Key insights and practical lessons from the world’s largest retailer, promises the cover of Natalie Berg and Bryan Roberts’ new book, simply called Walmart. Selling at £29.99 (or £22.99 on Amazon), this book will represent fantastic value for local retailers who want to understand how their industry works.
The first Walmart was opened in rural America in 1952 by Sam Walton and its success was driven by his obsessions. Other books may tell the story with greater panache but Berg and Roberts capture the key moments with studied neutrality. They are both retail analysts.
The audience that the authors have in mind are the major global suppliers who want to be listed by Walmart. For them this is a handbook that explains how to work with Walmart and provides hints at what to expect.
“There is a difference between being tough and being obnoxious,” Claude Harris, Walmart’s first-ever buyer, says. “Every buyer has to be tough. That’s the job. You’re not negotiating for Walmart, you’re negotiating for the customer.”
Big suppliers soon learnt to work with Walmart to find common ground. Unlike European stores with big own label brands, Walmart likes to sell big brands but cheaper than everyone else.
For local shopkeepers, the focus on the customer is important to remember when you are buying. For Walmart, it assumed that its shoppers are interested in a) big brands and b) the lowest possible prices. What are your customers looking for? And do you think about this when buying stock and choosing your assortment?
While a Walmart superstore stocks 100,000 SKUs, the typical shopper only uses 340 a year! The problem Walmart found when it tried to cut its range was that it did not know which brands were the trip-drivers – brands that are not number one or two but which some shoppers will switch stores to find.
More important than buying power, however, is Walmart’s lead in logistics. When the store started out, its rural location meant it had to be its own wholesaler. It became very good at this and this remains its competitive advantage. Read about how it removes cost from the distribution chain and you can start to see why you need to share data with your wholesaler or cash and carry. Walmart invests the money saved in lower prices for shoppers and in its margins.
The company’s growth has been driven by the launch of supercentres – a format it copied from Europe – but which will reach saturation point in 2020. Hence, it is now investing in smaller format stores (think 15,000 square feet). These smaller stores need to be near the supercentres to work and the authors note that this cannibalises sales. The other big problem for the superstores is the internet. Amazon, for example, is cheaper and has a bigger range than Walmart.
But two final lessons from the book: Walmart got its name because it only needed seven letters and that would be cheaper than the alternative that had eleven letters. It worried about how much it would cost to put up each letter, light them and repair the neon.
And finally, from Sam Walton: “Say I bought an item for 80 cents. I found that by pricing it at $1 I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item but … the overall profit was much greater.”