walmart-business-model

The Walmart Business Model (2022 Update)

With over $555 billion in net sales in 2021, the company operates a differentiated Omni business model with three primary units comprising Walmart U.S, Walmart International, and Sam’s Club (approximately 12% of its net sales) a membership-only warehouse clubs. Together with Walmart+, a subscription service including unlimited free shipping, unlimited delivery from its stores, and discounts launched in 2021. 

Walmart origin story

Back in 1945, Sam Walton built up from scratch, what would later become the largest retailer in the world. 

Until 1962, Walmart’s founders focused on opening up a variety of stores. Only in 1983, did Walmart opens its first Sam’s Club, and by 1988, it opened its first supercenter. 

By the 1990s Walmart had become a giant in the US and it had also started global expansion. 

Starting the 2000s, as e-commerce picked up, with Amazon, once a startup, then become a tech giant. This led also Walmart in the direction of investing massive resources online. 

To stay competitive, as the pandemic hit the world, in 2021, Walmart also started to offer Walmart+, a subscription service including unlimited free shipping, unlimited delivery from its stores, and discounts. 

As the company highlighted with the launch of its subscription service: 

Walmart+ uses the company’s unique assets to make life easier for busy families. Along with the power of its online presence, Walmart+ has the reach of more than 4,700 stores, including 2,700 stores that offer delivery as fast as same day. Members will receive unlimited free delivery from stores, fuel discounts and access to tools that make shopping faster for families. Membership will be available to all customers on Sept. 15. It will cost $98 a year or $12.95 a month and includes a 15-day free trial period. In the future, the company will leverage its wide-ranging strengths to add additional benefits for members in a variety of services and offerings.

The three main features of the service are: 

  • Unlimited free delivery
  • Scan & Go
  • And fuel discounts: 

Some key highlights of the Walmart’s history

  • Walmart was founded by Sam Walton who started his retail career by operating a Ben Franklin variety store franchise. Walton believed in delivering value to the customer through exemplary customer service and low prices.
  • Walton would go on to operate 15 Ben Franklin franchises but decided to create his own chain after disagreements with the owners over profit margins.
  • The first Walmart store opened in Arkansas in 1962. Expansion throughout the United States was facilitated by an IPO in 1969 and a debut on the NYSE in 1972. By 1980, Walmart surpassed $1 billion in annual revenue and began experimenting with hypermarket and membership-only retail models.

Walmart Mission and Vision 

Walmart’s Mission and Vision are expressed below. 

walmart-vision-statement-mission-statement
Walmart’smission can be summarized as “helping people around the world save money and live better – anytime and anywhere – in retail stores and through eCommerce.” While its vision is to “make every day easier for busy families.” Walmart defines “busy families” as the bull’s eye of its business strategy.

Walmart is still tightly owned by the Walton family: 

who-owns-walmart
As of April 2020, 2,833,701,902 Shares were outstanding for Walmart. The Walton family is the company’s major shareholder whose mission is to “helping people around the world save money and live better – anytime and anywhere – in retail stores and through eCommerce.” While its vision is to “make every day easier for busy families.” Walmart defines “busy families” as the bull’s eye of its business strategy. From humble beginnings just over 50 years ago, Walmart has grown to become the world’s largest retail company.

And below a SWOT Analysis of Walmart:

walmart-swot-analysis
From humble beginnings just over 50 years ago, Walmart has grown to become the world’s largest retail company. A single small discount store in Arkansas has now expanded to over 11,000 stores in 28 countries. Some reports suggest that the company now makes $1.8 million of profit every hour.

Walmart organizational snapshot

walmart-organizational-structure
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.

The company operates three main store formats: supercenters, discount stores, and neighborhood stores. 

While it offers three primary merchandise units: 

  • Grocery (grocery, snacks, dairy).
  • General merchandise (entertainment, hardlines, apparel, and home).
  • Health and wellness (pharmacy, OTC products, and medical products). 

Walmart’s main motto is to “lead on price, invest in differentiating on access, be competitive on assortment and deliver a great experience by the motto of EDLP (every day low prices).

Everyday low cost (“EDLC”) is Walmart’s commitment to controlling expenses. Those savings can be passed along to customers. Walmart has an omnichannel presence to provide customers access to a broad assortment of goods at any time and in many locations in the US and internationally. Besides its physical infrastructure, Walmart has also been investing in its digital platforms, based on eCommerce.

Walmart comprises three main segments:

Walmart U.S.,

Walmart U.S. is the largest segment operating in all the 50 states in the U.S., Washington D.C., and Puerto Rico. It follows three primary store formats, as well as eCommerce. Walmart U.S. generated approximately 64% of our net sales in 2018.

The US segment follows what Walmart defines as a “differentiated Omni business model” which tries to lead the customers off and online. 

Walmart International

Walmart International consists of operations in 27 countries outside of the U.S.

It comprises three major categories:

  • Retail,
  • Wholesale
  • And other

These categories consist of many formats, including:

  • Supercenters,
  • Supermarkets,
  • Hypermarkets,
  • Warehouse clubs (including Sam’s Clubs) and cash & carry,
  • As well as eCommerce.

Walmart International generated 7 approximately 24% of 2018 net sales.

Sam’s Club

Sam’s Club consists of membership-only warehouse clubs which operate in 44 states in the U.S. and Puerto Rico, as well as eCommerce. Sam’s Club accounted for approximately 12% of 2018 net sales.

As a membership-only warehouse club, membership income is a significant component of the segment’s operating income.

Sam's -club-Segment-membership-fees

Sam’s Club offers merchandise in the following five merchandise categories:

  • Grocery and consumables including dairy
  • Fuel and other categories consist of gasoline stations, tobacco, tools and power equipment, and tire and battery centers;
  • Home and apparel includes home improvement, outdoor living, grills, gardening, furniture, apparel, jewelry, housewares, toys, seasonal items, mattresses, and small appliances;
  • Technology, office, and entertainment includes electronics, wireless, software, video games, movies, books, music, office supplies, office furniture, photo processing and third-party gift cards; and
  • Health and wellness include pharmacy, optical and hearing services and over-the-counter drugs.

net-sales-by-merchandise-category-sam's-club

Walmart store formats

Walmart sells mainly through three store formats:

  • Supercenters
  • Discount stores
  • Neighborhood markets

walmart-store-formats

Supercenters occupy a larger area, compared to discount stored and neighborhood markets.

walmart-revenues-by-category

When it comes to merchandising Walmart sold three main categories:

  • Grocery accounted for 56% of Walmart’s net sales in 2018.
  • Health and wellness accounted for 11% of its net sales in 2018.
  • and General merchandise accounted for 33% of its revenues in 2018.

How does Walmart manage to be competitive with such low prices? Inventory management is the key

As specified in its annual report Walmart can develop, open, and operate units at the right locations and to deliver a customer-centric omnichannel experience. That largely determines its competitive position within the retail industry. Walmart employs many programs designed to meet competitive pressures within its industry.

These programs include the following:

  • EDLP (everyday low price): items priced at a low price every day so Walmart customers trust that its prices will not change under frequent promotional activity;
  • EDLC (everyday low cost): effort to control expenses so that savings can be passed along to customers;
  • Rollbacks: pass cost savings on to the customer by lowering prices on selected goods;
  • Savings Catcher, Save Even More and Ad Match: strategies to meet or be below a competitor’s advertised price;
  • Walmart Pickup: customer places order online and pick up for free from a store. The merchandise is fulfilled through Walmart distribution facilities;
  • Pickup Today: customer places order online and can pick it up at a store within four hours for free. The order is fulfilled through existing store inventory;
  • Online Grocery: customer places grocery order online and has it delivered to home or picks it up at one of Walmart participating stores or remote locations; and
  • Money Back Guarantee: ensure the quality and freshness of the fruits and vegetables in Walmart stores by offering customers a 100 percent money-back guarantee if they are not satisfied.

How does Walmart distribution work?

For 2018, approximately 78% of Walmart U.S.’s purchases of store merchandise were shipped through 157 distribution facilities, located throughout the U.S.

The remaining merchandise gets shipped directly from suppliers.

walmart-distribution-facilities

At the international level, Walmart utilizes a total of 188 distribution facilities located in Argentina, Brazil, Canada, Central America, Chile, China, Japan, Mexico, South Africa, and the United Kingdom.

Through these facilities, Walmart processes and distributes both imported and domestic products to the operating units of the Walmart International segment. By January 2018, approximately 83% of Walmart International’s purchases passed through these distribution facilities.

walmart-international-distribution-centers

Also, Sam’s Club distribution facilities play a key role:

Sam's Club's -distribution

The principal focus of Sam’s Club’s distribution operations is on cross-docking merchandise, while stored inventory is minimized.

What is cross-docking?

As explained by Walmart:

Cross-docking is a distribution process under which shipments are directly transferred from inbound to outbound trailers.

In short, shipments typically spend less than 24 hours in a cross-dock facility, and sometimes less than an hour.

Sam’s Club uses a combination of our private truck fleet, as well as common carriers, to transport non-perishable merchandise from distribution facilities to clubs.

The segment contracts with common carriers to transport perishable grocery merchandise from distribution facilities to clubs.

Sam’s Club ships merchandise purchased by members on samsclub.com and through its mobile commerce applications by a number of methods from its dedicated eCommerce fulfillment centers and other distribution centers.

Walmart revenues breakdown

walmart-revenues-breakdown

Read Also: Walmart Mission Statement, Who Owns Walmart.

Connected Business Models

how-does-amazon-make-money
Amazon has a diversified business model. Amazon’s primary revenue streams comprise its e-commerce platform, made of Amazon labeled products and Amazon third-party stores. In addition to that, Amazon makes money via third-party seller services (like fulfilled by Amazon), advertising on its platform, AWS cloud platform, and Prime membership.
costco-business-model
With a substantial part of its business focused on selling merchandise at the low profit-margin, Costco also has about fifty million members that each year guarantee to the company over $2.8 billion in steady income at high-profit margins. Costco uses a single-step distribution strategy to sell its inventory.
wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
aldi-business-model
By the end of World War II, Theo and Karl Albrecht took over the small grocery store of their mother to make it become one of the most successful discount supermarket chains in the world. ALDI operates according to the  motto “the best quality at the lowest price.” With combined sales of 53 billion euros in 2010, ALDI North and South have separate operations. ALDI founders are among the wealthiest businessmen in Germany with a personal wealth of over 33 billion euros, combined.

Handpicked related articles: 

Leave a Reply

Scroll to Top
FourWeekMBA
[class^="wpforms-"]
[class^="wpforms-"]