WALMART SUPPLY CHAIN

CASE STUDY

PRATIK BADHAN 19-S-007

YASH CHANDAK 19-S-022
SHUBHAM CHAUDHARI 19-S-023
RANVIR GADE 19-S-042
 AGENDA
Agenda for the following case study is to understand various aspects of Walmart Supply Chain from
perspective of cost management. To get an in-depth understanding, operations of the company are
studied in the following manner –

1. Introduction, company structure, vision, mission and history

2. Supply chain Model of Walmart
3. Value chain analysis
4. Limitations of supply chain model of Walmart
5. Failure of Walmart in India
6. SWOT Analysis and Competitive Analysis with Amazon Inc
7. Financials
8. Future scope

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Introduction-
Walmart operated discount stores, supercenters and neighbourhood markets. The company
employees more than 2.2 million people across the world. As of July 2020, it had more than 11496 stores
operating in 27 countries, under 56 different names. Walmart is the world’s largest company by revenue,
earning more than $500 billion in 2019. Walmart is US’s largest grocery retailer and 65% of total revenue
comes from US operations alone. Walmart was founded by Sam Walton, his heirs today own more than
50% of the company. Mr. Doug Mcmillon is the current CEO and President of the company.

History of Walmart-
• 1962: Company founded with opening of first Wal-Mart in Rogers, Ark.

• 1967: Wal-Mart's 24 stores total $12.6 million in sales.

• 1970: Wal-Mart opens first distribution center and home office in Bentonville, Ark.

• 1972: Walmart gets listed on NYSE

• 1977: Wal-Mart makes first acquisition, 16 Mohr-Value stores in Michigan and Illinois.

• 1988: Walmart becomes the most profitable retailer in US

• 1989: Sam’s club started in New Jersey

• 1990: Wal-Mart becomes nation's No. 1 retailer by revenue

• 1995: Walmart starts international operations with first store in Argentina and Brazil

• 2003: Wal-Mart named by FORTUNE magazine as the most admired company in America.

• 2007: Walmart.com launches its Site to Store service, enabling customers to make a purchase
online and pick up merchandise in stores.

• 2010: Bharti Walmart opens first store in India

Vision and Mission:

Mission
To save people money so they can live better lives”

Walmart values it’s customers’ shopping experience and finances more than anything else.

It is visible by their strategy of “Everyday Low Prices” which they have employed since long.

Vision
“Be the destination for customers to save money, no matter how they want to shop.”

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 Walmart recognizes the impact cost has in any retail sector and hence it goes out of its way to
offer its customer the best prices they can get.

Over the years, Walmart has ensured that all the costs they incur are driven towards fulfilling
these mission and vision statements.

Structure of Walmart
Walmart corporate structure is divided into 3 divisions

• A. Walmart Retail Stores

• B. Sam’s Club warehouses

• C. Walmart International

The cost benefit incurred by Walmart in this structure is immense. All these business
verticals are very different to operate.Walmart retail consists of different types of retail stores
including supercenters and discount stores in US. Sam’s Club is a warehouse chain solely available
for membership holders to shop from. Walmart International looks after its operations in 26 other
countries. By dividing the corporate structure on this basis, the company can make any changes
in it’s business or strategy in one vertical without having any impact on the other. This allows all
the verticals to grow and gives company freedom to manage them.

Supply Chain Model of Walmart:

A) Following representation shows the illustration of its supply chain components:

• Suppliers: 33000+ worldwide with more than 52Mn SKUs.

• Distribution centers: 150+ centers, each 1 million square feet supporting 90-100 stores in a 150+
mile radius shipping 200+ trailers per day.
• Retail Stores: 11500+ stores in 27 countries with 2.2 million employees.
• Logistics: Company owned 6100 tractors, 61,000 trailers and more than 7,800 drivers.
• Customers: 100 million customers served per week worldwide.

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B) Unique Practices in Walmart’s Supply Chain:

i) Some indicators at a glance

• On Time in Full: Earlier: 100% Products in full on 75% of the time

Current: Increase to 95% of time with 3% shipment value as fine
• Shipping costs: These were 3% of its costs as against 5% of its competitors as of 2011

• Average replenishment: In maximum 2 days (on an average) vis-à-vis 5 days of its competitors
as of 2000.

ii) Procurement and Distribution

Wal-Mart always emphasized the need to reduce its purchasing costs and offer the best price to its
customers. The company procured goods directly from manufacturers, bypassing all intermediaries. Wal-
Mart was a tough negotiator on prices and finalized a purchase deal only when it was fully confident that
the products being bought were not available elsewhere at a lower price. According to Claude Harris, one
of the earliest employees, “Every buyer has to be tough. That is the job. I always told the buyers: ‘You are
negotiating for your customer. And your customer deserves the best prices that you can get. Don’t ever
feel sorry for a vendor. He always knows what he can sell, and we want his bottom price. ‘We would tell
the vendors,’ Don’t leave in any room for a kickback because we don’t do it here. And we don’t want your

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advertising program or delivery program. Our truck will pick it up at your warehouse. Now what is your
best price?”

The distribution centers ensured a steady and consistent flow of products to support the supply function.
As Wal-Mart used sophisticated barcode technology and hand-held computer systems, managing the
center became easier and more economical. Every employee had an access to real- time information
regarding the inventory levels of all the products in the center. They had to just make two scans – one to
identify the pallet, and the other to identify the location from where the stock had to be picked up.
Different barcodes were used to label different products, shelves and bins in a center. The hand-held
computer guided an employee with regard to the location of a particular product from a particular bin or
shelf in the center. When the computer verified the bin and picked up a product, the employee confirmed
whether it was the right product or not. The quantity of the product required from the center was entered
into the hand-held computer by the employee and then the computer updated the information on the
main server.

The hand-held computer also enabled the packaging department to get accurate information about the
products to be packed. It displayed all information about the storage, packaging and shipping of a
particular product thus, saving time on unnecessary paperwork. It also enabled the center supervisor to
monitor their employees closely enabling them to give directions and even guide them even on the move.
This enabled the company to satisfy customer needs quickly and improve the level of efficiency of the
distribution center management operations.

Each distribution center had facilities for maintaining personal hygiene such as shower bath and fitness
centers. It also had provision for food, sleep and personal business. The distribution center could also be
used for meetings and paperwork. The truck drivers of Wal-Mart sometimes availed these facilities.

iii) Inventory Management:

Wal-Mart had developed an ability to cater to the individual needs of its stores. Stores could choose from
a number of delivery plans. For instance, there was an accelerated delivery system by which stores located
within a certain distance of a geographical center could receive replenishment within a day.

Wal-Mart invested heavily in IT and communications systems to effectively track sales and merchandise
inventories in stores across the country. With the rapid expansion of Wal-Mart stores in the US, it was
essential to have a good communication system. Hence, Wal-Mart set up its own satellite communication
system in 1983

Wal-Mart was able to reduce unproductive inventory by allowing stores to manage their own stocks,
reducing pack sizes across many product categories, and timely price markdowns. Instead of cutting
inventory across the board, Wal-Mart made full use of its IT capabilities to make more inventories
available in the case of items that customers wanted most, while reducing the overall inventory levels.
Wal-Mart also networked its suppliers through computers. The company entered into collaboration with
P&G for maintaining the inventory in its stores and built an automated re- ordering system, which linked
all computers between P&G and its stores and other distribution centers. The computer system at Wal-

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Mart stores identified an item which was low in stock and sent a signal to P&G. The system then sent a
re-supply order to the nearest P&G factory through a satellite communication system. P&G then delivered
the item either to the Wal-Mart distribution center or directly to the concerned stores. This collaboration
between Wal-Mart and P&G was a win-win proposition for both because Wal-Mart could monitor its stock
levels in the stores constantly and also identify the items that were moving fast. P&G could also lower its
costs and pass on some of the savings to Wal-Mart due to better coordination.

Wal-Mart also made use of bar coding and radio frequency technology to manage its inventories. Using
bar codes and fixed optical readers, the goods could be directed to the appropriate dock, from where they
were loaded on to the trucks for shipment. Bar coding devices enabled efficient picking, receiving and
proper inventory control of the appropriate goods. It also enabled easy order packing and physical
counting of the inventories.

To make its distribution process more efficient, Wal-Mart also made use of a logistics technique known as
‘cross-docking.’ In this system, the finished goods were directly picked up from the manufacturing plant
of a supplier, sorted out and then directly supplied to the customers. The system reduced the handling
and storage of finished goods, virtually eliminating the role of the distribution centers and stores. In cross
docking, requisitions received for different goods from a store were converted into purchase or
procurement orders. These purchase orders were then forwarded to the manufacturers who conveyed
their ability or inability to supply the goods within a particular period of time. In cases where the
manufacturer agreed to supply the required goods within the specified time, the goods were directly
forwarded to a place called the staging area. The goods were packed here according to the orders received
from different stores and then directly sent to the respective customers.

There were 4 types of cross docking:

• Opportunistic Cross docking: For end customers without storing them in the warehouse
bins/shelves. Exact Shipping information was required.

• Flow-through Cross docking: For supermarkets and other retail discount stores, for perishable
items. There was Constant inflow and outflow of goods from the distribution center hence the
name.

• Distributor Cross docking: Suitable for retailers. It saved a major portion of the costs as no in-
between Distribution center. The lead time for the delivery to the consumer was also drastically
reduced.

• Pre-Allocated Cross Docking: Pre-allocated cross docking is very much like the usual cross-
docking, except goods are already packed and labeled and it is ready for shipment/

To gain maximum out of cross-docking, Wal-Mart had to make fundamental changes in its approach to
managerial control. Traditionally, decisions about merchandising, pricing and promotions had been highly
centralized and were generally taken at the corporate level. The cross- docking system, however, changed
this practice. The system shifted the focus from “supply chain” to the “demand chain,” which meant that

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instead of the retailer ‘pushing’ products into the system; customers could ‘pull’ products, when and
where they needed. This approach placed a premium on frequent, informal cooperation among stores,
distribution centers and suppliers with far less centralized control than earlier.

In 1991, Wal-Mart had invested approximately $4 billion to build a retail link system. More than 10,000
Wal-Mart retail suppliers used the retail link system to monitor the sales of their goods at stores and
replenish inventories. The details of daily transactions, which approximately amounted to more than 10
million per day, were processed through this integrated system and were furnished to every Wal-Mart
store by 4 a.m., the next day. In October 2001, Wal-Mart tied-up with Atlas Commerce for upgrading the
system through the Internet enabled technologies.

Wal-Mart owned the largest and most sophisticated computer system in the private sector. The company
used Massively Parallel Processor (MPP) computer system to track the movement of goods and stock
levels. All information related to sales and inventories was passed on through an advanced satellite
communication system. To provide back-up in case of a major breakdown or service interruption, the
company had an extensive contingency plan.

iv) Logistics Management:

An important feature of Wal-Mart’s logistics infrastructure was its fast and responsive transportation
system. Wal-Mart believed that it needed drivers who were committed and dedicated to customer
service. The company hired only experienced drivers who had driven more than 300,000 accident-free
miles, with no major traffic violation. Wal-Mart maintained a strict vigil over its drivers by keeping a
record of their activities through the “Private Fleet Driver Handbook”. The purpose of the book was to
educate the drivers with regard to the code of conduct. It also included the terms and conditions
regarding the safe exchange of trailers with the store personnel and the safety of Wal-Mart’s property.
This book also contained a list of other activities, the non-compliance of which would result in the
termination of the driver.

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Value Chain Analysis

Walmart’s entire operation can be divided into 2 parts based on the purpose they are serving -
1. Primary Activities:
Inbound Logistics -> Operations -> Outbound Logistics
Marketing and Sales
Service

2. Supporting Activities
Human Resource Management
Technological Advancement

Primary activities focus on actually delivering the goods to customer whereas secondary activities support
primary activities in carrying out their functions. All the functions are running by keeping a single objective
viz. to increase margins and pass on the benefits to customers

1. Operations
Walmart carries out all those cost saving strategies which any large organization its size usually employs
for their operations. In addition to it, Walmart was the first retailer to focus extensively on recycling. It is
a high priority function at Walmart. Walmart has recycling programs for cardboard, plastics, aluminium
cans, car batteries and paper products, basically all the kinds of waste generated from its operations.
Further, they also encourage vendors to reduce packaging.
Walmart stores have advanced energy management systems to regulate and reduce energy use

They also strive to provide a safe shopping experience for our customers and a safe work place for our
associates

2. Marketing and Sales

While the company both sells their own brands and licensed brands, majority of sales in the stores account
for nationally advertised merchandise. Walmart is committed to purchasing products from local and
regional vendors, instead of buying it cheaper from elsewhere.

The Walmart Innovation Network encourages new products and ideas. It offers inexperienced inventors
and entrepreneurs the advice of professionals to determine the commercial potential of products that are
still in development stage, or have a sales history of less than six months. The process also helps identify
the risks involved with bringing the product to market. The program offers referrals to government or
university economic development organizations that may assist with further development, production
and marketing of new products

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 3. Service
Opening hours at Walmart generally range from 7.00 a.m. to 11.00 p.m. six days a week, and from 10.00
a.m. to 8.00 p.m. on Sunday. All Walmart stores maintain uniform prices, except where lower prices are
necessary to meet local competition. Sales are primarily on a self-service, cash-and-carry basis with the
objective of maximizing sales volume and inventory turnover while minimizing expenses. Bank credit card
programs, operates without recourse to the Company, is available in all stores. The replenishment system
also helps the store adjust to customers’ demands. The stores are organized the same way all over the
world, so the customers will recognize the stores wherever they go.

All these activities show their commitment to customer satisfaction.

4. Human Resource Management

Almost 60% of all managers in Walmart stores started as hourly associates. This indicates that Walmart
gives employees the opportunity for career advancement. But this also provides for huge cost benefits for
the organization. Walmart can review progress of these contractual employees without making any long-
term commitment. This has proven to be a very cost-effective way at identifying good employees.

In recruiting new associates, the company begins a comprehensive recruitment program in the
community where the store is to identify candidates. Recruitment programs are well publicized and
convenient, providing an opportunity for job applicants and the company to start getting acquainted

5. Technological Advancements
Walmart is arguably the most advanced brick and mortar retailer currently. This is due to their early
investment in huge IT infrastructure for their company.

Walmart has been known as a pioneer of replacing inventory with information. It was the first retailer to
employ advanced MIS and computer systems to identify various cost saving opportunities. Along with this,
it was also one of the first retailers to use computers to provide better service by reducing check out time,
and ensuring timely replenishment of inventory. Today, information links all the aspects of it’s supply
chain. Setting up such an extensive IT system cost Walmart in the beginning. The benefits collected by
these are the sole reason Walmart could become World’s largest retailer. The cost incurred thus has been
recovered quite successfully

Limitations of Current Supply Chain –

Walmart has one of the most well developed and sophisticated Supply chain.
Key Highlights of Walmart’s Supply Chain are
• High Level of Customer Service
• EDLP
• Tech enabled
• Cross Docking
• Internal Logistics System

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However, Walmart has faced some issues due to it’s supply chain
• Problems in implementing JIT
• Frequent changes and developments in IT technology
• Punishing the Suppliers
• Understanding global markets

1. Just In Time (JIT) –

No doubt Just in Time (JIT) has helped the company with smaller investments and space reduction, but
they are facing a few challenges because of JIT and it had cost a lot for them.

One major problem they are facing is that their products are running out of stock and are not available in
the stores. Since the delivery parties are linked to the individual warehouses and are dependent on the
orders accordingly, it takes time for the products to reach the store.

Walmart’s business deals with products which are mostly available from many sources which are also
their competitors, if the customers don’t find it in their store/stock, they will order it from somewhere
else

2. Frequent Changes in IT –
The advent of ERP is one example where the company had to change its working way of the whole
organization internally. Since Walmart is a big company with subsidiaries in many countries, it was costly
and tedious to adopt such a system.

Not only Information Systems, but other changes in the IT segment as well have cost Walmart highly.

3. Punishing the suppliers –

If the delivery is not on time, Walmart charges its suppliers with 3 percent chargeback. This increases the
pressure on suppliers, there’s a problem in maintaining long term relationships with them which the
company has least focused upon .

Not only this, with investment in IT drastically, their suppliers and vendors also have to follow and be up
to date with technological changes even if it is costing them a lot

4. Understanding the global Markets –

This is not a drawback of its supply chain, rather a limitation which Walmart as whole has faced a lot. They
have faced failures in many countries like Germany, Korea, Japan, China, India to name few.
In countries where they couldn’t sustain their business, there was a lack of understanding of the work
environment and threats revolving thereof.
For example, In China, they failed due to local protectionism, infrastructural deficiency, consumer
behaviour, etc
In Japan, all the suppliers were lacking behind the technology so they didn’t adapt to the changes which
Walmart brought. This in turn led to their failure.

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In Korea, infrastructural issues, merchandise mix, high operational costs, etc cost Walmart their success.

Failure in India –
Walmart entered India in 2007 in partnership with Bharti enterprises, setting up stores under the name,
Best Price. They had initially opened 20 stores across the country. However, by 2013, companies had
agreed to part ways.

One reason for Walmart’s failure in India was its inability to navigate through highly complex legal and
bureaucratic hoops. For example, it was Indian govt’s requirement to source at least 30% of its goods from
small suppliers, which Walmart found difficult to comply with. It also came under the regulator’s scanner
to check whether Walmart broke any foreign exchange rules in doling out loan to Bharti

Also, Walmart also failed to understand cultural issues with Indian Market. Most of the shops Walmart
has in US are out of the city limits because of their size. Same was followed in India. However, percentage
of car/vehicle owners in India was nowhere close to US counterparts. This was one large problem. Further,
Walmart lacked the personal touch an average Indian buyer is very used to when he goes out to shop.
This was a reason Walmart could not take on local Kirana stores despite giving cost benefits to buyers.
Most of the kirana stores gave out home delivery and monthly billing facilities which Indians are quite
used to. Lack of these in Walmart also led to their failure in Indian Markets.

SWOT Analysis
Strengths

• Established Retail Brand

Walmart is a well-established retail brand and apart from being the most popular retail
brand in the US, it is also well known in the other corners of the world. Over time, the company
has acquired heavy popularity and recognition which has continued to grow with its global
expansion. Apart from its low prices, its focus on customer service and product quality has also
led to higher trust. Higher trust and recognition have also translated into higher sales for the
company. The net revenue of the brand reached higher than $514 billion in fiscal 2019. Today,
the company serves more than 275 million customers every week through its 58 banners in 27
nations. Walmart has also continued to grow its e-commerce business and international business
through acquisitions. In 2019, the company acquired a majority stake in the Indian e-commerce
brand Flipkart. While the United States is the largest market of Walmart, the company is also
investing in strengthening its foothold in the other leading markets globally.

• International Sales and Distribution Network

Walmart has established a large and international sales and distribution network which is
an important source of competitive advantage for the brand. While the US is Walmart’s largest
market, it has successfully expanded its business overseas to many leading markets. Now, it sells

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 its products across 27 countries under 58 banners. The company operates more than 11,300
stores globally apart from its e-commerce sales channels.

• Wide range of products and private label brands

Another leading strength of Walmart is a large array of products it sells. The company
sells products in three leading categories in the United States which include health and wellness,
grocery and general merchandise. These three categories include a vast array of products for
domestic use. However, Walmart also sells a large number of private label brands.

• Ecommerce Growth
Walmart has enjoyed strong e-commerce growth in recent years. In fiscal 2019, the net
revenue of Walmart from e-commerce channels grew to $25.1 billion which was less than 5% of
its total net revenue for the year. Walmart US, the US retail segment of the brand generated $15.7
billion in net sales from e-commerce channels. Sam’s Club generated $2.7 billion in 2019 from e-
commerce. According to a report by eMarketer, the percent share of Walmart in the US e-retail
would be 5.3% (eBay 4.7%) in 2020. While Amazon tops the chart with a 37.3% share in 2019 and
38.7% in 2020, Walmart is becoming a significant player in the US e-commerce.

• Supply Chain Network and logistics management

Another leading strength of Walmart’s business is its strong and global supply chain
network. Supply chain management has enabled the company to earn a competitive edge over
its rivals. Apart from helping it cut costs and obtain products at lower prices, its supply chain
management strategy is a source of competitive advantage for the brand which has helped it
control its operating expenses and manage an international business empire with higher
efficiency. Supply chain management has been a central focus of the company right since its early
days since Sam Walton wanted to keep prices as low as possible by eliminating the middlemen.
Apart from efficient inventory management and its own private logistics, the company has gained
a sustainable competitive advantage through global sourcing.

• Pricing Strategy and Bargaining Power

The pricing strategy of Walmart is its key source of competitive advantage and popularity for the
brand and has helped it achieve its leadership position in the US retail industry. The entire industry
recognizes that Walmart has a wonderful pricing strategy; one that it has managed to sustain well amid
pressures. Walmart’s EDLP pricing strategy has been studied widely across business colleges and
universities. The other side of the EDLP pricing is EDLC which is its strategy to reduce costs. As a leading
retailer that buys in bulk from manufacturers directly, it also holds immense bargaining power which
arises from its buying power. Direct sourcing has helped the company eliminate costs and bring good
quality products to its customers at lower prices. If the company has managed to sustain its position

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despite heavy competition from the e-commerce brand Amazon, it is because of low prices. Lower prices
in the retail industry mean higher customer loyalty. Coupled with a large assortment of merchandise in
several categories, Walmart’s price advantage translates into enormous sales and revenue.

Weaknesses

• Poor Reputation in HR Management

While Walmart has made several important improvements to its HR policy and strategy
including increasing the wages for Walmart workers, the company still has not managed to build
a strong reputation in the area of HR. In the past, the company paid its workers lower wages
compared to the other retailers as a part of its strategy to minimize operating expenses. The
company was highly criticized for its HR practices. The situation has improved slightly during
recent years but it is going to take the company more time and dedication to employee welfare
for improving its reputation in the area of HR.

• Lower Profit Margins

While lower prices in the retail industry can help you generate enormous sales and find
more customers easily, there is also a downside to selling at lower prices. The company has to
manage with lower profit margins and therefore there is enormous pressure on the staff to sell
more to the customers. Walmart invested around $3.5 billion in advertising in 2019. Due to the
lower profit margins, the company has to continuously cut down costs which may sometimes
mean being less generous in terms of staff salaries and perks as well as strict in terms of
performance. Overall, the pressure related to cutting costs is higher and the managers have to
watch for lowering expenses across all areas of operations continuously.

• Imitable Business Model

Despite its profitability and attractiveness, the business model of Walmart is not
inimitable and can be adopted by other brands with slight modifications. The business model of
Walmart is simply based on lower prices and higher sales formula. However, this formula has also
been used by other retail brands across the industry on a smaller scale. Despite its strengths, the
business model of Walmart can be imitated.

Opportunities

• Acquisitions
Walmart has made a series of small and big acquisitions including the acquisition of a
controlling stake in India’s e-commerce business – Flipkart.com. While entering overseas markets
under the Walmart brand name may not always be as lucrative, local partnerships or acquisitions
can help the company gain a strong foothold. Apart from India and China, several more markets
in the Asia Pacific region have shown strong economic growth and the company can gain market

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 share in these markets simply through acquisitions. Walmart is a cash-rich retail brand and it can
use its cash flow to acquire smaller brands that will aid its faster international expansion.

• E-Commerce Growth
E-commerce will continue to drive the growth and expansion of retail brands in the US.
The competitors of Walmart in the physical retail industry like Costco and Target are also investing
heavily in e-commerce to grow sales and revenue. Walmart is investing in e-commerce as well
and building new capabilities that will help it serve its e-commerce customers more efficiently.
Not just in the US, but in the overseas markets too, e-commerce will continue to drive faster
growth for Walmart.

• International Expansion
Expanding internationally into more markets can also bring new growth opportunities for
Walmart. Walmart US is the largest segment of the company which generates the highest part of
its net revenue. The company can pursue and achieve faster growth by expanding its e-commerce
and physical retail business into newer markets. Expanding internationally will also help reduce
the company’s dependence on the United States market.

Threats

• Competitive Threat from other retail and E-commerce players

The threat of competition for walmart from other physical retail and e-commerce brands
has kept growing over time. While Amazon has risen as a major contender in the field of e-
commerce and holds a lion’s share, other retail brands like Costco and Target are also among the
leading rivals of Walmart. Growing competitive pressure from the rival brands increases the
operating expenses of a brand including its advertising expenses. Walmart is also investing more
in e-commerce and technology to serve its customers better.

• Regulatory Pressures
Growing regulatory challenges are also a key threat before retail brands including
Walmart. While many of these brands have a large part of their supply chain in Asia and mainly
China, the trade wars between the two nations led to higher tariffs and increase supply chain
expenses. Other regulatory pressures in the US market are also creating additional pressures on
physical retail brands like Walmart.

• Growing Costs of Raw Materials and labour

Operating expenses have kept growing for the company year on year driven by the growth
in costs of raw material and labor. The Operating, selling, general and administrative expenses of
Walmart were $107.15 billion in 2019, compared to $106.5 billion in 2018 and $101.9 billion in
2017.

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 The costs of labor have also grown a lot at Walmart as the company increased the hourly
wages it pays to its workers. While the company is known for managing its operating costs well,
higher costs of raw material and labor can lead to higher operating costs and reduced operating
income. The operating income of Walmart was $22.8 billion in 2017 and fell to $20.44 billion in
2018 and again rose to $21.96 billion in 2019.

Competitive Analysis of Walmart and Amazon

• Product Portfolio
Walmart has 36k sellers and 52 million SKUs. Amazon has more than 1 million sellers with 350
million plus ASINs. So Amazon dominates in product portfolio.
• Customer Satisfaction
Walmart was 8th with the score of 74% while Amazon was 1st with the score of 83% in ACSI. It
highlights better customer satisfaction at Amazon.
• Retail Dominance
Walmart is the leader in the brick and mortar format and also has their presence in E-Commerce
segment in 22 out of 27 nations. Amazon is the leader in online segment but their presence is
minimal in Brick and Mortar stores.
• Cost of Competition
Walmart is losing $1billion to built and operate its E-Commerce model while Amazon’s footprint
in physical stores is very low.
• Logistics
Next day shipping of walmart covers only 75% of the US, while Amazon Prime is available in all
the countries it is operating in. So logistics is clearly a strength of Amazon.
• Advertisement
Advertising with walmart is at a very initial phase while Amazon is world’s 3rd largest advertising
platform.
• Pricing Analysis
Walmart offers better pricing in groceries,Kitchen and home goods while Amazon provides better
costs is Fashion and other unique categories.
• Sustainability
Walmart is working on project Gigaton which is reduction in carbon emmission equivalent to
211million cars taken away, by 2030. Amazon is working on project Shipment Zero.

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Financials

Walmart’s strategy to strengthen its e-commerce channel across globe has put pressure on its financials
in short term. Since 2016, Walmart’s revenue growth has been topped by operating expenses growth by
50 bps every year. As a result, operating margin and net profit margin has been under pressure in an
already wafer thin margin competition. Operating margin has dropped from 5.59% in 2015 to 3.93% in
2020. A significant drop in net profit margin has also been observed, from 3.37% in 2015 to 1.30% in 2019,
majorly due to losses of approximately USD 1 billion in ecommerce segment and shutting down of 370
stores outside US in Walmart international segment.

Even after significant increase in operating expenses, Walmart has been able to maintain its leadership in
terms of ROCE. As of march 2020, Walmart had ROCE of 14% which was 400 bps higher than Amazon.

Impact of Amazon on Walmart’s Financials:

Walmart has consistently generated a top line of more than USD 500 billion from 2018 to 2020. However,
Amazon’s revenue has been growing at an exponential rate, from USD 50 billion in 2012 to USD 350 billion
in 2020. It is estimated that Amazon will overtake Walmart in terms of revenue and become world’s
largest retail player by 2023.

Walmart’s gross margin has been stable in the range of 24% to 26%, because of its sourcing from local
community. However, Amazon being ecommerce channel, enjoys a gross profit margin of 40%. The huge
gap in gross margin is because of private label brands/products of Amazon, which has huge profit margins
because of economies of scale. Amazon has created programs across globe to promote the private brand
business segment. Walmart is lacking in the private brand segment and it needs to improve the product
mix offered under private brands.

Future Scope

1. Focus on economies outside US

Walmart needs to work on factors for its failures in economies like India and China, which are the
world’s highest population countries. Walmart should also focus on economies that are similar to
US in terms of consumer behaviour and working culture.

2. Increase E commerce presence

Walmart’s current strategy of strengthening their e commerce channels and improve their
presence by acquisitions like Flipkart, JD.com etc. should continue further. Walmart’s ability in
inventory management will improve the performances of the acquired e-commerce companies.

3. Using data and technology

Walmart should focus on building a moat to maintain its dominance in retail industry. It should
focus on deploying Internet of things and Artificial Intelligence to understand the consumer
behaviour and consumption trends across geographies and enhance the customer experience of
shopping with Walmart.

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