Price is the success factor for Wal-Mart

Wal-Mart: Price

Sam Walton went to work for the JC Penney company for $75 per month after graduating from college. After bouncing around the Midwest from retail job to retail job, he bought a small store in Bentonville, Arkansas, and opened Walton’s 5 & 10. By the end of his life in 1992, Wal-Mart would be the world’s largest retailer.

Single-minded focus on low prices

How did a simple man with vision go from being a low-level retail employee to one of the wealthiest and most successful men in the world? By keeping a very single-minded focus on offering the lowest prices in every category he sold. The result? Approximately 80% of disposable diapers sold in the US go through Wal-Mart. About 60% of shampoo and conditioners are sold through Wal-Mart. Quite simply, Walton kept prices low and customers rewarded him with their loyalty.

     But how could Wal-Mart sell for less than their competitors at K-Mart and Target stores? Location. While other stores were locating in the centre of large cities, Sam Walton built his stores out in the country between two small towns. The land was cheaper and his Wal-Mart stores could draw customers from both small towns. The result? Walton had as many or more potential customers and did so at a much lower cost than his competitors. Those savings were passed along to customers in the form of some of the lowest prices offered anywhere. The result of this? Very few stores could successfully compete with Walton’s prices and all the family retailers that make up a small town began closing up as they lost their customers to Wal-Mart. 

      As scanners and UPC codes expanded, suddenly Wal-Mart controlled a tremendous amount of information about the sales of every brand they handled. They knew better than anyone exactly what was selling minute by minute, category by category. Soon, they were telling manufacturers how much they were willing to pay for products. Manufacturers were then left trying to fi gure out how they could make the goods for the price Wal-Mart were willing to pay. This spurred the growth of offshore manufacturing closing thousands of factories in the US and Europe in favour of shipping manufacturing to less expensive manufacturing countries such as India and China.

     Wal-Mart is a controversial company to say the least. It’s also stunningly successful. As Sam Walton famously said to his critics, if he wouldn’t have done this, someone else would have. For Wal-Mart it’s all about low prices.