Everybody knows Walmart. But did you know they were the #1 company in the Fortune 500?
Fans of the South Park cartoons will undoubtedly remember the episode where Walmart came to town. Capturing the hearts and imaginations of its residents, making them dependent on it. And metaphorically there’s some truth in the episode. Walmart is such an integral part of American life. The embodiment of the hyper store with all products imaginable. Where did this story start and how did it become such a global behemoth?
Sam Walton founded Walmart, who after the second world war, together with his wife worked in a variety store. Better known as the dollar stores. In 1950 Walton and his wife Helen moved to Bentonville where he opened up Walton’s 5&10. This was a perfectly timed moment because the world was heading in a different, more prosperous direction. The 50s were a period when the world was recovering from World War 2, which slung the world into chaos and despair in the decade before. The 1950s saw growth spurts in many different aspects of life.
In 1950 Walton and his wife Helen moved to Bentonville where he opened up Walton’s 5&10.
The economy was flourishing, the rise of the suburbs and the baby-boom generation was born. And the baby boom was not an exaggerated term either. During the 1950s, almost every year, about 4 million children were born. When the birth rate was returning to normal levels in 1964, a total of 77 million babies were born. At the same time, the suburbs were taking shape, where property developers began to buy large portions of land at the edges of cities. Economies of scale emerged through optimized building techniques, making housing more affordable. Subsidized mortgages became available for returning soldiers through the G.I. bill. Soldiers were now able to buy affordable, decently sized homes, creating a new potential consumer market. Having more room and a safe environment, meaning a safe place for children to grow up. During the war effort, women were to roll up their sleeves and help the nation. In the 1950s their role returned to the traditional model. They were to stay home, take care of the household, and become mothers.
When the first Walmart opened in Arkansas in 1962, America was prosperous. John F. Kennedy was president and the American government had its act together. The country was thriving. Walmart’s strategy focused on rural areas, staying away from established brands like Kmart and Sears. Staying out of sight from Kmart, back then called S.S. Kresge was a clever one from Walton. Kresge had already existed for a little over 60 years. When the first Walmart opened its doors, the president of Kresge, Harry B. Cunningham entered the large-scale discount market as well, by opening the first Kmart outside of Detroit in 1962. Cunningham struck gold and set an ambitious growth target of opening up 85 new Kmart locations every year in the United States and Canada.
Another company also saw the light of day in 1962, Target. But like with Kmart, its roots lie way before Walmart and its discount counterparts. George Draper Dayton founded Target in 1902 in Minneapolis, then called the Dayton Dry Goods company. Dayton partnered up with Goodfellow Dry Goods company, turning Dayton’s into the fourth largest department store in Minneapolis. Target launched as a discount spin-off from the Dayton department stores. Back then experts considered the move, as a risky bet, which might harm the strong position Dayton had in the department store market. What would be of Walmart today, if they had decided to take on the urban landscape as a small business? One can only guess.
Walton contributed Walmarts fast growth to competitive prices, which attracted large amounts of customers.
Five years after its opening the Walton’s owned 24 stores and had a sales revenue of $12.7 million. The company grew fast and 8 years later, it went public. Its initial public offering started at $16.50 per share. In 1971, the first Wal-Mart distribution center opened in Arkansas. One year later, the company owned 51 stores and was listed on the New York Stock exchange, growing its sales to $78 million dollars. Sevenfold from the revenue it reached in 1967.
Walton contributed Walmarts fast growth to competitive prices, which attracted large amounts of customers. An optimized shopping experience translated into happy customers that kept coming back. But we cannot understate the impact of the baby boom, which had spawned a whole new consumer generation. A consumer group that grew up in the suburb, experienced higher levels of wealth and saw the rise of the superstore. Superstores like Target, Sears, and Walmart. Gigantuous one-stop-shop discount heavens that catered to every possible consumer need.
In 1983 the company launched Sam’s Club warehouse concept and the Walmart Supercenter in 1988, reshaping the retail experience, realizing rapid growth to become one of the largest grocers in the United States.
But it’s wasn’t all smooth sailing. In 2016 Walmart sold its Chinese e-commerce marketplace to JD.com. Techcrunch noted that Walmart was facing tough competition from Alibaba and JD.com, which dominated the market. Three years later it decided to focus on its brick-and-mortar concept. Walmart announced it would expand in China with 500 new stores and remodeling its 200 plus retail locations in the country. With this move, Walmart will become the world’s largest grocery market by 2023.
Staying relevant in a digital world
Growth is hardly ever organic, despite many of some of the leading CEOs making it out to be. While this type of growth might be possible when a product catches on with the early adopters. There’s a moment when even those companies have to consider advertising. It happened to Tesla, where investors in 2020 voted on whether the company should embrace advertising. Inverse Danforth, wanted the company to build product and brand awareness.
And you might be thinking the same for Walmart, a name so well-known and integrated into society, it doesn’t need advertising. But to stay on top, you have to keep at it before competitors start to fill in that void. Walmart spent in the United States alone, a sum of $2.75 billion on advertising.
In 2020, the retail giant launched its first Super Bowl commercial. A 60-second feature with famous characters from popular TV shows and movies, like Buzz Lightyear from Toy Story, the Martians from Mars Attacks, Men in Black, and many more. The commercial featured the new pick-up service. Janey Whiteside, the Chief Customer Officer at Walmart said about the commercial showcasing their new service, ‘We’re excited to show tens of millions of viewers who tune into the Big Game how our Pickup service can reinvent their shopping experience and add much-needed time back into their day. It’s truly out-of-this-world convenient.’
One other reason Walmart is going hard on advertising is the competition it is experiencing from Amazon, the owner of Wholefoods, and global e-commerce goliath. The latter is taking up 50% of all e-commerce sales in the United States. But don’t presume that Walmart is a slouch when it comes to online sales and awaiting its demise.
In 2016 eCommerce company Jet was acquired by Walmart for $3.3 billion to mitigate the rise of Amazon. Jet will help inject technical know-how into Walmart and streamline its digital sales fulfillment. At the time of purchase, Jet had only been around for a year, but it was growing fast, adding 400,000 new monthly customers and reaching 25,000 daily orders. Jet fits the Walmart brand strategy as Jet uses a pricing algorithm to deliver lower prices.
On 7 June 2019, Walmart launched InHome Delivery. Walmart customers will be able to order their groceries, select a delivery day, and have it delivered to their doorstep. Walmart said about the InHome service, ‘The technology powering InHome Delivery combines the power of our store footprint, store associates and world-class fresh supply chain. Now we can serve customers not just in the last mile, but in the last 15 feet.’
A few days later, President and CEO of Walmart eCommerce in the US, Marc Lore posted an update on the eCommerce strategy of the company and focussing on its merger with Jet. Lore said, ‘Bringing together talent from Jet and Walmart into joint teams has created more opportunity for our business and our people. We’re now merging the rest of our Jet teams, including Retail, Marketing, Technology, Analytics, Product, and several others within Walmart.’ Further saying, ‘Jet continues to be a very valuable brand to us, and it is playing a specific role in helping Walmart reach urban customers.’
In May 2020, the company unified its Grocery and Walmart App, which according to Walmart makes it easier for customers to find their groceries, apparel, electronics, and other products in one place. E-commerce sales grew by 97% in the second fiscal year of 2020 in the United States. Sales reached $10 billion, which according to Geekwire, has surpassed the 11% mark of net sales in the US.
A.I. to the rescue
Advertising is just one part of the equation. Walmart has been looking for different technologies to keep up with changing consumer behavior, which is moving more and more into the digital realm. To test their tech, Walmart opened the IRL, the Intelligent Retail Lab, a downsized version of its megastores, where it only sells groceries in Levittown, New York. Camera’s track the products, optimizing restocking of shelves, and keeping track of the inventory. Walmart said about the technology in the retail establishment, ‘IRL is set up to gather information about what’s happening inside the store through an impressive array of sensors, cameras, and processors. All this hardware is connected by enough cabling to scale Mt. Everest five times and enough processing power to download three years’ worth of music (27,000 hours) each second.’
All the different technologies combined will streamline the workflow of the employees, who can allocate their efforts within the stores where they are needed most. The customer will not experience empty shelves, as they are monitored and restocked in real-time. The company is fully aware that just filling its stores with A.I. won’t solve all operations instantly. Its primary focus will therefore be gathering data and gaining insights for optimization.
Customers will experience a shop that is packed with technology. Walmart about the technology in the IRL, ‘As customers shop, they can interact with a number of educational displays. Small educational kiosks are interspersed throughout the store. A Welcome Center at the front end allows customers to dive deeper into technical specifications and common questions.’
Thrive to survive
A lot of the success of Walmart cannot be, as with many successful companies, pointed towards one single event. By staying away from the established brands like Target and KMart in the 60s, they were out of harm’s way during their formative years. The baby boom has helped Walmart spur the growth during the 70s with a new suburban consumer group rising up. Walmart could grow through them, creating customers for life with their experience driver retail formula.
While the retail apocalypse is in full swing with established names disappearing from the landscape, Walmart is growing. Despite the rise of Amazon, which is claiming up to 50% of the eCommerce revenues and with Wholefoods gaining a foothold in the retail industry as well. Walmart saw that eCommerce would be its salvation for the world of tomorrow. The fruits of their labor are starting to show, but it will take a lot more to keep pace with Amazon.