Lessons from one of the world’s largest retailers
Published in · 5 min read · Dec 3, 2020
Way before the rise of e-commerce, a company from Bentonville, Arkansas burst onto the scene by offering a cheaper alternative to mom-and-pop stores embodying theirs at the time with the slogan of Always the low price. Always.
Renowned for its cheap, one-stop shopping experience, Walmart swiftly captured market share by aggressively undercutting small-town supermarkets. By 2001, Walmart overtook Exxon Mobil to become the world’s largest company by revenue.
From the highs of global dominance to the lows of a lackluster push for international expansion, Walmart’s business is undoubtedly among the world’s most successful.
Sam Walton opened his first Ben Franklin variety store in 1945 after being released from military duty. Soon enough, his talent became evident as his store swiftly tripled in business. Wanting to expand, Walton pitched his ideas of low pricing to Ben Franklin. Company directors were quick to shut him down when they realized margins would be cut in order to compensate for the lower pricing strategy.
Growing frustrated with Ben Franklin, Walton decided to open a Walmart independently in 1962 with his brother Bud. By the early 70s, Walmart had expanded to 30 stores across the midwest of America — and proven the Ben Franklin directors wrong along the way.
Instead of competing in urban areas with established discount retailers such as Two Guys, W.T. Grant, and Zayre (all now defunct) Walmart focused on rural areas where markets weren’t saturated and people could reduce their grocery shopping time from a couple of hours to a couple of minutes by simple buying at a local Walmart. By the 90s, the retailer had established itself as a dominant player with a presence in almost all 50 states across the US.
Though founder Sam Walton passed shortly after in 1992, his legacy still remains in the behemoth of a company Walmart has become, with over 2.2 million employees, 11,000 stores, and $500 billion in annual sales.
1. Every Day Low Price
Every Day Low Price (EDLP) is the pillar of Walmart’s strategy.
Though it may seem obvious now, retailers at the time operated on relatively high margins, which guaranteed them considerable returns even when sales volume was slacking. By contrast, Walmart proposed lower margins, which required a higher sales volume and cost-cutting.
In turn, everyday low prices mean discounts are avoided, so consumers are generally more loyal. For the business, this translates to stable cash flows, higher revenues, and greater margins.
In addition to the pricing strategy, Walmart offers the convenience of one-stop shopping. From groceries and clothing to video games, the company offers a wide assortment of goods.
2. Checking on competition
Conventional business advice is along the lines of focus on creating the best product or service. Sam Walton certainly did that, but he also spared time to check on the competition. Shenanigans included counting the number of cars in parking lots to assess popularity, measuring shelf space, and noting sales prices at several retailers.
Doing so not only gave him a better understanding of competitors but also allowed him to determine when it was worth lowering prices to steer consumers towards Walmart.
3. Empowering employees
Instead of having the corporate offices determine each store’s offerings, Walmart empowers local store managers to make those decisions. Each manager is given a vast amount of data on inventory levels, sales figures, and customer preferences which they analyze to determine the best inventory, pricing, and product offerings to tailor the shopping experience to the local community — thereby maximizing customer satisfaction.
For example, according to an HBS case:
“A study in the mid-1980s found that when Walmart and Kmart were located next to each other, Walmart prices were roughly 1% lower, and when Walmart, Kmart, and Target were separated by 4–6 miles, Walmart’s average prices were 10.4% and 7.6% lower, respectively. In remote locations, where Walmart had no direct competition from large discounters, its prices were 6% higher than at locations where it was next to a Kmart.”
Empowering local managers in such a way allowed them to provide the most competitive pricing in the market while maximizing revenue.
It’s fair to say they certainly lived up to their slogan of Always the low price. Always.
4. Distribution
Back in the 80s, Walmart was leading the way in merchandise technology. They implemented Uniform Product Codes (UPC), radiofrequency technology, and computerized inventory systems — all of which improved the business. Among the benefits were reducing shrinkage (loss of inventory due to theft, errors, etc.), better communication, and accurate pricing.
As for logistics, Walmart was one of the first companies to adopt a technique called cross-docking which removes the storage part of a supply chain. Simply put, products are received from suppliers, sorted, and directly reloaded onto store-bound trucks without the need for a warehouse to stockpile the products. In turn, this process reduced labor and storage costs while streamlining the supply chain.
- Listen to the employees on the front lines. The ones who actually talk to the customer are among the best sources of information.
- Though they may have fallen short in the last couple of decades, investing in technology cemented their position as market leaders in the 80s and 90s.
- Control your expenses better than the competition. This is where you can always find a competitive advantage.
- All Sam Walton heard in the early years was that rural areas could not support a discount store. Before long, most competitors were following suit.
Though the rise of e-commerce has arguably taken them by surprise, their resources and infrastructure will surely allow them to put up a heck of a fight.
