Walmart

Walmart is one of the success stories in the retail business.  As a new entrant in the retail industry in 1960’s, the company emphasized low cost and good customer service to be the core value of its business.  It has followed this strategy of low cost and good customer service for the last 50 years. Walmart has now more revenues and employs more employees than any other company in the world including the federal government.

Brief discussion on the industry outlook (Porter’s five )

We conclude that for the average retailer, the industry is unattractive principally because of intense internal rivalry among principal retailers and the low switching cost for end customers.

Suppliers – Weak Power

The suppliers of consumer goods have very little power in this industry.  The availability of alternative suppliers the consumer goods are like commodities and substitutes are readily available.  Retailers have also high power of negotiation due to high volume purchased.  Company like Walmart is very important to the suppliers.

Buyers – Average power

The consumer has significant power because of the ready availability of substitutes, the ease of switching between different stores and perhaps lack of real differentiation among retailers

Internal Rivalry – Strong

Competition is fierce among discount retailers.  The reason for this lack of differentiation in product offerings, low switching costs for end consumers, and other strategies that aim in increasing market share at the expense of profitability.

Substitute – moderate

A number of substitutes are available for consumers from retailers having different formats: food-supermarket, local grocery stores, department stores, specialty stores or direct sales channels.  Retail discounters have to track that their prices are lower than above stores to attract customers to come to their stores.

Barriers to entry - high

Volume is essential to survive as a discount retailer. A new entrant must achieve substantial market share to achieve minimum efficient scale

Financial performance of Walmart stores compared to other retailers:

Walmart has implemented one of the best well managed system in the retail industry. This system has sparked one of the highest growth rates in the retail industry.  As a small unknown player in the rural Arkansas in the 1960’s, it is now the giant gorilla in the retail industry.  Walmart stores generate over $400 billion per year in sales and employ 2.2 Million personnel today. Most of the competitors of Walmart in the 80’s and 90’s went into bankruptcy or were bought out by other rivals. As figure 1 &2 indicate, Walmart had the highest revenue and the highest five year average equity return in the retail industry in 1993.