While Walmart (WMT +2.88%) traces its roots back to the 1940s, it opened its first discount store in the early 1960s. The company clearly has done a lot of things to not only survive but thrive in the competitive retail environment that has seen many companies fold during that time. It is now the largest retailer in the world, with 240 million customers around the world visiting its stores and websites every week.
With the industry rapidly changing and formidable online competitors such as Amazon continuing to grab market share, can Walmart remain a dominant force?
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Low-cost operator
You would be hard pressed to find a retailer that does a better job than Walmart at containing costs. This includes using its size to control the prices it pays for merchandise. This commitment to keeping the lid on expenses is deeply ingrained into the company, going back to founder Sam Walton's days. Management refers to this as "everyday low costs."
Keeping costs down allows Walmart to pass these savings on to its customers, offering everyday low prices that are hard for competitors to match.
Last year was undoubtedly a difficult period for many people. However, shoppers turned to Walmart, attracted to its broad merchandise offerings and low prices. Its revenue for fiscal year 2021, ended Jan. 31, grew by 7.7% to $564.2 billion, excluding the effects from foreign currency translations. On this basis, Walmart's operating income was 10.6% higher year over year.
Keeping up with the times
Walmart is not merely a retailer with a large physical presence, either. It launched its first e-commerce sites in 2000 and continues to invest in technology. Its investments have improved the omnichannel experience, allowing customers to order their goods and receive them quickly via delivery or pickup in stores.
Last year, the company launched Walmart+, its own subscription service that offers gasoline discounts, a quicker checkout at stores, and free shipping. While it hasn't released subscriber data, initial reports indicate it has gotten off to a promising start.
Management is going to continue investing in technology to "...enhance a seamless, digital customer experience designed to deepen customer relationships and increase share of wallet, enabling the company to diversify the business model by growing related businesses with accretive margins such as marketplace, advertising, financial services, and data monetization," according to its fourth-quarter 2021 earnings release.
Along with other factors, this will depress earnings this year, with management forecasting adjusted operating income staying the same or increasing slightly versus last year. It also expects a low-single-digit percentage increase in sales.
However, these investments will allow Walmart to use its vast resources to continue expanding its reach and staying on top of its game. After all, it takes money to invest in the future and continue growing the business.
Walmart's success revolves around keeping costs down to offer everyday low prices rather than periodic promotions. The company also remains ahead of competitors by continuing to invest in the future, providing customers the ability to order and receive their orders quickly. While this isn't a deep secret, Walmart merely does it better than everyone else. That will keep the company's sales and profit growing over the long haul, rewarding shareholders.
