Walmart is a household name in the USA and many other parts of the world. Well-known for its retail store chain, Walmart is the world’s leading retail corporation. Its main competitors, such as Tesco, Kroger, Costco, Alibaba don’t even come close to its popularity and business. One of the reasons why Walmart is so successful in its operations is its focus on low-cost products that provide value.
For an even better analysis of why Walmart is successful and generates billions in revenues each year, it is critical to look at its business model. The business model of a company shows the markets it operates in and how it generates revenues. For Walmart, the business model is not as simple as the company has an international presence and business ventures in multiple markets.
Walmart’s Business Model
Walmart’s business model consists of the products it sells. Similarly, it includes its strategies used in generating revenues. As mentioned, Walmart focuses on low-priced goods but generates its revenues by depending on a higher volume of sales. However, its business model is more complicated than just defining its sales strategy.
The primary source of revenue for Walmart comes from the wide range of products that it sells in its stores. While it is impossible to list every product that Walmart sells, some of the popular categories in which it sells products include the following.
- Auto-related suppliers.
- Craft suppliers.
- Health and beauty.
- Home décor and furniture.
- Pet supplies.
- Sporting and fitness goods.
However, Walmart also offers products in the services industry. While it is well-known for its retail shops in the industry, the services that it provides also generates income for the company. Some of the services rendered by the company include the following.
- Financial services.
- Clinical and health services.
- Movie streaming services.
Apart from its products and services, Walmart’s business model also contains all its segments in various countries.
There are three primary segments of Walmart based on geographical location.
Walmart USA is the company’s largest segment and also its oldest. The company has stores in 50 stores across the USA. This segment mainly consists of the stores that the company operates, such as supercenters, discount stores, and other small stores. It also contains other services such as money orders, prepaid cards, wire transfers, and bill payments, which fall under financial services.
Walmart also operates a website that caters to the needs of customers in this segment. Through it, the company gives customers access to merchandise and other services. It also has a feature where customers can interact with physical stores through the website.
Besides the USA, Walmart also operates in 27 other companies where it has stores. In some of these countries, Walmart operates under the same brand while in others, it functions through its various subsidiaries and joint ventures under a different brand. Overall, it has 156 distribution facilities in these countries that provide physical access to its customers.
Named after Walmart’s founder, Sam Walton, Sam’s club is the final segment of Walmart’s business model. This segment consists of membership-only warehouse clubs in 44 states in the USA. It provides a subscription service to both individual customers and business owners. Similar to its other segments, the company also allows digital access to customers.
Walmart generated net sales of $519.92 billion in revenues, which was an increase of approximately 2% from the $510.33 billion net sales it generated in 2019. It also earns from other sources, but there hasn’t been a significant change in it. Here’s a breakup of the total revenues generated in both years classified by segment.
|Particulars||2020 $ billions||2019 $ billions|
|Membership and other income||4.04||4.07|
From the above breakup, it is apparent that Walmart US is the company’s largest earner making almost 66% and 65% of its net sales in 2020 and 2019 respectively. After Walmart US, Walmart International is the second-highest earner for the company, with 23% and 24% of the overall net sales in both years respectively. Lastly, any remaining net sales come from its Sam’s Club segment.
The net sales of the company consist of all sales revenues, net of sales tax, and estimated sales returns, at the time it sells merchandise or services to its customers. The company calculates its estimated sales returns based on expected returns. It also includes eCommerce sales, including shipping revenue, and recorded when it delivers goods to customers.
Apart from its net sales, the company also generates revenues from membership fees. These fees include revenues from both the US and the international segment. For 2020, the revenue generated from membership fees was $1.5 billion, while for 2019, it was $1.4 billion. Walmart Plus membership is the primary source of income in this category.
The other sources of revenues that Walmart generates comes are gift cards and financial and other services. Gift cards are common in the US and some other countries and do not have an expiration date. Customers can buy these and gift them to others. However, these are not a big part of Walmart’s sales.
Similarly, its financial and other services mainly include revenues from its MoneyCard service. These revenues are not a part of its other income but included in net sales for each segment.
Walmart’s Business Model Strategies
There are a few strategies that power Walmart’s business model. Based on these strategies, the company has become the world’s largest retailer and continues to attract customers in various countries. Some of these strategies are as below.
Lead on Price
The first strategy used by Walmart is ‘Lead on price’. With this strategy, the company maintains low prices so everyone can afford its products. This strategy has worked wonders for the company over the years. It has been one of the prominent factors in its success. While this strategy may sound unfruitful, it helps the company generate high volumes of sales, which make up for the low prices of its products.
Invest to Differentiate on Access
The second strategy used by Walmart is the ‘Invest to differentiate on access’ strategy. Through this strategy, the company increases its retail shops giving customers access to a new location. Similarly, the company is investing in digital marketing and retail. It is to keep up with the technology changes, which can bring in new customers. Likewise, Walmart is also investing in services that are relatively difficult to access through this strategy.
Be Competitive on the assortment
The next strategy that helps the company generate revenues and in its business model is the ‘Be competitive on assortment’ strategy. Walmart promotes the assortment of products and large varieties of items across its physical stores and digital portals. It also customizes its products according to the geographical location in some cases. It helps the company attract the maximum number of customers.
Deliver a Great Experience
Furthermore, the company uses a ‘Deliver a great experience’ strategy that focuses on the customer experience. It is one of the main focuses of Walmart’s business model. The company is the world’s largest employer in the private sector, with 2.2 million employees. To focus on its customer care and relations, the company focuses on its employees to achieve the best results.
Lastly, the company also offers customers a “Money-back guarantee”, which is a part of its strategy. Through this strategy, the company achieves maximum customer satisfaction and attracts the most customers in its given locations.
Walmart is the world’s largest retail company that has a significant competitive advantage over others. The company’s success lies in its business model. Walmart’s business model consists of its products, which include both physical products and services. Similarly, it has three segments from which it earns money. Walmart generates revenues from these products and services from its different market segments. Likewise, the company uses strategies that help in its business model.