Walmart Case Analysis

1. Industry Analysis

a) Brief overview of Wal-mart stores

Wal-Mart Stores, Inc. is both a domestic enterprise, as well as a national discount retailer. They operate retail stores domestically in the US and various international markets. Wal-Mart operates on an "Every Day Low Price" philosophy because they are able to maintain their low price structure through complete expense control. With this philosophy they have proven to be extremely profitable domestically. Their primary task is buying from suppliers at a low cost and then reselling the goods to customers at a low price, to achieve their company philosophy of low prices and great customer service.

Being in the retail industry, Wal-Mart can choose from many suppliers that provide its various stores with inventory, general buyers, and competition; including Kmart, Sears, Target, Costco discount stores also the local mom and pop stores in various neighborhoods.

b) 5- Forces framework

A good source of the industry analysis is Porter’s Five Forces Model. It consists of threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products & services, and intensity of rivalry among competitors in an industry. Let’s look at Porter’s five forces model;

Potential entrants

Wal-Mart does not have to worry about threat to new entrants because it has economies of scale which it spreads the costs of production of the number of units produced. The cost of product per unit declines as the volume increases. It has that capacity to produce more in order to lower the cost. Wal-Mart has product differentiation with strong brand identification and customer loyalty. Wal-Mart also has access to distribution channels with secure distribution for their products. Technology plays an important role in helping Wal-Mart stay customer focused. There are high barriers of entry for companies aspiring to come into the retail industry because of the resources that Wal-Mart possesses.

Bargaining power of buyers

Buyers do not have to bargain with Wal-Mart for low prices and higher quality or more services because Wal-Mart has already established the low prices, higher quality, and more services philosophy. Wal-Mart has many pricing philosophies including “Every Day Low Price” (EDLP), “Rollback”, and “Special Buy” to ensure that their customers get the lowest price possible. Also wal-mart does allow customers to match prices from its rivals by showing coupons from its rivals and will honor that price if it’s lower than theirs.

Bargaining power of suppliers

Wal-Mart hand picks its suppliers and has a good and long standing relationship in order to maintain their pricing philosophies, every day low prices (EDLP), roll back, & special buy, Wal-Mart’s suppliers also know that they supply have to be good quality products. Wal-Mart will not sell something that is not to their satisfaction. Also suppliers are put into a tight spot where they have to play by the rules set up by wal-mart or loose their contracts they are forced to redesign everything from packaging to even sometimes telling them what it will pay for their goods.

Threat of substitute products and services

The ability of wal-mart to offer the cheapest products that meet both quality and its price standards ensures that it will not incur the threat off substitute products from its rivals cause they are able to meet the customers product satisfaction. Wal-Mart has an excellent customer service. Everything possible is done to ensure that shopping at Wal-Mart will be a friendly experience. Wal-mart was founded on 4 basic beliefs that all Wal-mart employees must adhere to which are, “respect for the individual, excellence in the workplace, customer service and always having the lowest prices”. Wal-Mart takes these 4 Basic Beliefs very seriously.

The intensity of rivalry among competitors in an industry

Due to wal-marts size, domination in its industry there is no intensity of rivalry among Wal-Mart and its competitors in the retail industry because Wal-Mart excels in this sector and the others like Kmart seem to be struggling to stay afloat, Target is not even half the size of wal-mart so they don’t seem to be having that big of threat by their rivals. No competitor can beat Wal-Mart’s “every day low price” (EDLP) so that gives them a distinct advantage over their rivals.

c) The most important force to wal-mart’s near term future is the bargaining power of suppliers with all the many pricing philosophies including “Every Day Low