Wal-Mart 5 Forces Analysis
BARGAINING POWER OF SUPPLIERS
The main items that Wal-Mart procures to pursue its operations can be classified into 3 main categories of merchandise, labor, and stores. Given the size of Wal-Mart’s operations and its focus on continuous cost improvement, none of these suppliers have significant bargaining power on Wal-Mart. When analyzed in detail: * Merchandises * As the biggest retailer in U.S. with up to 30% market share in some categories, Wal-Mart is the single biggest buyer for most of the product categories it sells/purchases. * In order to fulfill its strategy of providing low prices to its customers, Wal-Mart is very much focused on its costs and spends major effort to continuously improve its cost base. * Overtime, Wal-Mart also became more interested in developing cheaper cross-border suppliers and providing private label products to its customers.
When combined, all these factors reduce the bargaining power of all merchandise suppliers, even the bigger ones like P&G (Wal-Mart is P&G’s by far largest customer constituting 17% of total revenues, while P&G is only less than 3% of Wal-Mart’s total revenue) significantly. Also, merchandise suppliers don’t exert any threat of forward or backward integration on Wal-Mart. * Labor * Given the size of its operations, Wal-Mart is the world’s largest employer with 1.4 million employees. * Majority of the employees working for Wal-Mart are non-unionized, unspecialized, and easily replaceable.
Therefore bargaining power of labor is also very low, without any risk of forward or backward integration. Actually, this is already reflected in their current compensation level of an average of less than $14,000 for full-time associates, which is less than the federal poverty line of $14,630 for a family of three. * Stores * Wal-Mart operates 73% of whole retail stores in U.S. * Majority of the stores are located in small-towns or rural America.
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The main items that Wal-Mart procures to pursue its operations can be classified into 3 main categories of merchandise, labor, and stores. Given the size of Wal-Mart’s operations and its focus on continuous cost improvement, none of these suppliers have significant bargaining power on Wal-Mart. When analyzed in detail: * Merchandises * As the biggest retailer in U.S. with up to 30% market share in some categories, Wal-Mart is the single biggest buyer for most of the product categories it sells/purchases. * In order to fulfill its strategy of providing low prices to its customers, Wal-Mart is very much focused on its costs and spends major effort to continuously improve its cost base. * Overtime, Wal-Mart also became more interested in developing cheaper cross-border suppliers and providing private label products to its customers.
When combined, all these factors reduce the bargaining power of all merchandise suppliers, even the bigger ones like P&G (Wal-Mart is P&G’s by far largest customer constituting 17% of total revenues, while P&G is only less than 3% of Wal-Mart’s total revenue) significantly. Also, merchandise suppliers don’t exert any threat of forward or backward integration on Wal-Mart. * Labor * Given the size of its operations, Wal-Mart is the world’s largest employer with 1.4 million employees. * Majority of the employees working for Wal-Mart are non-unionized, unspecialized, and easily replaceable.
Therefore bargaining power of labor is also very low, without any risk of forward or backward integration. Actually, this is already reflected in their current compensation level of an average of less than $14,000 for full-time associates, which is less than the federal poverty line of $14,630 for a family of three. * Stores * Wal-Mart operates 73% of whole retail stores in U.S. * Majority of the stores are located in small-towns or rural America.
As the availability of