Walmart is an American multinational retail corporation that comprises of a chain of hypermarkets, grocery stores, and discount department stores. It is the world’s largest company by revenue. It holds the U.S. $514.405 billion according to the Fortune 500 list of 2019.
It is a publicly-traded family-owned business. The Walton family owns the company. It was the largest U.S. grocery retailer in 2019. The business model of Walmart primarily revolves around brick-and-mortar retail, however; it is gaining momentum in e-commerce as well.
In this post, we will be diving deep into the business model of Walmart to understand how it channelizes its different units and generates revenues. So, let us get started here and now –
Introduction to the Business Model of Walmart
First thing first, the business model of Walmart administers a wide variety of products. Some of those products around which Walmart business model functions are-
- Home décor and furniture
- Movies and music
- Health and beauty
- Pet supplies
- Sporting goods and fitness
- Craft supplies
- Healthy and beauty
- Auto-related supplies
To understand the business model of Walmart in a more comprehensive manner, it is important to dive deep into the history of Walmart-
History of Walmart
- 1914- The history of the U.S. retailer giant began with Sam Walton, who was born in Kingfisher, Oklahoma.
- 1945- Walton served in the military for a few years of his life. He finished this service and moved to Iowa and then Arkansas.
- 1945-1950- He gained retail experience, and this helped him to operate his variety store.
- 1950- He moved to Bentonville and opened “Walton’s 5&10”.
- 1962- Finally, on July 2nd, he opened his first Walmart store in Arkansas.
- 1967- The family-owned business had spread out to a full-scale organization with 24 stores. They earned $12.7 million in sales.
- 1969- The company’s name was changed to Wal-Mart, Inc. on October 31st
- 1970- The name was changed again to Wal-Mart Stores, Inc. The company started trading stock as a publicly held company.
- 1972- The organization was listed on the New York Stock Exchange, and the price of the first share was $16.50/share.
- 1980- The family established the Walton Family Foundation as they reached $1 billion in annual sales. It was faster than any other company at that time, which showed that the business model of the company was soaring and working efficiently.
- 1983- The organization converted from cash registers to a computerized point-of-sale system, which enables effective and efficient checkout.
- 1987- The most crucial private satellite communication in the U.S. was installed. It linked all the operations of the business model of Walmart through voice, data, and video communication.
- 1993- $1 billion sales week
- 1997- $100 billion sales year
- 2009- $400 billion annual sales in the year
- 1992- The founder of the company, Sam Walton, passed away.
- 2018- The organization is a worldwide retail giant and has its presence in many countries.
All these key idiosyncrasies have been the result of Walmart Structure that plays key role in channelizing business all around the world in an adept fashion. Now, we will be going through the Walmart structure to understand the concept more comprehensively-
Structure of the Walmart Business Model
There are three segments of the business model of Walmart:
1. Walmart U.S.
It is the largest segment of the organization. It manages all the stores in the 50 states of the U.S., Washington D.C. and Puerto Rico.
This segment controls different aspects of the daily necessities of an individual- Grocery, Health, Entertainment, Apparel, Hardlines, and Home. They provide various services as well.
Along with financial services, the business model of Walmart offers money orders, prepaid cards, wire transfers, and bill payments. They sell licensed and private-label merchandise.
They provide physical access to the customers in the form of three primary store formats – supercenters, discount stores, and other small store formats.
Digital access to Walmart U.S. is an array of merchandise and services to customers through e-commerce websites and mobile applications.
The digital stores have a tie-up with the physical stores, which is known as “Walmart Pickup” and “Pickup Today.”
2. Walmart International
The international part of the company includes 27 countries where the Walmart store is present. They also have other format stores such as retail, wholesale, and others. The stores are operated through joint ventures and wholly-owned subsidiaries.
The physical access is provided to the customers through the 156 distribution facilities
The physical stores support digital access with facilities such as “Click & Collect” (U.K.) and home delivery in Mexico.
3. Sam’s Club
Sam’s club is the third and final segment of the business model of Walmart, which operates in 44 states in the U.S. and Puerto Rico. This segment takes care of membership-only warehouse clubs. It also works the samsclub.com. They provide a subscription service to individual customers as well as business owners.
The digital access factor in this division supports the physical clubs and members with the help of a utility called “Club Pickup.”
Statistical Significance of Business Model of Walmart
As per a report in 2018, the following statistics were achieved:
- Net Sales: $495 billion
- Walmart U.S.: 64% of net sales
- Walmart International: 24% of net sales
- Sam’s Club: 12% of net sales
The reason for these numbers is the efficient and robust business model of Walmart.
The pillar upon which the company bases its operations is the reason for it to be the largest retailer giant in the U.S.
They originally had the two main strategies popularly known as EDLC and EDLP- EDLC- everyday Low Cost & EDLP- Everyday Low Price
Due to various changes in the market and to keep the company up-to-date, they introduced two new strategies in their system, which complemented the current ones.
The business model of Walmart now thrives on the foundation of its strategic pillars.
These, when formulated and implemented correctly, helps the company to keep the customers satisfied.
Strategies upon which Business Model of Walmart is based Upon
1) “Lead on Price”:
The company has always maintained its need to have a price that is low so that it can be affordable to everyone. They were able to maintain their position at the top, despite their low price strategy, by a continuous focus on their suppliers.
They have one of the largest supply chains in the world. They spend an immense amount of money to purchase the merchandise for their stores which gives them tremendous bargaining power over their suppliers.
Walmart uses the concept of cross-docking to achieve reduced cost and price leadership. Cross-docking involves the process of directly uploading the inbound shipments from the suppliers into the outbound trailers at the distribution centers. These unique strategies give the business model of Walmart an edge over the other retail stores.
2. “Invest to Differentiate on Access”:
Traditional and new-age competitions are introducing new retail access strategies against the retail sector.
The business model of Walmart is responding to these new strategies in their way.
- The company is opening a small retail shop so that they can increase accessibility to consumers. Although they are usually known for their supercenters and discount stores, they want to make sure that the small stores do not drive them out of customers. Hence these small-format stores help to provide fresh and prepared foods to the shoppers.
- Walmart is investing heavily in digital marketing and digital retail. They have to keep up with the trends of the other retail stores to maintain their position in the market. They are introducing user-friendly online shopping stores for consumers to shop at their convenience, anywhere and at any time. They work with leading technology labs and have their tech base in Silicon Valley known as Walmart Labs. Customers can order their desired products and get the shipment from the physical stores. This proves that they are strengthening their connection between physical and digital access.
- Walmart is investing in services that are relatively difficult to access. They may also have a pricing challenge, such as health and wellness services. It is the only retailer in the U.S. that has its pharmacy stores and clinics which provide preventive health care checkups and wellness products. It has a channel partner called QuadMed so it can call itself a health and wellness sponsors.
3. Be Competitive on Assortment
The business model of Walmart promotes the assortment of products and large varieties of these commodities across the physical and digital portals.
It ranges from local taste to International preferences.
4. Deliver a Great Experience
The final goal of any business is to ensure the fact that the customers have a pleasant experience at the store and come back in the future. The business model of Walmart also has similar aims.
They employ 2.2 billion individuals who strive towards an excellent customer shopping endeavour.
Walmart has recently announced its goal to increase the hourly wage of the employees and also increase the satisfaction of the customer in the store.
They want to achieve a high return on investment in the training and retraining of their employees, in the form of happy customers.
5. Money-back Guarantee
This strategy of the business model of Walmart ensures delivery of fresh, healthy, and high quality fruits and vegetables.
They offer the customers a 100% money-back guarantee if they find the services are unsatisfactory.
Revenue Avenues of Walmart Business Model
The revenue avenues of the business model of Walmart include an array of products and services for the individual in the U.S. as well as internationally. They have a range of these commodities and amenities:
1) Product Revenues
- Grocery: Meats, deli products, bakery, dairy, frozen food, and dry supermarket. Consumables are also sold, such as beauty and health aids, paper goods, and pet supplies.
- Health and Wellness: Over-the-counter medications and clinical services
- Entertainment: Electronics, toys, cameras, phones, photography supplies
- Hardlines: Stationery, hardware, paints, fabrics, and crafts
- Apparel: For women, men, boys, girls, infants as well as shoes, accessories
- Home: Home furnishings, housewares, bedding, home décor
2) Service Revenues
- Financial services: Service charges for money orders, prepaid cards, wire transfers, bill payments, money transfers, and cheque cashing
- Movie Streaming Service: Subscription revenue for buying, renting, and watching movies and T.V. series on demand.
- Clinical services: preventive and routine health check for some common health issues
The business model of Walmart is supported by the chairman, Greg Penner, the President and CEO, Doug McMillon and the 2.2 million individuals employed.
The company has made its mark over the entire world with 11389 stores worldwide.
This proves that the strategies supporting the company are working in harmony to achieve the revenues and provide high returns on all the money and hard work invested.
All the efforts help the business model of Walmart to “develop, open, and operate units at the right location and to deliver a customer-centric omnichannel experience.
How effective, revenue-oriented and inspiring do you find the business model of Walmart? Share with us in the comments.