This is a case analysis of Wal-Mart, the largest retailer in Mexico and North America. Wal-Mart controls a large portion of the markets in which its products are sold, enabling Wal-Mart to maintain its core value of delivering low prices through eliminating the bargaining power of suppliers and buyers, developing innovative technology to maintain competitive advantage, and thus creating incredibly high barriers for new entrants.
Wal-Mart’s core value - delivering low prices - has proved successful in creating the largest and most powerful company in history. From 2001-2006, Wal-Mart opened an average of sixteen new supercenters per month, one every business day in 2005 (Fishman, 2006). Ghemawat (2004, cited by Lichtenstein, (2006)) estimated that Wal-Mart’s sales will top one trillion dollars per year within a decade. ￼
Academic research journals were used extensively to collect data. The report intends to flow through various tactics applied by Wal-Mart to gain a better comprehension of its business model (Casadesus-Masanell and Ricart, 2010). Tactics will be analyzed with reference to the importance of Porter’s five forces on Wal-Mart’s strategic positions.
Wal-Mart’s success has allowed the company to gain control of at least 30% of the entire market in many categories of products it sells, causing suppliers to have no bargaining power. Wal-Mart squeezes its suppliers to deliver merchandise at the lowest possible price by threatening to take away their business. For example, Wal-Mart is bigger than Proctor and Gamble’s next nine customers combined. “Wal-Mart’s suppliers can’t consider themselves serious players ... unless they are doing business with Wal-Mart. Once they are doing business with Wal-Mart, though, they are doing business on Wal-Mart’s terms because the company already dominates whatever business their suppliers are in” (Fishman, 2006, p. 20). This reverse control of the bargaining power of suppliers is crucial to Wal-Mart’s strategy of low prices.
Wal-Mart’s advantage of controlling the market has proved to be inimitable to even the most astute competitors, so that Wal-Mart has no rivals. Each year, Wal-Mart sells more by St. Patrick’s Day than Target, its nearest direct rival, sells all year (Fishman, 2006). The merger of Sears and Kmart is explained by Porter (1996) to be the companies’ attempt to grasp at survival, lacking strategic vison and real advantage, in the face of Wal-Mart’s relentless competence. “Two indicators of retailing efficiency are the percentage of sales revenues consumed by cost of goods sold (CGS) and by expenses for selling and general administration (SGA)” (Hoopes, 2006, p.93). ￼ ￼
When comparing numbers for Wal-Mart and competitors in 1993 and 2003, it is evident that Wal-Mart is continually at the leading edge of operational effectiveness (Porter, 1996), as SGA is an indicator of the efficiency of internal operations. The increase in CGS is caused by the introduction of grocers into the supercenters (Hoopes, 2006).
As the largest retailer in the US, Canada, and Mexico, and second largest in the UK (Fishman, 2006), Wal-Mart’s attempts to expand into other global markets have sometimes failed because of high barriers that were incompatible with Wal-Mart’s business model. Wal-Mart is estimated to have lost about $250 million a year since acquiring various German stores in 1997 and 1998. In Germany, Wal-Mart cannot achieve a competitive advantage due to strict planning and zoning regulations hindering the production of huge supercenters. Most importantly, anti-trust regulations have restricted price competiton, preventing Wal-Mart from putting pressure on German suppliers (Lichtenstein, 2006). This low threat of new entry to the German retail market is an important learning experience that in order to continue expansion, the company must create stretch and be open to new strategies more suitable to the competitive environment (Hamel and Prahalad, 1993).
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