BUSI 4362 STRATEGIC MANAGEMENT
The Assignment builds on your understanding of Walmart’s strategy from earlier classes. It comprises three core Questions with each contributing ten marks toward the course mark total for each student in the group.Assignment Background – Context
You analysed in BUSI 4362 the type and sources of competitive advantage achieved by Walmart that have led it to success within the U.S. In 2019 Walmart remained the world’s largest company, with over $500 billion in annual revenue and operations around the world. Although it had mostly vanquished its rival discount retailers in the U.S., it was struggling to find the right growth strategy. Facing a mature U.S. market, Walmart leadership faced intense competition from dominant online retailer Amazon.
Walmart’s 2018 strategy aimed to integrate Walmart’s enormous brick and mortar footprint with its growing ecommerce business, e.g., through merchandise and grocery delivery and order online, pickup in store options. Walmart’s strategy included the acquisition of Jet.com (in 2016) as well as the acquisition of a number of other specialty eretailers (e.g., Shoes.com, Moosejaw, Bare Necessities) and digitally-native vertical brands that developed their own products and sold them directly to consumers, such as ModCloth, Bonobos, and Eloquii. As well as building its online marketplace, Walmart hoped to leverage its existing assets, such as its massive network of retail stores and thriving grocery business, in the fight against Amazon.
In such a competitive environment, how should Walmart respond to the reality that its traditional strengths no longer guaranteed robust growth? Who will win the battle in retailing between Amazon and Walmart? Could Walmart successfully compete against Amazon and other online retailers in areas such as grocery delivery, product selection, shipping costs, and delivery times? Which of the two alternatives is the low cost way for a retailer to get the following items into the home: traditional brick-and-mortar retailing (through a distribution center to a store where a customer picks it from the shelf and takes it home) vs. online retailing (from a fulfillment center via a logistics company direct to the customer home)?
- Best-selling book
- Four different blouses worth $100
- $100 of assorted perishable groceries
- A 70-inch flat screen television
While for many years Walmart dominated as the largest US retailer, Amazon and online retailing may pose a significant threat to Walmart. Even with more than a 40% share of the e-commerce market, Amazon continues to grow rapidly, with a market capitalization more than twice of Walmart. With its acquisition of Whole Foods, Amazon now owns over 450 physical stores. You will examine the battle between these two behemoths and ask what strategy Walmart should pursue going forward.
Analytically, the case concerns the differences among business models and the sources each requires to build long term competitive advantage (the VRISA sources of advantage); the economics of different modes of retailing which drive strategy and provide the underlying tradeoffs between the value propositions of different business models; the capabilities required to build out an omnichannel approach; the liabilities of incumbency; and ultimately, predicting the outcome of competition between business models which allows for a contrast with the threat Aldi poses to Walmart, and that between Netflix and Blockbuster.
Walmart won in the brick-and-mortar discount retail business by building overall scale with suppliers, and the optimal logistics operation to support physical stores with a distribution center within 150 miles of about 150 stores. This gives it the low-cost position in the sale of about 150,000 items that are immediately available in a store and explains the classic success of the company. Amazon invested huge sums in a very different business model and asset base. First, and most obvious, is the IT infrastructure and technology associated with online retailing. Just as important, is the investment in fulfillment centers that support the cost efficient distribution of individual items using third-party logistics providers – USPS, FedEx, and UPS – and which enables the retailing of hundreds of millions of items, many offered by third parties through the Amazon Marketplace.
When combined with product and consumer heterogeneity – differing preferences for how to shop for and get items into the home across different product categories, the two business models can be shown to have different advantages and disadvantages. Retailers face a choice between optimizing among low cost, delivery speed and product range. While they can construct a business model that delivers on two of these dimensions, there is always a tradeoff with the third dimension.
Case Assignment Questions:
- Is Walmart or Amazon currently in the stronger position? In ten years? Why?
- Why did Walmart struggle in the online business for so long?
- What should Walmart do going forwards?