According to Farfan, Walmart Inc. is a multinational retail corporation, it was founded by Sam Walton in Arkansas in 1962. Wal-Mart was established in rural areas, in order to avoid competition with larger retailers such as Sears (Farfan). Throughout its history Wal-Mart has been creating new retail formats, such as the creation of Sam’s Club discount warehouses in 1983 and Wal-Mart Supercenters in the late 1980s (Hyde 2018). Wal-Mart Supercenters have become one of the biggest grocers in the United States. Wal-Mart’s success story is due to its efficiency and cost effectiveness within the retail industry. By focusing on customers through direct mail advertisements, providing low-cost products and running an efficient distribution network, Wal-Mart was able to emerge as the leader of the retail industry in the United States (Farfan). In the early 1990s Wal-Mart launched its first international store in Mexico. The successful growth in Mexico allowed the corporation to rapidly expand its presence in the international market by opening stores in Canada, Germany, UK and China (Hyde 2018).
It is essential to understand the strategy behind Walmart’s success, to grasp such an understanding one has to study the history of the corporation. Sam Walton opened his first store in 1950, known as five-and-dime store (Britannica 2018). This business model was primarily built on one principle, that is, to provide customers with low prices. However, selling at a low price would put the business at a disadvantage, as competitors wield larger profit margins. Therefore, Walton’s strategy was focused on the volume of the sales, he realized that he could generate larger profit margins by offering products at a convenient price, in order to reach to more customers. Walton believed that through time the volume of sales would reach to a certain point that permits economies of scale, which refers to a reduction in cost per unit due to an increase in the total output of a given product (Kenton 2018). In essence reaching an economy of scale would provide the corporation with bargaining power that would in return enable it to reestablish the supply sector and retail industry in a way that would eventually fit Walmart’s own schemes.
Walmart’s current strategy remains consistent with its original model, Walmart still sell its products at a low price. This consistency regarding to low prices is based on the gigantic volume of sales, this is mainly due to the large customer base and the wide spread operations. Furthermore, Walmart runs an effective supply chain management system this results in maximum efficiency and reduces expenditures. Walmart’s supply chain is extremely technologically advanced, Walmart was among the few major corporations who early on electronically attached detailed information to their products (Hyde 2018). This electronically attached information comes in the form of barcodes or radio frequency identification technology (RFID). Such information is vital to the database, as it informs the inventory management system of the products in demand, as well as the quantity in demand (Hyde 2018). Another key changing factor that relates to inventory management was the shift in responsibility of the inventories from Walmart to its suppliers. This created a unique system known as vendor management inventory system, this system created a smooth flow of inventory, as it allowed the suppliers to directly operate in Walmart’s warehouses to ensure the availability of the products in demand (Farfan). This new system resulted in cost cuts, to which Walmart capitalized on by further lowering prices in its stores. Another key effective supply chain strategy is the positioning of the distribution centers within a range of 130 miles of stores (Hyde 2018). This geographically calculated equation meant that products would not have to be stored in warehouses for a long period, and thus it reduced costs in both inventory storage and transportation. Additionally, Walmart have been successful at minimizing non-labor and operational costs.
Finally, its bargaining power provides a leverage, to which Walmart utilizes to pressure suppliers into lowering prices. It is worth noting that many manufacturing suppliers rely on Walmart for over 20% of their revenues, this is reasonably due to Walmart’s status as the largest retailer of most consumer goods (Kenton 2018). Walmart uses this power to ensure that manufacturers keep prices low, this has led many factories to cut their own costs, through layoffs, changes in manufacturing processes and offshoring certain sectors of the manufacturing line to foreign countries with cheaper labor. An example that would illustrate this strategy can be seen in Walmart’s handling of the Lakewood Engineering & Manufacturing Company. Lakewood is a fan manufacturer located in Chicago, in the 1990s Lakewood sold a 20-inch fan at $20 (Kenton 2018). Due to pressure by Walmart which threatened to drop the company’s product from its stores, Lakewood decided to automate its production process. As a result, Lakewood laid off workers, renegotiated deals with its parts suppliers and opened a manufacturing plant in China. By the early 2000s the price of the dropped to $10 (Kenton 2018).
Today Wal-Mart operates 3,029 supercenter, 611 Sam’s Clubs, 629 discount stores and 210 neighborhood markets in the U.S. (Britannica 2018). Additionally, Walmart acquires 5,651 international stores, mostly located in Latin America, Canada and U.K. Walmart is considered to be the largest retailer in the world, in fiscal year 2018 Walmart generated $500 billion in revenue (Hyde 2018). Walmart cash registers conduct around 200 million transactions per week, or around 10 billion transactions a year (Hyde 2018). Furthermore, Walmart employs approximately 2 million associates worldwide, over a million of these reside within the United States. Walmart’s (Farfan).
Economic indicators are of great benefit to corporations such as Walmart, they allow businesses to analyze economic performance and predict future performances. By doing so, corporations can effectively generate vital decisions to help boost their profits during times of prosperity or help in minimizing financial damages during times of economic downturns. Two economic indicators that ar