Case Study Amazon vs. Walmart: The Retail Kings’ War Is Heating Up
Case Study Amazon vs. Walmart: The Retail Kings’ War Is Heating Up
We all want to live like the folks in front of us. There are many billionaires and millionaires. We think about what they have done and how they have achieved these many things? We all enjoy seeing these individuals flourish while ignoring their failure. We want to be like them by watching their present but with the ups and downs as they had faced in their past we don’t want to face them.
Nobody ever dreamed that a farmer’s kid, who struggles day and night just purchase a meal, would one day create the largest company in the world with more than 570 billion dollars in yearly revenue, and over 23 lakhs of staff, and also about 11,000 stores globally.
Walmart becomes the largest retailer in the world
If you look closely, you will see that over the past 50 years, Walmart hasn’t done anything particularly noteworthy, yet it continues to hold the title of largest retailer in the world. It is interesting to note that Walmart is preparing to take over Amazon & lead the retail industry in the coming days.
But how exactly did all of this happen?
What is Walmart doing differently from everyone else?
What are the most essential lessons that we may take away and apply to our businesses?
In 1985, Forbes magazine published a list of ‘The top 10 richest people of this world’ and do you know who was at number 1? Mr. Samuel Moore Walton from America.
After reading this name, everyone was astounded because they had never heard of it before and they were eager to learn who the richest person in the world is. No one had heard of him, but when news of this reached Sam Walton’s home to corroborate the stories, reporters were astonished to discover something unexpected. When the reporters arrived at Sam Walton’s Residence, they discovered a little house with a typical man seated inside and a jalopy car parked right in front of the house. Everyone had assumed there would be a gorgeous house, a large swimming pool, and lavish cars. A business like this, with a profit of over 1.5 million dollars per hour, has been developed by Walton. And for that reason, the Walton Company is valued at $215 billion.
But how did a 27-year-old regular salesman accomplish all of this?
Well, to understand this, it is important to understand these three things.
- From where did Sam Walton come from and how did Walmart start?
- What are the key elements that led to forming a retailing business?
- The business plan of Walmart is made to destroy the competition.
How Walmart started?
When America exited World War II in the late 1940s, the economy was in terrible shape. Sam Walton, then 7 years old, was forced to take multiple jobs to help support his family.
Sam often used sell magazines and newspapers to cover his school expenses. He even had a short career working as a waiter. Walton borrowed $20,000 from his father-in-law to open his first retail location. This store was a franchise of Ben Franklin. In a few days, Walton realized that Ben Franklin is not performing well no matter how hard he works, he would never be able to earn a good amount of profit.
But he found a way out. Walton purchased merchandise for the Ben Franklin store from their own suppliers which was very expensive for them, so he decided to go out and buy it directly from other suppliers. As a result, the Ben Franklin business that they erected quickly started turning a profit.
The only successful Ben Franklin store was Sam Walton’s. A startling event caused Walton’s feet to suddenly slide out from beneath him while everything was going great. He had to leave all of it and return to his hometown in 1945 as no renewing claws were put in the rental contracts for his store. Even though everything had been destroyed, Sam nonetheless returned to Bentonville, mortgaged the home, and started over. When he started a new store, he wanted to make sure that the lease would be for 99 years this time. And finally, “the Walmart discount store” opens once more. After a few years, there were one store, two stores, five stores, and finally twenty stores.
How Walmart is opening more than 100 stores in just one month?
You see, Sam was aware of the three essential components of the retailing industry from the very beginning
- .Price to volume equation
- Outlet planning
- Consumer buying behavior
How Walmart kills small business?
A typical retailer contacts his supplier and requests 100 pens, to which the supplier informs the merchant that each pen will cost 10 rupees. The retailer then enters the marketplace and charges Rs 12 for that single pen. Technically, the retailer earned a profit of Rs 200 on 100 pens. On the contrary hand, Walmart placed a purchase order of 5,000 pens with the same provider. Due to the fact that Walmart is purchasing 5000 pens, the supplier sells each pen to Walmart for Rs. 8, and Walmart sells the pen for Rs. 10 in its stores, making Walmart technically the seller of the product. Because of this, no retailer can outbid Walmart.
But how is Walmart’s buying cost so much lower than all these retailers?
Well, if you look very closely, this brings us to another thing and that is buying cost. And Walmart primarily does these three things to control its purchasing costs.
• Purchasing from production facilities.
Walmart purchases all of its inventory from factories, and they also make numerous orders at those factories for various things.
• Pre-season purchasing.
Walmart purchases and stockpiles certain non-perishable items whenever a season is about to start, usually 2-3 months beforehand. For instance, Delhi experiences winter from October to November. Since June and July are not the winter season, Walmart will store non-perishable winter products during those months, and all of those commodities are obtainable for Walmart at even lower prices.
- Volume Purchases.
Whenever Walmart buys something, it buys in very large volumes, this large volume stock is divided into these 2 separate units.
- wholesale which fall under Sam’s Wholesale Club where all the retailers come to buy goods inside the wholesale quantity from Walmart
b) Walmart International Inside where all the stores of Walmart come and this is where the stores and logistics cost come in.
Walmart achieved success by Controlling Store Costs
- Self-Service
The lesser the operational expense, the less people you maintain inside the business.
• Metal shelves
In addition to being significantly more affordable than wooden shelves, metal shelves also last far longer. Because of this, Walmart stores almost exclusively employ metal shelving.
• Additional payment counters
More and more billing registers there will be, more the traffic will enter and exit Walmart locations quickly. Due to which the store is not overcrowded and more and more people are able to enter the Walmart store and go shopping as quickly as possible. So, in less time Walmart sells you more
- Square foot shelving
Walmart sees how much stuff it can store within a per square feet area. And it tries to maximize the square foot shelving so that by storing more goods it will be able to reduce your cost per square feet. And then comes the logistics cost. Now this is something very interesting. So, to understand this very carefully, in order to reduce its logistics cost
Walmart saved $600,000 per year on each truck by using a principal called Cross dock HUB spooking.
By using Cross dock HUB spooking, Walmart connects these 2 dots. The first dot is the manufacturer and the second dot is the store and connecting this thing is Walmart’s distribution centers.
The manufacturers who load a lot of items in the quantities, reach to the distribution centers inside Walmart’s Distribution Centers, use the cross-dock HUB spoke through that which item is needed within how many quantities in which retail store, is cross docked and loaded under different trucks. Where all of this stuff originates and travels to all those retail stores
As a result, the transaction cost for each retail location is drastically decreased. Additionally, Walmart makes sure that its producers use the least amount of packing materials possible. Therefore, the domino effect of shelving will be greater the less packaging material there is.
Walmart conducted this study with a frozen pizza producer due to their old packaging, which resulted in a 44,300 pizza storage truck. But as the manufacturer further reduced its manufacturing material 51,200 pizzas started fitting in one truck and as a result, Inventory shipping and labor of Walmart, all of this cost was reduced. Walmart ultimately saved $600,000 annually on each truck as a result.
However, if company’s outlet planning is poor, it is useless to execute all of this inside of the retail firm. With time Walton realized that if they wanted to satisfy their customers, the first thing he has to improve is the Walmart store.
How did Walmart improve their stores?
Inside a retail outlet’s planning these two factors have the potential to alter the entire game.
• Location
Walmart opened large stores in rural areas for two key reasons. Cheap real estate. Real estate is much cheaper in small cities which allows Walmart to open big stores with less capital and
- High middle class traffic
The majority of these people reside in small cities and are on the lookout for low-cost goods. All of the traffic will flow to the store that has the lowest prices. And moreover, with time, Walmart starts hyper-cluster stores. So, if you see today in the US and in all other major countries where Walmart has a presence, you will see a Walmart store every 10 miles so that people do not have to travel more and come to Walmart.
Why Walmart’s starting shelves are typically stocked with the cheapest items?
So that as soon as you enter Walmart stores as a customer, you don’t have the feeling that things are expensive here. You are initially given access to affordable things, and you continue to shop nonstop. Walmart’s growth is amazing, its stock value has increased by 67% in the last 5 years.
But How Every single customer who enters a Walmart store end up spending 30 to 50 $?
The third aspect, which is consumer’s buying behavior, then appears at this point. You will be given a trolley as soon as you walk into a Walmart shop. Although it appears like this is done for your convenience, it is actually a psychological trick. Once you took the trolley and you start to walk the store, your mind initiates a buying behavior and moreover, you will never leave the store with an empty trolley because psychologically you will get a feeling for what people will think, they will judge me. So, you start shopping. As you stroll through the stores, you’ll notice large banners. On which is written Everyday low prices and if you look at it very closely, each price is written in whole number + decimal because this is also a psychological play. 7 dollars and 88 cents, 9 dollars and 44 cents written from left to right since we read from left to right and this works, every time you look at these amounts, your brain tells you that you should buy 7 dollars and 9 dollars rather than 8 dollars and 10 dollars. And we always discover that buying odd numbers is less expensive than buying even numbers. After that, you move on and begin to purchase more and more.
Walmart understands you better than you do
One thing, Persuasion of Sequential Buying Behavior. Simply put, selling products sequentially using social analytics. Walmart sequentially positions all its products in racks while using tools and software to analyze financial environment.
One question: Do you buy cornflakes or milk first?
Majority, 95% of people buy cornflakes first and then buy milk that’s why Walmart always places cornflakes first and then milk inside their stores. So that anyone purchasing cornflakes can also purchase milk once they reach the next counter. Because as humans, we frequently purchase items in order. All Walmart systems are interconnected in this way through internal software you will hardly find a product out of stock in Walmart. But how?
Vendor Managed Inventory.
Well, all these things are done through VMI i.e., Each Walmart store is linked to its nearest distribution centers and the distribution centers are linked to their suppliers. In order to be able to timely refinish the stock, the suppliers who are present essentially receive live reporting of their stocks. Specifically, the suppliers learn how much of their goods has indeed been sold and what amount stock is still present inside the stores. Additionally, Walmart benefits from using these tools and technologies for need and trend analysis, which is how it operates. For example, if there is a recession and things are difficult, Walmart will boost the amount of consumables in its supermarkets by 50%. Because people consume more consumables during recessions. They reduce the consumption of non-consumable items .Whereas, if the time is running very fast, Sounder such conditions, Walmart will increase the number of non-perishable items that are not consumables inside its stores and will reduce the quantity of consumables so that even if there is a recession or good times are going on Walmart is always profitable.
30th April 2020, Walmart announces its express delivery and Amazon’s World Changed Forever
7 Years Ago, in 2013, Walmart Tests It’s Grocery Delivery Service and guess what! The results were amazing. For $13 billion, Amazon purchased Whole Foods in 2017 to expand into the food delivery market.
Walmart is crushing Amazon in grocery delivery. And this is how they do it
Inside Walmart Express Deliveries to Customers. Super Low Prices in 2 Hours. I’m aware of your thoughts. This one-of-a-kind service is also provided to clients by Amazon.
Walmart is far stronger than Amazon due of five such important differences.
• Amazon increases its 2-hour delivery period through retail establishments that sell whole foods.
The largest restriction is that Amazon could only deliver groceries in two hours due to their restricted inventory as a result of Whole Foods. However, given that Walmart really does have a huge inventory at its physical location and every item is available there, As a result, Walmart allows shoppers to order practically anything within two hours, something that Amazon cannot do.
- Quality Control
Amazon has more than 70% sales through sellers That is, sellers use Amazon’s marketplace to sell their goods. The fact that Amazon never does any quality control checks on the products coming from vendors is, however, its largest flaw. The inventory that enters Walmart stores, on the other hand, has all been inspected by Walmart. So that customers can get a quality products, if customers are using express delivery from Walmart then only quality products will always reach them. Which is not the case in Amazon always.
- Membership.
Only consumers with Prime memberships are eligible for Amazon’s Prime 2 Hour delivery service. However, every consumer receives free Walmart Express Delivery. A customer makes a purchase above $30 technically, to do Amazon Prime’s 2 hours delivery you will need to buy a Prime membership along with that you have to give money for products. But with Walmart this is not the case.
- Fast Reverse Logistics.
It will take 2 to 3 days for you to receive a returned item if you order anything from Amazon that isn’t a supermarket item. And in this situation, the seller who supplied the item via Amazon is responsible for covering any reverse logistics costs. Whereas with Walmart, the nearest store is really only 10 miles away if you’ve made a return order for anything. Thus, the entire procedure is quick and Walmart incurs very little financial burden. Additionally, clients can visit the Walmart store themselves to complete the return if they need it done right away as it is only 10 kilometers away.
- Sustainability.
Despite its immense size, Amazon is not lucrative, as you can clearly see. The components of Amazon Web Services generate the majority of the company’s profits. Both their retail and e-commerce divisions are not very successful. Walmart, on the other side, is quite profitable.
So, in the coming time if Walmart will have to compete with Amazon, it can Bring Its Pricing below Amazon. Why?
Because they have a lot of money, they can easily survive. However, Amazon would have a hard time competing with Walmart inside the retail sector.
What can we take away out of this case study & apply in our business?
- You don’t have to do something extraordinary to build a successful business.
Walmart Does Nothing Too Extraordinary, If You Take a Closer Look They just adhere to the fundamental principles of retailing that Sam Walton applied to such an extent that he was able to build the largest corporation in the world. Therefore, even you can hunt for simple guidelines to help your company grow.
- Customers are always loyal to the value and not to the business.
Time has changed, when it comes to non-luxury product, Customers are never attached by your brand but with the value you give. Whose biggest example is Swiggy and Zomato. Even though Swiggy and Zomato has invested a lot of money in establishing their brands, each customer still opens both apps to see where the meal is cheapest before placing an order. Therefore, be sure that you are continually providing value to your clients. In today’s world, your brand’s size doesn’t mean nearly as much as you
