Walmart store is the largest retail store in the world, with an exceptional revenue of over $476 billion and more than 10,942 stores worldwide. As the giant retail store, Walmart exploits its strengths and capabilities in such aspects as distribution strategy, information technology, supplier relationships as well as marketing and merchandising. Consequently, Walmart maintains lower advertising, labor, rent, technology, distribution costs, due to its diversification strategy into rural areas. Nevertheless, the reasons as to why Walmart is not successful in foreign markets remain.
Walmart Competitive Advantage
Walmart store serves over 250 stores in a 150-mile radius, on a 24/7 operation basis. Walmart ensures a constant supply of products to its stores, to avoid shortages. In 2001, Walmart was considered the leading store in cross-docking procedures.
Walmart invests more in technology, a factor which enhances its competitive advantage over other stores. In fact, the percentage of revenue Walmart spends on technology s 1 to 3% more than that of its competitors.
Walmart has a competitive bargaining power over its suppliers, due to its constant purchase of suppliers products to sell in the diverse stores. Through its Scan N Pay system, the store ensures the suppliers are in total control of their products till they are sold in the Walmart store. Consequently, Walmart store creates positive supplier relationships through the Electronic Data Interchange, which enables suppliers to track their product life cycle.
Marketing and Merchandising
Walmart store maintains lower advertising costs, which helped it gain a cost advantage over its competitors. For instance, in 2010, the store recorded an advertisement cost of 0.6% of sales as compared to 2.0% in Target store.
Lower Operating Costs
Walmart store maintains lower costs than its competitors in such aspects as labor costs, rent, prices and advertising. Fundamentally, most of Walmarts stores are located in rural areas, where operating costs are cheaper than urban cities.
Walmart maintains low rental costs from its due to cheaper costs of land in rural areas, where Walmart has diversified most of its stores. For instance, in 1985, the rental costs at Walmart were 1.8% of sales, while the industry average costs were recorded at 2.2% of sales.
The identity of a Walmart store in rural areas is enough advertisement to its customers. Therefore, the store has maintained low advertisement costs in rural areas, thus, gaining a cost advantage over its competitors. For instance, in 1995, Walmarts advertising costs were 1.1% of total sales as compared to an average 2.3% of sales in the industry.
Walmart has a cost advantage of lower wages in rural areas, due to low costs of living in the areas. In 1995, the stores labor costs were 10.1% of sales, while the average rate in the industry was at 11.2% of sales.
Despite the cost advantages of Walmart, the store has experienced difficulties diversifying into various markets.
In India, Walmart was obligated to buy 30% of its products from internal businesses, thus, limiting the store from executing its profitable strategy.
Walmart did not succeed in the Brazilian market, due to cultural pressures in the country.
In the UK, Walmart experienced great competition from large stores, such as Tesco.
In China, consumers opted for lower costs at local retailers, than the high prices offered at Walmart.
Walmart was unable to sustain its operations in South Korea since local consumers were loyal to their local stores.
Walmart did not perform adequately in Russia due to cultural and financial pressures, which hindered the store from winning acquisition bids in the country.
Overall, Walmart store has a competitive advantage over its competitors in such aspects as human resource management and rural diversification. Nevertheless, the store has experienced challenges in the international market due to government regulations, cultural pressures as well as massive competition, from local stores.
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