Retailers purchase merchandise from manufacturers in large quantities for resale to consumers at a profit. The domestic Retail Store industry is mature and highly competitive.
We can use the Porter’s five forces analysis to assess the attractiveness of Retail industry and its profitability in long run:
Threat of New Entrants
The number of independent retailers has been decreasing over the years; most of the retailers are chain stores nowadays. The vertical structure and centralized buying of the existing chain retailer established a competitive advantage that stops independent retailer to enter the industry. Also the difficulties for independent retailer to find favorable suppliers, rents and be competitive block the road for new entrants.
Bargaining Power of Suppliers
Suppliers have very little bargaining power in retail industry. Big retailer such as Wal-Mart have always been exploiting suppliers, a contract with WM can either make or break a small supplier. As a result, strict control by client and razor thin margin are normally what suppliers get.
Bargaining Power of Buyers
Individual customer has little bargaining power against retailers. Retailers won’t react accordingly unless customers all together demand a better quality at bargain price.
Retail is about dealing in a wide range of products and services. Instead of providing a substitute, retailers offering broader range and unique products are going to have a definite advantage over other retailers.
Competition has always been stiff between retailers. They have to fight for every market share in this slow growth and mature market. In order to avoid the cutthroat pricing competition, the retailers have tried to gain customer’s loyalty by offering them membership cards and other special services.
The Porter’s analysis showed the industry isn’t attractive for new entrants but Wal-Mart, as an existing main player in the... [continues]
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