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How to Drive Profitability at the World’s Largest Retailer

    

We’ve all heard war stories about the brand that went out of business from losing money on Walmart. The reputation for driving out product margin is nearly folklore, but it doesn’t have to be true! 

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The Every Day Low Price story is not just a tradition, it is a practice built into the day-to-day DNA of the company even today. If you want to reach profitable success at Walmart, you should be no less an expert in Sam Walton’s practices than your Walmart counterparts are.

Here are three insights to ensure you understand what’s expected to stay in the black with Walmart.

1: Make sure you clearly define with the retailer what success looks like for your business. 

Nearly 20 years ago I was a very junior, inexperienced sales manager at Procter & Gamble. Having delivered results for P&G at smaller grocery chains, I begged for my chance to work on the Walmart business. I was successful but stubborn. For my first presentation I built an elaborate plan to help my brand grow rapidly at Walmart. I got about two pages into my 20 page presentation when the Walmart merchant stopped me, pushed the presentation aside, and told me to do my homework on what was important to them before coming back. Not a career highlight!

I didn’t grasp the importance of understanding Walmart’s success criteria. In this case they wanted everyday low price, not fancy promotions. But it’s also critical to understand what success looks like for your company.

What does success mean to you and your company? For larger companies, this is an easier answer—typically it is to maximize value for the shareholders. If you run an entrepreneurial business, a partnership, or are in an emerging industry, the stakeholders who matter may not be traditional shareholders and your metric may be defined quite differently than a Fortune 500 company. In addition, there may be expected degrees of growth, industry trends or seasonality that impact your expectations for return.

Be sure to define your success metrics, understand how they impact your business strategy and communicate these details clearly to your Walmart partner. With clarity on your part, your Walmart partner can set the right standards and give your success plan the appropriate weight in the category.

For one of our Arena clients today, success is all about expanded regional store count. They are investing heavily in marketing efforts outside of store and need geographic density. For another, it’s profit pennies on every unit sold. Yet another’s success is defined as growing double the category growth rate. What does success look like for you?

 

2: Focus on every penny savings opportunity to deliver EDLP

Walmart didn’t come by its reputation for Every Day Low Price casually. There is a tradition and a rigorous process, both focused on keeping prices as low as possible. This strategy is fueled by something Walmart has in spades—immense scale and volume. Sam Walton traded slimmer margins for higher volume of sales, which generated economies of scale and ultimately a bargaining power that has changed the face of supply and retail around the world.

Penny saving may seem out of scale with the massive scope of Walmart’s global impact. Does a penny or two off the price really matter?  But this is the culture that Sam Walton established. Minimize operating costs at every turn. To match the Walmart culture, look at your own business and production process with the same tight focus and eye for optimizing operational costs.

If you can shave pennies at scale, it starts to look like dollars. Again, communicate these efforts to your Walmart partner to let them know you are aligned and that you are working with them to ensure EDLP for Walmart customers. Ask merchants for ideas on what they’ve seen other companies do to be successful. For the most part Walmart merchants want to partner with you and collaborate to help meet mutual objectives.


3: Think about profit dollars, not profit percentages. 

Would you rather make 20% on $10 or $10% on $100?  The answer is obvious, right?  Take the 10%. We all put profit dollars in the bank, not profit percentages. However, when it comes to Walmart, we all tend to lose perspective here.

It’s important to acknowledge when working with Walmart that you must look at all-in costs. If you don’t allocate overhead, marketing costs, etc., then you run the risk of cutting too thin. However, a disciplined P&L process can help discover what the true dollar profit opportunity is by using lower prices to drive a rapidly scaling business. For most of our clients, Walmart represents 5 to 10 times the revenue of the next largest competitor. With this kind of volume, the profit percentages can be a bit leaner but the profit dollars can deliver breakthrough results.

 

The key to driving profitability starts and ends with clarity. 

It is critical to know exactly what Walmart is looking for, not just what you think is true. Then get very clear on your own P&L and collaboratively drive mutual success.  When you are clear internally—and with Walmart—you win. Know the answer to “what does success look like” and deliver against that answer.

 

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