CASE STUDYFOR CLASSROOM DISCUSSION

WALMART: LEVERAGING COMPETITIVE ADVANTAGE THROUGH DIGITAL

TRANFFORMATION

Abstract:

Wal-Mart is one of the most extraordinary success stories in business history. Started in 1962 by Sam Walton, Wal-Mart has
grown to become the world’s largest corporation. Walmart is the world's largest company by revenue, with about US$570
billion in annual revenue, according to the Fortune Global 500 list in May 2022. The discount retailer whose mantra is
“everyday low prices” is also the largest private employer in the world with 2.2 million employees worldwide. It is also the
largest grocery retailer in the U.S. As of July 31, 2022, Walmart has 10,585 stores and clubs in 24 countries, operating under
46 different names

Walmart’s strategies produced superior performance for 22 plus years i.e., from 1994 to 2016. Post 2016 Walmart has been
losing out to competition. When it comes to big-box discount stores, Walmart (NYSE: WMT) still dominates the market
with its sheer size but it is facing stiff competition from its rivals in this sector. On one hand it has to face competition from
traditional competitors like Target and Costco and on the other hand, it has to compete with the online juggernaut
Amazon.com.

Hence the objective of this case study is (a)To understand the strategies that resulted in competitive advantage for Wal Mart
(b) To find out how Wal Mart is using Digital transformation and Data analytics in order to leverage its competitive edge in
wake of competition from other players in the retail space (c) To find out the BOS strategies of Wal Mart which have
resulted in value creation.

Keywords: Strategy, Sustainable Competitive Advantage, Tesla, Digital Transformation, Data analytics.

Pedagogical Objectives:

1. Connecting the dots between Strategic Management Technology and Finance concepts.

2. Application of SM concepts: BOS (ERRC, 6 path framework), PESTLE/PORTER’S Model, VRIO, Value Chain analysis,
Competitive advantage, Digital transformation.

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“Of all the contrasts between successful and unsuccessful businesses or between corporate leaders and its
followers, the single most important differentiating factor is strategy”. “Competitive advantage is anything
a company has, or does better, that customers value but the competition cannot match” “A company has a
sustained competitive advantage when its strategies enable it to maintain above-average profitability for a
number of years”.

Introduction:

Wal-Mart Stores, Inc., doing business as Walmart, is an American multinational retail corporation
that operates a chain of hypermarkets, discount department stores and grocery stores.
Headquartered in Bentonville, Arkansas, the company was founded by Sam Walton in 1962 and
incorporated on October 31, 1969. Walmart has long been the undisputed leader in the brick-and-
mortar retail space. It is also the largest grocery retailer in the U.S. As of July 31, 2022, Walmart has
10,585 stores and clubs in 24 countries, operating under 46 different names. It is the world's largest
company by revenue, with about US$570 billion in annual revenue, according to the Fortune Global
500 list in May 2022. It is also the largest private employer in the world with 2.2 million employees.

But a few years ago, as the traditional retail landscape shifted to digital, Walmart faced threats.
Disruptions brought the rapid success of e-commerce pioneers. Online advancements tested the
retail giant’s ability to compete. Embracing the challenge to evolve, Walmart has been making
strides in modernization. Now, the company’s ongoing digital transformation continues to reinvent
the shopping experience. With technology as the main driving force, the Walmart innovation
strategy is set to push boundaries in retail. Aside from low prices, the use of data built the Walmart
competitive advantage over the years as well. Information gathered in stores led to better insights
on consumer preferences. But as technological advancements emerged, many of those preferences
changed. Digital retail channels and online shopping rose in popularity. E-commerce companies
like Amazon took market shares. Walmart, therefore, had to innovate to keep its store network
ahead of the curve. Walmart put digital transformation on top of its agenda. It built an internal
cloud network that houses massive data. This is useful for better customization of offers. Part of the
Walmart innovation strategy, such data also improves internal operations.

Wal Mart competitive advantage:

Based on a model of providing low prices, creating economies of scale, and minimizing operating
costs, Walmart experienced almost immediate success – by 1970 it became a publicly traded
company and by 1990 had spread internationally. Brick and mortar retail operations have remained
incredibly strong through the decades – Walmart has an imposing physical presence. and has
continued to develop and maintain a significant competitive advantage through that physical
footprint. Walmart is not only large; it is also very profitable. As shown in Figure below, Walmart has
been consistently more profitable than its rivals for years, although of late its rivals have been closing
the gap. The reason for this kudzu-like growth is the result of two initiatives so critical to the Walmart
way of doing business that they have achieved initialism status in the company’s literature. One of
them is EDLP (Every Day Low Price), familiar to customers everywhere as the company’s slogan. The
other, EDLC, is equally important to its profitability.

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How did they achieve competitive advantage?

Foundation Philosophy and first moves:

Walmart’s consistently superior profitability reflects a competitive advantage that is based on a
number of strategies. Back in 1962, Walmart was one of the first companies to apply the self-service
supermarket business model developed by grocery chains to general merchandise. Unlike its rivals
such as Kmart and Target who focused on urban and suburban locations, Sam Walton’s Walmart
concentrated on small southern towns that were ignored by its rivals. Walmart grew quickly by pricing
lower than local retailers, often putting them out of business. By the time its rivals realized that small
towns could support large discount, general merchandise stores, Walmart had already pre-empted
them. These towns, which were large enough to support one discount retailer—but not two—
provided a secure profit base for Walmart.
ELDP (Everyday low pricing): Walmart Inc.’s corporate vision is to “Be THE destination for customers
to save money, no matter how they want to shop their needs.” Walmart Inc.’s corporate mission is
“to save people money so they can live better.” This statement reflects the ideals of the company’s
founder, Sam Walton. Strategic decisions in the business are a direct manifestation of this mission
statement, which is synonymous to the company’s slogan, “Save money. Live better.” Based on this
statement, it is clear that Walmart’s business strategies involve using price as a selling point to attract
target consumers. The significance of such a selling point is exhibited in many of the company’s
strategies. The success of Wal –Mart has been attributed to its ELDP (Everyday low pricing) strategy.
What is worth noting, though, is that this model – built on low prices, on a large scale, at minimal
cost. Walmart continues to offer very low prices, and this is possible due to (a) its huge volume of
sales that is possible due to the spread of its operation and its wide customer base, (b) a robust supply
chain management system that maximizes efficiencies and reduces outlays, (c) minimization of
overhead and operational costs, and (d) leveraging of its bargaining power to force suppliers to lower
prices (e) Human resource management.
Sales volume, scope of operation and wide customer base: Walmart has been able to capture a
huge market share by selling almost everything and being almost everywhere. It has endeavoured to
meet the demand of various segments of the market, and to present a huge swath of buying
opportunities, compressed into single locations. It actually has a multiple-store format that extends
its market reach, and it sells goods through four types of stores: discount stores, Walmart
Supercentres, Sam's Club warehouses (which sell bulk items), and neighbourhood markets. It is also
worth noting that, as observed by Charles Fishman (Author of Wal Mart effect), 90% of Americans
live within 15 miles of a Walmart store. There is an Omnipresence to the Wal-Mart store that allows
it to increase its penetration in customers' lives and increase the probability of a purchase. Walmart

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has a massive physical footprint – Walmart stores are currently located within 5 miles of 70% of the
U.S. population. This proximity to customers is essential for operating in an “Omni-channel”
environment. Additionally, whether consumers choose to buy online then pick up their purchases at
a physical store location or have those items home delivered through mail, bike messengers, or
drones, physical footprint will greatly simplify any chosen delivery method.
Supply chain management based on electronic product information: Walmart has a supply chain
system that is regarded in multiple quarters as one of the most technologically advanced and
efficient. Walmart led the way among American retailers in developing and implementing
sophisticated product tracking systems by using bar code technology and checkout scanners. This
information technology enabled Walmart to track what was selling and adjust its inventory
accordingly so that the products found in a store matched local demand. By avoiding overstocking,
Walmart did not have to hold periodic sales to shift unsold inventory. For e.g. During the first 8
months of 2005, Walmart reportedly experienced a 16 percent drop in its out-of-stock merchandise
at its RFID-equipped stores.
Also key to the cost-effectiveness of Walmart's supply chain strategy and distribution network is the
positioning of its nearly 173 distribution centres, which cover almost 120 million square feet and are
all within 130 miles of the stores they supply. (Regional distribution centres have been placed at
locations that offer lower labour and transportation costs.) They have thus been able to carry out
cross-docking at their warehouses, a process in which products are taken from a truck upon its arrival
and packed in a truck headed to a store without spending time in the warehouse. This in turn has
resulted in reduced costs for inventory storage and has lowered transportation costs.
Layout of warehouses Information such as point-of-sales data, as well as warehouse inventory and
real-time sales are all sent to, and stored in, a centralized database that is shared with suppliers
who know when to ship more products. Walmart also, according to CIO online, has the largest private
satellite system that enables the easy transfer of this information among all participants in its supply
chain process and allows voice and data communication among all units and offices of the company
in various locations.
Minimization of overhead and operational costs: Continuing the model Walton established for a
low-cost operation, Walmart still keeps its overhead low. Its executives reportedly fly coach and
share hotel rooms with colleagues. Its meagre wages and low-benefit healthcare plans which are
offered to rank-and-file employees have been publicized and protested against the company has
even been accused of demanding that hourly workers put in overtime without pay. Researchers at
some policy institutes have speculated that each Walmart associate does the job of 1.5 to 1.75
employees of a rival. It has also been said that Walmart staff are expected to keep costs at a
minimum, even for heating and cooling of the buildings.
Leveraging of Its bargaining power to force suppliers to lower prices: Many well-known companies
rely on Walmart for more than 20% of their revenue. Walmart, as the number one supplier-retailer
of most of our consumer goods, wields considerable power over their bottom line and in fact wields
this power over almost all the consumer goods industries in the U.S. In adhering to a strategy of
keeping prices low (experts estimate that Walmart saves shoppers at least 15% on a typical cart of
groceries), Walmart is constantly pushing its suppliers to cut prices. In the Walmart Effect, author

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Charles Fishman discusses how the price of a four-pack of GE light bulbs decreased from $2.19 to 88
cents during a 5-year period. The pressure on suppliers to lower prices has resulted in layoffs at
certain factories, changes in manufacturing inputs and processes, and even the transfer of
manufacturing processes to foreign countries like China where labour is cheap. A clear example of
the results of the application of such pressure is Lakewood Engineering & Manufacturing Company,
a fan manufacturer in Chicago. In the early 1990s the cost of a 20-inch fan was $20. After Walmart
pushed for the lowering of the price, Lakewood automated its production process, which resulted in
the layoff of workers. It also put pressure on its own suppliers to slash the prices of parts, and it
opened a factory in China where workers earned 25 cents an hour. By 2003, the price of a fan in
Walmart had dropped to $10.
Vendor role in distribution: Another key strategy by Walmart has been its move in the 1980's to deal
directly with manufacturers. Suppliers at that time became responsible for managing inventory in its
warehouses. This shift in responsibility for inventory management from Walmart to the suppliers,
which constituted a vendor-managed inventory system, was said to have created a smoother flow of
inventory, with less irregularities, and helped ensure that products requested by customers have
always been available on the shelves. All of this has resulted in a more cost-effective process, with
these savings being translated as well into lower prices in the Walmart stores. (See article: Measuring
Company Efficiency.) As Walmart grew larger, the sheer size and purchasing power of the company
enabled it to drive down the prices that it paid suppliers, passing on those saving to customers in the
form of lower prices, which enabled Walmart to gain more market share and hence demand even
lower prices. To take the sting out of the persistent demands for lower prices, Walmart shared its
sales information with suppliers on a daily basis, enabling them to gain efficiencies by configuring
their own production schedules to sales at Walmart.
Barriers to entry: What amplifies the effectiveness of all of this is that in its early years Walmart
followed a backward expansion strategy, opening stores in small, rural towns first before entering
metropolitan areas. This resulted in lower operating expenses and ensured that all stores' locations
were within just over a hundred miles of their distribution centres. It became cost-prohibitive for
competitors which had focused on large towns to enter regions Walmart had already saturated later
on. This constituted a barrier to entry. Walmart also uses its own trucking fleet and drivers, who are
required to have three years and 250,000 miles of driving experience. The impact of all these supply
chain mechanisms on Walmart's bottom line and its ability to offer lower prices is pronounced.
With regard to human resources: The tone was set by Sam Walton. He had a strong belief that
employees should be respected and rewarded for helping to improve the profitability of the
company. Underpinning this belief, Walton referred to employees as associates. He established a
profit-sharing plan for all employees and, after the company went public in 1970, a program that
allowed employees to purchase Walmart stock at a discount to its market value. Walmart was
rewarded for this approach by high employee productivity, which translated into lower operating
costs and higher profitability.

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Digital Transformation Strategies:

During 2018 fiscal year, Walmart has spent a total of 11.7 billion in technology investment, making it
the third largest IT spender in the entire world behind Amazon and Alphabet. They have successfully
deployed transformation strategies across all aspects in their business processes such as shelf
inventory, supply chain management, delivery, online space and have optimized overall customer
experience. Its tech division, @WalmartLabs, has launched a number of innovative products,
including the Walmart mobile apps, its next-generation search engine, Shopycat (a Facebook app that
provides tailored gift suggestions), and Goodies (subscription-based gourmet food delivery,
which was closed after a year in Beta).
Among the capabilities that Walmart mobile apps offer are shopping lists (with voice input), digital
coupons, geofencing and targeted offers, and indoor navigation. One of its products, Savings Catcher,
matches prices from other online stores with the current Walmart prices. If it finds a cheaper offer,
the system issues a coupon worth the difference so that a user can get the product at the lowest
price. Walmart’s online marketplace remains the core digital initiative the company is investing in.
Walmart has been heavily investing in building Online Fulfilment Centres (OFCs) or warehouses
dedicated to serve online orders. OFCs differ from traditional storehouses by making it easier and
faster to assemble individual online orders through the use of robots and computer-controlled
chutes. Faster assembly and shipment cut down the overall time required to fulfil orders, enabling
Walmart to offer flexible shipping options to customers. In 2012, Walmart added geo-fencing to its
app, a feature that senses when a customer enters a Walmart store and allows him/her to browse
the store’s local ads, offers and item locations.
Data Analytics:
Like many other brands, Walmart understands the potential of data. The company’s CEO Douglas
McMillon said that Walmart currently processes 40 petabytes of data every day. To make sense of all
this information, the retail giant is currently working on the largest private cloud solution, which
would be able to process 2.5 petabytes of data per hour. The company is actively using customer
data to personalize the shopping experience, offer more relevant offers, coupons, product
recommendations, and simplify checkout and payments. An example of Walmart’s use of Big Data
and social media is ‘Shopycat’, a Facebook app developed by @WalmartLabs that helps customers
discover suitable gifts for their friends and family. Another example of Walmart’s intelligent use of
data is its ‘Polaris’ search engine, which powers its website and mobile apps. Walmart is employing
analytics not just to enhance the customer experience but also to make better decisions in managing
swathes of inventory.

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 Fig 1: Profitability of Wal-Mart and Competitors: (ROIC %) (1994-2008)

Table 1: Profitability of Wal-Mart and Competitors: (ROIC %) (2009-2020)

Table 2: Top Global Retailers 2021 (Based on their operations at the start of 2021 Hence revenue fig is of 2021)

Analysing Wal Mart competitive advantage using VRIO/VRIN framework:

Walmart Inc.’s global supply chain and operations management expertise are strategic resources in
its value chain to keep competitive advantages in the international retail industry. Such competitive
advantages are identified in this VRIO and VRIN analysis and value chain analysis of the company,
within the resource-based view (RBV). VRIN, which stands for “Valuable, Rare, Inimitable and Non-
Substitutable” was a framework which was developed by Birger Wernerfelt in the 1984. He identified
four attributes that firm’s resources must possess to become a source of sustained competitive
advantage. According to him, the resources must be valuable, rare, imperfectly imitable, and non-
substitutable. (VRIN). Later it was modified by Barney, J. B. (1991) and named as VRIO VRIO analysis
stands for four questions that ask if a resource is: valuable? rare? costly to imitate? And is a firm
organized to capture the value of the resources?

Derived from Jay B. Barney’s framework, the VRIO analysis is a strategic management and strategic
planning tool to inform decision makers about the organizational resources and capabilities that

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support long-term competitive advantages. The VRIN framework uses non-substitutability (N in VRIN)
instead of organization (O in VRIO) in determining which resources and capabilities are core
competencies for sustained competitive advantages. This internal analysis of Walmart Inc.’s business
determines VRIN and VRIO competitive advantages against other retailers, such as Amazon, Costco,
Home Depot, and Target, as well as content delivery service providers, including Apple, Netflix, and
Google. Walmart’s value chain is analysed with regard to the firm’s core competencies. Some of these
core competencies are directed against competitors with major online operations. This strategic
focus addresses market shifts toward e-commerce. Walmart’s strategic objectives suit current
business conditions by exploiting the corporation’s competitive advantages for optimal value chain
and operational effectiveness.

Walmart Inc. VRIO & VRIN Analysis, Table (Resource-Based View)

Competitive advantages betters Walmart’s business performance. However, the company needs
additional competencies to protect its retail business against aggressive and disruptive competitors.
In this VRIN/VRIO analysis case, the following resources and capabilities are the basis for Walmart’s
sustainable competitive advantages or core competencies.

Non-core Competencies. As a retail business, Walmart Inc. has a workforce that generally does not
require highly specialized skills. Consequently, easy access to adequate human resources is a
competency considered in this VRIO/VRIN analysis. However, despite its value to the business, this
resource is not rare, is easily imitable, and does not contribute long-term competitive advantage to
fight Walmart’s competitors. Similarly, the company’s diverse products, set of private label brands,

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and package delivery network are organizational resources and capabilities that do not satisfy all the
requirements, namely Value, Rarity, Inimitability, and Organization (VRIO framework), and Value,
Rarity, Inimitability, and Non-substitutability (VRIN framework). These four resources/capabilities are
non-core competencies that help strengthen Walmart’s value chain and competitive advantages.
However, in the resource-based view, these non-core competencies cannot sustain such competitive
advantages for long-term business growth and development.

VRIO Core Competencies (Long-Term Competitive Advantages) of Walmart. This VRIO analysis
includes the company’s inventory management systems as a core competency for competitive
advantage. In the resource-based view, these systems are a strategic resource developed specifically
for Walmart Inc.’s needs, for minimized inventory bottlenecks and costs. These systems help the
retail business maximize its profit margins. In addition, Walmart’s strong brand value is a core
competency because it satisfies all of the VRIO variables. The brand is a valuable, rare, and difficult-
to-imitate resource. To compete against other retailers, Walmart’s organization uses this brand
throughout its operations, and applies it in the value chain to make it easy for consumers to identify
places (brick-and-mortar and online) where affordable goods are accessible.

Strong bargaining power based on organizational size is another sustainable competitive advantage
that helps Walmart fend off aggressive competitors. The resource-based view of the company
considers this organizational capability as an enabler of the company in using cost leadership and low
prices to compete, especially against smaller retailers that do not have the sales volume to compete
based on price. This core competency empowers Walmart to compel manufacturers or suppliers to
apply price reduction, which adds value as the goods move through the company’s value chain.
According to the VRIO table, the company’s strong bargaining power is valuable, rare, and difficult to
imitate. Organized around this core competency, Walmart requires manufacturers and suppliers to
have low prices to benefit consumers and the business.

In addition, Walmart’s vast international supply chain is an organizational resource that creates
sustainable competitive advantage, based on the VRIO analysis model. The supply chain supports the
size of the company’s operations, the cost-leadership strategy, and low pricing, thereby ensuring an
effective value chain. In the resource-based view of Walmart’s retail business, the supply chain is a
long-term competitive advantage because it allows the company to access the cheapest or most
competitively priced goods from manufacturers. Effective supply chain management directly
contributes to Walmart’s value chain effectiveness that attracts buyers to its stores and e-commerce
website.

In the VRIO framework, major e-commerce operations are viewed as a sustained competitive
advantage of Walmart Inc. Now an e-commerce player, partly as a strategic response to Amazon.com
Inc., Walmart’s investments in information technology and its high variety of product offerings
contribute to competitiveness. This core competency is valuable (reinforces market reach and
improves customer experience), rare (only a few firms can match e-commerce operations of this
scale), and difficult to imitate (among smaller retailers). The company’s organization around this

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competency makes e-commerce operations a sustainable competitive advantage. In the resource-
based view of Walmart Inc., e-commerce operations also optimize retail value chain efficiencies.

Extensive access to consumer data is another core competency evaluated in this VRIO analysis of
Walmart Inc. The millions of consumers in the company’s multinational operations generate vast
amounts of data about purchase behaviours. Through this organizational resource, Walmart
forecasts fluctuations in demand, allowing managers to accurately respond to retail market changes,
thereby maintaining value chain consistency. In relation, the data analytics and data mining
capabilities included in this VRIO analysis empower Walmart to obtain high-value information from
consumer data. The company is organized around using its consumer data resource, data analytics
and data mining capabilities, and e-commerce operations. The combination of these technological
capabilities creates synergistic and sustainable competitive advantage that is valuable, rare, and
inimitable. In the resource-based view of Walmart’s operations, these strategic capabilities and
resources are critical success factors in satisfying consumers’ needs. These technological capabilities
contribute to Walmart’s operational effectiveness and ensure that the company’s value chain
actually benefits consumers.

VRIN Resources and Capabilities of Walmart Inc. The VRIN framework requires that an
organizational resource or capability must be valuable, rare, imperfectly imitable, and non-
substitutable for it to be a core competency of the business organization. Walmart’s VRIO core
competencies are also VRIN core competencies, as presented in the table above. For example, the
company’s inventory management systems and e-commerce operations are non-substitutable in a
practical way. Also, extensive access to Walmart’s consumer data and data analytics and data mining
capabilities are VRIN resources and capabilities because their value cannot be easily matched with
non-big-data substitutes. The company’s organizational size is another core competency under the
VRIN analysis framework. Even though competitors like Amazon and Target are able to directly
compete, Walmart Inc.’s size is a competitive advantage against the vast majority of retailers that are
smaller in organizational size, operational scale, and market reach. The company’s value chain is
optimized through these VRIN resources and capabilities.

Analysis Questions:
1) Analyse the Global Retail market with specific reference to Wal Mart and its competitors (You may use
PESTLE/PORTER analysis)
2) Discuss the activities of Wal Mart which have resulted in value creation. (Was it a blue ocean strategy? If yes,
which of the 6 paths/principles of value creation BOS was applied? How value creation was done through The
ERRC grid: (What was eliminated, raised, reduced created).
3) Analyse the strategies/activities that provided competitive advantage to Walmart in initial years and how Wal
Mart has used Digital Transformation and Business analytics strategies to help sustain the competitive
advantage? (Use VRIO/N model for the same).
4) Discuss the value chain for any one competency/activity and analyse how it provides competitive advantage to
the company?

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References/Useful Links:
• https://notesmatic.com/strategic-analysis-of-walmart/
• https://www.boldbusiness.com/digital/walmart-innovation-strategy/
• https://www.forbes.com/sites/pamdanziger/2018/10/22/walmart-doubles-down-on-its-transformation-into-
a-technology-company/#3ac88920404c
• https://digital.hbs.edu/platform-digit/submission/walmart-blurring-the-lines-between-digital-and-physical/
• https://cloudwars.co/inside-walmart-digital-transformation/
• https://www.retailcustomerexperience.com/articles/an-insiders-view-of-walmarts-digital-transformation/
• https://www.altexsoft.com/blog/business/digital-transformation-stories-how-starbucks-ikea-walmart-and-
sephora-revolutionize-retail-industry/
• https://notesmatic.com/2020/10/digital-transformation-at-walmart-a-case-study/
• https://oosga.com/en/thinking/digital-transformation-of-the-retail-giant-walmart/
• https://www.altexsoft.com/blog/business/digital-transformation-stories-how-starbucks-ikea-walmart-and-
sephora-revolutionize-retail-industry/

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