Sam Walton founded the company in 1962. He started with one store in Alabama and then kept expanding. The company made it a point to start up in smaller towns across the nation. Walmart is still profitable, but both its net income and revenues are down in its fiscal year ending January 2016. It is also currently operating in a negative cash flow scenario. The shrinking revenues is a first for the company since it went public. The reasons may be that it is having a difficult time competing online with the likes of Amazon.
When many jobs were being sent overseas in the 1980’s and 1990’s, the company adopted a buy American policy. This was to try and prevent the loss of jobs while keeping prices as low as possible.
How the Company Started
Sam Walton had always believed in trying to get the lowest possible prices. He did this to help customers save money. He felt it was difficult for people to make a living so having products that people can afford would help.
Walton used his savings to lease the first building. When the lease was up, he could not come to a good renewal agreement, so he used the proceeds from sales to buy a new location. This original location is now a museum for the company.
Sam Walton had a strong dislike for middlemen. To pay someone simply to write orders did not seem to add much to the value chain. On the flip side, distributors were not too keen on working with Walmart and tended to avoid them.
This forced Walmart to work directly with manufacturers and take care of their own supply chain. This turned out to be an advantage over the long term. However, it was not easy to do this in the beginning.
Another modern problem for Walmart is its controversial size. Many feel that when a Walmart opens up in a town, it puts other smaller companies out-of-business. Due to the company’s diverse offerings, it can eliminate several different types of businesses when opening in the town.
Why it Works
Most retailers try to obtain discounts when seeking out products to sell. Many of these same retailers would pocket the difference rather than pass them onto the consumers.
Sam Walton took the opposite approach. When he obtained discounts, he passed them onto the customers. He made up for it with volume in sales.
Walmart continues to strive for the lowest prices available. It does this by offering vendors huge volume orders. The vendors are also required to plug into the company’s inventory system so that Walmart can easily manage the stock levels.
The company sells a vast number of products across many categories. Modern day stores even have full-scale grocery stores, barber shops and bank branches right within the stores. Some have even flirted with the idea of having car repair shops.
Walmart was way ahead of most other retailers by incorporating computers and other technology early on. They used computers as early as the 1970’s to link stores and warehouses for better inventory management and to track customer activity. Many retailers are only starting to do this now.
The company has a policy to allow anyone to sell to them, given the right pitch and a product line that is compelling to the company. As long as the supplier is willing to adhere to Walmart’s strict policies, it didn’t matter if they were a multinational chain or an individual.
If you were accepted as a vendor, one of the rules is your product needs to incorporate RFID technology so that they can integrate with the company’s inventory system. Again, the company was well ahead of its competition by forcing vendors into this arrangement.
You have likely seen Walmart commercials in the past. They had a price slashing mascot on their television ads. It was the yellow rollback smiley face.
The commercials would show prices for particular products then as the rollback smiley dude came by, the prices would rollback to reflect lower prices.
The company also takes advantage of retargeting on the web. This is a technique vendors use to follow what visitors have searched and display ads and banners on other sites that are visited. If you search for a product on Walmart, you may notice the exact same product later on an unrelated site.
Viewers are a bit disconcerted by how vendors track their activity. But it does work. It uses a concept known as cookies to follow the visitors.
There’s no doubt Walmart enjoys word-of-mouth promotion as well. When they open up in a town near you, it is highly likely you will hear about it from a neighbor or a friend. You will also receive flyers for deals from the store.
The company does get its fair share of press; it’s often negative. There is a saying that there is no such thing as bad press, so this attention is probably good for the company overall.
Walmart does have an affiliate program which means anyone can take advantage of selling its products for a commission. For instance, if you sign up for Walmart’s affiliate program and people buy their products using your affiliate links, you would be paid a commission.
This is a great way for vendors to expand their reach for relatively little-to-no costs on the part of the vendors. It is unclear whether this is a major sales generator for the company. Affiliates who are unable to get accepted into Amazon’s affiliate program will often use Walmart since it carries many products.
Buyers are capable of rating purchases on Walmart’s website. However, this feature is not as popular as it is on Amazon. Still, you can find comments and ratings on the website. Buyers will look at both reviews on Amazon and Walmart when making purchases.
Lessons Learned by The Business
- Walmart has undoubtedly had to learn how to play nice with communities. There are always mixed feelings whenever a new store opens up in a community. While the company does provide jobs, it does so at the expense of wiping out other smaller companies. This is especially hard to swallow in tight-knit communities where everyone knows each other and is rooted in tradition.
- As big as the company is, they were not able to escape the scandal of bribing Mexican officials in exchange for allowing Walmart to operate there. The United States has anti-corruption laws that the company was directly violating. When they discovered that criminal charges could be assessed, the company turned around and stopped the practice.
- Buyers for Walmart believe that you buy for the customer, not for the benefit of shareholders or the management. When they approach buying from this perspective, it helps them justify getting the lowest prices possible.
- The company has been able to keep unions out of its stores for the longest time. This is proving more difficult both in the United States as well as internationally. But it still has a very low union membership.
How Other Businesses Can Learn from This
When a company can secure great prices from vendors, they should pass it along to the consumer. The consumer is the biggest stakeholder and will vote with dollars.
If they like the prices offered in a store, they will continue to shop there. Many retailers will pocket the difference whereas Walmart passes on discounts to its customers.