Walmart: 50 years in the making

Date : 28 May 2012
Walmart: 50 years in the making

As Walmart celebrates its 50th anniversary this year, we look at the milestones on its journey to becoming the world’s largest retailer, and what the future holds.

Against a backdrop of continued technological and digital innovation, changing shopper preferences and challenging economic conditions over the next few years, Walmart’s evolution is likely to result in the emergence of a very different retailer.

From humble beginnings

Walmart now operates over 10,000 stores internationally The pace at which Walmart has gone from a one store operation to an internationally recognised brand leader with over 10,000 stores is staggering.

Although Sam Walton started in retailing by operating Ben Franklin franchises in the 1950s, it wasn’t until 2 July 1962 that the first Walmart store opened in Rogers, Arkansas. The origin of the name itself an interesting story, chosen for its relatively short length and less costly signage!

National roll-out and introduction of the Every Day Low Prices (EDLP) model

By the end of the 1960s, Walmart had formed a strong partnership with IBM, which proved to be critical to the retailer’s data-driven approach.

However, the 1970s were to be one of the retailer’s most transformational periods, as it expanded its range of products, its geographic footprint and introduced the EDLP model to help smooth out the sales curve. This decade heralded the start of the retailer’s national ambitions, when it opened its Home Office and its first distribution centre and it became the fastest retailer to reach $1bn in sales.

Format diversification and internationalisation

In the 1980s, Walmart progressed rapidly by diversifying its formats and building the first hypermarkets and Sam’s Clubs. It also introduced barcode scanning and established Walmart’s Satellite Network.

In the 1990s, Walmart became the largest retailer in the US, and its international division was established. It ventured overseas for the first time with store openings in countries such as Mexico, Brazil and China.

By the end of the 20th century, Walmart had almost 4,000 stores and sales of $165bn, almost $140bn higher than a decade earlier. Over the next 10 years, sales and store numbers more than doubled.

Sustainability comes to the fore

One of Walmart's sustainability goals set in  2005 was to use only renewable energyThe start of the new millennium, there was a greater focus on sustainability. Following Walmart’s significant contribution to the Hurricane Katrina relief effort, in 2005 the retailer’s CEO, Lee Scott, announced the company’s sustainability goals:

  • to create zero waste
  • use only renewable energy and
  • sell products that sustain the environment

From this point onwards, sustainability became an integral element of trading relationships, and a variety of initiatives were launched to support the achievement of its goals in this area.

Unprecedented change ahead

The next few years are likely to bring an unprecedented level of change to global food and grocery retailing. Many of the changes that Walmart has started to implement within its organisation leave it well positioned and equipped to meet these challenges and grow.

The rapid advancements in smartphone technology are without doubt changing the way in which consumers shop, empowering them with new capabilities for the first time. This access to a broad range of availability and pricing data, combined with the growth in pure online retailing is driving a fundamental shift in consumer behaviour.

Multi-channel retailing plays to Walmart’s strengths

Over the next few years we will see Walmart transition to an EDLP model in all of its international markets Walmart’s core strengths complement this trend, and its EDLP brand promise remains relevant in an era of price transparency. Over the next few years we will see Walmart use an EDLP model in all of its international markets, not just because of the efficiencies that it generates, but also because price transparency is a global phenomenon, and low-priced retailers are likely to prosper in this environment.

Walmart can also draw on its stores, systems and supply chain to provide a seamless multi-channel customer experience – giving it a competitive advantage in terms of shipping costs compared to pure online retailers.

Shoppers also like to look at many alternatives when buying online and Walmart is aiming to have the broadest assortment by using its multi-category experience and supplier relationships to the best of their ability.

Positioning for mobile and social commerce

Recognising this changing and fast evolving retail environment, Walmart has started to develop a new set of capabilities. Many of the best innovations in this space were coming from smaller, nimbler organisations. Walmart’s response was to acquire the talent and establish @WalmartLabs to behave like a tech start-up company, and already many new ideas have started to emerge.

Who would have thought that Walmart would use social media chatter to understand when seasonal products should be introduced in-store? While the retailer was undeniably ying catch-up in this space for a couple of years, it has made significant progress and could become one of the world’s leading multi-channel retailers.

Big boxes under pressure

The digital revolution has also called into question the future of the hypermarket. Although this format only accounts for just over 40% of the retailer’s stores, over 70% of its space is tied up in this format. Almost three-quarters of these are in the US.

However, through its Supercenter initiative, Walmart has made these stores more locally relevant for its shoppers and in an era of sustained higher fuel prices, the one-stop shop model has been gaining in popularity as shoppers have been consolidating their shopping trips. The Supercenter also has an important role to play as part of the retailer’s multi-channel strategy; which retailer wouldn’t want 3,000 large format distribution points in the US to help provide same-day availability?

Walmart’s strengths in smaller format stores should also be recognised, not only in the US where it is rapidly rolling-out its Neighborhood Market stores, but also internationally where it operates over 10 different food-focused smaller format stores. Smaller formats are an area of increasing strength for the retailer.

From international to global

south africaWhen we eventually look back at the retail milestones of this decade, one of the defining moments is likely to be Walmart's acquisition of a 51% share in Massmart. Developing this presence in South Africa marks Walmart's transition from an international retailer to a truly global one, establishing a trading presence in each of the five continents.

Not only does Massmart provide access to a significant young and urban population base in South Africa, but it also provides the foundation for broader growth in sub-Saharan Africa. There is outstanding potential in this region, and Walmart has initially prioritised developing its fresh food supply chain, but it will also tailor its products to meet the needs of the emerging middle class.

Flag planting days are over

With operations in 26 countries beyond the US and Puerto Rico, further international expansion in the immediate future is less likely. But Walmart is likely to maintain its interest in building scale in existing markets through acquisition, and to enter large, high growth markets. However, in the immediate future, the international focus will turn to improving the returns from existing markets. Organic expansion is already being slowed in Brazil and China to enable the retailer to improve existing operations, particularly store execution.

Focus on leveraging its global scale to drive value

We can expect to see more consistency across the retailer’s international markets as it seeks to drive more value from its global scale. Beyond improved buying opportunities through economies of scale, the retailer will focus on achieving efficiency savings in areas such as IT, logistics and format development.

Leveraging its scale to drive efficiencies is a key goal for Walmart and, indeed, other retailers. Although it can be difficult to achieve, Walmart has recently established the structures to make it happen, through the global innovation team.

The next 50 years...

I’m not sure anybody would have predicted how Walmart’s first 50 years would have turned out, so making any accurate predictions for the next 50 is almost impossible.

While it may appear that the retailer’s immediate future is challenged by a number of longer-term structural shifts in grocery retailing, Walmart is actually well positioned to capitalise on these.

The secret to its success has been continually adapting to meet the needs of its shoppers, a strategy that is being employed today as it pushes forward with its multi-channel, format and EDLP initiatives in its global operations.