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Walmart - the elephant that danced

Andrew BaudSenior Investment Analyst

The great disruption narratives are often underdog stories. It's human nature to like the nimble tech start-up who doesn’t just ‘build a better mousetrap’ but reinvents the rodent-reduction paradigm. But as investors who carefully study change and disruption we also want to understand what happens when the incumbent fights back – especially if they win.

In 2009, Louis V Gerstner, former CEO and Chair of IBM, published Who Says Elephants Can’t Dance? about turning the mainframe-focused IBM into a solutions business and fighting off the tech disruptors reshaping whole industries in the late ‘90s and early 2000s. Can we find more recent examples of the incumbent fighting back? We can.

It’s 2015 and Doug McMillon is the new CEO of Walmart, the bricks and mortar retail giant. He had only been in place for a year, the stock price had halved and many saw Walmart as a behemoth ripe for tripping, especially by the arch-disruptor, Amazon. Walmart wasn’t alone in facing that threat but it had the most to lose.

That threat intensified in 2017 when Amazon bought, the high-end natural food store chain with 400-plus outlets. Experts had wondered for years what an e-commerce disruptor would do with the huge grocery segment. They were about to find out.

In 2020 the e-commerce threat to Walmart’s dominance sharpened even further. Covid saw the online share of US retail skyrocket from 16% to 22%. Supposedly a retail dinosaur, Walmart should have been toast. But it fought back. In the most recent quarter the company banked revenue of US$161 billion. So what went right? Let’s look at that through both theoretical and practical lenses.

Playing to your strengths

In a 2022 article, How Incumbents Survive and Thrive[1] Professor Julian Birkinshaw explored the four strategies incumbents can use to beat off disruptors:

  1. Fight back. Go head to head with the disruptor - for example a national carrier launching a low-cost airline.

  2. Retrench. Play defence. An incumbent seeks to slow the disruptors’ attack, perhaps by buttressing their market position through acquisitions or pushing regulation that limits the disruptor’s impact.

  3. Move away. The incumbent ‘vacates the field,’ and seeks new opportunities to deploy their capital and capability. Professor Birkinshaw cites Fujifilm’s move out of photo film into medical imaging as an example.

Walmart chose Professor Birkinshaw's fourth strategy - the Double Down strategy where “an established firm plays to its existing strengths”.

Walmart has an extraordinary physical presence. Ninety percent of the US population live within ten miles of a Walmart store. Quietly, while the world was talking about e-commerce, Walmart had been testing ways to turn that network into their convenience differentiator.

They made it even easier for customers to go into one of their 3500 stores to pick up online orders in-store or from carpark locations. Walmart also turned their stores into fulfilment nodes that underpinned home delivery operations. (To put that move into context, Amazon has around 110 U.S fulfilment centres).

In addition to leveraging that vast physical footprint, Walmart met one of the other tests in Professor Birkinshaw’s strategic framework: “regardless of which option you choose, you must embrace digital technology to improve operational effectiveness.”
Walmart passed that test:

  • Under the leadership of McMillon and with the full backing of the Walton family, Walmart sacrificed short term profit margin for long-term gain by investing serious capital in supply chain automation and inventory management technologies, making its distribution network even more efficient and cost-effective.

  • In 2016 they purchased online retailer for US$3 billion. Jet’s founder, Marc Lore, had already built an online business that battled Amazon and another,, that Amazon had bought out. The buy gave Walmart the management and technology expertise it needed to compete online.

Today, Walmart CEO Doug McMillon says, “We’re people-led and tech-powered, and that combination is propelling our business." They run 10,500 stores across the globe, have two million staff and digital is core to their business. In their latest quarterly results, global e-commerce sales rose over 21%.[2]


Lessons from Bentonville

At Platinum we seek significant mispricings – and therefore opportunity – when the market doesn’t appreciate the effect social, political, economic or technological change will have on an individual company. Walmart is a classic example, defying easy analysis to emerge as a winner from a changing retail and technology environment.

Admirers, not buyers

We think Walmart is a superb example of a nimble incumbent. Yet as at June 2024, we don’t hold Walmart in Platinum funds. The market has re-rated it higher, now attributing it both ‘defensive’ and ‘growth’ characteristics, so it’s not priced at multiples we currently find attractive.

Like to know more?

  • Look out for the other video/articles in our innovation series. There’s one on US mortgage market disruptor, ICE and a soon to be published article on the London Stock Exchange.

  • Take a look at our recent video The Lure of Large Numbers to see other businesses Platinum is investing in that play in huge markets.



[2] Walmart’s Q1FY25 quarterly report is at

Disclaimer The above information is commentary only (i.e. our general thoughts). It is not intended to be, nor should it be construed as, investment advice. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and circumstances.

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