Cost Leadership: The Walmart Example

Let’s face it Walmart dominates many retail categories and competes against stores like Target and Kmart and Costco and Acme. Walmart’s overall strategy is cost leadership. Their concept is to attract the largest number of customers while providing the lowest-cost general merchandise. They have been effective in doing so as they have the cost advantage and they control their cost drivers and constantly seek efficiencies out of their supply chain.  Walmart works closely with suppliers who dominate the brands in their industry and who provide full lines of products for Walmarts stores. A large part of Walmart’s strategy is to meet with vendors and truly understand their vendors costs to learn how a vendor could cut down its costs in order to capture win-win relationships for both parties.

The company has grown by opening stores in smaller towns that surround a targeted metropolitan area and then saturating that are before they move into a new and saturates each territory. The chain has often put smaller retailers out of business when they enter a new market. In foreign markets, Walmart has done acquisition as well as store expansion and carries products that will match the tastes and preferences of the local buyers there.

Walmart is a company that experiments with different merchandise, changes displays, alters promotions, and shifts the store layout as well.  Instead of remaining stagnant Walmart met customer needs with four different retail
concepts including discount stores, Supercenters, Sam’s Clubs and Neighborhood markets.

Walmart is one of the fastest growing companies and also has a high-profit rate and great financials.

What can we learn from Walmart? Of course, that cost leadership is a driving force and Sam Walton’s guiding principles of low-cost leadership can be super effective if well executed.