Wal-Mart, The Discount Retail Industry

 

The Discount Retail Industry, definitely seems an attractive market, although if assessed using Porters five forces analysis, the market still shows numerous potential for revenue and profit generation, but is not really conducive for small scale investors.

1. Threat of New Competition
2. Existence of barriers: There are no established barriers such as rights or patents that may prevent either entry or exit of new firms or non performing firms respectively.
3. Economies of product differences do not apply in the discount retail industry, more so due to the launching of supercenters which ensure an even greater variety of products.

• In terms of branding and customer loyalty, super stores such as Wal-Mart and K-Mart amongst others usually have a loyal customer base, and may actually gain competitive advantage due to this, making gaining a market share for new investors a bit difficult.

1. Perhaps the greatest impediment to entry into the discount retail market, would be capital, as the economies of scale really do apply.
2. Rivalry
3. Intense rivalry does exist within the industry, with Wal-Mart forging ahead of its competitors but currently struggling to keep up the impressive growth rates recorded earlier.
4. The lack of differential advantage or major price differences amongst competitors further worsens the competition

• Some such as Wal-Mart have been able to gain competitive advantage through innovation, with the example of bar-coding

1. Volume does give Wal-Mart a massive competitive advantage, with the supercenters providing a greater variety of products thus increased flexibility preferred by the customers.
2. Buyers
3. Uniqueness does not apply
4. Price sensitivity is a significant but not critical factor

• Information availability is increasingly becoming a factor, more so with the advent of online shopping

1. The stores are not very dependent on single channels of distribution, due to the fact that they are widely situated.
2. The power of customers to determine price is minimal.
3. Suppliers
4. The fact that the stores are capable of dealing with a variety of suppliers limits the power of suppliers to influence prices.
5. The fact that these stores in the discount retail market form a significant market for suppliers, means increased supplier competition, which has the effect of driving prices downwards
6. Substitutes
7. The diversity of what discount retail entails, means that finding substitutes to it would be difficult, eliminating the threat of substitutions.

 

Question 2

Wal-Marts competitive advantages lie in:

1. Purchasing: Due to its size, Wal-Mart is able to better negotiate with its supplies and obtain significant advantages when it comes to purchasing, both in terms of pricing and credit facilities. These economies of scale therefore result in reduced costs
2. Human Resource Management: Wal-Mart utilizes temporary employees and does not allow its permanent employees to join trade unions. Overall labor costs are therefore lowered, as it is able to eliminate pension related costs and healthcare costs.

• Information Technology: The utilization of cutting edge technology in its inventory process has constantly provided Wal-Mart with a competitive advantage over the others, while reducing costs. Measures such as bar-coding, and the utilization of an electronic data interchange system that connects distribution centers directly to suppliers, have ensured strict control and timely delivery of goods

1. Distribution: The establishment of super centers (super stores), has given the company immense advantage, as it provides the customers with a unique shopping environment, as well as the opportunity to shop under one roof.

 

 

 

 

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