Major Advantages And Disadvantages Of Walmart
Disadvantages of Walmart on the Market System
Thanks to its large stores, “everyday low prices,” and robust retail presence, Walmart has a reputation for being a force to be reckoned with. After starting small in rural Arkansas, the company became the world’s biggest retailer and grew into a global powerhouse. But like every e-commerce market, there are disadvantages of Walmart.
Walmart is the second-largest retailer in North America, just behind Amazon, but individuals joining Walmart as an online seller or store retailer may still encounter difficulties. During this blog post, we will look at Walmart’s retail competitors and the significant challenges and disadvantages of Walmart.
Let’s start discussing the impacts of Walmart over the rest of its competitors.
Walmart’s effect on the retail industry
A large company like Walmart (WMT) can significantly impact local businesses when it opens a location in the area, referred to as the Walmart Effect. Typically, Walmart’s effect resulted in smaller retailers going out of business and reduced competitors’ wages. There are several reasons local companies oppose Walmart stores opening in their areas.
What Are The Advantages And Disadvantages Of Walmart Over Market System?
Walmart requires suppliers to develop ways to make products more cost-effectively to procure products at lower prices. Wholesalers who choose to sell their products to Walmart may experience losses otherwise, which is certainly not something they want. As a result of Walmart’s exposure, services may be seen by consumers as attractive; however, the cost of distributing those services to consumers may be pushed back upon the supplier. The result can be that they seek out lower-cost methods of manufacturing their product, which can mean outsourcing operations overseas or using cheaper raw materials in the production process.
As well as its negative effects, the Walmart Effect can have positive impacts, including curbing inflation and maintaining employee productivity. A chain of stores can also reduce competition and wages in a market area while saving consumers billions of dollars. As seen from the Walmart Effect, competitors and suppliers are not the only ones affected.
Major Changes Observed with Walmart Effect
Walmart’s scale and scope are key factors driving the Walmart Effect. More than 4,700 company stores are located in the U.S., including almost 600 Sam’s Clubs. It is one of the largest employers in the country; this company can dictate its wholesalers’ pricing at a magnitude few other companies can match.
In contrast to other businesses in the markets it operates, Walmart can sell its merchandise at lower prices. In addition to direct effects on retail markets, this can have a ripple effect on manufacturing and production. Walmart traditionally sets its salaries and benefits according to its buying power, so rival companies may feel pressured to lower their wages or cut benefits as a result.
Consumers tend to avoid local retailers when a Walmart opens up due to lower prices, a greater concentration of products, and a more extensive selection of products. When foot traffic and sales decline, local retailers experience losses in profits, which forces them to make cost-cutting decisions. As Walmart continues to operate profitably while local retailers are losing money, these strategies may not be enough to keep such businesses open. The disadvantages of Walmart’s initial arrival may continue long after the store eventually relocates to a new location.
Target vs Walmart
While Amazon is undoubtedly Walmart’s biggest competitor, Target provides tough competition to Walmart in retail stores and physical locations in the United States and its surrounding territories. We will now discuss how Target affects Walmart’s competitive market and which customers prefer more.
Target has done its homework over the disadvantages of Walmart in the retail market. With its thousands of stores throughout the United States, Walmart is a dizzying presence. Target has fewer than 1,900 stores in the same geographic area as Walmart, with more than 4,800 stores of various sizes and styles. Although Target has fewer locations than some of its rivals, it is more prevalent in shopping experiences. Both stores provide excellent in-house brands, rock-bottom household essentials, and quick delivery for online orders. The difference between the two stores may be challenging to discern.
However, Walmart’s far superior online shopping interface balances out the cost of a better online shopping interface. Shoppers at Target experience a shopping experience that is miles beyond what they get from Walmart. Target’s aisles are more expansive, its shelves are less crowded, and its merchandise is similar to a department store. These details make the mall experience feel more elegant than a stroll through Walmart.
The lowest price may be found on household products, such as toilet paper, cleaning products, and bottled water. Which we will say their central plus point over the disadvantages of Walmart.
Shopping for national brands is not a problem. While many items from the store’s fashion and cosmetics departments are priced several percentage points higher than Walmart, other items are much more expensive. Shopping at Target is also attractive due to its return policy. “Target offers refunds and exchanges on the vast majority of new items sold by them and returned within 90 days”.
When it comes to major brands and household products, most people know they will get the best deal at Walmart. As a result, Walmart offers price matching similar to Target’s, but it’s better than Target if you add rollbacks.
When rolling back prices on popular items, such as shampoo and diapers, shoppers often save between 5 and 10 percent on Target. Customers stay loyal to Walmart because of these savings. Walmart customers generally don’t even need to make a trip to customer service to request a price match. The store monitors competitor prices and adjusts its prices accordingly to satisfy customers.
Walmart compensates for its lack of posh interiors with excellent prices and convenience in Walmart+. Additionally, Walmart is stepping up its style game through exclusive collaborations and signature brands. The return policy at Walmart is one of the best in the country, so you don’t have to worry about ordering the wrong size. Shoppers have up to 90 days to return items, the same as Target.
Choosing between Target and Walmart is a personal choice. Your shopping habits and the type of items you want to buy will influence your decision. Some disadvantages of Target and Walmart include less pay scale to employees compared to their profit margins, but that is to be considered if you are looking for a job in any of them.
Advantages and disadvantages of vertical integration versus outsourcing for Walmart
Vertical integration is one opportunity business owners should consider when expanding their businesses. Vertical integration involves the control of the supply chain by the company. Essentially, when a product was created in that industry, a company assumed control of several of the steps involved in making it. A company’s control over its supply chain is usually achieved through acquisitions or new segments. Vertical integration can include acquiring its upstream suppliers (backward vertical insertion), owning or acquiring its downstream distributors (forward vertical insertion) or doing both at the same time (complete vertical insertion).
Most of Walmart’s products are purchased from third-party sellers, a process is known as outsourcing. They do not know how raw materials are procured and are not involved in their production processes. The quality of Walmart’s products is not tested, and this will negatively affect customer experience if Walmart sells low-quality products.
The company can adopt vertical integration to gain more control over its business; however, this practice has some drawbacks. Let’s see whether outsourcing or vertical integration are better suited for the company.
Advantages of vertical integration
Vertical integration offers the most significant benefit of preventing supply disruptions; they may be unreliable when suppliers are poorly run. In addition, labour disputes and strikes can often impact suppliers. A monopoly supplier will also dictate terms to the company if that company relies heavily on that supplier. Vertically integrated companies can steer clear of suppliers with a lot of market power. Lower unit costs are another benefit of vertical integration. Bulk purchases are feasible for larger companies, and consolidating management can also reduce fixed costs.
Disadvantages of vertical integration
The cost of vertical integration and complexity make it a risky strategy; it can be costly to implement vertical integration. In many cases, capital investment and maintenance costs make it prohibitively expensive for companies to purchase or build factories or retail stores; a company’s ability to be nimble may also be compromised by the time and money required to maintain such operations.
Advantages of Outsourcing
Providing outsourcing services is a method of giving out different business operations to companies with specialized expertise. Services such as payroll, information technology, research and development, and customer service are examples of functions that companies might outsource.
The purpose of outsourcing is to reduce the costs of an organization’s operations or increase its operations’ efficiency. Outsourcing has the advantage that you can trust the outsourcing company to provide services that are expertly performed. The service would be performing below expectations if a company had to train staff to perform that same task.
Disadvantages of Outsourcing
Outsourcing has the apparent disadvantage of transferring control of some of your company’s management to another company. Likely, the company to which you outsource may not have the same standards as your business, as their primary concern will be profit. Unless you thoroughly read the contract, there may be hidden costs that aren’t immediately obvious. When a company decides to outsource, it would be wise to hire a lawyer to review (and perhaps amend) the contract clauses.
When you outsource certain documents to another company, there can also be a risk that confidentiality could be compromised. You risk exposing confidential company data if another company has access to payroll records, medical records, or any other documents containing proprietary data.
What is better outsourcing or vertical integration?
Outsourcing has gained some controversy in recent years; according to outsourcing opponents, it leads to job losses in the country. Some proponents of outsourcing maintain that it encourages companies to allocate resources to be most economically practical. Labour and capital resources are extremely expensive in industries where outsourcing makes sense. Vertical integration is difficult to accomplish, but a company like Walmart can undoubtedly afford it if that is something they want.
Competitive disadvantages of Walmart
The retailers who compete with Walmart have major advantages over Walmart in a variety of key areas in the market, despite Walmart’s reputation for low prices and a plentiful array of products. Below is Walmart’s list of competitive disadvantages, which can be improved to come on top of the competition.
- Profit margins are relatively low at the company.
Walmart’s profit margin is relatively low, considering the company’s impressive revenues and sales figures. Even with lower production prices initially, a retailer like Amazon offers such competitive prices to its customers that their relative profit margin is lower than that of other retailers.
- It is easy to duplicate its business model.
Even though Walmart has continued to be successful, it doesn’t appear to be pursuing any particularly unusual business model. Customers of all segments can purchase a variety of products from it for an affordable price. In addition to its diversity, Walmart offers hundreds of product segments, allowing any number of companies to specialize in one of them, often with better products at a lower price.
- The company faces significant disadvantages compared to premium retailers
Walmart wants to do everything at just an acceptable level, whereas premium retailers who focus on only one type of product can devote all their attention and resources to it.
- Employees are known to receive poor healthcare from the company.
Unfortunately, Walmart isn’t known to offer a quality healthcare plan, especially in today’s political climate. Compared to other popular options, employees pay high costs and receive poor benefits. It would help if you considered the major disadvantages of the Walmart job.
- The company’s hiring and HR practices have come under fire.
According to Walmart’s employees, the company offers low-wage and low-skill jobs. Retail positions at the company tend to be seen as minimum wage jobs, and it has also been accused of unfair hiring practices and wage deals.
What opportunities can Walmart exploit to overcome these weaknesses?
Walmart’s opportunities mostly revolve around its expansion and improved business practices. Global economic conditions provide Wal-Mart with these opportunities. Human resources are one of the areas in which the organization has the opportunity to improve, as well.
Walmart’s opportunities are as follows:
- The expansion of operations in developing countries
- Developing competitiveness in the labour market by improving human resource practices
- Enhancement of quality standards
Due to their high economic growth, Walmart has a good chance of expanding in developing countries. The criticisms of the company’s employment practices, on the other hand, are an opportunity for HR practices. Improved HR practices may potentially attract better employees than other retailers. Consumers are concerned about the health effects of using low-cost, low-quality products, which Walmart has an opportunity to address with quality improvement.
Additionally, the company must continue to expand to capitalize on economic opportunities in emerging markets. Walmart’s global size, global supply chain, and high efficiency of its supply chain make it ideally suited to carry out the aggressive international expansion. However, the company must develop new strategies to counter its weaknesses.
No doubt, Walmart is a retailer giant in North America and has a significant customer base in these areas. However, it still faces major internal challenges, and competition is increasing. Many known retailers have emerged in the market to challenge Walmart and cover Walmart’s potential disadvantages. Unless Walmart changes their business model and overcomes internal challenges, it will be taken over. We hope this article helps you understand the major disadvantages associated with Walmart.
Touseef Riaz is a technology analyst and provides optimal technology solutions for retail, e-commerce, and health care sectors. He also helps small to midsize e-commerce businesses and brands build a successful online marketplace strategy via technology.