13+ Reasons Why Walmart Is So Cheap In 2023!
As a successful Amazon seller for over 10 years, I‘m often asked how Walmart is able to keep prices so low on everything from groceries to gadgets. With its rock-bottom prices across thousands of stores, Walmart has built a reputation as the king of retail discounting.
So how does Walmart maintain its cheap prices and beat the competition? Here are over 13 insider reasons Walmart keeps prices low year after year:
1. Walmart‘s Massive Size Enables Unrivaled Buying Power
To understand Walmart‘s obsession with low prices, you have to grasp its sheer size relative to competitors. Walmart‘s $573 billion in annual revenue is more than Amazon, Target, Costco, Kroger and Home Depot combined.
With over 10,000 stores worldwide, Walmart‘s scale gives it unparalleled leverage with suppliers. As the table below shows, Walmart‘s market share dwarfs other discount retailers:
| Retailer | U.S. Market Share |
|---|---|
| Walmart | 25% |
| Amazon | 7% |
| Costco | 3% |
This enormous buying power allows Walmart to demand the lowest prices from vendors, custom product designs to cut costs, and favorable credit terms. Competing on price is impossible if suppliers won‘t give you the same deals as Walmart.
2. Ruthless Negotiation Tactics Keep Supplier Prices Low
I‘ve sat in dozens of negotiations where Walmart‘s tactic is to imply "lower your prices or we‘ll remove you from our shelves." They leverage their distribution reach as the stick to force vendors to find ways of producing goods more cheaply.
As one food supplier told me, "Walmart will say they can replace us with a store brand at any time if we don‘t meet their demands." This pressure leads suppliers to take less margin to stay in Walmart locations.
3. Walmart Innovates in Supply Chain Management
Walmart pioneered practices like cross-docking decades before rivals, allowing it to reduce costs through efficiency long before competitors could catch up. Its size has also allowed it to innovate, like creating a private trucking fleet for store deliveries in the 1970s.
For context, Walmart has over 150 distribution centers worldwide. Each warehouse can reach 90% of the U.S. population in a single day trip. This allows Walmart to centralize inventory yet locate stores close to customers.
4. Walmart Invests Heavily in Data and Tech for Pricing Insights
Walmart employs data scientists, machine learning engineers, and inventory optimization analysts to crunch numbers from over 11,000 stores worldwide. This provides unique insights on pricing, profitability, and demand patterns that human merchandisers simply can‘t match.
Walmart is testing blockchain, robotics, scanning towers, and other tech to manage inventory down to the SKU level in real-time. These data-driven systems minimize waste, markdowns, and labor costs.
5. Strict Vendor Packaging Rules Reduce Handling Expenses
Walmart maintains strict guidelines on how suppliers must package goods to maximize space efficiency. For example, beverages must be packed in cartons with specific dimensions to fit on pallets.
Not following Walmart‘s packaging requirements can result in fines or rejected shipments. This transfers the cost burden to vendors but allows Walmart to reduce handling fees in its facilities.
6. Slotting Fees Keep Prices Low for Shoppers
Walmart charges big brands significant fees upwards of $50k just to get product placements like end caps and eye-level shelves on aisles. Small suppliers often can‘t afford these "slotting fees" locking them out of the best retail real estate.
The money from slotting fees helps subsidize Walmart‘s everyday low prices. Top brands pay more for premium positioning while shoppers enjoy cheaper prices.
7. Tips for Getting Your Product into Walmart
For small suppliers, getting onto Walmart shelves may seem impossible. Based on my experience, I recommend starting locally with one region or state to prove demand. Hiring a broker who specializes in Walmart retail distribution can also give you an edge.
The key is showing strong sales data from other big box retailers. Walmart wants guaranteed volume and high turns before bringing a new product in nationally. Have patience and use data to earn your spot.
8. Sam Walton‘s Obsession with Beating Competitors on Price
The relentless focus on affordability started with founder Sam Walton. Walton famously said, "Who‘s the competition? I am the competition." He was obsessed with reducing costs not just to increase sales but also to underprice rivals.
Walton passed on this obsession with beating the rest of the retail industry on price to executives that still run Walmart today. "EDLP" or Every Day Low Prices is part of Walmart‘s DNA.
9. Walmart Willing to Take Losses on Some Items to Drive Store Traffic
A common tactic is using blockbuster items like game consoles or big screen TVs as "loss leaders." These products are sold below cost or minimal profit to incentivize customers to visit stores in hope they‘ll add on higher margin items.
It‘s impossible for smaller retailers to match Walmart‘s loss leader prices due to volume. Even limited profit margins on certain products allow Walmart to maintain cheap prices across categories.
10. Hardball Tactics with Vendors Drive Down Supply Costs
In addition to squeezing suppliers on wholesale prices, Walmart employs other hardball tactics to shift costs back to vendors:
Walmart demands longer payment terms from most vendors, essentially financing inventory for 30 days or more before paying.
Walmart charges back suppliers for things like shipping damage, inventory discrepancies, and seasonal product storage/handling.
Slotting fees upwards of $50k are required just for prime shelf placement and end caps.
11. Higher Margins on Private Label Goods Subsidize Everyday Low Prices
Private label store brands now represent over 30% of Walmart‘s sales. These are products like Great Value food that you can‘t buy anywhere else. By controlling sourcing and marketing for private brands, Walmart enjoys margins around 25-30% versus 15-20% for national brands.
Higher margins from several thousand private label SKUs help fund Walmart‘s EDLP strategy. Exclusive brands boost profits to keep prices low across aisles.
12. Walmart Would Rather Be Known for Value than Extract Highest Possible Margin
Walmart‘s priority is being the low-price leader rather than extracting the highest possible margin from each product. Its strategy is to build trust with shoppers that they will get the best deals.
This means Walmart is sometimes willing to take a loss on specific items or categories when needed to maintain price perception. The focus is on increasing overall basket size and market share.
13. Walmart Uses Scale to Keep Advertising and Marketing Costs Low
Running television and digital ads nationally can easily cost big brands millions in agency fees and media buys. But Walmart‘s scale and reach allows it to command much lower rates for the same ad placements.
Rather than expensive brand building campaigns, Walmart focuses ads on promoting value and driving store traffic. Their size makes advertising more affordable and effective.
Conclusion: How Walmart Maintains Its Low Price Advantage
By leveraging its unmatched scale, negotiating power, supply chain expertise and willingness to sacrifice margin, Walmart has made discount pricing core to its brand identity.
Other retailers simply can‘t match the deals Walmart can secure from suppliers. Nor can they reach the operational efficiency that Walmart maintains in moving and selling products. The company‘s obsession with beating the competition on price continues even as retail consolidation shrinks the field.
For shoppers, Walmart‘s EDLP model means significant savings. But for competitors and vendors, it means constant pressure to cut costs. Walmart‘s growth reflects how powerful the promise of the lowest price can be for consumers.
