Walmart Porter’s 5 Five Forces (2021)


Company Overview:

Walmart is a retail company that was founded in Bentonville, Arkansas, USA on July 2, 1962, by Sam Walton. It began as a one-stop shopping center and has since grown to become the world’s third-largest global corporation with over 11,000 stores and clubs worldwide. Walmart strives for everyday low prices and provides its customers with a family-oriented atmosphere. Walmart has been able to expand globally by utilizing its size, purchasing power, and superior business format. In the United States, Walmart generated over $340 billion in revenue for the fiscal year ending January 31, 2018 (Walmart Fiscal Year). They employed 2.3 million associates around the world and 1.5 million in the United States. Walmart is the largest private employer in the world, with over 1.5 million associates across all 50 states in America (Walmart Company Profile). Now let’s go over the company’s Porter Five Forces Model.

 

 

Walmart Competitive Rivalry:

 

Competitive rivalry within an industry is the pressure that competitors exert on each other to get a larger share of the market. The retail industry is very fragmented with no one company having a dominant market share. The top four retailers, Walmart, Target, Costco, and Amazon, account for less than 25% of the total retail market. This fragmentation provides opportunities for companies to differentiate themselves and gain market share. For example, Walmart has been able to establish an international presence by utilizing its size and superior business format. Globalization allows companies, such as Walmart, to increase productivity by expanding their market reach and reducing their costs. Walmart’s International Division recently built a new Distribution Center in the United Kingdom which was one of the first facilities built specifically for European customers.

 

 

Walmart bargaining power of buyers:

 

is the most influential competitive force in this industry; Walmart is concerned with free-riders who may take advantage of their lower prices without returning the favor. As more competitors emerge, there will be increased pressure on pricing, which will lead to margin erosion if Walmart fails to adjust. If an industry appears unattractive or too risky for new entrants, then existing competitors are likely to be the only long-term players. On the contrary, if barriers to entry are low, current competitors may face aggressive new competition, which will put further pressure on prices and margins.

 

Walmart bargaining power of suppliers:

 

 

It is often considered one of the forces that shape an industry’s economic characteristics. Suppliers to Walmart represent a large portion of the total cost and their demands can be very sensitive to changes in Walmart’s business conditions. Today, suppliers are highly fragmented and pose no supply risk to Walmart; therefore, they do not have bargaining power over them. There is intense competition among retailers; companies like Walmart compete with other retailers to get customers but also compete amongst themselves for market share. Each company attempts to retain its current customers and attract new ones by offering competitive prices. This dynamic has enabled large retailers like Walmart, Target, and Costco to outsell mid-sized competitors because of their buying power and close relationships with suppliers. In order for a new competitor to emerge in this industry, they would need to have comparable negotiating power with suppliers and buyers. Walmart’s relationship with its employees is a potential source of competitive advantage or disadvantage depending on external labor market conditions. If the labor market tightened, Walmart’s human resource managers could be pressured to increase wages and benefits to recruit and retain employees or risk losing them to other companies. This would lead to higher labor costs as Walmart would need to continuously pay a premium wage as compared to their competitors. In the United States, Walmart has been able to expand globally by utilizing its size, purchasing power, and superior business format to lower costs and drive revenues; its retail model can be very difficult to replicate.

 

Walmart Τhreat of New Entrants:

 

The threat of new entrants into a market is a threat to an organization’s market share. New entrants seek markets that are not occupied, have high growth rates, and/or have high returns. Walmart has been able to expand globally by utilizing its size, purchasing power, and superior business format to lower costs and drive revenues; its retail model can be very difficult to replicate. Walmart has also been able to establish an international presence by utilizing its size and superior business format. Walmart’s International Division recently built a new Distribution Center in the United Kingdom which was one of the first facilities built specifically for European customers. This demonstrates the extent to which Walmart has prioritized international expansion. This level of commitment makes it difficult for anyone but well-financed organizations like Walmart, with large economies of scale already, to compete in this market.

 

Walmart Threats of Substitutes:

 

The threat of substitute products or services is the degree to which customers can switch from one product or service to another as a means of reducing their purchases or obtaining better value for money. Walmart has a few substitutes which are other large retailers, such as Target or Costco. These companies offer similar products and services at a similar price point. Additionally, consumers may purchase items online from retailers such as Amazon.com, which offers convenience and often lower prices.

 

Walmart Porter’s Five Forces Conclusion: 

 

Overall, Walmart has been able to maintain a strong position in the retail industry by utilizing its size, purchasing power, and superior business format. The company has also been able to differentiate itself by expanding globally and investing in new distribution centers. While the retail industry is fragmented, Walmart has been able to gain market share by being one of the first to enter new markets. The competitive rivalry within the industry is high, but Walmart has been able to maintain its leading position. The threat of substitutes is low, as customers are reluctant to switch from one product or service to another. The bargaining power of suppliers is also low as Walmart accounts for a large percentage of their business. The bargaining power of buyers is high, as there are many retailers in the industry. 

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