By Atiyah Krishnan | Edited by Ashna Ranade
“Save Money. Live Better.”
This is the tagline of the biggest retailer in America, Walmart. It was founded in 1962 by Sam Walton. Walton spent a lot of time in the local supermarkets back then in order to determine their business strategies. He would stay at the markets observing their layout, products, discounts etc. This extensive research helped him create this behemoth of a hypermarket chain.
When one thinks of America, the extravaganza in all fields comes to mind. The U.S economy is driven by consumer spending. Goods and services provide well-being to consumers who seek to maximise it. These are not necessarily the goods we need, but they are advertised in such a way that they seem like a good bargain. We live in a society whereby social status is connected to what we can consume. Money displayed in the form of consumer goods, thus becomes a measure of worth. Families feel the need to purchase goods or services that are not required, as if shopping were an addiction. Walmart’s business model keeps in mind this subconscious belief of the masses and promotes consumerism.
Walmart’s economies of scale are derived from these low prices. They were able to expand the sheer size of operation by increasing the size and frequency of stores. In 2021, Walmart had around 11,000 stores worldwide (Statista, 2021). Increased warehousing paved the way to buy goods in bulk and negotiate the price from suppliers. They bought goods from suppliers at a price lower than the market price. Small-scale retailers could not compete with Walmart for they could not afford to buy as much as they did. Ultimately, the race was about who can provide the lowest prices and Walmart won it. In the late 90s, it beat discount retailers like Gold Circle and Venture Stores.
Loss leader is another pricing strategy incorporated by Walmart, wherein certain goods are sold at a price lower than the cost. These are usually products that are inexpensive and of regular use. Walmart can afford to incur losses on these items as they intend to sell other more expensive goods to the customers. Placement of goods plays a crucial role. When one enters this huge store, they are greeted with rows of large trolleys. It mentally prepares the person to load it up.
Walmart aimed at providing products at prices lower than their competitors. If a retailer was selling a good for $5 with a margin of $2, Walmart sold the same at $4 by reducing their margin to $1. Sales maximisation was given greater importance than maximising profits. In the short-run, Walmart compromised on revenue but in the long-run, they were able to attract more customers and thus boost revenue. Offering EDLP became the basis of Walmart’s business model. Instead of making customers wait for special occasions or sales to avail deals, Walmart sets low prices from the get-go. Walton learnt that retailers focused on profit maximisation, which meant large margins on products. Though it guaranteed the company’s growth, Walton preferred adopting the method of cost leadership.
The cash counter at Walmart is located in such a way that one has to pass several isles to reach it. So once they are done buying things that they ‘need’, they are bound to be attracted by the huge discount boards and the array of goods. Walmart might incur losses on the sale of eggs, milk, bread etc but when the individual ventures into the kitchenware or the beauty section, profit margins are huge. Walmart offers convenience. If an individual has come for a regular grocery shopping spree and found a hair dryer that they like, they are unlikely to give it up and search for another place that offers the same at a lower price. Besides, Walmart’s ubiquity is unmatched. For most people in the U.S, a Walmart is less than 5 miles away.
Emphasis has always been laid on increasing the volume of customers than marketing expensive goods to a smaller number of customers. Membership benefits and rewards ensure customer loyalty. There are certain brands of jams and peanut butter that manufacture jumbo sizes only for Walmart. They are bound to sell owing to the magnitude of customers flooding into the store everyday. Discount tags throw all rationality out of the window as people link their identity with their capacity to buy goods.
‘Walmart destroyed retail’ (Jan Kniffen, 2016). The breadth of its operations is so vast that it is difficult for retailers to compete. There is no incentive for new firms to enter the market either. This makes Walmart a monopsony. Unlike a monopoly where one firm is the sole producer of goods, a monopsony refers to a firm that is the sole buyer of goods. Walmart exercises control over the market, enough to bargain with the suppliers to suit their needs.
To do business with Walmart is a great opportunity for suppliers. Their products are seen by millions of shoppers each day across the globe. However, this access comes with a price, as Walmart forces suppliers to accept low prices to remain in its good standing.
Walmart’s tagline is rather ironic because customers end up buying more than required. Low prices give the illusion of increased purchasing power, making the individual hoard goods. The ‘Live Better’ notion is questionable. Saving money surely gives one satisfaction but it also leads to consumers mindlessly spending on items just because they can afford it. Walmart’s customers are fueled by short-term fulfilment which keeps them coming back frequently.
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Reiff, N. (2021, September 10). How Walmart Makes Money: U.S. and E-commerce Sales Are Growing Fastest. Investopedia. Retrieved February 12, 2022, from https://www.investopedia.com/articles/personal-finance/011815/how-walmart-model-wins-everyday-low-prices.asp
Statista. (2022, January 27). Walmart: number of stores globally FY2008-FY2021. Retrieved February 14, 2022, from
Statista. (2022b, January 27). Walmart: weekly customer visits to stores worldwide FY2017-FY2021. Retrieved February 15, 2022, from
Walton, S., & Huey, J. (1993). Sam Walton: Made In America (Reissue ed.). Bantam.