Walmart Porter's Five Forces Essay Example
The retail is the sale of goods to the end customer, not for resale but for use and consumption. Walmart has become the largest and a leading discount retailer in the world from one small store in Kansas due to its uncommon business strategy and its implementation. In the first part of the paper we will analyze discount retail industry with use of the Porter’s Five forces model.
Porter’s Five forces include Suppliers’ Power, New Entrants Threat, Customers’ Power, Substitutes Threat, and Competition Level.
In the discount retail industry Suppliers’ Power is low. They are highly dependent on the industry which has enormously grown for the last decades. The producers have to sell to them to maintain own production levels. There is a big volume effect. In case of Wal-Mart, the margin of the producers is reduced to the minimum possible; these savings are passed on customers.
It is relatively easy to enter the industry; however it is enormously hard to survive in it. With such a low margin on sales and need to grow new entrants suffer losses and merge with larger players. Therefore, we can conclude that in a discount retailing industry threat of new entrees is moderate.
The customers do not have a real bargaining power; however there are no switching costs to change the retailer. Therefore, we can conclude that customer power is moderate.
The substitutes for the discount stores are Departmental, Merchandising, and General stores which have higher prices than discount retailers but are conveniently located. The threat of the substitutes mostly depends on the geographical location of the retailer. Therefore we can conclude that level of threat varies from low to high.
Competition in the industry is very high. There are several major well-established players on the US market; they are Wal-Mart, Costco, Home Depot, K-mart, and Sears. High competition is the main reason for such low margins the discount retailers have.
Overall, the Porter’s analysis of The Five Forces
Porter’s Five forces include Suppliers’ Power, New Entrants Threat, Customers’ Power, Substitutes Threat, and Competition Level.
In the discount retail industry Suppliers’ Power is low. They are highly dependent on the industry which has enormously grown for the last decades. The producers have to sell to them to maintain own production levels. There is a big volume effect. In case of Wal-Mart, the margin of the producers is reduced to the minimum possible; these savings are passed on customers.
It is relatively easy to enter the industry; however it is enormously hard to survive in it. With such a low margin on sales and need to grow new entrants suffer losses and merge with larger players. Therefore, we can conclude that in a discount retailing industry threat of new entrees is moderate.
The customers do not have a real bargaining power; however there are no switching costs to change the retailer. Therefore, we can conclude that customer power is moderate.
The substitutes for the discount stores are Departmental, Merchandising, and General stores which have higher prices than discount retailers but are conveniently located. The threat of the substitutes mostly depends on the geographical location of the retailer. Therefore we can conclude that level of threat varies from low to high.
Competition in the industry is very high. There are several major well-established players on the US market; they are Wal-Mart, Costco, Home Depot, K-mart, and Sears. High competition is the main reason for such low margins the discount retailers have.
Overall, the Porter’s analysis of The Five Forces