walmart-business-model

The Walmart Business Model In A Nutshell

With over $495 in net sales as of January 2018, and over $4.5 billion coming from Membership and other income. The company operates three primary units that in 2018 comprise Walmart U.S. (approximately 64% of our net sales), Walmart International (about 24% of net sales), and Sam’s Club (approximately 12% of its net sales) a membership-only warehouse clubs and operates in 44 states in the U.S. and in Puerto Rico, as well as eCommerce.  

Walmart organizational snapshot

Walmart serves nearly 270 million customers who visit its more than 11,700 stores. Its strategy is based on “leading 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 control 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

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 operates 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, which accounted for 56% of Walmart net sales
  • Health and wellness, which accounted for 11% of its net sales
  • and General merchandise accounted for 33% of its revenues

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

Reference for the financial data: Walmart 2018 Annual Report

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Published by

Gennaro Cuofano

Creator of FourWeekMBA.com | Head of Business Development at WordLift.io | International MBA

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