World’s Billionaires – The most profitable businesses II: Wal-Mart

In my last blog World’ Billionaires – The most profitable businesses I: LVMH, I introduced the top 20 richest people in the world according to the Forbes Magazine. I was curious about how these billionaires make their money and what their secret of success is. One of the most profitable businesses was the fashion industry. In order to get a deeper understanding of that profitable business, I chose LVMH (Moët Hennessy Louis Vuitton) to show why and how they could become so successful.

In this blog I will examine the second most profitable business of the worlds billionaires, which are retailer and discount chains. 5 out of the top 20 world’s  richest people are having their business in that field.

Karl Albrecht, ranked as the 10th richest person in the world, is a German entrepreneur who founded the discount supermarket chain Aldi with his brother Theo. His estimated net worth is US$ 25.4 billion in 2011. Albrecht is also the wealthiest person in Germany.

Because of a discount supermarket chain, named Aldi, not only Karl Albrecht became one of the wealthiest people in the world but also his brother. For sure, Aldi yields a respectable revenue that last out even for two brothers. But now I will present a retailer chain which makes a whole family to the probable wealthiest family in the whole universe!

Jim Car Walton, Alice Louise Walton, Samuel Robson Walton and John T. Walton are the richest siblings on earth, I guess. They are the children of Wal-Mart founder Sam Walton and heirs of the Wal-Mart fortune. Currently, Samuel Robson, the eldest son of the founder, is chairman of the worldwide company. Nevertheless he is not the wealthiest among his siblings. It is Christy Ruth Walton, she is the widow of John T. Walton, the son of Sam Walton, and ranked as 11th in the list of the world’s billionaires. After John’s death in June 2005, she inherited his fortune of US$ 15.7 billion. Today her fortune is estimated at US$ 25.3 billion.
Wal-Mart is an American multinational retailer corporation, founded in 1962 that runs chains of large discount department and warehouse stores. The world’s largest retailer is also the biggest private employer in the world with over 2 million employees. Wal-Mart is a family-owned buiness with a 48 % stake in it. The Retailer discount chain is headquartered in Bentonbille, Arkansas and has 8500 stores in 15 countries.In 2011 Wal-Mart recorded net sales of US$ 419 billion (according to Wal-Mart Annual report of 2011), which is US$ 74 billion more in comparison to 2007. During only 4 years its net sales increased by 18 % and for 2012 are US$ 447 billion net sales expected. Even though ventures in Germany and South Korea failed, the company operates highly successful in the international world e.g. in Mexico as Walmex, in UK as Asda or in India as Best Price.
Wal-Mart is known for having the lowest prices of anyone around. Low prices are great for consumers but for those who are trying to sell to Wal-Mart cannot. They have trouble keeping their companies up and running because they cannot make any profit selling to Wal-Mart because of the low prices. Wal-Mart has forced a number of larger corporation to down-size or shut down their American plants and go overseas to produce their products.The power of these discount chains are incredible immense, that even allows them to force the suppliers to change their whole production conditions. Here are the reasons why this multi billion dollar company has such a power over its suppliers is due to the following (source: here):
  • Massive buying power: Wal-Mart is able to provide low prices as is has massive buying power.
  • Operational excellence: The philosophy behind operational excellence is high expectations, which leads to high productivity and efficient processes and finally lower costs.
  • Excellent customer service: It has developed a culture where employees are expected to think out of the box and provide customers with excellent services.
  • Strong logistics & distribution network: Besides the low prices, the products are made available to consumers with minimal inconvenience. Even during the hurricane Katrina it was able to supply its stores with products quickly when other stores were out of stock for many days.

That are basically the main points why Wal-Mart is so profitable. The philosophy of saving expenses is very embedded in employees and the top management. Because the operations are handled in a way to save every possible penny, allows Wal-Mart to provide items at low cost to consumers.