Over the last few decades, Walmart has become the largest retailer in the world. Back in 1962, Sam Walton opened the first Walmart store in Arkansas. The cornerstone of the company’s strategy was delivering a diverse array of products at consistently low prices. With a keen eye on expansion, Walmart targeted the underserved rural regions of America. Today, Walmart operates over 10,000 stores worldwide.
Walmart is able to offer “everyday low prices” by focusing on the following:
- Economies of scale: Walmart leverages its immense purchasing power to secure bulk deals with suppliers, enabling them to extend significant cost savings to their customers.
- Supply chains: Using AI technology, Walmart has refined its supply chain operations to optimize inventory management and streamline product distribution.
- Variety of products: From groceries to appliances, Walmart boasts a diverse product range, establishing itself as a go-to destination for consumers seeking a wide array of goods. By selling higher-margin items like appliances, Walmart can balance out the sale of lower-margin products while ensuring profitability.
- Omnichannel Strategy: Walmart has recently enhanced its online shopping platform, enhancing customer convenience. Additionally, the company has expanded its advertising business, enabling suppliers to directly target consumers.
- Membership: Walmart offers a membership program designed to further incentivize customer loyalty. By participating in the program, customers gain access to exclusive benefits and capitalize on the company’s competitive pricing.
A few weeks ago, Walmart released their Q4 2024 results. Revenues increased 5.7% to $173bn for the quarter. While operating income increased by 30.45% to $7.3bn. Walmart, along with other retailers are operationally leveraged. If their revenue increases at a higher rate than their operating costs, their operating income grows at a higher rate than their revenue. The converse is true if their operating expenses grow at a higher rate than their revenue.
Walmart is held in the Lunar BCI Worldwide Flexible Fund. It is also held by Lunar Capital’s Offshore Portfolio clients
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This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.
