Given its status as the world’s largest public corporation, Wal-Mart seems like an appropriate business with which to open this blog’s studies of business models. While it has many critics and detractors, its significant amount of revenue says one thing, and one thing only: From a business standpoint, the company must be doing something right.
The Wal-Mart business model is based on a one-stop-shopping concept that provides customers with access to a wide variety of merchandise in one location. Wal-Mart initially provided competition for large consumer product depots, such as K-Mart. It initially offered a department-store style selection of goods, such as clothing, shoes, dishes, and other home furnishings. What sets Wal-Mart apart from the pack, though, was its ability to identify yet more products it could offer… products its competitors were not offering. Product lines in many locations now include electronics, food (including fresh produce), gardening centers, and even a discount “dollar store” section.
At one point, Wal-Mart even contemplated opening its own bank, but decided ultimately to offer basic money services instead. This seems a smart move to make, considering the kind of financial trouble many banks have gotten themselves into recently, trouble Wal-Mart can avoid by offering low-risk check-cashing, bill paying, and money transferring services without taking on the risky loans that have since gotten banks into trouble. And loans to Wal-Mart customers may just be more risky than to other groups. Wal-Mart shoppers are primarily low-income, with more than one-fifth of them lacking bank accounts. Because low-income individuals applying for loans are considered more likely to default, Wal-Mart’s primary customer base would prove a high-risk investment. It was in the interest of versatility that the banking idea was considered – and in the interest of vitality that a money service center was settled on instead.
Wal-Mart’s one-stop shopping was made even more versatile when it dropped its “one-size-fits-all” strategy. By identifying demographic groups and deliberately selecting products to appeal to each group, Wal-Mart managed to expand further its one-stop shopping opportunities. By targeting groups based on ethnicity, Wal-Mart offers one-stop shopping even for consumers seeking “specialty” products that would normally be purchased in small ethnic stores. For example, stores in areas with large concentrations of Hispanics now post signs in both Spanish and English, carry Spanish-language greeting cards, and offer traditionally ethnic foods and brands, such as Goya brand products or traditional Latin American snacks. In stores in large concentrations of African-Americans, Wal-Mart now offers ethnic hair-care products, “urban” clothing styles, and rap, R&B, and gospel music selections.
This business model may be difficult or even inadvisable for certain businesses (especially specialty and niche businesses) to implement, but the one-stop shopping idea has been successfully implemented by various other companies. If it can be implemented, the wide variety of products and services offered create a high barrier to entry for other companies that do not already have a significant amount of capital to invest in research and development. Over the next few posts, I will be looking at other companies that have successfully implemented this business model and how they did it.
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