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 than Walmart. At 221.1 Billion dollars market capital (May, 2017), the brand was among the top 25 most valuable brands of the world in 2017 (Forbes list). It has continued to expand its operations globally and is now found in 28 countries operating through 59 of its banners. It operates more than 11,700 retail stores globally and employs more than 2.3 million people. 1.5 million of them are employed in US alone. Apart from its high level sales, the brand is also known for having generated large scale employment. All of this has come from cutting down operational costs and in past the brand was notorious for paying its employees low wages. However, these things have improved in the recent years and despite everything it has remained the most popular retailer of US by virtue of 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 sources of competitive advantage that have helped it build and expand its large empire.
Sources of Walmart’s Competitive Advantage:
Overtime, Walmart has established itself as a retail brand that favors the customers. Not just as the biggest retailer of US, it is also known as the best brand for its obsession for lower prices. It is your favorite neighborhood store in US. This brand image has benefited it a lot and not just created popularity but also helped it overcome small and big jolts. The brand was attacked severely in past for its unethical supply chain and labor practices. However, the picture has improved a lot during the recent years.
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 that is popular for its low costs model but also a large customer base. 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 has not built a vast empire without being obsessed for 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 infact shopping at Walmart is also a distinct experience in itself. It has also framed 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 high sales. Sales at the 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.
Large scale operations 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.
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 leg space in terms of marketing and advertising. Its marketing expenditure has continued to rise consistently through 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 stands at 221.1 Billion dollars which is a major strength for it since it can spend more on marketing as well as HR policies.
International presence and expansion of the brand 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 28 countries through its 59 banners. Its 11700 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 created some important sources of competitive advantage. 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 help it retain its popularity while also improving its sales in markets inside and outside US.
Walmart Annual Report