Everyone knows Walmart, the famous US retailer, but few know its unbelievable history and steady growth. Walmart appeared in the ’60, and now operates a wide range of stores, including supermarkets, hypermarkets, neighborhood markets, department stores, grocery stores, and discount shops. Below, you’ll find Walmart’s business model explained in detail.
This will give you further insight into how this business developed and became successful nationwide. Walmart would be the world’s largest business if we considered annual revenue. Keep reading for the full Walmart business model explained.
- Walmart was launched in the ’60, and it quickly became one of the largest chain stores in the US;
- By 2022, the company became the most successful business in the world, with annual revenues of approximately $570 billion;
- Walmart is the world’s second-largest employer in the private sector, with around 2.2 million employees. Amazon occupies the first place;
- The company’s business model focuses on four important market segments: within the US, the international market, Sam’s Club, and the brand’s mobile app.
Walmart’s Business History
Let’s see how Walmart went from one store to a vast network of brick-and-mortar and online shops.
The first Walmart store was opened in 1962 in Rogers, Arkansas. Sam Walton, the founder, had a clear marketing strategy: providing the lowest prices on the market, anywhere, anytime. By 1967, Walmart had become a store chain with 24 physical locations. As a result, sales were rising, reaching nearly $13 million.
In 1970, Walmart’s national appeal spread more than ever before. The company had had incredible growth over its first decade of existence. Around this time, the business becomes publicly traded, with one share costing $16.50.
By 1975, Walmart had already been listed on the NYSE (New York Stock Exchange). Before opening its first pharmacy, in 1978, Walmart had over 50 stores and a whopping sales total of almost $80 million. The company established the Walmart Foundation in 1979.
The ’80s represented a decade of many new and exciting things for the business, including the opening of the original Walmart Supercenter. This store mixed general merchandise with supermarket items. The chain had 21,000 employees, 276 stores, and annual sales of $1 billion.
Another fantastic innovation that Walmart revealed was computerized point-of-sale systems. These revolutionized the process of grocery shopping while offering customers quick and accurate checkouts.
The Walton Family Foundation appeared in 1987, the same year in which Walmart linked the corporation’s communication systems and its operations through video, voice, and data, all combined. That’s possible due to the most extensive private satellite system ever seen in the US.
Becoming the Best
By 1990, Walmart becomes US’s number one retailer. The company’s strategy focuses more on boosting convenience and going international. The first international location was opened in Mexico City in 1991.
Sam Walton, the owner, died in 1992 at the age of 74. His son, Rob Walton, takes on the family’s business and responsibilities. In 1994, the first Canadian stores appeared, followed by an expansion into the Chinese market in 1996. The growth continues because Walmart acquired the UK-based Asda. By 2002, Walmart’s clients could do their shopping online.
After the company’s penetration into the Japanese market, its representatives state their commitment to environmental sustainability. They focused on three main aspects:
- Using renewable energy;
- Creating zero waste;
- Selling sustainable products.
Sustainability and Longevity
In 2010, Walmart focused more on sustainable agriculture and innovating the retail environment. It did that by supporting local farmers and helping customers save money. The company celebrated 50 years of existence in 2012. By 2015, the retailer served over 200 million customers per week in 27 countries.
This famous store chain changed its legal name to Walmart Inc. in 2018, the same year Judith McKenna became CEO and President of the entire corporation. In 2019, the company launched its InHome Delivery service, and in 2022, it celebrated its 60th anniversary.
Walmart Business Model Explained – How Does It Work?
The company’s mission statement is about helping customers save money, enjoy highly convenient shopping sprees, and lead better lives. So, as you can see, Walmart’s business model is quite simple, very clear, and straightforward: offering the lowest prices on the market.
- Mission – helping people save a lot of money that they would’ve spent on groceries;
- Value proposition – offering a wide range of affordable products in a highly convenient manner;
- Selling channels – physical stores, their online shop, and mobile app.
Walmart’s Strategy Pillars
Walmart relies on five business pillars that support and create the company’s strategy.
Leading on Price
Keeping prices as low as they can is the main focus at Walmart. The company’s managers want to ensure the products they sell are affordable and accessible to the whole population. The retailer made efforts to create the world’s largest supply and distribution chain to keep those prices low. That’s possible due to Walmart’s bulk purchases, which tremendously increase its negotiating power.
Sam’s Club, an important part of Walmart, relies on cross-docking to support its affordable prices. This redistribution system operates in an intelligent and organized manner. The products that arrive in the retailer’s warehouses are directly sent to the point of sale or clients. Cross-docking is the opposite of traditional stored goods.
Both these tactics are unique, offering Walmart substantial leverage that helps it differentiate from its main competitors.
Competing on Assortment
Walmart’s business model enables the retailer to provide its customers with a wide range of products and services. Some are sourced from local producers, while others come from international suppliers. Further on, the company sells this wide variety of items across its physical stores and online shops.
This approach has helped Walmart create and develop a massive customer database.
Differentiating on Access
The retailer has made numerous investments in its attempt to differentiate on access. It did that as a response to all the new and competitive strategies other businesses introduced over the years. Although most people still think about supermarkets or hypermarkets when they hear about Walmart, the company diversified its population access.
It did that through small stores where you can find fresh food. Then, there are the online shops and the retailer’s mobile app through which Walmart enhanced its online shopping experience. Clients can purchase their desired items from their mobile phones and then pick them up from the local physical store. Finally, Walmart is the only US-based retailer that owns medical clinics and pharmacy stores.
Both these health services are less accessible than food, so Walmart’s decision to tackle this need was an intelligent business move. Besides wellness products, this company provides preventive health care and regular checkups. If that’s not disruptive and innovative, I don’t know what is?!
Providing a Great Shopping Experience
Walmart knows that gaining new clients and retaining existing customers can be achieved through a flawless shopping experience. The retailer has recently announced that they will increase their staff’s hourly wage. It’s an attempt that hopefully will lead to a customer satisfaction boost. Moreover, they plan to train or retrain their employees to achieve high ROI* and make their clients happy.
ROI* – return on investment
Any Walmart client who finds the retailer’s services and products unsatisfactory will receive their money back due to the company’s money-back policy. Due to this approach, you can ensure you get the best and freshest veggies, fruits, and other high-quality items.
There are three market segments that Walmart covers:
- The United States – this is the largest Walmart market segment. It operates in all 50 US states as well as in Puerto Rico. This segment represented around 64% of the company’s net sales in 2018;
- Walmart International – the retailer operates in 27 countries all over the globe. These operations can be found in wholesale, retail, and more. This segment consists of supercenters, hypermarkets, eCommerce, supermarkets, cash & carry, and warehouse clubs;
- Sam’s Club – speaking of clubs, this is a membership-only segment in the form of a warehouse club. Subscribers will have access to consumables, fuel, groceries, electronics, grills, home items, toys, office furniture, pharmacy products, and more.
Then, there’s also the Walmart mobile app. You can download it on both iOS and Android devices. Once installed, you can browse through millions of products sold by Walmart whenever and wherever you are. The app makes your life easier as a Walmart client by saving time and effort.
Furthermore, with this software, you can create customized shopping lists, scan bar codes, check a product’s availability or price, and identify the aisle location of a specific item.
Walmart’s key partners are trustworthy worldwide suppliers. Of course, being a giant global retailer means Walmart has numerous suppliers. But, some of them are more important than others, out of those 100,000 partners worldwide. Walmart’s partners could be grouped into different categories: technology collaborators, solution partners, service suppliers, etc.
Procter & Gamble
This consumer goods business has a long history, being founded in 1837. All Walmart stores sell P&G products. Moreover, the supplier hoped on board when Walmart required tagging based on radio frequency identification.
Green Dot Corporation
Through Green Dot and Walmart partnership, the retailer’s clients benefit from the MoneyCard program. In 2019, they launched a checking account called GoBank. Green Dot Corporation serves consumers needing prepaid debit cards.
Plug Power Inc.
When Walmart was looking for an innovative fuel like hydrogen cell technology, it found Plug Power Inc. These two companies teamed up in their joint effort to reduce operational costs, power usage, and emissions. The supplier’s primary revenue comes from collaborating with two large market players: Amazon and Walmart.
For instance, Walmart refined its technology approach and machine usage by fueling its warehouse forklifts with energy cells.
Everyone who knows a bit about the tech industry knows what a significant player HP is in this niche. The company was launched in 1939 and had three market segments: corporate investments, personal systems, and printing. Walmart organized the Home Entertainment Design Challenge, and HP won that contest. This supplier has helped the retailer by lowering its computer packaging impact on the surrounding environment.
Primo Water Corporation
The retailer gets its self-service water dispensers from this supplier. Primo Water also supplies other major businesses like Lowe and Home Depot. Primo’s headquarters are located in North Carolina, and its 2021 revenue reached $2.07 billion.
- Channel partners – Acenda, BuzzFeed, Channel Sale, Clearoute, Deposco, Fitbit, OpenCart, ShippingChimp, etc.;
- Technology partners – ChannelAdvisor, eHub, Magento, Owler, ShipEngine, WooCommerce, etc.
Walmart’s two main revenue streams are retail sales and other services. First, the company gains a lot of money through product revenues and retail sales. These products are sold within the US and globally through their stores or local distributors.
Its financial performance is impressive, considering Walmart is one of the top Fortune 500 companies. In 2018, the company’s net sales were almost $500 billion. 64% came from the US market, while Walmart International added 24%. The lowest proportion came from Sam’s Club – only 12%. It’s safe to say that Walmart has a massive economic impact on the food retailing industry.
The company’s gross profit for this year (2023) is estimated at almost $150 billion, representing an increase of nearly 3% compared to the previous year. Walmart’s updated revenue will exceed $611 billion, an essential boost of 6.7% compared to 2022.
See also: Home Depot Business History.
Walmart has two main customer segments:
- Mass market;
- Low-income clients.
The company applies two types of market segmentation:
- Geographical segmentation – based on your location, Walmart will sell specific items. For instance, if you live in a hot area where it doesn’t snow, you won’t find snow shovels in any Walmart store;
- Demographic segmentation – once the location is established, the retailer groups its customers by age to effectively cater to the client’s needs. Teenagers have different needs than young adults or senior customers.
There are three main product categories that Walmart sells:
- Grocery items – foods such as snacks, dairy, beverages, and others;
- Health and wellness – medical and pharmaceutical products;
- General merchandise – home items, apparel, entertainment goods, and hardlines.
Due to its low prices, Walmart’s main clients are individuals who want good-quality yet low-cost items. Some are people with low incomes, while others are simply searching for optimal cost benefits. In short, the company’s target audience would be low to middle-class families who live predominantly in rural areas.
Moreover, these clients want a quick shopping experience, one that’s convenient. They are students, workers, or floor-level employees who seek the best cost advantage out there.
Most of the retailer’s customer services are automated and simplified. For example, clients can contact the company‘s representatives via phone if they want to clarify something or offer a comment. Besides that, Walmart also offers a few other convenient contact ways through their mail address ([email protected]) and return policy.
Walmart’s marketing strategy relies on two pillars:
- A high-sales volume approach;
- Helping customers save money.
The retailer uses multiple advertising channels to promote its services, including outdoor billboards, TV commercials, online ads, and social media. It wants customers to see the brand as highly reputable and trustworthy.
Walmart’s Marketing Mix
- Pricing – everyday low prices by keeping costs as low as possible;
- Product – carefully selected products; high level of diversity; complementary goods; seasonal items;
- Promotion – based on the point of Sale and Point of Purchase. Besides commercials and ads, Walmart also invests in press releases and public relations;
- Placement – Walmart operates through over 150 distribution centers and its e-commerce store.
In the future, Walmart wants to do more than sell products. We expect a more diverse business model based on seamless omnichannel distribution. They plan to provide complementary products to create a one-stop shopping experience. Its delivery service will continue to be greener and greener, more sustainable, and more environmentally friendly.
Regarding the company’s advertising revenue, the staff plans to grow this income stream. They also stated the intention to raise employee wages. We should keep watching Walmart to see what other innovations and disruptions it may do.
Let’s look at what Walmart does best and some of the market challenges it has to overcome.
- Affordable products;
- Highly trained staff;
- International presence;
- Advanced technology;
- Multiple sales channels, both offline and online;
- A wide range of available products.
- A couple of employee lawsuits;
- Having a business model that’s too simple;
- Poor brand reputation in some cases;
- A few situations of negative publicity;
- High employee turnover;
- Customer service that’s not good enough;
- Relying too much on the US market.
- Expansion possibilities;
- Higher profit margins;
- Automation tools development;
- eCommerce expansion;
- Better shopping experiences due to virtual reality;
- The constant growth estimates regarding the eCommerce market;
- Improving its human resources.
- More regulations regarding wages, food, safety, and work benefits;
- Fierce competition;
- Increasing costs of labor and raw materials;
- The risk of data breaches is rising;
- The risk of new lawsuits could damage Walmart’s brand reputation.
- It’s the largest retailer worldwide;
- It’s better than Walmart at item inventories, streaming services, and handmade goods;
- Walmart is still better at selling fresh and affordable groceries.
- The international leader in the retail food market;
- Carrefour has lower revenues compared to Walmart;
- Walmart has more affordable items;
- Carrefour has a longer history of 55 years on the market;
- Walmart has stores in only 27 countries, whereas Carrefour is present in 33 countries.
- Walmart is more trusted than eBay because its Marketplace sellers are all verified and approved before they start selling;
- eBay also works as an online auction platform;
- The products featured on eBay are significantly higher than the ones marketed by Walmart.
- Wholesale company with membership discount warehouses;
- For higher prices, Costco provides premium goods and more opportunities;
- Walmart is more approachable, having more stores and a larger footprint.
- Markets only house improvement products, garden furniture, and building materials;
- In the home improvement niche, Home Depot is more profitable than Walmart.
- Very similar to Walmart in terms of products;
- Target is smaller than Walmart and operates only within the US.
Question: How Does Walmart Afford to Have Such Low Prices?
Answer: They buy in bulk from their suppliers. Hence, they can negotiate lower prices. This leads to lower costs and further translates into more affordable goods.
Question: What Is the Main Business Strategy that Walmart Relies on?
Answer: A broad assortment of products sold at low prices every day, without exception. Also, one-stop shopping that’s highly convenient. These are Walmart’s strategy corner stones.
Question: Why Does Walmart Have So Many Customers?
Answer: Clients love this retailer because they find everything they need in one place at affordable prices. So, it’s easy and convenient, without the need to visit multiple stores and waste time.
Walmart Business Model Explained – Bottom Line
Walmart is an excellent example of a massive globally-scaled success. It focused on a simple yet appealing mission right from the start. Moreover, it sticks to that same value proposition to this day. Do you want a wide range of decent-quality products that are affordable? Walmart is the place to go. It helps middle-class people save money without compromising the overall experience and customer satisfaction.
The retailer’s business model relies on building a long-lasting and strong brand, developing a large customer base, and offering low-cost products while boosting the company’s sales.
All images: Walmart.com
Other useful reads:
- Walmart value chain analysis
- Insurance Value Chain Explained
- Transnational Strategy Explained
- Target Competitors Analysis: 5 Major Competitors
- Home Depot Competitors Analysis: 6 of Its Biggest Competitors.
- Costco Business Model Explained: The Things That Led to Its Success - March 28, 2023
- Walmart Business Model Explained: The Tactics That Led to Its Success - March 20, 2023
- Sam Altman Bio: How Did He Become a Millionaire? - March 20, 2023