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Walmart’s Expansion into Specialty
Online Retailing
Overview
The original strategy of Walmart stores was to provide discount shopping in bricks-and-mortar stores in
small town, U.S.A. However, recent acquisitions by companies producing up-scale products and the
launch of an online business selling high-end mattresses and bedding suggest a change in strategy for
traditional bricks-and-mortar retailers. Experts in the field wonder if Walmart is attempting to gain recognition
from wealthy online shoppers or simply trying to keep up with Amazon and Alibaba and their dominance in
ecommerce.
Suggestions for Using the Case
This is a high-interest case because of Walmart’s ubiquity and brand recognition, and is one that will certainly
trigger lively classroom discussion. Students should be very interested in discussing the Walmart case, given the
current dynamic changes in industry leadership in both online and bricks-and-mortar retailing.
This case provides a unique opportunity for students to discuss Walmart’s attempts to reposition its generic
strategy given its resources, capabilities, core competencies and low cost leadership position within numerous
segmented markets. Students should develop an appreciation of the need for companies to tailor a strategy and
shore up their dynamic capabilities to contend with changes in industry structure.
This case is crafted for use across the entire business strategy module. It also contains sufficient financial and
operating information for students. The case is meant to illustrate the following concepts and frameworks and
provide students with ample opportunities to use the tools of analysis:
■ Perform a thorough financial analysis of a company and understand the contribution of different product
lines to a company’s success. The financial ratio summary presented in Table 4.1 of the text should
be a very valuable guide for students in doing the financial calculations to support their assessment of
case 15 teaching note
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The Walmart case could also pair well with the textbook material on how to evaluate a company’s potential for
diversification, covered in Chapter 8.
The assignment questions and teaching outline presented below reflect our thinking and suggestions about
how to conduct the class discussion and what aspects to emphasize.
To guide students in thinking about which analytical tools can be used to prepare the Walmart’s Expansion into
Specialty Online Retailing case for class discussion, we strongly recommend (1) providing class members with
a set of study questions and (2) insisting that they prepare good notes/answers to these questions.
Videos for Use with the Walmart’s Expansion into Specialty Online Retailing case. There are two
videos that you can show in class (or have students view on their own):
This case is suitable for both written and oral presentations, and because of its broad scope, works well as for
a midterm (or review for a final examination) writing exercise. Our recommended assignment questions are as
follows:
As part of your internship requirements with Walmart, you have been asked to prepare an analysis
of Walmart’s competitive position in the retail marketplace. Your report should contain 2–3 pages
of recommendations for sustaining the company’s success in bricks-and-mortar retail as well as
complementing its growing portfolio of online retail businesses, improving its financial position,
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Assignment Questions
1. Using the Five Generic Competitive Strategies Matrix, how would you evaluate Walmart’s original strategy?
(See Figure 5.1 in the text)
2. Using the Five Generic Competitive Strategies Matrix, how would you evaluate Walmart’s more recent,
emergent strategy? (See Figure 5.1 in the text)
3. What does a Five-Force analysis for Walmart reveal about its current position in the retail industry? What
moves are rivals making that could be considered threats to Walmart? Should Walmart be satisfied with its
current position?
Teaching Outline and Analysis
1. Using the Five Generic Competitive Strategies Matrix, how would you evaluate Walmart’s
original strategy? (See Figure 5.1 in the text)
Walmart stores were located in broad markets and appealed to a large segment of the population at home
and globally.
Walmart was able to maintain low cost leadership (and pass savings on to its customers) by carefully
negotiating lower costs for the products they purchased by eliminating some of the middlemen in the
value chain, purchasing in large quantities, hiring nonunion workers, and investing in state-of-the art
distribution and inventory management systems.
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Figure 1. Matrix of Five Generic Competitive Strategies
Presence in a Broad
Range of Market
Segments
Broad
Low-Cost
Provider
Strategy
Broad
Differentiation
Strategy
Source: Adapted from Figure 5.1 in the textbook.
2. Using the Five Generic Competitive Strategies Matrix, how would you evaluate Walmart’s
more recent, emergent strategy? (See Figure 5.1 in the text)
In the aftermath of its acquisitions of a number of online retailers selling upscale products, Walmart
appears to be evolving slowly away from its original Low-Cost Provider Strategy.
Walmart is now attempting to appeal to a market segment that is willing to purchase high-end products
at a premium price.
3. What does a Five-Force analysis for Walmart reveal about its current position in the retail
industry? What moves are rivals making that could be considered threats to Walmart?
Should Walmart be satisfied with its current position?
As discussed in the previous question, Walmart’s original generic strategy of Low-Cost Leadership appears
to have evolved into a Best-Cost Provider Strategy at least for the high-end online stores it has purchased
from 2015 to 2018.
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TABLE 1: Using the Five-Forces Analysis to Compare and Contrast Walmart’s Original And
Evolving Generic Strategies
RIVALRY
DETERMINANT
ORIGINAL LOW-COST PROVIDER
STRATEGY
EVOLVING BEST-COST PROVIDER
STRATEGY
Competitors
LOW THREAT—because history has
shown that brick & mortar stores
have an almost impossible task
of competing with Walmart’s low
prices.
POTENT THREAT—because upscale online
businesses may pose a threat to Walmart’s strategy
if their strategies are purer and not associated with
cheaper goods such as those sold by Walmart.
Substitute products
POTENT THREAT—because of the
entrance and domination of Amazon
products which can be purchased
more efficiently than in a brick and
mortar store.
LOW THREAT—since the newly-purchased
Walmart online stores carry upscale merchandise
sought by Millennials, it is doubtful that substitute
products from brick & mortar stores will threaten
their sales.
Potential new
entrants
LOW THREAT—because instead of
more brick & mortar stores being
opened to compete in the low end
of the market, a large number of
MODERATE THREAT—because of the growth of
online sales, it is possible that more upscale stores
will open on the internet and most will not be
associated with a discount store such as Walmart.
LOW THREAT—because Walmart
has refined the art of working with
LOW THREAT—because many upscale stores
have developed a strong base of suppliers such as
The most potent threats o the original Walmart LOW-COST PROVIDER strategy appears to be
SUBSTITUTE PRODUCTS sold online—and now in Whole Foods supermarkets and company-
owned retail outlets—by Amazon.
4. What does a financial ratio analysis reveal about Walmart’s current position? (Use the
financial ratios in the Appendix of the text as a guide in doing your financial analysis.)
Students should be able to use the financial information provided in case Exhibits 1 and 6, as well as
the financial ratios provided in the Financial Summary Table 4.1 (or the Appendix of the text) to make
calculations similar to those shown in Table 2, “Selected Financial Statistics and Ratios for Walmart, 2015–
2017.”
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TABLE 2: Selected Financial Statistics and Ratios for Walmart, 2015–2017
2017 2016 2015
Profitability
Gross margin (%) 24.9% 24.6% 24.3%
Operating margin (%) 4.7% 5.0% 5.6%
Operating return on assets (%) 11.4% 12.1%
Return on assets (ROA) (%) 7.2% 7.6 %
Activity
Total asset turnover (x) 2.4 2.4
COGS: Inventory (x) 8.4 8.1
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5. Evaluate Walmart’s recent moves to acquire businesses.
This is a good moment in the discussion to review the concept of horizontal scope, which refers to the range
of product and service segments that a firm like Walmart serves for global markets, which are considerable
due to its presence in nearly every region in the world.
According to the text, increasing a company’s horizontal scope can strengthen its business and increase its
profitability in five ways:
(1) by improving the efficiency of its operations,
(2) by heightening its product differentiation,
TABLE 3: Appraising Walmart’s Horizontal Diversification Strategies
Strategic intent Plusses Minuses
Leverage global scale economies to
improve efficiency
Reduced transport costs, increased
effectiveness of boutiques &
Highly dependent on favorable
balances of trade, exchange rates,
Heighten product differentiation via
integrity & quality & association with
proven Internet retailers
Perceived exclusivity at value
prices is fundamental to a best-
cost provider strategy as well as to
Unclear if Walmart’s culture & values
will be shared & implemented by
top management of subsidiary
or Brazil
Among the justifications for Walmart to grow horizontally via acquisition are:
Mergers and acquisitions often have to do with the consolidation of channels:
• a prominent example of channel consolidation is Amazon’s purchase of the brick and mortar Whole
Foods Markets chain to achieve a presence outside the internet
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Other motivations are often focused on broadening the scope of operations of a company:
Acquisitions of companies in other countries, as opposed to investing in a greenfield startup, is often a
way for a company such as Walmart to quickly and efficiently achieve a presence in another country
There are probably two plausible reasons that Walmart has engaged in its recent strategy of acquiring
companies selling upscale products on the internet and targeting Millennials
• The first reason is to widen their appeal to a different segment of the population.
6. Based your evaluations, what it would take for Walmart to compete successfully in the
retailing industry in 2018 and beyond?
There is always the risk that Walmart may find that it cannot manage all of its brands, much less maintain
its lowest cost provider status in bricks-and-mortar retailing forever, as Amazon represents a still-distant but
nonetheless potent threat to that position.
Millennial tastes in online and “boutique” value brands can and will wax and wane over time. Consumer
sentiment can affect sales since ultimately, many discretionary goods are not necessities. Furthermore,
We believe that global expansion, renovation of existing retail outlets, and increases in cost savings that
go with innovations in distribution, inventory management, and the customer experience will continue
to be the key growth drivers for Walmart
Selective acquisitions may be required down the road in order to sustain growth and free cash flow and
stave off the onslaught of Amazon
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Should Walmart’s increasing asset utilization and higher gross margins remain a trend, and if the
company can pare its operating expenses, the company may be in a good position to:
• Increase dividends for investors
Epilogue