Walmart, a discount retailer, was started by Sam Walton in the small town of Rogers,

Arkansas, in 1962. By 2014, Walmart had become the world’s largest retailer, with
more than $476 bil- lion in revenues and 10,942 stores.1 More than one-quarter of
Walmart’s revenues came from outside of the United States as it continued to take its
low-cost business model around the world. Traditional discount-retailing
competitors, including Sears, Kmart, and Target, were now dwarfed by the size of
Walmart’s operations (see Exhibits 1 and 2). However, as the new century began,
Walmart faced some new competitors and new chal- lenges. Costco had entered the
discount-retailing market, offering low prices on products that were generally
deemed to be of higher quality than many products sold at Walmart and Sam’s Club.
Aldi, a new discount retailer out of Germany, offered lower prices than Walmart by
using a business model that was even more bare-bones than Walmart’s. But the
biggest threat came from Amazon.com, the dominant player in the fast-growing
online segment of the discount retailing business. Amazon.com was growing rapidly
by selling large volumes of goods online at prices that usually matched—or beat—
Walmart’s prices, with the additional advantage of zero sales tax. Walmart’s success in
the future would require responding effectively to the growing trend toward online
purchases and the emergence of Amazon.com as a major competitor.Walmart’s
History Walmart’s founder, Sam Walton, was born in the small town of Kingfisher,
Oklahoma, in 1918. He learned about retail by working at JC Penney before serving in
the military during World War II. Walton’s first store was a Ben Franklin franchise,
located in Newport, Arkansas (a town with a population of 7,000), which he opened
in the 1950s. Walton had intended to open a Federated store with a friend in St.
Louis, but Walton’s wife, Helen, refused to live in any town with a population larger
than 10,000.2 As his chain grew, Walton continu- ally looked for new ideas, traveling
the nation to observe retail practices. Those observa- tions convinced him that
opportunity was available for discount retailers in small-town America.When Ben
Franklin wouldn’t support his idea for discount retailing, Walton put up his home and
all his property to secure financing for the first Walmart, which he opened in Rogers,
Arkansas in 1962 (the same year Target and Kmart opened their doors). Following the
suggestion of a manufacturer’s rep, he decided to emphasize low prices and high
volumes in his first store. When Walton opened the store, it was the first time
anybody had ever discounted prices to a deep level in such a small town. Small
mom-and-pop retailers simply couldn’t compete with the prices offered at Walmart,
and Walton was able to expand his one store into a growing chain. Walton’s plan to
grow Walmart had two key elements: Start in small towns and expand in his own
region before spreading to new areas. Walton said, “Our key strategy was to put
good-sized stores into little one-horse towns which everybody else was ignoring.”3
Walton opened 18 stores in the second half of the 1960s. Those stores had annual
sales of roughly $9 million. In contrast, Kmart had already grown to 250 stores and
had annual sales close to $800 million. But Walmart continued to grow. In his 1993
autobiography, Walton recalled, “Kmart wasn’t going to towns below 50,000. . . . We
knew our formula was working even in towns smaller than 5,000.”4 By the early
1970s, Walmart had more than 30 stores in rural Arkansas, Missouri, and Oklahoma.
As the company grew, Walton spent much of his time observing his competitors and
adapting useful ideas. Many now-familiar elements of Walmart, including self-service,
company cheers, referring to employees as “associates,” and Sam’s Club warehouse
stores, all came from his observations of other businesses. Although Walmart
performed well during the 1960s, its cost of goods sold (COGS) was still high relative
to the large national retailers. Walton said that, early in Walmart’s history, vendors
typically dictated the terms and prices to Walmart, which did not yet have the size or
power to negotiate its own terms. Walton recognized that for Walmart to receive the
same prices and level of service as the larger retailers, the company would need to
start buying in much higher volumes. To store such large amounts of merchandise,
Walmart would need to invest in a big warehouse. Walton was already leveraged to
the point that he couldn’t finance the investment on his own, so he took the
company public in 1972. The stock sale infused Walmart with $4.95 million, just
enough capital to build a $3.3 million warehouse.5 This was Walmart’s first step
toward developing its own set of distribution centers to quickly and efficiently get
merchandise to its stores. In order to manage these distribution centers and to
coordinate shipments from suppliers, Walmart made significant investments in
information technology (IT). Walmart’s IT system allowed the company to see where
in its distribution system any product was at any time. The IT system also linked
Walmart’s automated distribution centers to stores and to suppliers, allowing the
company to restock stores’ inventories precisely and quickly. Walmart also invested in
communications, creating a private satellite network that allowed company managers
to communicate quickly and easily with stores all over the country without traveling
to visit them, saving Walmart significant time and money. These investments helped
Walmart grow quickly in the 1980s and 1990s. Its return on assets (ROA) peaked
above 13 percent in 1990 and gradually declined to around 8.5 percent by 2010 (see
Exhibit 3). In 1985, Walmart’s COGS ran at 73.8 percent of sales. This was higher than
the industry average of 71.9 percent, but Walmart had an advantage in its operating
structure. Walmart’s total operating expenses were 18.5 percent of sales. Rental
expenses came to 1.8 percent of sales, advertising costs were 1.1 percent of sales,
and payroll expenses were 10.1 percent of sales. In contrast, industry averages for
rental, advertising, and payroll expenses were 2.2 percent, 2.3 percent, and 11.2
percent of sales, respectively, with a total operating expense at 23.3 percent of sales
on average. Walmart’s cost advantages in these var- ious areas helped the company
achieve an operating income 2.6 percent of sales higher than the industry average. At
its 25th anniversary in 1987, Walmart had 1,198 stores, $16 billion in sales, and
200,000 associates. Just 25 years later, at its 50th anniversary in 2012, Walmart had
become the world’s biggest retailer with 10,130 stores, $444 billion in sales, and 2.2
million associates. See Exhibit 4 for a summary of Walmart’s key income statement
and balance sheet items.Walmart’s Operations Walmart’s structure and systems are
designed for efficiency. The key elements of Walmart’s operations strategies include
its distribution model, relationships with suppliers, human resources management,
marketing and merchandising practices, store formats, and inter- national operations.
Distribution Walmart’s distribution centers are typically 1 million square feet in size,
require about $70 million to build, are highly automated, and operate 24 hours a day.
Each distribution center receives hundreds of truckloads per day and serves roughly
150 stores within a 150-mile radius. Products typically move through the distribution
center within 48 hours, and often in far less time than that.6 As of 2011, Walmart was
the world leader in cross-docking procedures, in which goods brought into the
distribution center exit the inbound truck and are loaded immediately onto an
outbound truck headed to a Walmart store. Technological innovations enable
Walmart’s efficient distribution. The company promotes a system for tracking goods
by attaching radio frequency identification (RFID) tags to boxes so that cases no
longer have to be manually inspected.7 The RFID program was often fought by
suppliers because of the expense of implementation. It is so important to Walmart’s
efficiency and reductions in shrinkage (theft), however, that Walmart vigorously
enforces its adoption, imposing penalties on its suppliers that do not use the
system.8 Walmart also devised a Scan ‘N’ Pay (SNP) system, which means that a
supplier’s product is owned by the supplier until the product is actually sold by
Walmart.9 Because of these efficiencies, analysts estimated that, in the mid-1990s,
Walmart’s inbound logistics expenses were roughly 1 percent less as a percentage of
sales than the expense of its direct competitors.Supplier Relationships Walmart is
known for tough but productive relationships with its suppliers. Traditionally,
negotiations with Walmart have been no-frills experiences involving clear
expectations. For example, Walmart typically holds negotiations in small rooms
furnished only with a table and four chairs. Walmart’s ability to put a supplier’s
product on the shelves of more than 10,900 stores gives it tremendous leverage with
suppliers. If suppliers don’t show up to the negotiations with their price in an already
bottom-line position, then Walmart is quick to send the supplier home to retool, or
to move on in search of another supplier that would be more competitive. At the
same time, however, Walmart has given suppliers access to some of the most
accurate consumer data in the world.11 In the 1990s, for example, Walmart
implemented an electronic data interchange (EDI) system and operated RetailLink,
which provides all of its suppliers with up-to-the-minute, point-of-sale data from all
Walmart locations worldwide. Tying its manufac- turers to its stores in this way is one
of the primary factors that led Walmart to achieve the lowest operations costs in the
industry. According to Richard Sherman, president of Gold and Domas research,
“Walmart can be heavy-handed, but its contribution to the supply chain has been to
lead the market to adopt best practices they should have been adopting anyway. For
the donkeys, those that haven’t been paying attention, the hand is heavy, the 2-by-4
is hard. If you have been paying attention, it’s not a 2-by-4. It’s an opportunity.”12
Taking advantage of this opportunity, some larger manufacturers, such as Procter and
Gamble, have located large teams of employees near Walmart’s headquarters in
Bentonville, Arkansas, to better coordi- nate with Walmart. To further encourage
suppliers to streamline costs, Walmart developed a Sustainability Index for all of its
products. The index uses various methods to track all stages of the product life cycle,
from raw materials to disposal, and holds suppliers accountable for any
unnecessarcosts added to the supply chain, such as high-carbon materials, excess
packaging weight, or an overly long supply chain.13 In order to efficiently manage its
sophisticated distribution net- work and supply chain, Walmart has made significant
investments in information technology. Walmart spends 0.1–0.3 percent on
information technology, as a percentage of revenues, a figure 5 to 10 times more
than competitors do in absolute dollars. Human Resource Management Walmart has
received mixed reviews regarding its human resource management practices. For
example, Walmart has been recognized as one of the 100 best companies to work for
in the United States, but at the same time, it has occasionally been criticized for its
nonunion stance and for gender discrimination. Walmart has worked hard to keep
the higher costs of union- ized labor out of its operations. For example, during one
attempt to form a meat-cutters union, Walmart simply closed its meat-cutters
division and outsourced the entire operation. This sent a clear signal that Walmart
was determined to keep its labor costs as low as possible. At one point in time during
its history, Walmart’s labor costs were only 10.1 percent of sales, compared to 11.2
percent for its direct competitors.14 Despite their nonunion status, Walmart’s
employees generally have been described as motivated and committed to Walmart.
An executive at one supplier commented, “Walmart is a lean operation managed by
extremely committed people . . . They live to work for the glory of Walmart. This may
sound like B.S., but it’s incredible. Our production, distribution, and marketing people
who visit Walmart can’t believe it.”15 Some observers attribute employee enthusiasm
to the work ethic and culture created at Walmart by Sam Walton. Others attribute it
to the fact that profit sharing is available to associates after one year of employment.
Walmart contributes a percentage of every eligible associate’s wages to his or her
profit-sharing account. Upon leaving the company, the associate can access funds in
his or her account either in cash or Walmart stock. Walmart also offers an associate
stock ownership plan for the purchase of its common stock, at one time matching 15
percent of up to $1,800 in annual stock purchases. Managers and supervisors are
compensated on a salaried basis, and they earn additional incen- tive compensation
based on store profits. Store managers usually earn more than $100,000 per year.
Members of the top management team typically earn more than 90 percent of their
compensation from incentives based on their performance, and less than 10 percent
as salary. Walmart typically hires people right out of high school or college. For the
most part, management consists of individuals who started their careers at Walmart
and have worked their way up the ladder. The company invests in training assistant
managers and managers in the Walmart way of doing things. For example, most
management training seminars are offered at the distribution centers, thereby
exposing store managers to the distribution network. Walmart doesn’t have regional
offices, which saves the company an estimated 1.5–2.0 percent of sales each year.
Instead, regional managers are located at the company’s Bentonville, Arkansas,
headquarters and spend roughly 200 days per year visiting stores. Regional
managers begin their visits early on Monday morning, and they try to return to
Bentonville on Wednesday or Thursday “with at least one idea which would pay for
the trip.” Marketing and Merchandising From the beginning, Walton’s basic
merchandising principle for Walmart was to focus on lead- ing the industry in sales-
per-square-foot by offering a broad assortment of extremely low-priced goods. To
this end, Walmart carries a wide range of national brands and private label products.
In 2003, private label sales were on the rise for Walmart, but they still made up only
about 20 percent of annual sales, compared to 50 percent for Target. In 2009,
Walmart redesigned the packaging of its largest private label brand, Great Value, to
be more visible. The Great Value brand was expected to grow from $13 billion in
sales in 2009 to $20 billion in 2014.16 Walmart’s focus on apparel is comparatively
lower than that of competitors. Only 10 percent of US sales is apparel, compared to
Target’s nearly 40 percent.Advertising is also limited. Walmart started with almost no
advertising, and its advertising costs were still only 0.6 percent of sales in 2010,
compared to Target’s 2.0 percent. The ads the company does run are focused on
Walmart’s low prices. Pricing for Walmart has always been built around Every Day
Low Prices (EDLP), but there have been some changes to how the focus was
implemented over time. Walmart’s original slogan was “Always the lowest price,” but
lawsuits by the competition pushed the company to change the slogan to “Always
low prices. Always.” The slogan changed again in 2007 to “Save money. Live better.”
To ensure that prices are, indeed, low every day, Walmart conducts weekly price
checks in nearly 99 percent of its competitors’ stores. Managers at local stores are
given the flexibility to adjust prices to meet, or beat, the competition. One study
found that when Walmart and Kmart are located within a mile of each other,
Walmart’s prices are 1 percent lower than Kmart’s. In rural locations where Walmart is
the only discount retailer in town, Walmart’s prices are found to be 6 percent higher
than in locations where a direct competitor is nearby. During the US recession of
2008–2010, an increased number of middle-class buyers came to Walmart, looking
for savings. Hoping to keep the new customers after the economy improved,
Walmart launched Project Impact, an initiative designed to improve the quality of the
shopping experience in order to help Walmart compete more effectively with Target.
Project Impact focused on widening aisles, lowering shelves, and removing palleted
promotions from walk- ways to clean up the overall look of stores.18 However, at the
beginning of 2011, after eight straight quarters of reductions in same-store sales,19
Project Impact was deemed a failure. Although increasing its appeal to the middle-
class, Walmart had alienated its core blue-collar, working-class customer. Walmart
decided in 2010 to return to its original high-stacked, pal- leted aisles.20 While still
commanding a strong lead in its key measure of success, sales-per-square-foot,
Walmart had watched the gap between it and its competitors gradually narrow over
the course of a decade. In 2003, Walmart had sales-per-square-foot of $440, and
Target had $249. By 2012, Walmart’s sales-per-square-foot had dropped to $428, and
Target’s had risen to $302.21 Walmart Store Formats In 2000, Walmart’s original
discount-store format still dominated its store-format mix, but during the next 10
years, the original format was supplanted by the much larger supercenter for- mat,
which adds a full-line grocery department and other specialty departments to the
original discount store. Walmart’s original intent in including groceries was to drive
traffic to its general merchandise, but the grocery department has been profitable on
its own, and it now represents about 35 percent of Walmart’s earnings.22 At roughly
90,000 square feet, Walmart’s supercenters are double the size of its approximately
42,000 square-foot original discount stores. At the begin- ning of 2011, Walmart had
2,898 supercenters worldwide (including many discount centers that had been
converted to supercenters) and was down to 701 discount centers worldwide.23
Walmart also operates Sam’s Club warehouse stores. The company built its first Sam’s
Club in 1983 after Sam Walton observed the rapid growth of the Price Club, and the
new orga- nizational group quickly grew to dominate the segment. The warehouse
store requires a fee for membership, but it then sells heavily discounted goods to
customers right off the pallets. There tend to be far fewer stock keeping units (SKUs),
or individual products, available than in a Walmart supercenter, and the available
products also tend to change quickly.24 However, Costco, which some said was the
only competitor that Walmart feared,25 surpassed Sam’s Club, to become the most
successful warehouse store retailer in the world. In 2012, Costco had reve- nues of
$97 billion from 644 stores, while Sam’s Club had only $49 billion in revenues from
609 stores.26 Costco’s success is attributed to focusing on a higher-income client by
selling higher quality or, at times, even luxury goods at discount prices. Sam’s Club
adjusted its product mix for a short time toward the higher-quality products, but its
core customers never really appre- ciated them.27 As Walmart started to achieve
critical mass in the rural and suburban markets for its discount centers and
supercenters, the company moved to enter even smaller markets, with a format
called the Neighborhood Market.28 The Neighborhood Market is essentially
asupermarket. It focuses on groceries, but it also carries drugstore products and
some mer- chandise. Walmart’s plans were to roll out the Neighborhood Market in
relatively slow fashion. It had 112 Neighborhood Markets in operation in 2008, and
the number had grown to only 160 by 2010.29 See Exhibit 5 for a summary of the
type of Walmart and competitor stores by life- style region. Walmart also sells online,
but online sales account for only $6 billion in 2010. In Walmart .com’s early years,
store managers fought hard against the website and even complained about hav- ing
the website address emblazoned on in-store bags. Not surprisingly, managers were
concerned that online sales would cannibalize store sales and thus reduce their
bonuses. The online store also struggled to replicate the price advantage held by
Walmart’s brick-and-mortar stores. In the online arena, Amazon.com is often the low-
price leader. Amazon.com also carries more than 14 times as many products online,
and its website receives twice as many visits per month as Walmart’s.30 International
Walmart started to expand internationally in 1991,31 and by 2011, it had more stores
outside the United States, with 4,557 international locations and 4,413 domestic
locations.32 In 2013, Walmart’s international division was its fastest growing division
by revenues, and more than 28 percent of its sales came from international
markets.33 Walmart expanded into international markets both by building its own
stores, as it had in the United States, and through joint ventures and acquisitions. It
acquired ASDA in the United Kingdom in 1999, and despite local protest, it
purchased of 51 percent of Massmart in South Africa in July 2011. In each of the
markets into which Walmart expanded, it faced unique obsta- cles. In some nations,
Walmart was unable to overcome the obstacles to its entry. For example, in Germany
it faced the challenges associated with strong labor unions, as well as strong com-
petition from local competitors, including Aldi and Lidl. Unable to overcome those
obstacles, Walmart exited Germany in 2006. In South Korea, Walmart found
consumers who were often very loyal to local chains and small retailers. Consumers
also frequently avoided buying the low-cost goods made in China that often
appeared on Walmart’s shelves, because China was a major competitor of Korea.
Walmart also left the Korean market. In other nations, including China, Walmart
persevered despite obstacles. Walmart’s initial Chinese stores did not carry enough
local merchandise, and prices were high relative to many local retailers. It also had to
deal with a less technologically developed supply chain. More- over, the two largest
Chinese retailers, Lianhua and Huilan, merged into a state-owned mega- chain called
the Bailan Group. But Walmart repositioned the stores in China, adding
localmerchandise, aiming to have Chinese consumers view Walmart as providing
good value, if not the lowest prices. Walmart’s entrance into India and Russia was
met with so many obstacles that Walmart stopped expanding and withdrew from
each market.34 In India, government regulations pre- vented Walmart from executing
a profitable strategy by requiring the company to buy 30 percent of products from
local small and midsize businesses in India. In addition, internal corruption within
Walmart’s Joint Venture with Bharti, an Indian retailer, forced Walmart to buy out
Bharti’s share and operate independently.35 In Russia, Walmart attempted an
acquisition strategy for several years, but it failed to win bids because of financial and
cultural pressures.36 As it expanded internationally, Walmart also had to compete
with other international dis- count retailers, including Tesco, Aldi, and Carrefour, all of
which were very large and pushing for international growth at the same time as
Walmart. Competition was strongest in these stores’ home markets. Competition
from extreme discount retailer Aldi was a key factor in Walmart’s withdrawal from
Germany. Similarly, competition from already-established Carrefour in Brazil and
Argentina made success difficult there. In the United Kingdom, Tesco quickly built its
own supercenters after Walmart entered the UK with its superstore format. Walmart’s
first approach to international operations was to hire a president for the company in
each country. The presidents had control of all Walmart operations for their coun-
tries, making all decisions related to sourcing, merchandising, and real estate.37
Eventually, Walmart chose to fall back on its success with centralized distribution and
management, how- ever. In 2010, the company announced the formation of a global
supply chain, with purchasing and distribution for the entire international division
combined into one centralized system.38 Such decisions were expected to keep
Walmart’s annual growth steady at roughly 4.7 percent through 2015, but lagging the
projected growth of Carrefour and Tesco.
Amazon has been a formidable opponent in Internet retailing in both US and foreign
markets. Although Walmart had stumbled out of the gate with regard to Internet
sales, it appeared that Walmart was making some headway. By 2013, Walmart had
become the No. 4 online retailer by sales, with sales growth of 30 percent, which
even topped Amazon’s sales growth of 20 percent, albeit on a smaller sales base.39
Because of Walmart’s online growth rates, some analysts pro- jected that it would
capture the No. 2 online retailer spot in the near future.40 Competition In addition to
Amazon.com and Costco, perhaps the most significant new low-cost com- petitor for
Walmart was Aldi, an extreme discounting retailer based in Germany. Aldi was
founded in 1961 and invented the hard-discounter format. The hard-discounter
model, also replicated by other competitors, typically offers a very low number,
about 1,500, of SKUs. In contrast, Walmart supercenters offer about 100,000 SKUs.
Aldi stores are about one-tenth the size of a Walmart, have lower staffing levels, and
are often located in low-rent districts. Private labels typically make up the vast
majority of hard-discounters’ lines.41 In Aldi’s case, more than 85 percent of its sales
are private label.42 Aldi cut costs further by requiring cus- tomers to bring their own
bags, rent their own shopping carts for a quarter, and purchase goods only using
cash, debit, and EBT cards. Furthermore, Aldi cut labor and energy costs by staying
open only during popular shopping hours. In a unique twist, Aldi also offered double
guarantees, promising shoppers to replace their products and refund their money if
they weren’t satisfied.43 All of these factors contributed to Aldi’s products being
priced nearly 29 percent cheaper than Walmart’s.44 Looking Forward: New
Competitors and New Challenges C-9 C-10 Walmart Stores Similar to Walmart’s
growth through the latter part of the twentieth century, Aldi was mostly ignored by
the competition during its early years. Competitors made several assump- tions
about Aldi: Its hard-discounting could succeed only in Europe. Aldi stores attracted
only the poor or new customers only during recessions. Its products were of inferior
quality. Instead, the company’s store products has been shown to be comparable to
national brands, the middle-class is shopping there,45 and as of 2014, Aldi had more
than 1,000 stores in 30 states in the United States.46 New Challenges In 2012, CEO
Michael Duke admitted that some of Walmart’s initiatives, such as Project Impact,
had been less than successful. But Walmart still has a great deal to be proud of.
When Doug McMillon took over as CEO in 2013, Walmart was the world leader in
retailing revenues by a wide margin. Its annual sales were more than double those of
its next largest competitor, and it continues to have consistent sales growth in the
United States and internationally. The com- pany had been listed as one of Fortune’s
World’s Most Admired Companies every year for the previous decade. Moreover,
Walmart is becoming less and less an American company and more and more a
global discount retailer. But success in the future will require responding effectively
to the growing trend toward online purchases and the emergence of Amazon.com as
a major competitor. The online retailing market, 11.7 percent of total retail sales in
2016, was expected to grow from roughly $390 billion in 2016 to more than $1
trillion by 2026.47 According to Internet Retailer, the problem for Walmart, and other
companies trying to compete online, is that Amazon .com drove 65 percent of e-
commerce growth in 2016.48 By the end of 2016, all major brick- and-mortar
retailers were feeling the heat from online purchases as Sears, JC Penney, and Macy’s
were among a throng of companies announcing store closings. Even Walmart
seemed to feel the heat as profits dropped by 8 percent from the third quarter of
2015 to the third quarter of 2016. Walmart CEO McMillon responded by cutting
headcount by 1000 at its corporate headquarters. But simply cutting headcount
would not help Walmart suc- ceed with online customers and with millennials, a
generation that was not enamored with Walmart’s offering. In response to this trend
toward online purchases, and to attempt to better connect with millennials, Walmart
decided to purchase Jet.com for $3.0 billion in September 2016. Like Amazon.com,
Jet.com was an online discount retailer but one that focused on more price sensitive
customers by attempting to provide better pricing than Amazon.com using a
dynamic pricing model. Essentially, customers are rewarded for buying multiple
items, which decreases shipping costs and thus decreases customers’ costs. Then,
when the cus- tomer goes to check out, Jet’s algorithm behind the scenes figures out
which sellers are the most efficient in terms of shipping and price, so if one seller is
closer but charges more for shipping, you’ll buy from a more distant seller that
charges less for shipping and thus results in a lower overall cost for the customer.
“Our technology is built more like a real-time trading system than it is an e-
commerce site,” says Jet.com founder Marc Lore. “As people shop, we’re repricing
products to reflect the true underlying economics of getting those products to the
customer, based on what products are already in the (checkout) basket and based on
how far away those products are from where the customer lives.”49 One of the first
things that Walmart CEO McMillon did after the acquisition was make Lore president
of Walmart’s US e-commerce business. But the acquisition of Jet.com—and putting
Lore in charge of Walmart’s e-commerce business—raised a number of questions
going forward. For example, should Jet.com continue to be a completely separate
site from Walmart.com? If so, for how long? Should Walmart.com adopt some of the
innovative pricing approaches used by Jet .com? Would putting Lore in charge of
Jet.com and Walmart.com be sufficient for Walmart to figure out a way to compete
more effectively with Amazon.com in online discount retailing? Or were other actions
necessary for Walmart to compete successfully in both e-commerce and brick-and-
mortar retailing simultaneously?

Answers:

Walmart's Success Factors: Walmart's unparalleled success is underpinned by a

multifaceted strategy. Central to this triumph is the unwavering commitment to a
low-cost business model, epitomized by the "everyday low prices" (EDLP) strategy.
This approach resonates with consumers, creating a perception of value that fosters
loyalty and repeat business. The company's supply chain efficiency plays a pivotal
role, incorporating innovations like cross-docking and sophisticated IT systems to
facilitate the swift and cost-effective movement of products. Strong supplier
relationships, facilitated by the Retail Link system, empower Walmart to optimize its
inventory and reduce carrying costs. Operational efficiency in both stores and
distribution centers significantly contributes to cost reduction, enabling Walmart to
pass these savings on to the consumer.

Lower Costs than Competitors: Analyzing Walmart's cost structure reveals key
areas where the company consistently outperforms its competitors. The sheer scale
of Walmart's operations amplifies its purchasing power, enabling the negotiation of
favorable terms with suppliers and driving down the cost of goods sold (COGS). The
nonunion status of its workforce, coupled with a relentless focus on cost control and
a motivated workforce, contributes to reduced labor costs. Strategic location
decisions in areas with lower rents help minimize operating expenses, giving Walmart
a crucial edge in cost management. The company's limited advertising and emphasis
on low-cost marketing strategies underscore its commitment to controlling
promotional costs. Investments in technology, including RFID and data analytics,
coupled with streamlined logistics networks, further optimize distribution costs.

Challenges for Competitors: Competitors seeking to emulate Walmart's success

face formidable challenges. The vast scale and volume of Walmart's operations afford
it substantial negotiating power with suppliers, a strategic advantage that smaller
competitors may find insurmountable. Moreover, Walmart's substantial investments
in supply chain infrastructure and technology act as formidable barriers to entry for
competitors lacking the financial resources or commitment to similar enhancements.
The distinctive company culture, characterized by employee motivation programs
and a focus on efficiency, creates a motivated and productive workforce that is
challenging for competitors to replicate.

Walmart's International Challenges: While Walmart has dominated domestic

markets, its international endeavors, especially in emerging markets like Brazil and
South Korea, have been marked by hurdles. Adapting to diverse cultures and
preferences proves to be a significant challenge, as consumer behaviors and
expectations differ markedly. In these markets, Walmart faces stiff competition from
well-established local retailers that may have a better understanding of the nuanced
demands of the local consumer base. Additionally, regulatory complexities and
varying rules and restrictions across countries impede the seamless execution of
Walmart's global strategy. The misalignment of its standardized approach with the
diverse needs of international markets has been a stumbling block.

Responding to Online Purchases and Amazon.com: Acknowledging the seismic

shifts in consumer behavior towards online purchases, Walmart has strategically
responded to the threat posed by Amazon.com. Acquisitions, such as Jet.com and
Flipkart in India, exemplify a proactive approach to e-commerce. These ventures not
only expand Walmart's digital footprint but also showcase its acknowledgment of the
significance of digital retail and a commitment to staying competitive in the online
space. Innovative pricing models, exemplified by Jet.com, highlight an acute
understanding of the price sensitivity of online shoppers. Ongoing investments in
online infrastructure, user experience, and digital marketing underscore Walmart's
determination to compete effectively in the digital realm. Embracing an omnichannel
approach, Walmart seeks to integrate online and offline retail experiences, providing
customers with a seamless and holistic shopping journey. This adaptability reflects
Walmart's strategic agility in navigating the changing dynamics of the retail industry,
ensuring it remains a formidable player in both traditional and digital retail spheres.