Licking Their wounds To Fight Another Day

Over the last few years Walmart has been under attack from Amazon losing vital market share in a highly competitive market place. Covid and lock downs has highlighted the importance of online and where retailers need to improve. Walmart looks as though they have pushed the panic button as continuing on this same path has no future.

It is not surprising to see Walmart off loading their investments overseas as they need to fix the problems at home. Today it was announced ASDA in the UK had been sold for £6.5billion and another chain in Japan was sold a while ago. I expect more of their businesses to also go the same way as I know their stake in South Africa has been performing poorly. The group recently appointed a new CEO from Singapore Walmart to come and steady the sinking ship.

When your business is under attack the first thing you do is regroup and fix the problem at hand. Selling off distractions and recouping investments that aren't living up to the desired results makes perfect sense. This gives you the ammunition and capital to invest to give you a fighting chance against your rival in this case being Amazon.

Every market around the world is different all with different challenges. The biggest one is distribution and the supply chain as using the same business model in America being the market leader is often not going to work as the business you have bought is far smaller leading to higher expenses for the same product.

In a normal world what they had done with their expansion plans in the 1990's and early 2000's was a smart move as all they did was use their current supply base and send that internationally feeding more outlets with the same products. The major problem is that 75% of their products are Chinese and lets be honest quality is a huge issue. I personally won't shop there anymore as everything just seems inferior and would rather pay more elsewhere.

Amazon have a huge advantage as Walmart hasn't changed how they have done business for so long leading to bad habits. It is easy once you know the formula to work backwards to see how much Walmart are paying for things and what the real cost of an item is. Amazon know exactly where to hit Walmart and on what products knowing they can't compete with them. One has bricks and mortar with so many extra costs that competing means you have to buy even cheaper items until those items are so inferior they are not worth selling.

What kills Walmart on the pricing is that when they buy an item they squeeze the supplier to the bare bones. They then work out shipping costs plus the supply chain total cost plus the hidden surcharge (rebate) which is guaranteed profit and then their mark up. When you look at the breakdown they have two built in profit margins which is not sustainable against another company that has cheaper operating costs. The rebate division at Walmart is their most profitable section in their head office as it is a hidden profit center. In the past they could get away with this but not with how business has changed with online.

Suppliers that used to supply Walmart are making better returns with less hassle supplying Amazon and where the priority now lies. Walmart used to have an iron grip like a dictator over their suppliers with unrealistic demands and payment terms which they have lost over the last 5-10 years. I know many who are doing far better now than they were before simply by moving to supplying online retailers like Amazon.

Walmart have a massive problem on their hands and as a group they need new ideas and to change their business model quickly. They need to embrace and work with suppliers and not just expect as this is a giant business that could disappear if they are not careful.

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