Walmart is a juggernaut in the retail world, with a dominant position in the US and an expanding global presence. As the largest company in the world by revenue, Walmart‘s every move sends ripples through the industry. But the retail landscape is rapidly evolving and even giants like Walmart face significant challenges. In this article, we‘ll dive deep into Walmart‘s strengths, weaknesses, opportunities, and threats (SWOT) as of 2022.
As a retail industry analyst and a picky Walmart shopper myself, I‘ll share my insights on how the company is positioned for the future. Whether you‘re an investor, competitor, supplier, or just a curious consumer, understanding Walmart‘s SWOT is key to making sense of the retail sector. Let‘s get started!
Walmart‘s Towering Strengths
It‘s impossible to overstate just how massive and influential Walmart has become. The company‘s scale is simply staggering:
- $559 billion in annual revenue (fiscal 2021)
- 10,500 stores across 24 countries
- 2.3 million employees worldwide
- Over 100,000 suppliers in its global network
This unrivaled size allows Walmart to wield huge buying power and sell products at the lowest possible prices, which is the core of its business model. Walmart pressures suppliers to continuously find cost efficiencies and passes the savings on to shoppers. The result of this scale and obsession with costs is that Walmart has cemented its brand reputation as the price leader in almost every category.
Walmart‘s other key strength is operational excellence, particularly in supply chain logistics. The company has made major investments in technology to streamline the flow of goods from suppliers to shelves. Some examples:
- Using RFID tags to track inventory in real-time
- Pioneering cross-docking to minimize warehouse storage
- Automating stocking with shelf-scanning robots
- Optimizing delivery routes with machine learning
These innovations enable Walmart to restock efficiently and minimize out-of-stocks. Walmart also has an incredibly broad product assortment, carrying around 120,000 items in an average Supercenter. Customers can find everything from milk and shampoo to tires and diamond jewelry under one roof.
In recent years, Walmart has moved aggressively into e-commerce to complement its brick-and-mortar dominance. The 2016 acquisition of Jet.com for $3.3 billion, along with several other online retailer and technology startup purchases, beefed up Walmart‘s digital capabilities. Walmart.com now offers over 80 million SKUs and is the second most visited e-commerce site in the US after Amazon.com.
Walmart has also heavily promoted omnichannel shopping options like buy online, pickup in-store (BOPIS) and curbside delivery. These investments have paid off, with US e-commerce sales soaring 79% in fiscal 2021 to $64 billion. Walmart+ launched in late 2020 as a subscription service with free shipping and other perks to compete with Amazon Prime, attracting an estimated 32 million members in its first year.
Walmart‘s Potential Weaknesses
For all its strengths, Walmart has some glaring vulnerabilities as well. Perhaps the biggest is the razor-thin profit margin inherent to its deep discount business model. Even with its huge volumes, Walmart only achieves a 3-4% operating margin in most years:
Source: Walmart Annual Reports
This leaves little room for error and makes it hard for Walmart to raise wages, invest in stores, and fend off competitors while still pleasing shareholders. Rival retailers like Costco and Amazon have found ways to achieve much fatter margins.
Speaking of wages, Walmart has faced unrelenting criticism over how it treats workers. With a starting wage of $12/hour and an average of $14.76 across all positions as of fall 2020, Walmart lags competitors like Target and Amazon. While the company is investing nearly $1 billion in wage hikes in 2021, it still has a reputation for low pay and poor benefits, not to mention frequent labor law violations. According to Good Jobs First, Walmart has paid over $1.4 billion in fines and settlements related to wage theft, discrimination, safety issues and other improprieties over the years.
This stingy approach to compensation, along with irregular scheduling, contributes to notoriously high turnover. Pre-pandemic, Walmart‘s turnover rate was estimated around 44% for part-time workers and 70% for frontline managers. Constant churn saps store productivity and creates inconsistent service levels.
Walmart‘s sheer size and no-frills atmosphere are also turnoffs for some shoppers. While Walmart attracts value-conscious households by the millions, wealthier consumers tend to perceive it as downscale and avoid it. According to Kantar Retail, Walmart‘s shopper base has a median household income of $56,482, well below the US median of $68,703. Rival Target has done a better job cultivating an affordable chic image.
Internationally, Walmart has a huge footprint but still plays second fiddle to local retailers in many countries. In China, after 25 years and billions invested, Walmart has captured a mere 2.1% market share. It faces cutthroat competition from domestic giants like Alibaba and JD.com. In Brazil, where Walmart thought it could replicate its US success, the company has closed over 100 stores amid recession and operational missteps. Protectionist policies in India forced Walmart to pivot from running its own stores to taking a majority stake in homegrown e-commerce leader Flipkart.
A World of Opportunities
Despite these challenges, Walmart has plenty of avenues for future growth. Perhaps the most intriguing is its push into healthcare. Walmart already operates pharmacies, vision centers, and hearing clinics in thousands of stores. Now it‘s opening up primary care practices, with plans for 4,000 clinics by 2029. Combining the clinics with low-cost prescriptions, immunizations, and services like X-rays and lab testing could make Walmart a formidable player in the $4 trillion US healthcare market, especially in underserved rural areas where its stores are ubiquitous.
Walmart‘s successful partnership with Flipkart in India could be a model for entering other high-potential markets via acquisition. The company has struggled to gain traction in red-hot economies like Vietnam and Indonesia. Buying an established player with local market knowledge, as Walmart did with Flipkart, could accelerate international growth. On the product front, Walmart has room to expand higher-margin categories like apparel, home furnishings, and advertising. Its online marketplace also has tons of white space to add new sellers.
Within its core retail operations, Walmart continues to leverage cutting-edge technologies to improve efficiency and customer experience. Some examples:
- Using artificial intelligence to optimize prices, anticipate demand, and automate merchandising decisions
- Deploying autonomous floor scrubbers and shelf-scanning robots to handle repetitive tasks
- Expanding use of smart substitutions for out-of-stock items in pickup orders
- Testing drones and self-driving vehicles for delivery of groceries and general merchandise
Over the next decade, I expect to see Walmart roll out even more innovations like cashierless stores, personalized promotions, anticipatory shipping, and enhanced last-mile delivery. Walmart generates a staggering amount of customer data that can fuel this transformation.
Finally, Walmart has a big opportunity to boost its ESG credentials and appeal to younger, socially conscious shoppers. The company has set ambitious goals to reach zero emissions by 2040, transition to 100% renewable energy, and achieve zero waste in key markets. Increasing wages and benefits for frontline workers would go a long way as well. With its scale and influence over global supply chains, Walmart can drive major progress on sustainability and labor practices.
Lurking Threats
As the 800-pound gorilla in retail, Walmart has a huge target on its back. The most obvious threat is Amazon, which has been steadily eating into Walmart‘s market share for years. In 2021, Amazon‘s US retail sales grew 12.5% to $367 billion (including 3rd party sellers), while Walmart‘s US sales rose just 8.5% to $370 billion. Amazon is not only winning in e-commerce but expanding its brick-and-mortar footprint with Whole Foods, Amazon Fresh, and Go stores. As Amazon keeps innovating with new tech like Dash Carts, palm payments, and drone delivery, Walmart will have to run faster just to stay even.
Other competitors are chipping away at pieces of Walmart‘s business too. Deep discounters like Aldi and Dollar General attract the most budget-conscious shoppers. Costco locks in affluent customers with its membership model and keeps them coming back with high-quality store brands. Category killers like Best Buy, Home Depot, and Petco offer wider selection in their areas of focus. Walmart has to battle a multitude of focused rivals while maintaining a massive general merchandise operation.
Government regulation is another ever-present threat given Walmart‘s outsize impact on communities and markets. With over 1.6 million US employees, even small changes in labor laws or unionization rules could have a huge effect on costs. Walmart paid a $282 million fine for violating the Foreign Corrupt Practices Act and is under investigation for opioid dispensing practices. Any tightening of antitrust laws could limit Walmart‘s ability to acquire competitors, squeeze suppliers, or bundle services.
Geopolitical risks abound for a company of Walmart‘s global reach. China accounts for over 10% of its retail imports, so the ongoing trade war has led to higher tariffs. Worsening US-China tensions could further disrupt Walmart‘s supply chain. Economic instability in markets like Mexico and Chile, which together have more Walmart stores than any other country besides the US, could sap international sales. And nationalistic governments in places like India make it difficult for foreign companies to compete. Walmart must be prepared for challenges on many fronts.
The Bottom Line
All in all, Walmart is still a retail powerhouse with significant competitive advantages. Its unrivaled scale, supply chain mastery, and recent digital investments form a wide moat. But the company faces unrelenting pressure from Amazon, specialty retailers, and its own labor force. Thin margins leave little room for error in executing its everyday low price strategy.
To stay on top, Walmart must continue to find creative ways to monetize its valuable assets:
- 150+ million weekly shoppers and their data
- 5,000+ US stores within 10 miles of 90% of the population
- 210 distribution centers and 9,000 trucks enabling speedy restocking
- Globally recognized, price-focused brand
I believe Walmart‘s forays into high-potential markets like healthcare, advertising, and third-party e-commerce show the company still has avenues for growth. Success in India via Flipkart could inspire similar deals to juice international sales. Innovations in the supercenter format, like adding more pickup points, services, and third-party tenants, could keep stores productive. And responsible corporate citizenship on wages and sustainability could broaden Walmart‘s appeal.
Walmart may not be the most loved retailer, but its strengths cannot be denied. As a shareholder, I‘d like to see the company be even bolder in leveraging its assets for new revenue streams beyond traditional retail. As a shopper, I‘m excited to see how Walmart keeps evolving to save me time and money. What‘s certain is that with over half a trillion dollars in annual sales, Walmart will remain a major force in global commerce for years to come.
