Lets face it! When we hear about companies like Walmart and Amazon. It is huge discounts which will come onto our mind. And a thought might just crop up, in-spite of offering so many freebies, how can these companies thrive in such a cut-throat environment. Even I was perplexed when I studied their model and understood how eerily similar both Walmart and Amazon are!
Lets start with facts, Between 1978 to 2015 – Walmart shares experienced a cumulative annual growth rate of more than 21% (higher than any other company) It is important to understand what lead Walmart into this –
Its amazing to see how eerily similar Amazon’s story has been digitally when compared to brick-and-mortar business of Walmart. When Amazon set up in 1997, delivery took 7 days. Thats long !
To reduce time, Amazon began investing heavily building distribution and warehousing facilities.
After building infrastructure worth billions of dollars, Amazon surely had their competitive advantage but they wanted to optimise their costs further. This is how they replicated Walmarts model and diversified their business.
The stories of Walmart and Amazon appear different but approach to managing fixed costs are strikingly similar. Scale Fixed costs over larger product volumes. Spread them across more product categories. And find new revenue streams to lower the burden of fixed costs.
For any company in a fixed-cost business, success depends on implementation of these strategies.
Usually cost cutting measures for companies are lay-offs, missing on avenues to reduce cost burden and increasing revenue! Amazon and Walmart are best examples.