Walmart is known as an American multinational retailing corporation that operates a chain of discount department stores, hypermarkets and grocery stores. This is probably one of the most popular business establishments in the United States and around the globe because of their business model of “everyday low prices”. Most customers are very particular when it comes to the price of the things that they buy so when you focus on lowering the prices, you can expect that the customers will be attracted to your business.
As of January 31, 2017, Walmart has 11,695 stores and clubs in over 28 countries under a total of 63 different brand banners. The company is operating under the name Walmart in the United States and Canada and it operates as Walmart de Mexico y Centroamerica in Mexico and Central America. In the United Kingdom, the group is operating under the name of Asda, Seiyu Group in Japan and Best Price in India.
Walmart is also considered as the world’s largest company by revenue with about $480 billion according to the Fortune Global 500 list in 2016 and it is also the largest private employer in the world with 2.3 million employees. It is one of the most valuable companies by market value in the world and the largest grocery retailer in the United States. In 2016, almost 62.3 percent of Walmart’s $478.614 billion sales came from its operations in the United States.
Although Walmart is a big company, it is still considered as a family-owned business because the company is still controlled by the Walton family. The family heirs own over 50 percent of Walmart through their holding company, Walton Enterprises. Since we are already talking about the business itself, let’s take a look at the history of Walmart.
The History of Walmart
Walmart started in 1945 when a businessman and a former J.C. Penney employee, Sam Walton, purchased a branch of the Ben Franklin stores from the Butler Brothers. The main focus of this store was to sell products for low prices and get higher-volume sales through a lower profit margin. At first, he experienced a lot of setbacks because he was selling at a lower price. The lease price and branch purchase were very high, but he was able to find lower cost suppliers compared to the ones used by other stores. He decided to pass on the savings in the product pricing and he managed to increase sales by 24 percent in his first year of ownership to $105,000.
On July 1962, Walton decided to open his first Walmart Discount City store at 719 W. Walnut Street in Rogers, Arkansas. In the first 5 years of the store, it has expanded to 24 stores across Arkansas and in 1968, the company opened its first stores outside Arkansas in Sikeston, Missouri and Claremore, Oklahoma.
On October 31, 1969, the company was incorporated as Wal-Mart Stores, Inc. and in 1970, it opened its home office and first distribution center in Bentonville, Arkansas.
A Different Business Model
Have you ever wondered why Walmart is extremely popular to consumers? It is related to the business model of “everyday low prices” and the company has focused on this for over 50 years.
Walmart managed to keep this model in sync with all of its operational models by concentrating on four important key areas. Let’s take a look at the key areas that have kept Walmart at the top of its market.
Volume of Sales
Walmart is selling almost everything and you can definitely find it anywhere you are. If you are living in United States, you can probably relate to that because you can always find a Walmart store anywhere in the U.S.
The company is also operating 4 different types of stores such as discount stores, supercenters, Sam’s clubs and neighborhood markets. Because of this, Walmart can capture a wide customer demographic. They are not only focusing on a single type of customer because they are trying to reach out to almost anyone in the area.
It has more than 11,500 retail stores and according to estimates, roughly 90% of Americans live within 15 minutes of a Walmart. The volume of its customer base is extremely staggering with more than 260 million customers visiting Walmart’s retail stores and e-commerce websites every week. This is one of the reasons why Walmart was able to get sales of over $482 billion in 2014. A search for “Walmart near me” will always give you the results you want back, as you can always find a store near your location.
Leveraging Bargaining Power
The first question is how can Walmart have such bargaining power when it comes to their suppliers that they can actually get a very low price for their bulk orders? We already know that when a business buys in bulk, they can get a significantly high discount from their suppliers, but Walmart is different because its bargaining power is on a different level. Most of the general merchandise products rely on Walmart for up to 70% of their sales. From this estimation, you can already figure out why these businesses are offering huge discounts to Walmart. Without Walmart as their partner, they wouldn’t exist. This is the reason why Walmart has almost unlimited power when it comes to establishing price and delivery terms.
Drive Down Costs
Aside from the discount that they get from the suppliers, Walmart was able to drive down their costs by managing their own trucking fleet and by being very innovative with their transportation methods. Walmart is actually using a warehouse practice known as cross-ducking. This method allows them to move inventory directly from an arriving truck to a departing truck. Because of this, the products will be transferred quickly without the need to pay for expensive warehouse space. Since they are able to reduce the cost for transportation and storage of products, the savings can be passed on to their customers.
Supply Chain Management
Walmart is very particular when it comes to their supply chain management and they have completely modernized the process to minimize overhead and operating costs. Walmart was one of the first companies to deal directly with manufacturers. Because of this, it will be the supplier’s responsibility to manage the inventory of Walmart. Since they are using “vendor managed inventory” or VMI, all the irregularities in the flow of inventory can be resolved and oversupply and stock outs can be completely prevented.
Walmart ais also one of the first companies to invest in technology that uses a computer system for inventory control. In this kind of system, information like in-store point of sale data, real time sales and warehouse inventory are placed directly into centralized databases. The information will then be shared with the suppliers so they can easily know when to ship more goods and prevent stock outs.
As you can see all of these factors are focusing on one thing: driving down the price of goods. It has always been the goal of Walmart to provide the lowest priced items for the consumers and through these techniques, they are able to provide the lowest price to their consumers without sacrificing the quality of the products.
Walmart look well set to maintain their position above their competitors as its unlikely they will be able to find a way to bring their prices lower than those of Walmart.