Wal*Mart
Written Analysis of Case – Wal*Mart Stores, Inc 1. To what extent can Wal-Mart’s performance be explained in terms of industry structure, and to what extent in terms of its competitive position?
In assessing industry structure I have focussed primarily on Wal*Mart’s core business of the US discount store industry. Relevant aspects of Wal*Mart’s diversification into wholesale clubs and supercentres are also considered – although it could be argued that the dynamics of both (particularly the supercentre business) are separate to discount stores. Using the model developed by Porter (2008), the key elements of the economic forces influencing the industry can be summarised as follows: * Intense price rivalry in a market dominated by the top 3 players * Strong buyer power among a price-sensitive buying segment * Substitutes readily available and increasingly able to challenge on prices (threat is mitigated by Wal*Mart’s ability to imitate substitutes, as with Sam’s Clubs) * Weak supplier power; tempered to a degree by symbiotic technological relationships and brand power * Threat of entry encouraged by recent high growth; deterred by high capital investments for large-scale entry and expected retaliation.
Overall, the industry is highly competitive, with average operating margins tight at 3.9% of sales (Bradley & Ghemawat, 2002).
Within this industry structure, Wal*Mart relies on competitive position to achieve strong performance. Wal*Mart has adopted a combination of needs-based and access-based strategic positioning (Porter, 1996). The firm aims to capture a particular segment of price-sensitive customers by tailoring its products to meet local market needs. Wal*Mart also chooses its store locations to be an unchallenged provider of discount goods and positions itself as a reliable, consumer-friendly retailer which guarantees lowest prices.
2. Where does Wal-Mart’s competitive advantage come from – higher willing-to-pay or
In assessing industry structure I have focussed primarily on Wal*Mart’s core business of the US discount store industry. Relevant aspects of Wal*Mart’s diversification into wholesale clubs and supercentres are also considered – although it could be argued that the dynamics of both (particularly the supercentre business) are separate to discount stores. Using the model developed by Porter (2008), the key elements of the economic forces influencing the industry can be summarised as follows: * Intense price rivalry in a market dominated by the top 3 players * Strong buyer power among a price-sensitive buying segment * Substitutes readily available and increasingly able to challenge on prices (threat is mitigated by Wal*Mart’s ability to imitate substitutes, as with Sam’s Clubs) * Weak supplier power; tempered to a degree by symbiotic technological relationships and brand power * Threat of entry encouraged by recent high growth; deterred by high capital investments for large-scale entry and expected retaliation.
Overall, the industry is highly competitive, with average operating margins tight at 3.9% of sales (Bradley & Ghemawat, 2002).
Within this industry structure, Wal*Mart relies on competitive position to achieve strong performance. Wal*Mart has adopted a combination of needs-based and access-based strategic positioning (Porter, 1996). The firm aims to capture a particular segment of price-sensitive customers by tailoring its products to meet local market needs. Wal*Mart also chooses its store locations to be an unchallenged provider of discount goods and positions itself as a reliable, consumer-friendly retailer which guarantees lowest prices.
2. Where does Wal-Mart’s competitive advantage come from – higher willing-to-pay or