Walmart's Suppliers have little power because of the sheer size of Walmart, and because being a Walmart supplier can provide huge sales potential. The suppliers must do what Walmart wants regarding business processes and technical requirements. They will also be pressured for lower prices, which may cause the suppliers to move production to lower priced labor markets.
The threat of substitute products means that customers can go elsewhere for the same or substitute items. There could be some threat here only because of web based stores as they may be able to have lower prices because of low overhead,
Threat of new entrants in the Brick and Mortar Store area is low, because of the costs involved in building stores and the infrastructure to support the business processes. New entrants in the Internet market would be high, because of the low costs involved and the potential to specialize in different areas with especially low prices.
Rivalry between competitors at a store level would be high and could be affected by the breadth of products and quality of customer service or even the cleanliness and appearance of the store. On a company level, Walmart’s Sales are $418 Billion and Target, their closest competitor’s has annual sales of $67 Billion, so while it may seem there is a large rivalry, the size of Walmart limits the threat.
For new entrants to compete with the Supplier:
If we look at the Five Forces Model from a Walmart Supplier’s perspective, we see that the Buyer Power that Walmart exerts is very high, because they will switch suppliers or eliminate the product if the pricing and process are not what they want.
The Supplier Power of the Supplier’s Supplier is low, because if they do not adhere to economic processes and furnish their products at low prices the Walmart Supplier cannot meet the requirements of Walmart.
Threat of new entrants will be high, because in this case we are not talking about new startup companies, but rather companies that want to enter the competition for sales to Walmart or foreign affiliates of US companies that can supply the same items cheaper. These would be existing companies who can supply products the same or similar to the ones that we supply. School supplies, clothing, shoes and healthcare products for instance.
Threat of substitute products is high because of Walmart’s concentration on price, low cost domestic and foreign substitutes would provide a significant concern.
Rivalry, would be high with similar companies because of the size of the potential sales and the limited shelf space. Faster service, better processes, lower prices or higher quality would be areas where the rivalry would take place.
When we looked at the Walmart Business Model we identified the relative importance of the Direct Variables and noted that the two most important are Suppliers and Customers. If we look at page 20 in the text, we can see that the Generic Strategy for Walmart is in the upper left quadrant, Broad Market and Low Cost, and these make sense looking at the variables, Customers and Suppliers. (Baltzan, 2012)
The broad market will bring in the largest number of buyers, which would have the effect of lowering buyer power. The Low Cost indicates that many things could affect Walmart’s costs, but their biggest Cost is for the goods that they sell and therefore the Suppliers are important and Walmart uses their size to decrease the Supplier power. The Generic Strategy identified makes sense.
Therefore, that would indicate that two strategic areas of higher concern for Walmart would be Supplier...