand and the reason behind it is that nobody sells at lower prices than Walmart. At 221.1 Billion dollars market capital ( as of May 2017), the brand was among the top 25 most valuable brands of the world in 2017 (Forbes list). In 2020, it was against at the top of the Fortune 500 list.
It has continued to expand its operations globally and is now found in 26 countries operating through 54 of its banners, serving more than 240 million people each week. It operates more than 11,400 retail stores globally and employs more than 2.3 million people. 1.6 million of them are employed in the US alone (January 2021). Apart from its higher sales, the brand is also known for having generated large-scale employment. All of this has come from cutting down operational costs and in the past, the company was notorious for paying its employees low wages. However, these things have improved in recent years and despite everything, it has remained the most popular retailer in the US for its everyday low prices. However, a leadership position in the market cannot be obtained without having some great sources of competitive advantage. This is a discussion of the main sources of competitive advantage that have helped Walmart build and expand its large empire.
Walmart is offering its customers an omnichannel experience and apart from its physical stores, it is serving them through e-commerce websites and apps. In recent years, the company has experienced a surge in sales from e-commerce channels. Walmart is the second largest e-commerce brand in the US after Amazon. It also acquired Indian e-commerce brand Flipkart to strengthen its e-commerce capabilities.
Sources of Walmart’s Competitive Advantage:
Over time, Walmart has established itself as a retail brand that favors the customers. Not just as the biggest retailer in the US, it is also known as the best retail brand for its obsession with lower prices. It is your favorite neighborhood store in the US. This brand image has benefited it a lot and apart from helping it maintain its market position, it has helped the company grow its market share in the US and overseas markets. The brand was criticized in the past for its unethical supply chain and labor practices. However, the picture has improved a lot during recent years.
Brand image is a critical factor in the retail industry in the United States that affects sales and revenue as well as the growth rate. Maintaining a strong brand image is critical to maintaining market position and market share as well as accelerating growth momentum. The stronger the image of a retail brand, the easier. it is for the company to attract and retain customers. Apart from that, it will need to invest less in marketing. Walmart has achieved the image of a customer-friendly brand not just by focusing on lower prices but by creating and delivering a superior customer experience. Its lower prices, combined with product quality and superior in-store customer service have helped it create a distinct and superior customer experience that continues to attract customers across the US in very large numbers.
This is the key strength of the brand upon which its entire business model rests. It has not just helped it build a great brand image but also a large customer base; larger than any other physical retailer in the UNited States. Having a large customer base is a critical strength but it is not possible unless you have an attractive value proposition. Walmart’s value proposition is based on its low-cost model and great quality of products. It has matched the two to create maximum value for the customers.
Walmart calls its pricing strategy Everyday Lower prices or EDLP. The EDLP model is its pricing strategy that the company has stuck with right since its foundation. Its founder Sam Walton was obsessed with lower prices which have helped Walmart become the customers' favorite brand that Walmart is now. The most significant advantage that the company earned from its EDLP strategy is superior demand. With everyday lower prices, the company always enjoys enormous demand among the US customers.
However, there is also a side effect of the EDLP price strategy. When you are trying to keep prices very low, you are bound to sacrifice profit margins. This is also the case with Walmart. the company keeps its profit margins lower but the enormous level of sales more than makes up for the lost profit margins and that's how despite its lowest prices, the company has managed to remain highly profitable.
Walmart has not built a vast empire without being obsessed with customers’ convenience. Apart from lower prices, it is also known for its focus on customer experience. You do not just get good quality products at low prices but in fact shopping at Walmart is also a distinct experience in itself. It has also framed an attractive returns policy for the sake of customer convenience where people can return a product within 90 days with or without a receipt. It is investing in digital tools to continuously improve customer experience which has also led to higher sales. Sales at Sam’s club have improved year on year and more of its members are using digital tools like Scan & Go and Club Pick up. The brand is investing in both digital technology and HR for improved customer service and an overall great customer experience.
Walmart is now offering its customers an omnichannel shopping experience. They can shop from its e-commerce websites and then get the products delivered at their doorsteps or they can also pick them up from the nearest location. A higher focus on strengthening digital channels and capabilities has helped the brand offer a superior customer experience and attract more customers.
Large scale operations, supply chain, and Bargaining power:
Large-scale operations give rise to some great strengths and therefore prove to be a source of competitive advantage. The first great benefit that arises from large-scale operations is economies of scale. It allows Walmart to buy in bulk and sell at lower prices. Most brands that have been able to build the low-cost business model are exploiting economies of scale to create this advantage. It also allows Walmart to lower the costs down the distribution network. Moreover, since it buys in bulk, Walmart can press the suppliers for lower prices meaning higher bargaining power. A larger buyer always exercises more bargaining power than a smaller buyer. Apart from that, Walmart's critical focus on its supply chain has also enabled it to develop its supply chain into a critical source of competitive advantage. A highly digitalized supply chain helps it maintain a continuous supply of raw materials and sustain its price advantage as well as keep operating costs under control.
The financial clout of a brand also becomes an important source of competitive advantage allowing it to spend more on new products, R&D as well as allowing more leverage in terms of marketing and advertising. Its marketing expenditure has continued to rise consistently from 2014 to 2017. From 2.4 Billion US dollars in 2014 to 2.9 billion US dollars in 2017 it has continued to rise. Walmart's market capital stood at 221.1 Billion dollars which is a major strength for it since it can spend more on marketing as well as HR policies.
the advertising expenses of Walmart for fiscals 2020 and 2021 were $3.7 billion and $3.2 billion respectively. It revenue in fiscal 2021 climbed to $559 billion. As its financial strength continues to grow, the company can invest more in brand expansion and international growth. Its free cash flow in fiscal 2021 reached $25.8 billion compared to $14.6 billion in the previous fiscal.
The international presence and expansion of Walmart is also a great strength in itself. While most of its revenue is generated from US, it has still expanded significantly over years. Today, it is operational in 26 countries through its 54 banners. Its 11400 stores are operating globally. If the brand gets to penetrate the Asian markets, that will be a great strength since it will help it reduce its dependence on the US market where E-commerce is making the situation more challenging for it.
Walmart is a strong brand which gets clear from its popularity and financial strength. However, its low-cost business model has helped it achieve the largest market share of all the physical retail brands in the United States. Its large-scale operations have helped it exploit economies of scale and pass on the benefit to the customer in the form of lower costs. It also focuses on higher customer convenience and has taken bold initiatives in the area of digitization. This has helped it improve its level of customer convenience and deliver better service to its customers. These things helped it retain its popularity while also improving its sales in markets inside and outside US.
Walmart's omnichannel shopping experience has helped it achieve faster growth over the past several years. It becomes clear from how its net sales have remained higher than $500 billion over the past several years. While technology is a critical factor affecting sales growth and competitive edge of a retail brand in the US, other factors like marketing, customer friendliness, supply chain, product range and quality are also critical factors driving the enormous growth of Walmart in the United States and abroad.