Walmart is the largest retailer in the world, with over 11,500 stores in 27 countries. Despite its massive size and continued growth, Walmart still faces some major weaknesses and challenges that it needs to address moving forward.
Reliance on Physical Stores
One of Walmart’s biggest weaknesses is its heavy reliance on physical stores and foot traffic. Walmart has been slower than competitors like Amazon to shift towards e-commerce and omnichannel retail. As of 2021, Walmart derived 72% of its total revenue from its physical stores. This leaves Walmart vulnerable as shopping continues to shift online and customer foot traffic declines in physical stores.
Walmart has invested heavily in e-commerce in recent years through acquisitions like Jet.com and partnerships with Shopify and TikTok. However, its e-commerce sales still only comprise a fraction of its total revenue compared to Amazon, which now derives over 50% of sales online. If Walmart wants to remain competitive long-term, it will need to continue accelerating its e-commerce capabilities and omnichannel integration.
Supply Chain Challenges
Operating a global supply chain and network of over 11,500 stores creates major logistical challenges for Walmart. The company has struggled with out of stocks and empty shelves at times, especially amid supply chain disruptions during the COVID-19 pandemic.
As Walmart expands its assortment of fresh foods, groceries, and perishable items, it faces added complexity in supply chain management. The company will need to continue improving its forecasting, supplier relationships, and distribution processes to best stock its massive number of stores.
Thin Profit Margins
Walmart has built its business around offering customers everyday low prices. But this emphasis on low price comes at the cost of thin profit margins. For fiscal 2022, Walmart reported net profit margin of just 3.28%. While Walmart generates high overall profits due to its scale, its margins significantly trail competitors like Target (8.09%) and Costco (3.56%).
Walmart’s low margins give it less room for error. Situations like supply chain problems, higher supplier costs, or disappointing sales can quickly impact Walmart’s bottom line. The company will need to carefully balance keeping prices low for customers while generating sufficient profits to fund investments in e-commerce, technology, and other growth initiatives.
Reputation and Public Perception
For many consumers, Walmart developed a reputation in past decades for crowded stores, understaffing, and poor customer service. While Walmart has made strides to improve the in-store experience, boost employee wages and benefits, and enhance its brand image, some negative perceptions still linger.
Part of the challenge for Walmart is convincing consumers its stores offer a pleasant modern shopping experience, competitive prices, and strong omnichannel capabilities. Improving its brand reputation across diverse demographics will be key for Walmart to attract and retain customers versus retail rivals.
Labor Relations
With over 2.3 million employees globally, maintaining positive labor relations is crucial but challenging for Walmart. The company has faced protests and pressure in the past over wages, benefits, and working conditions. Walmart continues to face scrutiny over compensation, scheduling, and treatment of hourly store associates.
Walmart has increased its minimum wage to $12 per hour and expanded benefits like tuition assistance to improve employee recruitment and retention. However, occasional labor disputes and unionization efforts still pose a threat that could negatively impact Walmart’s operations and public reputation.
International Growth Challenges
Expanding internationally into new geographic markets represents a major growth opportunity for Walmart. But international expansion also exposes Walmart to added risks and uncertainty. For example, Walmart has struggled to gain traction and turn a profit in markets like China and the United Kingdom.
Succeeding in foreign markets requires tailoring assortments and shopping experiences to local cultures and preferences. Walmart will need to overcome language barriers, regulatory hurdles, supply chain complexities, and competitive pressures posed by entrenched local retailers when expanding abroad.
Reliance on In-Store Visits for Grocery
Grocery sales comprise 56% of Walmart’s total revenue. Yet most of Walmart’s grocery business still comes from customers shopping in-store, with only around 10% of sales online. Ramping up online grocery and delivery capabilities is vital for Walmart to defend its leading market share in groceries against online players like Amazon and Instacart.
However, shifting grocery sales online also poses financial challenges and complexity for Walmart. Groceries bought online tend to have much thinner margins versus in-store purchases. And providing fast delivery and pickup on fresh foods at scale creates added supply chain and logistics costs.
Lack of Success in Some Categories
While Walmart sells virtually everything under the sun, there are certain discretionary product categories where the retailer has lagged competitors. For example, Walmart captures under 5% of U.S. clothing and footwear sales, far below category leaders like Amazon, TJ Maxx, and Ross Stores.
Apparel is not a huge earnings driver, but Walmart is still missing out on billions in incremental sales by not having a stronger cheap chic fashion offering. Enhancing its merchandise and brand partnerships in categories like clothing, home furnishings, and consumer electronics will help Walmart attract customers and drive sales productivity.
Reliance on U.S. Market
The United States market represents a majority of Walmart’s locations and sales. Walmart generated $524 billion of its $573 billion in revenue last year from its U.S. operations. While the domestic market remains vital for Walmart, relying too heavily on the U.S. leaves it exposed should growth stagnate.
Walmart will need to continue expanding in markets like China, India, Latin America, and Africa to diversify internationally. Building its international sales as a percentage of total revenue will also be important if consumer spending power declines in the U.S. due to recessions or other macroeconomic factors.
Vulnerability to Recessions
As a discount mass merchandise retailer, Walmart faces heightened vulnerability during economic downturns and consumer recessions. During recessions, consumers tend to cut back on discretionary purchases, shift more spending to low-price retailers, and look for promotions and deals when shopping.
While this can boost Walmart’s sales initially, extended recessions also put pressure on Walmart’s margins and profits. Tighter household budgets can force Walmart to keep prices extremely low. Recessions also tend to bring excess industry capacity and higher supply chain costs for retailers like Walmart.
Reliance on Technology
From its websites and apps to inventory management and delivery logistics, Walmart now relies heavily on technology to operate and compete. This dependence on technology leaves Walmart vulnerable to cyberattacks, network outages, and other platform failures or data breaches.
Maintaining robust cybersecurity and IT infrastructure across thousands of stores and systems is an expensive challenge. Any prolonged technology problems or security incidents could severely damage Walmart’s business, sales, and customer data.
Sustainability
Increasingly, consumers expect retailers to implement ethical and sustainable practices around areas like emissions, packaging, and supply chain transparency. Managing its environmental impact and improving sustainability represents both a challenge and opportunity for Walmart.
Thus far, Walmart has made some progress by setting renewable energy and emissions reduction targets and promoting recycling. But critics argue the retailer still lags rivals in sustainability efforts. Failing to make supply chains greener and further reduce environmental footprints could hurt Walmart’s reputation going forward.
Conclusion
Walmart’s status as the world’s largest retailer brings many inherent strengths like massive scale, buying power, and distribution capabilities. However, Walmart also faces a variety of weaknesses and threats it will need to address to maintain dominance in an evolving retail landscape. Key focus areas looking ahead include boosting e-commerce sales, improving international performance, leveraging technology, enhancing supply chain resilience, attracting talent, driving productivity, and implementing more sustainable practices across its operations. While transformation brings challenges, Walmart has the size and resources to invest for long-term success.