Walmart was created in 1962 by Sam Waltons and opened its first branch in the city of Arkansas. The company has a history of consistent growth and expansion through a low price and cost strategy. Walmart is a significant player in the United States retail industry and has continued to outshine its competitors in substantial areas of operation such as revenues, operating expenses, and net profits, giving rise to a competitive edge against its competitors. The paper will examine how the management of Walmart has been able to achieve a low-cost strategy, ensuring higher revenues and profits than its industry rivals.
The company's total sales revenue for 1993 stood at $48620, whereas the industry average was $18730 in the same year. Walmart maintained a low price for its products, which are very competitive and help the company record higher revenues than its rivals. It gave its store managers' freedom in setting prices according to the local markets' prevailing conditions to help improve sales revenues and increase the rate of inventory turnover and reduce expenses. Its competitive pricing meant its products are cheaper by an average of 1 percent, according to a study conducted in the 1980s. Besides, Walmart sticks to its slogan, "Always low prices" was trusted, and price surveys conducted between 1992 and 1993 proved that. The company's prices were lower than its direct competitors by a difference of between 2 percent and 4 percent. For example, Walmart's prices were lower than Kmart's and Target's by 2.2 percent and 3 percent, respectively.
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Walmart had streamlined its operations, which made it possible to maintain operating expenses at lower levels than competitors. The company has leased 70 percent of its stores, thus saving overhead expenditures related to owning such as local authority fees. The company's rental expenses remained at 3 percent of its discount sales while competitors had rent proportion at 3.3 percent of discount sales. Also, Walmart conducted few promotional campaigns, with only 13 in a year, while competitors conducted up to 100 adverts in a year. The savings on adverts translated to a discount expense of 1.5 percent of sales as compared to 2.1 percent of the rivals. Store operating costs for Walmart accounted for 18.1 percent of the total sales revenues as compared to the industry average of 24.6 percent. The cost advantage was achieved through the adoption of the information system to automate some operations. Also, maximizing the sales per square foot at $300 while ensuring that inventories occupy a smaller space at 10 percent per square foot. The store space utilization strategy saves costs on shelves acquisition, maintenance, and sales associate. Through harnessing combined effect if the savings on operating expenses translated to a higher operating income of 7.5 percent as compared to higher-cost rivals level of 3.9 percent.
However, Walmart has a higher cost of goods sold figure at three percentage points higher than the industry average of 72.8 percent. The situation is explained by logistics inclusive of transport and inventory carrying costs. Walmart depends on its operated distribution centres for supplies. The centres account for 80 percent of its supplies, which is 30 percent higher than its competitors, who rely on direct supplier delivery to stores. Though its supply chain is expensive, the company has managed to lower shrinkage costs by 0.3 percent of the industry average by giving staff a performance bonus for ensuring pilferage is reduced in the stores.
In conclusion, the company has achieved its competitive advantage through the adoption of lower-cost strategy and offering affordable prices enabling Walmart to achieve higher revenues and profits performance levels that are beyond competitors' reach.
