Diseconomies at Walmart

Diseconomies at Wal-Mart

The clothing section

Wal-Mart as a retail organization, has displayed immense market leadership. It is based on various strong elements like its supply chain and logistics network, its range of products and brand identity which provide it with economies of scale. These elements are extremely useful for Wal-Mart to develop its strategies.

The clothing section of Wal-Mart exhibits high levels of diseconomies of scale. These products do not have a high demand and so a very small stock of it has to be maintained. Moreover in case of the ordering of economic quantity and taking advantage of the price benefits it leads to high inventory stocks and also the risk of the goods becoming out of fashion, especially in case of the clothes which cater to specific fads.

The source of the scale of economy in this case is that there should be sufficient demand so that the goods can be ordered in bulk and special discounts can be availed. There are several techniques to ensure that the demand is increased and one of the main ways includes advertising in order to attract customers. This would help Wal-Mart be able to increase their sales to a great extent and then they can avail economy of scale.

Wal-Mart can convert this diseconomy of scale into economy of scale and benefit out of the cost efficiency that is obtained from this process. The economy of scale can then be utilized for the purpose of ensuring that there is competitiveness and competencies that can be achieved. In case of Wal-Mart not being able to achieve economies of scale, it will lead to them having to liquidate this section.