Walmart Stores in 2003

Question 1:

Wal Mart’s main drivers of profitability could be analyzed in details by using Porter’s Five Forces as below.

Threat of suppliers (LOW)

The main Wal-Mart’s suppliers are those manufacturers or firms who can provide their merchandises/products to Wal-Mart and then rely on their retail stores to sell those stuffs to the customers or end buyers. Basically, Wal-Mart is the largest discount retailing in the U.S who has the bargaining power over their suppliers. Furthermore, the negotiations with suppliers focused on a single price on the invoice, which was to include return managements fees, cooperative advertising, and promotional spending. Obviously, Wal-Mart has the ability to increase its profitability by lowering the costs.

Threat of buyers (LOW)

Wal-Mart takes the lead in the industry by expanding stores even in a space-constrained suburban and covering most of the area they could, just in order to provide essential and necessary groceries to those who may need. More than 80% of U.S. households had made at least one purchase at Wal-Mart in 2002. Therefore, each stores that Wal-Mart opened has a solid and stable customer base to maintain their revenues. Furthermore, one of the major incentives for people to keep visiting Wal-Mart is that they are capable to offer cheaper products than their competitors.  

Threat of entrants (LOW)

Although it is not difficult to set up a discount retailing as long as having a start-up capital, a well-organized system is difficult to be imitated. The business model for retailing could be explained in a simple way: expand stores, and ask suppliers to provide merchandise as low as possible, and then find ways to attract customers to visit and buy. The thing is how to development a system to control the inventories efficiently, and logistic for the merchandise is needed to be allocated carefully as well, and the brand recognition needs time to establish etc. Those developments are costly and hard to achieve successfully, hence, it is not easy for new entrants to become mature and sustainable, or to constitute a threat to current well-established players.

Threat of substitutes (LOW)

Wal-Mart offers a wide range variety of goods and services. Although some substitutes to Wal-Mart’s products are probably readily available, it is somewhat difficult for buyers to move away from Wal-Mart because of the price. Most of the people go to Wal-Mart for groceries rather than luxury goods, there is no point to spend more money for the same product with same quality in the other place. Thus, I would consider the risk of substitutes is low because people cannot live without those discount retailing.

Threat of rivals (MODERATE)

The retailing industry is intense because of the strong competition. There are many firms of different sizes competing in the industry. Not only the big firms, like K-Mart or Target, but also some convenient stores or small-size supermarkets. The companies must remain aggressive to survive. However, while Wal-Mart is the industry leader with the bargaining power and efficient system, which is not easy to be imitated, it may still keep its position and be profitable.

Question 2: