In the world of American retail success stories, it’s impossible to ignore the giant that is Walmart. Just the mention of the name will bring about connotations of scale that are difficult to fathom in our modern context.
Let's take a look at some of Walmart's astounding numbers
- $524 Billion (USD) revenue in 2020, an increase of $9.6 Billion
- Over 2.3 Million employees worldwide, 1.6 Million in the US alone
- 4,743 Walmart stores in the US alone
- 5,184 Walmart international segment stores
- Located in 24 countries
- Global market share of 2.6% in 2021
In this article, we’ll dive deeply into the Walmart story, unpacking the insights that drove them, the circumstances that made them, and pulling as much value as we can from what they’ve been able to accomplish. Whether you’re in retail or not, there are lessons to be learned here about strategic positioning, customer experiences, product development, long-term sustainability, supplier negotiation, and much more.
Let’s dig in.
The Origin Story
The global behemoth started in a very humble way in Arkansas, back in 1962. Mercurial founder Sam Walton had a dream of what a true customer-focused retail experience could be. He believed that you could offer low prices and a great customer experience in parallel. And he set out to prove it.
That first store got off to a roaring success because it did something different from what everyone else provided. Walton’s dedication to leadership through service meant that the store felt like a family-led operation that genuinely cared for those who came through the doors. At this stage, it wasn’t the product range or scale that kept customers coming through the doors; it was the feeling that you actually mattered. You weren’t just a number. You were a valued client whose business was cherished.
Over the next 5 years, Sam Walton and his family expanded this philosophy to open up a further 23 stores, which generated just over $12m in revenue. With each new store they planted, they strived to understand the local community and their needs – delivering the sort of retail experience that they would appreciate. And it was this focus that allowed them to continue growing without losing their spark. Even as they began to scale, the small-town feel remained, and the Walton DNA was sprinkled across every part of the value chain.
In 1969, the company was officially incorporated as Wal-Mart Stores Inc., and just one year later, they were listed as a public company. The vision was to bottle up the magic and take it to a national scale. In a way that had rarely been seen before, the ambition was unbounded. They really did see a future where Walmart stores littered the whole of the USA.
By the time 1980 rolled around, the company crossed the $1bn sales figure, with contributions from 276 stores across the country. In today’s numbers, that’s huge, but back in 1980, it isn’t easy to appreciate just how powerful this empire was. The company had revolutionized modern retail, and on the back of significant improvements in mass production and global supply chains, Walmart continued to accelerate in terms of influence and market share. They were quickly becoming the go-to brand for anything and everything.
Every brand that tried to compete with them struggled to match their low prices, wide variety, and family-friendly ideals that made customers feel at home in the stores. Even though the Waltons couldn’t be everywhere, the culture they had nurtured continued to permeate each location, making it a shopping experience that couldn’t be beaten.
In the ‘90s, the company continued to expand, breezing through $100bn sales in a year and growing its operations into Mexico and other select international locations, most notably China. Thanks to the Walmart supercenters, the company strengthened its brand as the one-stop shop for absolutely everything, providing great value and low costs across everything sold.
As of the time of writing, Walmart now operates over 10,000 stores globally, employing over 2.3m people and maintaining the status of one of the most recognizable brands across the world. The ethos of Sam Walton created an empire that champions low-priced goods delivered at scale in a way that delights customers through and through.
Now that we have a sense of some of the history, let’s look at some of the strategic pillars that make Walmart the success it is.
The Walmart Cheer
In 1975, Sam Walton traveled to Korea and Japan to visit some of his suppliers and to see what the mass production facilities looked like that were feeding the rapid growth of his organization. One of the visits was to a Korean tennis ball manufacturer, where he came across the idea of what would become the Walmart Cheer.
The factory was not that inspiring aesthetically, but Walton was taken aback by how enthusiastic and happy the staff was. It was clear that they had something special about them, even in the rather dingy circumstances that they worked in. And when he saw the reason why he knew he had to bring a similar idea to Walmart.
The employees at this factory would get together at the beginning of every day and perform a cheer together. As silly as this sounds, they would do this choreographed war cry of sorts that was designed to unite them and reinforce the values and ideals that they were aiming for that day. On a once-off, this might seem like just a gimmick, but repeated day after day, and it turned into a mantra for that factory that kept the workers going and helped them to feel like they were a part of something larger than themselves.
Walton loved this idea and adapted it into what is known today as the Walmart Cheer. Every day before the staff opens their doors to the public, they will gather together to perform this ritual. The sales numbers for the day before would be read out, as well as any goals that are being set for that particular day, and then the employees will go back and forth spelling out Walmart in the same enthusiastic way that you might have during your high school war cries.
Walton recognized that while this seemed inconsequential to some, a little ritual like this acted as a moment for the staff to come together and set their intentions for each day. It gave the store managers an opportunity to share some words of inspiration or motivation to help fire up the employees. And it got the employees to get into their bodies a bit and set themselves up to be in a good state for what was to come.
By the time that the doors were opened for that day, there was an energy and vitality in that workforce that was contagious. This would help them serve the customers with as much verve as possible, which was what Walmart was all about.
Now, whether this is still done at every store is anyone’s guess, but it points to an important strategic insight that comes from Walmart. They understand that the energy put forth by their retail staff has a significant impact on the overall buying experience. While we tend to place a lot of focus on product ranges, pricing, distribution, marketing, and all those components the truth still remains that people buy from people. The ritual of the Walmart Cheer was a simple piece of what made those employees feel like they were all on the same team. And through the age-old tool of group song and dance, they could set their intentions and build the energy that they would need to give to their customers.
This shows an attention to detail that most retailers don’t get right. We’ve all been in situations where the apathy shown by retail employees creates a sour experience for us as customers, and it leads to us ignoring that brand as a result. Walmart understood this and sought to create practical ways for employees to come together and deliver that exceptional buying experience that the customers were looking for.
Always Low Prices
One of the more common oversimplifications that you’ll hear in the business strategy canon is that your pricing model must fall into one of two camps- high volumes at low prices or low volumes at high prices. While the reality is much more nuanced than that, the choice remains one that all companies must make if they are to create something sustainable.
Walmart has always been focused on low prices. They will do everything they can to slash their prices as low as possible because that is the value that they aim to provide to their customers. They want to beat the competition by convincing their audience that you won’t find these goods for cheaper than anywhere else. All across their supply chain, they are doing everything they can to keep the costs as low as possible.
You can see that most clearly in their margins. For the vast majority of their existence, they’ve kept their net profit margin in the 1-5% range, which is quite staggering when you think about the size and scale that they’ve managed to achieve. This is certainly doing things the hard way when it comes to building a business. Leaving yourself this little operational wiggle room is something that a lot of strategists might advise you against. But Walmart has made it work incredibly well.
The reason that this is so interesting is that in our modern context, the biggest companies in the world have insanely high margins that business experts across the gamut celebrate. The digital businesses that leverage the internet to deliver their offerings can find their margins being in the range of 60% and upwards in most cases, which is in stark contrast to the Walmart model.
But that’s a feature of brick-and-mortar retail. Your overheads and your rent make up a sizable chunk of your cost, and then you add on top of that the complex supply chain that brings a wide variety of products onto your shelves. Before you know it, your margins are under serious pressure and you require a significant investment in infrastructure to get the economies of scale you need.
This is compounded when you consider the types of goods that Walmart sells. The core of the offering is essentials, which are the bread and butter of daily life. Customers only really care about price and convenience in these verticals, so Walmart set itself up to match those desires. Through innovative supply chain optimizations and radical cost-cutting philosophy, they made themselves known as the discount retailer where you get the best prices.
It’s difficult to understate how valuable this branding is. If you can convince your customers that you’ll always have the lowest prices on the market, there’s no reason for them even to consider your competitors. Instead, they trust your product curation and become loyal customers of Walmart. At this point, you transcend the competition, and all you’re working on is delivering a consistently high quality of service to your existing base. This is the core proposition that the entire empire is built on.
That’s not to say that a low-price strategy is easy to execute, of course. There are some serious minefields you must navigate when you are trying to compete solely on price. It’s certainly not well suited for every business. But if you can carve out that space in the mind of the customer, you can build a sustainable following that will continue to bring you the volumes you need to make the business work.
Your business promise manifests itself and drowns out the competition.
Decentralized Logistics
To operate at the scale that Walmart does, you rely on a logistics system that must perform incredibly efficiently and reliably in rain or shine to supply stores with the items they need. In fact, you wouldn’t be out of order to suggest that at this point, Walmart is essentially a logistics company. In much the same way that Amazon relies on its distribution center, Walmart relies on always having its products in stock to fulfill the customer promise that they’ve made. And to do this with thousands of stores across the world is not an easy thing to get right.
The key strategic decision that the company made when it comes to its logistics was to decentralize its distribution centers and focus on getting the best possible location for each one. Instead of focusing on how they could achieve economies of scale in each distribution center, by building massive warehouses that would then distribute goods, they wanted more centers that could service the surrounding stores in a reasonable period of time. The objective that they set was that every Walmart store should be able to receive a delivery within 24 hours from a distribution center. This meant that as long as the distribution centers were well stocked, you could rectify stock shortages in any store within a day – helping to ease the pressure that comes with being known as the shop that has everything.
The placement of these distribution centers thus became very important to get right. You weren’t optimizing for low rent, high traffic, good infrastructure, or any of that. You were doing a geographic calculation to identify which stores needed to be serviced and therefore, where should the center be placed. These centers became the nodes of the network that would enable Walmart to spread its wings across the whole of the USA. They potentially could have saved money by optimizing for different criteria, but the specific choice to have a decentralized system meant that they could always ensure that their inventory levels were well managed and controlled.
Another interesting piece of this strategy was that once they had a new distribution center up and running, they would start by building the furthest store away from that center and then move closer and closer towards it, building stores as they went. This meant that the distribution center was prepared, right from the beginning, to handle its most challenging deliveries. Every subsequent store that was built could leverage that early work, and things got easier and easier as a result.
This prioritization also meant that Walmart could be much more selective as to where their actual retail locations were. Using the distribution center as the centerpiece, they could identify the key customer locations that mattered most and set up shop there, creating the spokes of their wheel. It was small details like this that allowed them to ramp up their retail capacity in ways that other chains just couldn’t match.
These logistical decisions have, of course, become part and parcel of our modern conversation because of the shift towards online shopping. Led by the giant that is Amazon, the world of logistics management has radically advanced since Walmart’s early days. But in their time, they really were one of the first companies who were very thoughtful about how they set up their distribution networks and used those pillars as the foundation on which they would expand their empire.
Bargaining Power
It would be impossible to discuss Walmart’s strategy without talking about the incredible level of bargaining power they enjoy over their suppliers. As one of the first retailers that went on an aggressive land grab strategy, they were determined to expand their offering as widely as possible to every town in America. They hoped to bring their consumer promise of low prices to everywhere you could imagine so that the brand became synonymous with saving.
Their success with this rapid expansion meant that they ate up market share in every region that they entered. And after a while, they became the dominant retailer in the country, controlling a significant portion of the goods market. This early domination gave them the leverage that they needed to negotiate the best possible terms with their suppliers.
When Walmart came knocking, suppliers knew that the order sizes were so big that they had to do anything to win that business. Manufacturers around the world would compete to have their goods on Walmart shelves because the scale was just unfathomable. This competition drove prices down and improved payment terms for Walmart itself. They could sit back and let companies eat into their own margins – helping Walmart to provide even lower prices to customers.
This is one of those advantages that gets locked in early and is very difficult to dislodge. If you look back at Walmart’s competitors over the years, this is one of the reasons why they have struggled to make a dent. Walmart’s bargaining power in these negotiations is second to none because a lot of suppliers would reconfigure their entire operation to manage the Walmart order. It was so big in size that it would subsume your manufacturing capacity and while some were able to expand beyond it, a lot of companies were comfortable just servicing the growing Walmart empire.
An example like this shows just how important a first-mover advantage can be in markets like this. When you’re competing on price and convenience, the way that you build scale is by being everywhere. And even though your margins are low in the beginning, if you can capture the market early, you can then put pressure on your suppliers to improve the financial situation over the long term.
You have to have enough cash to wait it out, of course, but this is the same model that we’ve seen from numerous venture-backed companies from the past two decades who chase customer growth first, knowing that once they have the lion’s share of the market, they will have the opportunity to squeeze all the other stakeholders because of the power that you wield. Uber is one modern example that comes to mind here.
And it’s not only on price that you benefit. The improved payment terms that you can negotiate have a significant influence on your cash flow cycle and therefore your ability to scale. Essentially, Walmart created an opportunity for themselves to borrow money for next to nothing which could then subsidize their long-term plans. It’s one of those lesser celebrated pieces of the business that actually has had an outsized impact on their success. And it shows the virtues of a high-volume, low-priced business.
In-House Drivers and Route Optimization
Another part of the Walmart strategy that has paid off for them is the decision to insource their transport across the board. Currently, the company boasts one of the largest truck fleets in the world, and their drivers are some of the highest-skilled drivers in the industry. They made it a priority from very early on to invest in this because they knew that it was crucial to managing a vast landscape of stores. They could have very easily subcontracted this work out to a courier service directly but decided that bringing it in-house would provide synergies that would be valuable.
They spend a lot of time and resources training and upskilling their drivers so that they can maintain the safest possible distribution network in the business. The drivers clock in over 700 million miles every year but still have one of the best safety records on a global scale. This speaks to the attention to detail and care taken to strengthen this part of their business, where a lot of companies might try to cut corners.
Having the best drivers isn’t everything though, you then have to figure out how to utilize them most effectively. Walmart does this expertly through complex route optimization processes that plan out all the travel that these trucks must go through to meet the demands of the various stores.
The main thing that they focus on is minimizing empty miles. Every time a truck is travelling without goods inside it, that opportunity cost is eating into the bottom line. So, everything that the company can do to optimize how they use their available space is going to pay dividends over the long run.
To this end, they employ sophisticated logistics management software that tracks current inventory levels, store purchases, incoming supplies, and truck positioning – to craft routes and distribution schedules that can deliver as efficiently as possible. This technology undergoes a complex weighting of various criteria including fuel consumption, environmental impact, traffic conditions, and more – ensuring that all the transport resources are used to their full potential. This has been tweaked over time and continues to learn from ongoing data that consistently compounds its value.
None of this optimization would be possible though without the right data behind it, and that’s another area where Walmart has invested a lot of money into. The technological infrastructure that sits behind these thousands of stores is monumental. It allows the distribution nodes to understand the exact situation in real-time for any store they work with. As conditions change or consumer behavior adjusts, they can take that into account and adapt the transportation planning accordingly.
It’s difficult to appreciate just how transformational this is until you’ve spent some time working on inventory management solutions. This part of business has changed dramatically in the last few years with the Internet of Things, machine learning, and advanced algorithmic decision-making starting to make its mark in the world of logistics. Walmart has shown itself to be a leader in this regard, which continues to push them forward as a company.
Of course, the shift towards online shopping is going to disrupt the typical way they do things, but the principles of logistics remain the same. As Walmart begins to compete on last-mile delivery to the houses of their individual customers, they are going to rely on many of the same technologies to manage inventory, track deliveries, and optimize routes so that they can sweat their assets as efficiently as possible.
The big competitor here is Amazon, who have built a distribution network unlike anything we have ever seen, but Walmart still holds its own because of the infrastructure it has in place. Some are talking about how we may see Walmart converting some stores into further distribution centers for online orders and if so, they would have some of the best-located nodes that anyone could imagine. We’ll have to wait and see.
Redundancy
Walmart is an American institution and through the years it has become a key staple for millions of families across the country. Through thick and thin, Walmart is relied upon to provide the essentials that customers need to survive and thrive. As such, they’ve transcended a mere grocery store and have taken on a certain social responsibility to continue to supply the American people with what they need.
In times of natural disasters that have devastated American towns, we’ve seen Walmart get on the front lines to help supply the recovery efforts and help to rebuild communities that are getting back onto their feet. But the only way they’ve been able to do that is by having their own disaster recovery strategies in place – policies that stand out when you compare them to the rest of the industry.
At great cost, Walmart has built six dedicated disaster recovery centers which are well-stocked at all times and ready to serve if something goes wrong in any of their regions. These centers are specifically designed to be a backup and so they hope that they never have to use them, but over the past few decades they have played a very important role in the Walmart story.
Having this redundancy in place as a business allows them to react much quicker to adverse conditions than might be possible otherwise. At the very moment where stores are incapacitated, they can have their distribution center ready to replenish the supplies that are needed in that community. This means that customers can rely on Walmart to get them the goods that they need even in the very worst of times.
Doing this has significant financial implications of course because those centers are just sitting attracting cost without delivering any tangible ROI for the company. Some might say that it’s a waste of resources. But Walmart sees the power in being the retailer that never runs out of stock and is more than happy to pay those costs. Because the branding that comes with it more than pays for those idle distribution centers. Customers can trust that Walmart will look after them in every circumstance, good or bad, and that continues to entrench their competitive advantage in every market they enter.
We can all learn from this – and it’s certainly very topical right now as we deal with a global pandemic. Having redundancy in your organization to prepare for those rainy days helps you to be much more agile than you would have been. And when you consider the branding tailwinds you receive when you are in a position to help people, it makes all that investment worth it.
This is not a corner that you should cut lightly. Redundancy matters.
Acquisitions and Joint Ventures
Let's look at how Walmart approached its international expansion. We can see a very clear strategic preference for acquiring existing retail chains or partnering with existing brands instead of trying to build their own from scratch. This principle is at the heart of their entries into Mexico, China, India, South Africa, and everywhere else where they have a presence. And it’s worth discussing why they went this route.
Walmart understood that the cultural context of their branding and their product offering is what enabled their success in each local area that they went. Customers trusted the chain with their business because it was delivering exactly what they wanted at the best price possible.
The organization knew that if they were to go into a new territory where they had limited cultural understanding, they risked creating a retail experience that didn’t serve those people in the way that it should. And that was an expensive mistake to make if you were entering a new company for the first time.
Instead, if they could leverage the knowledge and experience of local brands who understood the market, they could fast-track all of those learnings and get up to speed in next to no time – because they were standing on the shoulders of giants. So, that’s what they did. They would go into these new markets and look for acquisition targets that made sense for the growing empire.
They were looking for great locations, high customer foot traffic, and a certain penchant for discount shopping. Not only that, they were also looking for operations that weren’t operating as smoothly as they could be. That’s where the Walmart machine could add value.
When the company found a target like this, they could offer a premium price to acquire those brands because they had the confidence in their own technology, systems, and global supply networks that they could drastically improve the efficiency of those stores and drive prices even further down as a result. Riding on the success of the American stores, they could afford to take their time reconfiguring the internal operations and turning those brands into the sophisticated operations that were in place back home.
This is not to say that every acquisition worked, far from it. International expansion is notoriously difficult. But the key insight is that they realized that they didn’t need to reinvent the wheel. The existing brands had loyal customers, good locations, and a cultural understanding of what was required to serve that particular area. If Walmart could bring its technology and operational excellence to the table, it could turn the dial up on success and grow internationally in a much more streamlined way.
The lore of internal expansion is littered with stories about high-powered brands walking into new countries and expecting to just build exactly the same business in the new place. Walmart wasn’t that naïve. They knew that they had to be smarter than that. And you should be too.
Recap
That brings us to the end of this strategy breakdown for Walmart, one of America’s biggest retail success stories. It’s rare that you see a company carry forward the ethos and values of its founder as it scales to this size, but that’s exactly what Walmart has done. Even though it is now a giant commercial conglomerate, it hasn’t lost that special sauce that the Waltons imbued in the company DNA.
It hasn’t tried to become what it’s not. The company has stayed true to its original brand promise that it will give you the widest range of goods at the best prices, wherever you happen to be. We’ve pulled out some key strategic pieces in this study, and those are certainly important in how they’ve got to where they are, but the purity of the offering is what really stands out.
Behind the simplicity of the brand image, lies a sophisticated logistics network, cutting-edge real-time data analysis, thoughtful HR strategy, planned redundancy, strong supplier negotiation, and a land grab strategy rivaled only by perhaps McDonald’s. These components all come together to make Walmart what it is and the scale they’ve achieved is testament to making this a winning formula.
What lies in the future for the company remains to be seen. They face stiff competition from Amazon and a myriad of other online retailers who are stealing customers from right under their noses. But we wouldn’t want to doubt their ability to adjust just yet. They’ve shown time and time again that they can remain relevant, and it’s hard to see them giving that up now.
It’s a story of diligence, perseverance, and a customer focus that bordered on obsession. And when we look back at some of the greatest retailers the world has ever seen, you can bet that Walmart is going to be very near the top of that list.
Sam Walton, we salute you.