Highlights in Business, Economics and Management EDMS 2023

Volume 23 (2023)

Walmart's Business Strategy and Financial Analysis Based on

Porter's Five Forces Analysis Model and SWOT
Huaiyu Miao *
Department of economic and management, China University of Petroleum, Beijing, Beijing,
102249, China
* Corresponding author: 2020012026@student.cup.edu.cn
Abstract. As one of the world's largest retailers, Walmart holds a crucial position in the retail industry.
This article conducts an analysis of Walmart's operational performance to gain an in-depth
understanding of its competitive position in the global retail market and identify potential growth
opportunities and challenges. Focusing on industry analysis, company strategy, and comprehensive
financial performance analysis of Walmart, the study employs SWOT analysis, value chain analysis,
and Porter's Five Forces model to dissect Walmart's strategic and asset composition changes,
shedding light on its profitability. While Walmart has consistently experienced revenue growth, it
faces challenges in maintaining profitability. The debt-to-equity ratio displays a positive trend,
indicating a balanced capital structure. However, the liquidity ratio has slightly decreased, warranting
attention. The article recommends optimizing inventory management, strengthening digital
marketing efforts, and prudently managing long-term debt to enhance Walmart's financial
performance and competitive advantage. This article conducts a study of Walmart's operational
performance within the retail industry, aiming to provide insights and support for investors and
decision-makers in making strategic choices.
Keywords: Walmart, supply chain management, strategic outlook, digital marketing.

1. Introduction
The retail industry is characterized by fierce competition and ever-changing consumer preferences
and market conditions. As one of the world's largest retailers, Walmart plays a crucial role in shaping
the industry landscape. Founded by Sam Walton in 1962, Walmart has grown into a global retail giant,
serving millions of customers daily across various formats, including supercenters, discount stores,
and e-commerce platforms. With a presence in numerous countries, Walmart's scale and influence
have significantly reshaped the global retail industry.
The objectives of this study are to examine Walmart's operational status, with a particular focus
on industry analysis, company strategy, and financial performance. Additionally, it aims to delve into
the challenges the company faces and provide recommendations to maintain competitiveness in the
ever-evolving retail landscape.

2. Basic Description of Walmart

2.1. Firm Introduction
Walmart is the world's largest retail giant, headquartered in the United States and founded in 1962.
Renowned for its "Everyday Low Price" philosophy, it operates over 11,000 stores across 23 countries,
offering diverse retail formats such as supermarkets, department stores, warehouse clubs, and e-
commerce. Walmart distinguishes itself with its vast scale, efficient supply chain, and private label
products, attracting a wide consumer base by providing high-quality, affordable goods. The company
actively invests in e-commerce, boasting a robust online sales platform for customer convenience.
Furthermore, Walmart has made significant strides in sustainability and social responsibility,
committing to reducing environmental impact, supporting community development, and enhancing
the sustainability of its global supply chain. As a leader in the retail industry, Walmart continues to
innovate and shape the future of retail on a global scale.

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2.2. Walmart's Core Strategy

Walmart's core strategy aligns with a cost leadership approach, making it a dominant force in the
retail industry. The company's relentless pursuit of operational efficiency, economies of scale, and
low prices has allowed it to cater to a broad customer base while maintaining profitability. Through
its massive scale, efficient supply chain, private label brands, and technology investments, Walmart
consistently offers products at competitive prices. This strategy is encapsulated in its "Everyday Low
Prices" (EDLP) approach, ensuring that consumers can count on affordable options without the need
for constant sales and discounts.
While cost leadership is central to Walmart's success, the company also incorporates elements of
differentiation and focus. Differentiation strategy involves offering products and services that stand
out as exceptionally unique within the same industry, thus elevating competitiveness[1]. Walmart
owns multiple private labels and is renowned for its "Everyday Low Price" promise. These brands
offer high-quality yet affordable products, attracting price-sensitive customers, which is one of the
key reasons for Walmart's prominence in the retail industry. In addition to this, Walmart has
introduced the "Buy Online, Pick Up in Store" (BOPUS) service, allowing customers to place orders
online and then pick up their items at the nearest Walmart store. This service combines the
convenience of online shopping with real-time in-store inventory, delivering a unique shopping
experience to customers. Walmart's multifaceted strategy combines cost leadership, differentiation,
and focus to maintain its position as a retail giant.
2.3. Value Chain Analysis
Walmart provides a diverse range of products and services to its customers through a value chain
system. This section analyzes Walmart's value chain from two perspectives: supportive activities and
primary activities. Supportive activities are typically not directly related to product manufacturing or
service delivery but are crucial to overall operations. Primary activities involve direct engagement in
the manufacturing, delivery, and sale of products or services. The close connection between
supportive activities and primary activities ensures the coordination of the overall value chain of the
enterprise, helping the company identify its competitive advantages and disadvantages in the industry.
2.3.1. Supportive Activities
The supportive activities discussed in this article for Walmart include procurement and technology
development. These activities provide support for the primary activities.
1. Procurement
Walmart negotiates with suppliers to secure cost-effective product sourcing and promote
sustainability practices. This reduces procurement costs and advances sustainability goals.
2. Technology Development
The company continually invests in e-commerce technology, data analytics, and supply chain
automation to improve operational efficiency and enhance the customer experience. Walmart's
information management strategy is integrated throughout the entire value chain, using advanced
information technology as a means to focus on the flow of information, thereby driving the movement
of logistics and funds. Through the integration of global supply chain resources and worldwide
customer resources, it achieves the objectives of zero inventory, zero operational capital, and
providing customers with a seamless experience[2].
2.3.2. Primary Activities
The primary activities discussed in this article for Walmart include inbound logistics, operations,
outbound logistics, marketing and sales and service.
1. Inbound Logistics
Walmart collaborates with international suppliers from around the world to procure a wide range
of goods that are sold in its stores, clubs, and online platforms. In the procurement of goods, Walmart
adopts a strategy of partnering with local producers, particularly for products in the "fresh" category.

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These products are often sourced from producers located near the stores and clubs. This strategic
approach not only enhances the freshness of the products but also adds cost-effectiveness to the
supply chain.
2. Operations
Walmart's operational processes are finely tuned through effective automation systems, ensuring
cost-effective product storage and handling. Walmart continually expands its offering of pickup and
delivery services. As of January 31, 2023, Walmart International had over 2,900 pickup locations and
approximately 2,500 delivery locations. This combination of operational efficiency and pickup or
delivery services, in alignment with Walmart's omni-channel strategy, enables the company to operate
efficiently and cost-effectively, providing a convenient and seamless omni-channel shopping
experience.
3. Outbound Logistics
The outbound logistics phase involves the distribution of various products from Walmart's
warehouses to its numerous stores, clubs, and various sales channels, catering to its customers.
Walmart has expanded its presence in global markets, offering diverse shopping options, including
pickup and delivery services in countries like India, and leveraging digital transaction platforms such
as PhonePe. Additionally, Walmart has expanded its marketplace in Mexico and Canada, unlocking
fulfillment and advertising services. In China, Walmart's partnerships with JD.com and JD Daojia
continue to drive growth in e-commerce. This series of developments in outbound logistics and omni-
channel strategies enables Walmart to efficiently and swiftly deliver products to customers, meet
customer demands, provide high-quality customer service, and further enhance its competitive edge.
4. Marketing and Sales
Walmart employs robust marketing campaigns, customer loyalty programs, and data analytics to
execute personalized marketing strategies. This helps attract and retain customers, ultimately driving
sales. Walmart significantly reduces costs by coordinating internal logistics and sales activities, as
well as substituting various advertising and promotional activities, from the perspective of internal
linkages[3].
5. Service
Walmart has consistently strived to offer customers more choices and value to meet their evolving
needs. To achieve this, they continuously expand their service offerings, such as financial services,
automotive maintenance and repair, and online shopping and delivery. These diversified services not
only contribute to increasing Walmart's revenue but also strengthen its connection with customers,
enhancing the overall customer experience. By continually expanding its service portfolio, Walmart
remains committed to meeting the diverse needs of various customer segments, maintaining its
leadership position in the retail industry.

3. Industry Dynamics
3.1. Porter's Five Forces Analysis
3.1.1. Threat of New Entrants
In the retail industry, new entrants often face high capital requirements and complex market entry
barriers, which can mitigate the threat from existing competitors. Walmart, as a massive global retail
giant, enjoys significant economies of scale and supply chain advantages, making it challenging for
other companies to easily enter the market. Furthermore, Walmart's well-established presence in the
global retail market provides it with brand recognition and customer loyalty. Therefore, the threat of
new entrants is considered to be low.
3.1.2. Bargaining Power of Suppliers
In Walmart's value network, it is of vital importance to establish mutually beneficial relationships
with suppliers. Given Walmart's vast scale, it possesses the capability to seek alternative suppliers for
product manufacturing, thereby weakening supplier bargaining power during negotiations. Through

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a strategic partnership model, Walmart promptly shares information with suppliers and integrates
their technology, costs, and management into its own information systems, all while sharing store
data. This information sharing also enables suppliers to better forecast market demands, thus aligning
their offerings more effectively with Walmart's needs. Furthermore, for its private-label agricultural
products, Walmart has formed alliances with producers by leasing farmland and employing farmers,
promoting sustainable agriculture and supply chain stability[4]. This relationship results in relatively
lower bargaining power for suppliers but offers both parties the opportunity for long-term
collaboration and mutual development.
3.1.3. Bargaining Power of Buyers
With the rise of the new retail trend, leveraging the distinct advantages of both online and offline
realms and promoting their integration has become the norm in the new retail industry[5]. To increase
online traffic, Walmart joined the JD.com platform as an official flagship store[6]. Subsequently,
Walmart independently developed the Walmart app, which ensures a certain level of demand and has
gained a substantial user base[7].
Walmart has a vast customer base, but individual shoppers often have limited bargaining power,
primarily due to the unique characteristics of the retail industry. Firstly, the retail market typically
features numerous substitute products and services. If individual shoppers are dissatisfied with a
particular retailer's prices, they can easily find alternative retailers offering similar products, thereby
reducing the leverage for individual bargaining. Secondly, many retail products exhibit significant
similarities in terms of quality and features, making it challenging for individual shoppers to identify
substantial differences that would support effective price negotiations. Additionally, the rise of the
internet and e-commerce allows individual shoppers to quickly compare prices and product features
among different retailers, making it easier to find the lowest prices and diminishing the need for
individual bargaining at specific retailers. However, Walmart's overall customer base possesses
greater bargaining power because Walmart places a strong emphasis on meeting customer needs. This
enables Walmart to negotiate more favorable prices with suppliers and provide lower prices to
consumers.
3.1.4. Threat of Substitutes
In the retail industry, especially in the digital age, various substitutes exist. Some online retail
platforms like Amazon have attracted consumers with their extensive product selection and
convenient shopping experiences, intensifying competition. However, for certain product categories,
consumers still value the in-person shopping experience. For instance, when it comes to food and
fresh produce, consumers tend to prefer physically selecting items in brick-and-mortar stores, as they
can inspect the freshness and quality of products. Additionally, high-value items such as home decor
and furniture often require consumers to personally observe and compare products in physical stores
to ensure they meet their needs. Therefore, while some internet-based direct-to-consumer brands offer
high-quality shopping options in the new era, Walmart retains its significant scale and comprehensive
capabilities, positioning the threat of substitutes at a moderate level.
3.1.5. Competitive Rivalry
Walmart, as a leader in the retail industry, operates in a highly competitive landscape with
numerous competitors, including online giants like Amazon and major retailers such as Target. Price
wars and continuous innovation are commonplace in this industry. However, Walmart maintains a
competitive edge through a multifaceted approach. Its extensive network of physical stores attracts
consumers who prefer in-person shopping, particularly for high-value items like groceries, fresh
produce, and home goods. High supply chain efficiency helps sustain competitive pricing, allowing
Walmart to stand out in price competition. Furthermore, its diversified product portfolio spans various
categories, enhancing customer loyalty and appealing to a wide customer base. Despite competitive
pressures, Walmart remains a dominant force in the retail industry, thanks to its innovative marketing
strategies and solid market position.

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3.2. SWOT Analysis

SWOT analysis is a powerful tool for assessing an organization's internal and external environment.
This section conducts a SWOT analysis for Walmart to identify its strengths, weaknesses,
opportunities, and threats[8].
3.2.1. Strengths
Walmart has an extensive international presence, providing economies of scale. The company
offers a wide range of products, attracting a broad customer base. Walmart's supply chain
management is highly efficient, resulting in cost savings and competitive pricing. Walmart is a well-
recognized and trusted brand, enhancing customer loyalty. The company has made significant strides
in e-commerce, expanding its online presence and sales. Besides, Walmart has embraced
environmentally conscious marketing principles, actively reducing energy consumption in areas such
as water, electricity, and plastic bag usage. As a result, it has emerged as a globally renowned leader
in energy efficiency and environmental sustainability, thereby cultivating a highly favorable brand
image in the minds of consumers[9]. A strong brand image enhances customer loyalty. Customer
loyalty is more crucial for profit determination than market share: when customer loyalty increases
by 5 percentage points, the profit increase can range from 25% to 85%. This conclusion was reached
by American economists Reichheld and Sasser[10].
3.2.2. Weaknesses
As a large-scale company, Walmart has made strides in the field of e-commerce, but its core
revenue still predominantly relies on physical retail stores. The rise of online retail and e-commerce
has altered consumer shopping habits, exerting competitive pressure on brick-and-mortar sales.
Consequently, Walmart must continually innovate to provide a more enticing in-store shopping
experience for consumers and seamlessly integrate physical stores with online operations.
Additionally, Walmart operates in diverse international markets, necessitating adaptation to various
regulations, cultures, and economic conditions. Different countries and regions present distinct
regulatory landscapes, business environments, and culturally diverse backgrounds, influencing
consumer demands. Walmart must exhibit flexibility in response to this international market diversity,
implement localized strategies, and ensure compliance with local regulations and laws.
3.2.3. Opportunities
Walmart is presented with numerous growth opportunities. Firstly, the continuous expansion of
online retail offers Walmart a chance to bolster its digital presence. By leveraging its e-commerce
platform, the company can tap into the ever-growing online market, providing convenience and a
diverse product range. This strategic move aligns with evolving consumer preferences and enhances
Walmart's overall growth prospects. Furthermore, Walmart has the opportunity to expand its footprint
in emerging markets. These markets offer access to untapped consumer bases, and Walmart's global
brand recognition can attract customers in these regions. Entering emerging markets is in line with
Walmart's growth strategy and enables the exploration of new customer segments. Last but not least,
Walmart can tap into the increasing demand for sustainable and environmentally-friendly products.
Consumer preferences are shifting towards sustainability, presenting an opportunity for Walmart to
develop and promote eco-friendly products. Embracing sustainability aligns with prevailing
consumer trends and opens up new revenue streams for the company.
3.2.4. Threats
Intense competition from online giants like Amazon and other major retailers can potentially erode
Walmart's market share. These competitors boast vast online platforms and global influence, capable
of attracting consumers and providing an extensive product selection. Walmart needs to proactively
maintain and expand its market share to counter the impact of these rivals. Furthermore, economic
downturns may lead to reduced consumer spending, thereby affecting retail sales. Such as the
COVID-19 pandemic, can trigger disruptions in the supply chain. Therefore, Walmart needs to

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establish crisis management plans to ensure business continuity during economic uncertainties and
supply chain interruptions.

4. Financial Analysis
4.1. Balance Sheet Analysis
Table 1. A Portion of the Balance Sheet
Million Dollar 2023 2022 2021
Cash and cash equivalents 8,625 14,760 17,741
Inventories 56,576 56,511 44,949
Property and equipment, net 100,760 94.515 92,201
Long-term debt 34,649 34,864 41,194
Retained earnings 83,135 86,904 88,763

4.1.1. Asset Composition

Walmart's asset composition underwent significant changes from 2021 to 2023. Current assets
decreased by approximately 1.19 times. As shown in Table 1, this decline was primarily driven by a
reduction in cash and cash equivalents. Walmart's decrease in cash and cash equivalents suggests
potential plans for other investments or debt repayment. The relatively stable inventory levels with a
slight increase may be related to sales growth or supply chain challenges. The year-over-year increase
in net property and equipment indicates the company's investment in capital expenditures.
4.1.2. Liabilities and Equity
The maintenance of long-term debt at relatively stable levels may benefit from lower borrowing
costs. The declining retained earnings year by year require additional attention from Walmart to
ensure the maintenance of profitability and shareholder equity.
4.2. Income Statement Analysis
Table 2. A Portion of the Income Statement
Million Dollar 2023 2022 2021
Revenue Growth 611,289 572,754 559,151
Gross Profit Margin 23.48% 24.52% 24.31%
Operating Income Margin 3.34% 4.53% 4.03%
Net Profit Margin 1.85% 2.43% 2.45%

4.2.1. Revenue Growth

As shown in Table 2, Walmart experienced consistent revenue growth. This growth can be
attributed to the company's ability to adapt to changing consumer preferences, especially during the
COVID-19 pandemic, which accelerated e-commerce sales.
4.2.2. Profitability Margins
While revenue grew, profitability margins faced challenges. Gross profit margins decreased
slightly from 2021 to 2023, potentially due to competitive pricing or cost pressures in the supply
chain. Operating income margins followed a similar trend, suggesting challenges in controlling
operating expenses. The net profit margin also decreased, indicating that increased expenses impacted
profitability. These trends may be linked to Walmart's strategic investments in e-commerce and
logistics.

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4.3. Ratio Analysis

The debt-to-equity ratio decreased from 0.471 in 2021 to 0.431 in 2022 and further to 0.413 in
2023, indicating a shift towards a more balanced capital structure. Walmart's current ratio remained
above 1, indicating liquidity to meet short-term obligations. It decreased slightly from 0.97 in 2021
to 0.93 in 2022 and further to 0.82 in 2023.
The quick ratio showed a decrease but remained above 1, indicating liquidity even when excluding
inventory. It decreased from 0.49 in 2021 to 0.28 in 2022 and further to 0.21 in 2023. Walmart's
inventory turnover ratio improved from 8.27 in 2021 to 8.46 in 2022 and remained stable in 2023,
reflecting efficient inventory management.
The operating margin declined slightly, from 4.06% in 2021 to 4.57% in 2022 and further to 3.37%
in 2023, suggesting increased operational costs, possibly due to strategic investments. Walmart's
interest coverage ratio indicated its ability to comfortably cover interest expenses. It increased from
10.27 in 2021 to 14.13 in 2022 and remained stable in 2023.
In summary, Walmart has undergone significant financial changes in the past few years. Despite
revenue growth, the company faces challenges in maintaining profitability. To adapt to the evolving
market conditions, Walmart has implemented a series of measures to adjust its asset composition and
liability structure. Furthermore, the company continues to invest in critical areas such as e-commerce
and logistics. These efforts aim to sustain its competitiveness in the highly competitive retail industry.

5. Suggestions
Firstly, Walmart should further optimize its supply chain processes to reduce operational costs and
enhance efficiency. Utilizing advanced data analytics and predictive methods to improve inventory
management, ensuring timely product availability, reducing unsold inventory, and lowering inventory
costs. Walmart should also consider supply chain sustainability, including reducing carbon footprint
and plastic pollution. Collaborate with suppliers to implement sustainable procurement and packaging
strategies to meet environmental and sustainability standards, thereby enhancing brand reputation.
Secondly, Walmart should continue to invest in digital marketing, leveraging data analytics and
personalized strategies to attract and retain consumers. Providing a consistent brand experience across
various online platforms to expand its customer base. Tighten the integration between physical stores
and online platforms to offer a seamless shopping experience. For example, offering online ordering
with in-store pickup options to meet diverse consumer needs.
Lastly, Walmart is facing challenges such as declining profitability, liquidity issues, and a
continuous decrease in retained earnings. To address these issues, the company can optimize
operational costs to enhance profitability, closely monitor cash flow to meet short-term debt and
operational requirements, and consider debt refinancing or increasing cash reserves to strengthen
liquidity. In addition, Walmart should maintain its financial structure effectively by keeping relatively
low debt levels to reduce borrowing costs. Simultaneously, engage in strategic capital expenditures
to enhance competitiveness. Monitor cash flow closely to ensure sufficient liquidity for short-term
debt and operational needs. Consider debt refinancing to reduce financing costs and explore building
a more robust cash reserve.

6. Conclusion
This study indicates that Walmart demonstrates strong operational capabilities in areas such as
product pricing, logistics distribution, and procurement strategies. Its operational excellence is driven
by advantages in low-cost operations, large-scale procurement, a global sourcing system, and an
efficient logistics distribution network, all of which contribute significantly to its core
competitiveness. Firstly, the company must remain vigilant and address liquidity issues, optimize
inventory management to ensure Walmart's inventory turnover rate is maintained, and adapt to the
ever-changing market dynamics. Secondly, strengthening digital marketing strategies will be

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instrumental in attracting and retaining online customer segments, a crucial aspect in today's digital
era. Lastly, Walmart needs to prudently manage its long-term debt to maintain financial stability.
However, this study has some limitations. It relies on historical data, and market conditions can
change rapidly, as evidenced by the impact of the COVID-19 pandemic. Future research should
consider real-time data and delve deeper into specific factors influencing profitability and inventory
management.

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