Porters 5 forces and SWOT

Topics: Wal-Mart, Retailing, Supermarket Pages: 6 (1505 words) Published: December 6, 2014

Industry Overview
Walmart’s NAICS code is 45291 which is the code for supercenters and warehouse clubs and the SIC code is 5399. Though this is the main code for the overall business of Walmart they fall under several other codes, 452112 discount stores, 445110 supermarkets and other grocery stores, 452990 all other general merchandise stores, 443142 electronic stores, and 446110 pharmacies and drug stores.

Walmart was founded by Sam Walton in 1962 in Rogers, AK. By 1970 Walmart became a publicly traded company. They have grown at an unrivalled rate and are now the world’s largest retailer by sales, mainly impart to the success of their global markets. There is three separate divisions of Walmart, Sam’s Club, Walmart U.S, and Walmart International. Together they add up to 11,000 stores across 27 different countries and employ an estimated 2.2 million “associates.” 2014 brought the highest revenue Walmart has seen in its history, at just over $476 billion, $297 billion of that came from the U.S market, where Walmart holds a dominating 64.4% of the market share. Costco is second in the U.S at 17.1% market share and 2014 revenues of $105.2 billion, less than half of Walmart’s U.S revenues.

Supercenters and warehouse club’s face competition from supermarkets, discount stores, department stores, and general merchandise stores, which leads to a fiercely competitive industry. Many of these external competitors also offer discounted prices on their products and are increasing their availability. Walmart has shifted their focus from opening more supercenters to opening smaller stores, giving them more accessibility to more ideal locations, such as large developed areas where real estate is at a premium and where a large format store would not be welcomed.

Over the last five years leading to 2014 the industry has enjoyed steady growth, largely in part to the recession. Many consumers saw a decrease in disposable income, due to an unstable economy and increases on crude oil, so they sought out the discounted prices of the supercenters and club’s. Though the industry saw a decade of rapid growth, and still is projected to increase 3.4% annually for the next five years, we have seen a decline in product line growth and saturation of the market. Technologies used in the industry have slowed to only improving current inventories, and the industries contribution to the economy has stabilized which points to an industry that is in its mature stage of its life cycle. Porter’s Five Forces

The threat of entry in this industry is low do to the competitive nature and successes of the industry leaders. Walmart has a well-established distribution system which is a key to keeping prices low, this distribution system is next to impossible for a new entry to imitate. Walmart and other top industry companies own and operate in and around the nation’s top cities, and already have the prime real estate in those areas. Walmart, Costco, and Target also have successful house brands to keep prices low and new comers would find it hard to compete without a house brand. It would also take a great deal of capital for a firm to enter this industry and these companies have plenty to deter any new businesses from entering.

Rivalry intensity in this industry is high and potential growth is slow. Walmart deals with the manufacturers directly instead of using wholesalers to give deep discounts to their customers. This forces other companies to lower their prices to attract customers. By lowering prices companies are constantly looking for ways to cut costs, whether it be special buys, or exclusive products companies are under cutting each other and are fiercely battling for market share.

The threat of substitution is high in the industry because of the competitive nature of the business. Though Walmart’s “Every day low price” model is effective for the price conscience customer, most competitors prices are equal or close to Walmart’s prices....
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