Secret business model of the largest retailer of the world Walmart

Walmart is the largest retailer of the world for many years now. Their revenue was skyrocket amount of thousand billion dollars in 2020. In this article we will find out despite the huge competitions how this company became so much successful in retail market.

The well known and most common theory was that Walmart give large discounts on their products so they are so successful. But the reality is only 10 percent reason is the discounting. The rest of the 90 percent lies on other strategies.

History

Walmart was established by Sam Walton in 1962. Before starting this business, he took loan of 20 thousand dollars from his father in law to buy a franklin franchisee. He made the store most profitable in his city. 

It happened because he found a nature of common americans. He found that most of the americans spend their monthly salary almost 40-50 percent in their expenses. But consumers need a pull to spend the money. So Walton uses discounting with the 4 pillars which become the reason of pull to spend the money. We will discuss the 4 pillars here without which even discount won`t help that much.

Procurement lockin 

In market, there is problem of bull whip effect. In simple words, whenever the demand of any products reduced, the upper whole seller suffer the most. To solve this problem, Walmart first understand the cost structure of the manufacturer and then linked them with the Walmart shops though the electronic data interchange. With the help of EDI, manufacturer get the idea of actual demand of the product. They made only that much of products  which helps to reduce their costs.

Cross Dock Hub Spoking

There is two dots in the business which need to connect, that are manufacturers and the stores. In Walmart, at first various manufacturers send their products to the distribution centres where this cross docking happens. It means their logistics will deliver exactly the demand of products and their quantity in particular stores. This reduce the logistics cost of stores and manufacturers. 

Time Inventory System

You will almost never find a product which is out of stock in Walmart stores. It happened because they follow time inventory system. They invested heavily on retail link system which gave birth to vendor managed inventory. Through this system, stores can identify very easily that how much products are sold and how much are remained in the inventory. Thus they can do timely replenishment so that products did not go out of stock.

They also managed to reduce their cost by domino effect shelfing. It means they reduce their packaging material so that more products can supply in same truck.

Persuasion of sequential buying

It simply means selling their products with the help of social analytics. The first stage is economic study around the store so that they can understand which type of products will get higher demand. Second stage is to identify their needs and trends so they can serve better. Third stage is sequential shelfing by which they arrange the shelf in a order in which consumer will buy the products.

Through all this tactics, Walmart earn money and in this process they become the largest retailer in the world.

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