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Retail

What Is Walmart’s Competitive Advantage

By David Krug 10 minute read

Since its founding in 1962, the moniker Walmart (formerly known as Wally World) has come to represent everything that is good about shopping.

Most people’s first stop when planning a trip to the grocery store is Walmart, thanks to its well-known low prices and proclivity for stocking up on everything a consumer could possibly need (and then some).

There was no magic day on Monday when Walmart suddenly became everyone’s favorite store.

Since its founding in 1962, Walmart has worked tirelessly and planned meticulously to rise to the top of the retail food chain.

Let’s take a look at the top nine characteristics that contribute to Walmart’s competitive advantages now that Walmart has established itself as the world’s retail sales leader.

Walmart’s Advantages in Competition (9 Different Factors)

1.Lowest-Priced Products

Of course, Walmart’s key competitive edge is its low prices, which other shops just cannot match.

While Walmart’s motto “Always low prices, always Walmart” is a well-known catchphrase in the general public, many people assume that Walmart is the best place to go if they need to buy something at the lowest possible price.

It’s not easy for a corporation to just charge low prices. For most businesses, cutting costs to the point of losing money is a losing proposition because of the razor-thin profit margins.

Several conditions must be met before cost leadership is a feasible pricing strategy:

  • Customers often mistakenly believe that low-cost products are of worse quality because of the perceived “cheapness” or “inferiority” of their price. Walmart’s “save money, live better” slogan and great variety of well-known brands give shoppers the confidence that Walmart’s low prices are guaranteed by quality, even though Walmart will never be a luxury retailer.
  • Generics, sometimes known as private brands, are those things that are only available at a single chain of stores. In spite of the reduced cost of these products, the stores keep a bigger share of private brand sales than with name brand products. Among Walmart’s private brands, the Great Value line alone generates more than $27 billion in annual sales.
  • Ineffective supply chain operations lead to greater retail expenses at most establishments, as firms must pay for things such as shipping, storage, and security. To keep supply chain costs down, Walmart maintains its own fleet of trucks and facilities, in addition to its own private brands.
  • Some grocery stores have an average margin of less than 3% per item in the retail industry. However, due to the high volume of goods sold, even small margins can build up quickly. Walmart can afford to make a profit margin as low as 3% because of its massive volume advantage over competitors. This translates to lower prices for customers.

Walmart’s fundamental competitive edge over other retailers is its ability to maintain low costs, despite the fact that becoming a cost leader in the retail market is challenging.

2. Elite Supply Chain Management

One of Walmart’s cost advantages comes from its supply chain capabilities, which includes distribution hubs.

However, Walmart’s capacity to keep its shelves stocked at all times is a major competitive advantage that extends beyond the company’s ability to offer low pricing.

Instant satisfaction is what people are looking for in 2022. Because there are so many possibilities for online purchases, the customer is likely to switch to a competitor if a physical merchant is out of the goods even once.

Distributors’ Depots Across the Country

Because of Walmart’s superior delivery network, the shelves at its retail locations are never empty.

Walmart operates 45 regional distribution centers in the United States alone, all of which are tasked with procuring products from all over the world.

Automated conveyance and software-driven inventory systems are employed by these regional distribution centers to ensure that sufficient goods is packaged and ready for distribution 24 hours a day.

A network of 150 sub-regional distribution centers runs beneath these 45 regional distribution centers.

Customized deliveries are made on a case-by-case basis at each of these facilities, which cater to 75 to 100 retail locations.

This infrastructure, however, has a few drawbacks, such as the fact that Walmart US does not ship to Canada and a number of other nations.

As many locations as possible.

Another consideration is the sheer number of establishments. Since January 2022, Walmart has 4,756 stores and 599 Sam’s Club locations in the United States (its wholesale subsidiary).

There are multiple interconnected facilities at Walmart that allow the company to rapidly and efficiently move things where they are most needed, ensuring that customers are never disappointed when they can’t find what they want.

3. Company Name

Walmart’s brand has grown so strong that it now transcends the realm of traditional retail.

It is possible for other low-cost retailers to spend millions of dollars on marketing activities in an attempt to attract consumers, but such efforts are unlikely to divert consumers from the low-cost brand that Walmart has developed.

A global brand name benefits Walmart in the following ways in addition to raising its profile:

  • If you’re just starting out, you have a lot more discretion when it comes to making clients pleased. The customer moves on if they don’t meet their expectations. Customers are less inclined to question a well-known brand if they have had a bad experience at Walmart, even when the company does its best to please them.
  • As a business term, goodwill refers to the value of a company’s reputation in terms of money. As a result, Walmart’s name is well-known. Unlike most firms, Walmart’s reputation has the power to buy customers without the need to spend a dime. Walmart does spend money on marketing, but its name does a lot of the job.
  • Exponential network: the Walmart name is a byword for retail success, and it’s easy to see why this is the case. Increased cooperation with local lawmakers and the establishment of new stores in emerging neighborhoods, as well as improved access to investors, can lead to sponsorship opportunities that can further spread the brand’s message.

4. Providers of Services to Clients

In 2022, businesses will face an increasingly difficult task: keeping customers satisfied amid a sea of alternatives.

A poor review or a viral tweet from a dissatisfied client can have a significant impact on a company’s social capital, which can be difficult to recover from.

Walmart’s customer service policies are some of the best in the retail industry, and the company’s focus on customer satisfaction is evident. With or without a receipt, customers have up to 90 days following the purchase date to return an item.

While many merchants limit their return window to 30 days and require evidence of receipt, this differs from the policy of many other stores.

During the COVID-19 pandemic, Walmart has also ramped up its game to accommodate shifting customer demands.

With the launch of Walmart Plus in the second quarter of 2020, online orders, grocery pickup, and related e-commerce possibilities grew by 97%.

Additional to the flexible return policies, Walmart now offers free returns through mail or scheduled pick-up from your residence.

5. Use of Automation at a Higher Level

Competition advantages from automated processes cannot be overstated, but the threat to blue-collar jobs is genuine.

So Walmart has implemented automation significantly more widely than the majority of its competitors, in both distribution centers and stores.

Automation is used in Walmart’s distribution centers to sort and package products, move them to the proper warehouse space, and load and unload vehicles.

Scan-and-go machines in Walmart shops allow them to remain open 24 hours a day, even in the event of a pandemic.

Many of Walmart’s traditional labor expenditures, like wages, theft-tracking artificial intelligence (AI), benefit plans, mistakes made by employees, and paid time off, can be eliminated through the widespread use of automation in its business model.

The elimination of checkout lines, because to Walmart’s adoption of automation, has a positive impact on consumer happiness.

Most merchants see only a small percentage of their registers open at any given time, as workers help out in other sections of the shop or take their 15-minute breaks.

Scan-and-go kiosks at Walmart are open 24 hours a day, seven days a week, so shoppers never have to wait in line at the checkout.

6. Economies of Scale

The commensurate cost savings obtained by increasing production levels are known as economies of scale. Buying in bulk saves you money, in simple terms.

Walmart is able to provide such low-cost private brands, such as Great Value and Equate, because it is able to manufacture those products in such big quantities that the price per unit is so low.

Because it knows there will be a market for the final product, Walmart can take advantage of economies of scale.

Smaller enterprises, on the other hand, cannot benefit from economies of scale because any per-unit savings would be more than compensated by wasted volumes.

Walmart also benefits from economies of scale when it comes to importing products from outside. Whether the ship is completely or half laden, the cost of transporting cargo by cargo ship is typically the same.

Although some of its competitors may have to pay more for space in a container filled piece-by-piece, Walmart is able to load gigantic cargo ships and so reduce the per-unit cost of international shipping for its customers.

7. The Ability to Manage Your Money

“It takes money to make money,” as the saying goes, is well-known. Walmart, with its yearly revenue exceeding $500 billion, is well-funded.

Having a large amount of cash on hand provides numerous advantages to a business, including the following:

  • Walmart isn’t concerned about the start-up costs that most firms find prohibitive.
  • As a result, opening additional locations and paying monthly leases are less of a worry for Walmart than for most other businesses.
  • Landscaping and building maintenance: Walmart has a lot of money to spend on these things to maintain its facilities attractive to customers.
  • Despite the fact that all organizations are aware of the benefits of automation, few have the resources to make the considerable up-front expenditure.
  • Greater marketing budget: Walmart can afford to pay for premium advertising spots and employ the best pros to maintain their brand contemporary.

Its financial strength, on the other hand, gives it the ability to suffer a loss. If a product doesn’t sell, it doesn’t mean it’s a flop.

It’s difficult for firms that rely on sales for profitability to deal with this, but Walmart is able to lower prices, get rid of excess inventory and learn from its mistakes before moving on to more successful endeavors.

Its sound financial standing also enables it to retain a range of return policies that suit a variety of customers. No matter how hard they try, it can be difficult for struggling stores to accept a return on a product that has been blatantly misused or does not match its return standards, despite the proverb “the customer is always right.”

Such non-qualifying returns are easily handled by Walmart because of its strong financial base, ensuring continuous customer loyalty.

8. Diversification is the eighth point.

As with being a cost leader, spreading yourself too thin is a risky notion for most organizations.

Most businesses are urged to focus on their core competencies and target markets, which are important to a company’s success.

The inter-industry grip that Walmart has gives them an unfair advantage over its smaller competitors.

Despite its beginnings as a department store, Walmart has grown to become the nation’s leading retailer of groceries and pet supplies.

In addition, it provides more financial services than any other retailer in the country and has thriving departments for home renovation, tires and automotives, fish and game, and outdoor activities and sports equipment and clothing.

Walmart did not begin as a firm with a wide range of demographics. To get to where it is now, it has to be patient and meticulous in its expansion. In today’s competitive landscape, Walmart’s board diversity provides the following advantages:

  • As a result, many establishments are no longer considered in the customer’s consideration set because of their lack of one-stop shop status. Walmart, on the other hand, will attract people who believe that Walmart has everything they need, no matter what it is.
  • Walmart makes a lot of money on people who buy things they didn’t know they were going to buy when they walked in the door. When shoppers see all of the different departments, they are able to remember what they were looking for, and Walmart gets a sale that might otherwise have been lost.
  • Certain sectors of businesses have a narrow range of profit margins they may accept and yet be profitable. Due to Walmart’s wide range of businesses, it is possible for Walmart to accept lower-than-average profits in one department, putting even more pressure on its industry-specific competitors and helping Walmart maintain its cost leadership status.

9. Expansion into other countries

Despite the fact that Walmart produces most of its revenue in the United States, the company has been steadily expanding its international operations. The corporation now has a presence in over 25 countries, with $119 billion in overseas sales, accounting for around 24% of its total income.

Walmart’s global reach will provide it with a safety net in the event of a shift in consumer behavior in the United States.

It has a substantial advantage over its domestic competitors because of this. By expanding into new markets, the company is able to gather valuable knowledge and further exploit its economies of scale.

Bottom Line

Walmart is a household name when it comes to retail. The company has risen to the top of the global retail sales rankings as a result of decades of dedication, constant innovation, and growth into new markets. It is clear from the aforementioned nine competitive advantages why the company has reached this position and is likely to remain there for the foreseeable future.

David Krug

Author