Walmart 5 forces PDF

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Michael Porter's 5 foces analisys of Wal-Mart...

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Introduction According to Wal-Mart (year), lLast year, Wal-Mart had revenues of $559 billion. WalMart's 2002 sales topped $341 billion , and (https://corporate.walmart.com/). iIts 2020 net sale was $ 14.1 billion, a growth of 2.8 % . In addition, Fortune.com (year) states that (https://corporate.walmart.com/). Wal-Mart has 2,200,000 employees, as of 2020 (www.fortune.com). Wal-Mart is the largest retail store in the United States, and is larger than any other retail chain in the world. Currently Wal-Mart operates over 10,500 retail facilities globally. It provides general merchandise: family apparel, health & beauty aids, household needs, electronics, toys, fabrics, crafts, lawn & garden, jewelry and shoes. Also, the company runs a pharmacy department, Tire & Lube Express, and Photo processing center as well (www.walmart.com). During the 1980's, Wal-Mart helped the local economy by providing good quality products at low prices. Unfortunately, critics contend that the success of Wal-Mart hurts the existing local independent merchants. As it became known as the Walmart Effect which is a term used to refer to the economic impact felt by local businesses when a large company like Walmart (WMT) opens a location in the area (https://www.investopedia.com). Today, Wal-Mart has 4,743 retail stores. There are 3,570 Wal-Mart Supercenters, 509 Sam's Clubs, 686 Wal-Mart Neighborhood stores and 6,101 international stores (www.walmart.com). Its core retail business can be divided into four retail divisions: WalMart stores, super centers, Sam's Club warehouses and neighborhood markets. The management strategies of Wal-Mart emphasize its workforce and its corporate culture, which emphasizes how it listens to the needs of its personnel so that each employee is able to suggest improvements and what merchandise to include and how to display it. At Wal-Mart, store employees are called associates. The company offers generous financial benefits for “associates” which include profit-sharing plans such as stock-purchase options (Wal-Mart Stores’ Discount Operations). Furthermore, the company provides training programs for all associates at “Walmart Academy” (walmart.com).

Task 1 Porter’s Five Forces Analysis: Rivalry among competitors - Discount retail industry is an oligopoly with very low margins and relentless competition because of few large players sharing the market and lack of differentiation in the products and services of rivals (https://corporatefinanceinstitute.com/). Walmart designed a strategy to operate stores in smaller towns and at isolated rural areas which “everybody else was ignoring”. To facilitate and help with the operations it invested heavily in technology. Its innovative hub-and-spoke model for deliveries provided a very efficient logistic solution (Wal-Mart Stores Inc.). This was seen as a major differentiator and placed Walmart ahead of its competitors. Particularly, Walmart’s technological move of electronic data interchange (EDI) facilitated sales forecasting, cost efficiency and efficient distribution. Additionally, it diversified in “Super centers” and “Sam’s Club” which became one of the biggest wholesale clubs in the country. Due to the expansion around the world, Wal-Mart is also facing new challenges and competitors in different countries. Direct competition includes the big retailer chains that compete directly with Wal-Mart and they are the following.

Company

2019 USA Retail Sales (billions)

Sales Growth ('19 v '18)

Worldwide Retail Sales (billions)

USA % of 2019 Worldwide Sales Stores

Walmart

$399.80

2.60%

$523.96

76%

5,355

Amazon.com

$193.64

20.90%

$250.50

77%

564

The Kroger Co.

$122.28

1.40%

$122.28

100%

3,003

Costco

$111.75

9.30%

$152.70

73%

542

Walgreens Boots Alliance

$104.53

6.20%

$136.86

76%

9,168

The Home Depot

$102.17

4.10%

$110.54

92%

1,973

CVS Health Corporation

$88.51

5.10%

$88.51

100%

9,909

Target

$77.13

3.60%

$77.13

100%

1,868

Lowe's Companies

$65.51

1.90%

$72.15

91%

1,727

Albertsons Companies

$62.41

3.40%

$62.41

100%

2,258

Apple Store / iTunes

$53.99

9.20%

$61.34

88%

271

Ahold Delhaize USA

$44.81

2.30%

$75.67

59%

1,973

McDonald's

$40.41

4.90%

$100.18

Best Buy

$40.04

2.20%

$43.64

92%

995

40% 13,846

Publix Super Markets

$38.13

5.30%

$38.13

100%

1,479

TJX Companies

$31.48

5.90%

$41.19

76%

3,247

Aldi

$31.12

8.10%

$107.20

29%

2,586

Dollar General

$27.75

8.30%

$27.75

H.E. Butt Grocery

$26.00

7.50%

$27.64

94%

333

Macy's

$24.44

-1.80%

$24.56

100%

780

100% 16,368

Table 1: Kantar Retail ‘Top 100 Retailers in 2020’ As it is seen in the table, 76% of Wal-Mart sales are from the U.S., so the biggest rivals are the ones operating in this country. Amazon, Kroger, Costco, The Home Depot, Walgreens and CVS,have become WalMart’s biggest competitors with Amazon seeing their sales grow in a big percentage, as they offer a very similar variety of goods to their customers. Amazon is now one of the largest retail stores after Wal-Mart. Amazon’s strategy is to achieve excellent customer satisfaction by offering a large selection of products and a personalized experience, stressing the importance of fast delivery and having a better

track record relating to delivering the goods directly to the customer compared to WalMart. Another kind of competition is the indirect competitors. It occurs when a new distribution company is opening stores and units daily to serve a large affluent consumer base. Although we could argue that despite all the competitors Wal-Mart faces, their biggest one is Amazon. Despite the success of Wal-mart’s new buying online and free Pickup in-store service it’s still not sufficient to counter Amazon’s assault on #1 rank of biggest retailer.

Bargaining power of suppliers – Walmart was known as no-nonsense negotiator. Due to its large market share and by being one of the biggest companies in the U.S.A, it had huge power over suppliers and could purchase goods at lower prices than the rivals. Walmart limited their total purchases to 2.4 % from any one of the suppliers implying that they were not dependent on any supplier. A powerful supplier like Procter and Gamble (P&G) did about $3 billion in business annually, from Wal-Mart. Also, suppliers wanted to have a partnership with Walmart for its electronic data interchange which gave them access to point-of-sale data through which they could forecast, plan, replenish and what to ship on a store-by-store basis, as well as, analyse the sales trends and inventory positions of their products. All these put Walmart as a major purchaser for any of its suppliers (Wal-Mart Stores’ Discount Operations). Furthermore, there was always a threat to suppliers of backward integration by Walmart. i.e. it may manufacture / outsource goods and sale under its own brand name. This means that suppliers have limited control over prices which makes their bargaining power of suppliers a weak force. The products that the suppliers provide are standard, less differentiated and have low switching costs, making it easier for Walmart to change suppliers when needed. Also the industry where Walmart operates is an important customer for its suppliers making the profits of this industry bound to that of the suppliers. Given what’s written above Walmart can purchase raw materials from its suppliers at a low cost, which means that if the costs are not suitable, Walmart can simply switch suppliers since switching costs are low. Another way that Walmart could tackle the bargaining power of suppliers is by having different suppliers for different geographic locations. Bargaining power of buyers – The bargaining power of buyers is not very high. The price and convenience of shopping are two very important factors that to a large extent limit the bargaining power of buyers. It’s hard for customers to find the same lower prices and convenience of shopping with other brands. By offering a large variety of

products at “everyday low prices”, Walmart reduced buyer’s bargaining power. In fact Sam Walton “was obsessed with keeping prices below everybody else’s.” Walmart in fact was able to build and enjoy a very large loyal customer base. Since the number of suppliers in the industry in which Walmart operates is bigger than the number of firms producing the products, means that the buyers don’t have a lot of options to choose from and therefore can’t control the prices. The differentiation of the product is high and buyers are not able to find alternative firms producing a particular product, as well as, the income of the buyers within the industry, creating pressure to purchase at low prices, making the buyers more price sensitive. With low prices, comes also the importance to the buyers of the quality of the products who make frequent purchases, making them less price sensitive. Walmart focuses on innovation and differentiation to attract more buyers, with this product differentiation and quality they can attract a large number of customers. By using their marketing strategies they were able to attract a big customer base by building brand loyalty, using mainly the “Every Day Low Price” strategy.

Threat of new entrants - The threat of new entrants is somewhat low as barriers of entry are high in the retail industry. The requirement of high investment to set up stores and warehouses and having a distribution system and supply chain like Walmart is extremely difficult and can take years to build. The fact that Walmart is such a big and well established company, they would strongly retaliate against any new comer. Since the industry where Walmart operates is basically without substitutes, the few substitutes that exist are produced by low profit earning industries. However the one field in which Wal-Mart should be aware of the importance of new competitors is in e-commerce. Amazon is leading this part of the online business. Also, there is a trend of decreasing the number of independent retailers. Although there are barely any barriers to starting up a store in the U.S., the ability to establish good supply contracts and be competitive is every time harder. The vertical structure of chain stores together with their centralized purchases gives them a competitive advantage over independent retailers. Despite the threat of the e-commerce business Walmart still focuses (and wins) in providing great quality in their products. So buyers choose its products, which have a high quality at a lower price. Also by differentiating their products, ensure that buyers see their products as unique and it is more difficult for them to shift to products that don’t provide these unique benefits. By investigating through market research, Walmart can provide exactly what the customer wants....