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Wal-Mart Industry Analysis

Autor:   •  March 11, 2018  •  4,419 Words (18 Pages)  •  45 Views

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Currently, Wal-Mart is among the leading companies retailing groceries, entertainment, health, wellness, electronic goods such as household appliances, and home furnishings in America. Grant and Jordan (2012) argue that the retailer is facing less competition from substitutes due to various reasons. First, the business stocks in most of the leading products in the specialized area. For instance, a consumer is almost certain of finding in Wal-Mart most of the groceries available in ordinary stores. Similarly, Wal-Mart has all the leading electronic goods, home furnishings, and home appliances in the world today. Hence, the threat of substitutes is currently low and does not pose any danger to the position of the retail store in the near future.

Competition from Rivals

Intense competition between existing companies in the same industry is a major threat to an organization. Porter (1980) affirms that price competition, advertising, and product differentiation pose a real threat in business. As of today, Wal-Mart is experiencing cut throat from other retailers such as Wholesale completion, Sears Holding Corporation, Wholesale Corporation and Target Corporation (Deloitte, 2016). However, Fisher College of Business (2013) report notes that even though companies offering similar products are a threat, they are small when compared to Wal-Mart. Today, the company has thousands of distribution points, including supermarkets, hypermarkets, and wholesale centers based in America, Europe, and Asia.

None of the competitors has any significant stores like those of Wal-Mart; depicting that the store is in a position to offer goods at a lower price. Therefore, the business is in the level of its own when it comes to price competition. For example, if a competitor lowers the price of a similar product, Wal-Mart can offer a product at an almost same or lower price without damaging its financial position. Again, Fisher College of Business (2013) posits that Wal-Mart low-cost strategy gives the company a competitive edge over its main rivals.

Advertising is a crucial role of a firm, and the business has the required revenues for the advertising its products. Due to its big size, Wal-Mart has a huge financial muscle that it can flex anytime to win potential customers. Despite the existence of cheaper marketing channels in the social media like Facebook and Twitter, there are other expensive means. When it comes to costly channels, Wal-Mart has the war chest needed to pay for the cost of advertisement. Although there are serious competition with like Costco and Home Depot that can mobilize huge finances, some lack Wal-Mart kind of finances that ensure a competitive edge. Its sheer large size and economies of scale, according to Fisher College of Business (2013), are major drivers of its success.

Now, the company can purchase goods worth millions of dollars that enjoy discounts from the supplier which is passed down to the consumer. Currently, the middle class constitutes the biggest portion of the consumers in the retail sector, and the class is ever growing in the 28 countries where the business had branches. Fisher College of Business (2013) explains that the class makes up the largest group of the consumers and retailer, and the company who can meet middle class’ needs wins a majority. Unlike the competitor, Wal-Mart has a wide range of products allowing the consumers to buy most products under one roof further supporting the chain.

Direct competitors like Costco and Target are posing a threat to the company’s Sam Club section. According to Soni (2016), the traffic volume at the Sam’s Club store, reduced by 1.4% and sales by 0.4% in the fourth financial quarter ending on 31 January 2017 (Wal-Mart, 2017). The fall was attributed to the reduction in gas pump prices at Costco and Target that played a key role in attracting more customers at the expense of Wal-Mart (Soni, 2016). Although the reduction seems insignificant when compared with the massive sales recorded by the company, they pose a threat in future. Continued lowering of the sales in this segment can lead to significant in profits threatening the company’s financial strength.

However, Flannery (2006) suggests that Wal-Mart presence in the various categories in the retail section gives it an added advantage. For example, the firm competes with Kmart and Target in the general merchandise area, Costco in club warehousing and Albertson’s in the supermarket. Availability of the store in various sectors cushions it against poor performance in one area. Again, a look at the revenues generated by the top ten retailers all over the world show that Wal-Mart is leading by more than four times compared to number two (Delloitte, 2016). Overall, the company generated $499 billion in revenue, which is quite a large amount for one retailer. The results indicate that Wal-Mart is in a safe position financially and they can prop up Sam’s Club and other departments that are not performing exceptionally.

In the modern world, most of the customers are turning to online websites to purchase goods. According to a report released by Deloitte in 2016, e-commerce is the largest contributor to the growth of many traditional retailers such as Wal-Mart. The retailer stood at number four when compared to other online sites such as Amazon which is the market leader. The leading site recorded sales, amounting to 6 times the figure of Wal-Mart. As such, the company needs to work extra harder on this section to show up its sales and catch up with the leading companies to ensure its growth safeguarded. However, the fact that Wal-Mart has a large distribution network is an added advantage to the company. The company can use its branches to supply goods offered online to its customers located in thousands of destinations both in the America and abroad.

Supplier Bargaining Power

The suppliers have a direct impact on the final price of the product. Nonetheless, they have low bargaining power as they depend on the buyers for consumption of their goods and can only do so through cartels such as OPEC (Grant & Jordan, 2012). Unfortunately, most of the suppliers of Wal-Mart are not organized and lack massive effect in the market. Secondly, the company is the leading retailer in the market, especially in the US where its final report shows 78% of the consumers bought goods from the company in 2016 (Wal-Mart, 2016). The great presence and grip of Wal-Mart means that the company has a considerable influence on the supplier prices. As such, the retailer can negotiate for lower prices as the suppliers cannot afford to lose the largest market of their products. According to Fisher College of Business (2013), Wal-Mart has

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