Blog - Page 18 of 19 - Porter's Five Forces

PORTER’S FIVE FORCES ANALYSIS OF WALMART COMPANY Key Facts Name Walmart Stores, Inc. Industry Retail and wholesale business. Founded July 2, 1962. Headquarters Bentonville, Arkansas, USA. CEO Carl Douglas McMillon. Revenues US $559.151billion for 2021 and US $ 447.241 billion till third quarter 2022. Profit US $ 13.510billion for 2021 and US $ 5.405 billion till third quarter 2022. Year end 31ST January. Competitors Costco, Amazon, Target, Rakuten and Sears Holdings Corporation. Company Overview On July 2, 1962, Sam Walton opens the first Walmart store in Rogers, Arkansas. Walmart scales InHome Delivery reaching 30 million U.S. homes.Walmart operates approximately 10,500 stores and clubs under 46 banners in 24 countries and eCommerce websites. The company employ 2.3 million associates around the world — nearly 1.6 million in the U.S. alone. Walmart's 210 distribution centers are hubs of activity for their business. Their distribution operation is one of the largest in the world servicing stores, clubs and direct delivery to customers. Walmart's transportation has a fleet of 9,000 tractors, 80,000 trailers and more than 11,000 drivers. Its reported revenues are $ US447.241 billion with net profit of $ US 5.405 billion as at third quarter ended October 2022. Walmart Health expands to Florida. Walmart's Project Gigaton initiative surpasses halfway mark. Porter’s Five Forces Analysis Porter’s Five Forces Analysis is a widely used model to evaluate companies’ strategies in reference to its industry for neutralizing the competition and increase the margins, it is developed by Professor Michael E. Porter in 1979, at Harvard Business School. Walmart Rivalry among Existing Competitor Walmart Business Segments: The Company operates through three segments: Walmart U.S., Walmart International and Sam's Club. The Walmart U.S. segment is a merchandiser of consumer products, operating under the Walmart and Walmart Neighborhood Market brands, as well as walmart.com and other e-commerce brands, and it operates in the United States.Walmart International delivers on this promise by bringing value and convenience to millions of customers in 19 countries outside the U.S. Walmart International has more than 5,100 retail units and approximately 550,000 associates around the world. Additionally, Walmart Global Sourcing works with manufacturers to sell their products including apparel, homeware, jewelry, hardlines and more throughout the world. Upholding Walmart’s reputation as the world’s most trusted retailer, Global Sourcing regularly audits suppliers’ practices and works with them through the Walmart Responsible Sourcing Program to help them meet Walmart’s high standards. Walmart Global Operations Year 2022: Company delivered strong revenue growth globally, withstrength in Walmart U.S., Sam’s Club U.S., Flipkart, and Walmex. Total revenue was $152.8 billion, up 8.7%, or9.8% in constant currency.Walmart U.S. comp. sales grew 8.2% and 17.4% on a two-year stack. eCommerce growth was 16% and 24% on a two-year stack. Continued to gain market share in grocery. Sam’s Club comp. sales increased 10.0%, and 23.9% on atwo-year stack. Membership income increased 8.0% with member count reaching an all-time high. Walmart International net sales were $25.3 billion, an increase of $1.7 billion, or 7.1%, negatively affected by $1.5 billion from currency fluctuations. Segment operating income led by double-digit growth for Walmex. Costco Wholesale Corporation is a major competitor with an annual revenue of US $ 226,954 million and net profit of US $ 5,844 million for year ended August 2022.Costco opened 26 new warehouses, including 3 relocations: 14 net new in the U.S., 2 net new in Canadian segment, and 7 new in Other International segment, compared to 22 new warehouses, including 2 relocations in 2021. Net sales increased 16% to $222,730 driven by a 14% increase in comparable sales and sales at new warehouses opened in 2021 and 2022.Membership fee revenue increased 9% to $4,224, driven by new member sign-ups, upgrades to Executive membership, and an increase in renewal rate.Net income increased 17% to $5,844, or $13.14 per diluted share compared to $5,007, or $11.27 per diluted share in 2021.In June 2022, the Company paid a cash dividend of $208 and purchased the remaining equity interest of its Taiwan operations from its former joint-venture partner for $842, totaling $1,050 in the aggregate and In April 2022, the Board of Directors approved an increase in the quarterly cash dividend from $0.79 to $0.90 per share.Net sales increased $30,678 or 16% during 2022. TargetCorporation is also a major competitor with revenue of $ US 77,725 million and $ US 1,904 million for quarter ended October 2022.The company’s comparable sales increased 2.7 percent, on top of 12.7 percent growth last year. Comparable sales growth was driven by 1.4 percent traffic growth and a 1.3 percent increase in average ticket. Category performance was led by growth in frequency businesses including Beauty, Food and Beverage and Household Essentials, which offset continued softness in discretionary categories. The Company saw unit share gains across all five core merchandising categories. Third quarter operating margin rate of 3.9 percent improved meaningfully compared with the second quarter results. At the end of the financial year 2021, Target operated more than 1,900 stores across the United States. . Recently, Target launched a beauty range in partnership with Ulta Beauty at dedicated shops in select Target stores and on target.com.The Company announced an enterprise initiative to simplify and gain efficiencies across its business, representing an estimated cumulative savings opportunity of $2 to $3 billion over the next three years. Walmart Threat of New Entrants Global Retail Industry: According to analysts’ projections, the retail industry’s growth is expected to slow slightly this year. 2023’s retail industry growth forecast is just fractionally lower at 4.5%. This is set to slow further to 4.2% and 3.9% in 2024 and 2025, respectively. In 2026, the global retail industry’s growth rate is forecast at 3.4%—the slowest growth rate expected from 2021 to 2026.Overall, in the period from 2020 to 2026, the average annual retail industry growth rate is expected at approximately 4.3% as total retail sales worldwiderise from $24.7 trillion in 2020 to a projected $33.9 trillion in 2026 High Capital Investment: The existing retailers invest a lot in sales and marketing, distribution, and product development. If another party wants to join the industry, they should put down a huge amount of initial capital to compete against existing players. Economies ofScale : The existing giants like Walmart, Target etc. have economies of scale i.e. there average cost is lower due to production of items in large quantities leading to lower cost. New entrants will therefore be unable to compete due to high cost. Government Regulations: New entrants will have to comply with rules and regulations such as licensing etc. which would create high barriers to entry. Walmart Bargaining Power of Suppliers Large Number of Suppliers: There are large number of suppliers in the retail industry. Hence there is a tough competition between suppliers, this makes it difficult for them to affect the retail industry. Suppliers Collaboration: Walmarthas a supplier network of more than 100,000supplying to millions of customers in 19 countries outside the US. The company has close ties and collaboration with the suppliers, the Walmart Supply Chain principles take an expanded view at how greater collaboration with suppliers can strengthen relationships that yield improved performance, on-time delivery, and affordability. Walmart Bargaining Power of Buyers Large Number of Buyers: In fiscal year 2022, there were approximately 230 million customer visits each week to Walmart stores throughout the world, down from 240 million on a weekly average a year earlier.Though the number of buyer is large and has strong forces but the individual purchase amount is too small. Therefore; there is aweak pressure that buyers can impose in this industry .The purchase of each buyer is also diversified that cannot force on the firms under this industry. Customer Satisfaction - After Sales Services: In case of wholesale and retail industry after sales service includes on time delivery, easy return and exchange of products etc. The better these services, the greater customer satisfaction.However; customer satisfaction with Walmart was lower than the national average for supermarkets in the United States in 2020. Walmart recorded an index score of 71, which was five index points below the average supermarket rating of 76. Therefore; Walmart needs to focus on increasing its customer satisfaction. Switching Cost: Buyers caneasily switch from one supplier to another because of the easy availability of plenty of substitutes with better price offerings, volumes purchased by the buyers, sensitivity towards the pricing/cost related factors and poor loyalty towards the brand. Walmart Threat of Substitute Products or Services: Substitutes for retail products are not available in any other industry. The threat of substitute exist among the firms in the industry for e.g. people can shift from Walmart to Costco. Hence; force is strong. However there is a variety of products in the retail sector and there is no other way to shift. References Basic information about Walmart, Walmart History about Walmart, Walmart history Third quarter financial statements of Walmart,Walmart Costco financial information for financial year 2022, Costco Third quarter financial statements of Target,Target Walmart financial information for the year 2021, Walmart Statista(June 1,2022)|Statistics and facts about Target’s sale and stores| Available atStatista Oberlo | Statistics about global industry growth rate 2020 to 2026| Available at Oberlo Statista (March 25,2022)| Walmartweekly customer visits to stores worldwide FY2017-FY2022| Available at Statista Statista(Sept. 8,2022)| U.S. supermarket consumer satisfaction: Walmart 2008-2020| Available at Statista.