Wal-Mart Industry Analysis Essay Example

development and growth while the global supply chain allows adaptability to market changes and manages marketing risks.

Despite its use of advanced technologies to monitor and control goods from suppliers to stores, Wal-Mart's supply chain efficiency is not immune to weaknesses inherent in its business strategy. Specifically, the company's cost leadership approach results in thin profit margins that competitors can easily replicate.

Wal-Mart aims to maintain affordable prices for their customers, resulting in lower profit margins and a higher reliance on sales volume. This strategy can be easily replicated, thus lacking uniqueness in comparison to other retailers. However, Wal-Mart's business size is unmatched.

There are multiple opportunities available to Wal-Mart, which are closely related to the current global economic situation. These include expanding and enhancing business practices, as well as resolving human resources issues. Among these opportunities, Wal-Mart can take advantage of developing markets in various countries, while simultaneously improving their human resources practices and product quality. Gielens and Dekimpe (2001) suggest that retailers have a higher probability of success in international expansion if they enter foreign markets first.

Wal-Mart has the opportunity to expand its business in developing countries due to their rapid economic growth. Improving their human resource practices can positively impact public opinion on their employment practices. Additionally, they have the chance to enhance the quality of their products, as some of them may have negative effects on health due to low cost and low quality. However, there are also threats facing Wal-Mart from the market environment and consumer preferences. These include aggressive competition from other retailers who may employ similar marketing strategies to steal customers from Wal-Mart, as well as the growing trend of healthy

lifestyles and individuals selling products online.

Despite the opportunity for Wal-Mart to enhance its product quality standards in response to the trend towards healthy living, it faces a greater threat as many of its offerings are not healthful and there is no focus on selling healthful products. Furthermore, competitors offer a wider range of healthy options. The Sweden National Board of Trade (2012) highlights that e-commerce has grown exponentially, offering businesses the chance to connect with foreign customers electronically. In today's online world, sellers can provide items at reduced prices through online marketplaces which could pose a significant challenge to retail markets.

Wal-Mart's performance can be better understood by using business analysis tools, one of which is Porter's five forces. This tool reviews important factors and helps managers determine whether the company can make profits in the short and long term based on their analysis of competition. Managers can then use various strategies to overcome challenges that the company may face. Michael Porter designed this model in 1980, and it is currently utilized in industrial analysis by managers.

According to Michael Porter (1980), the existence of substitute products can be a major danger for companies as it can result in reduced sales, revenue, and profits. This is especially concerning since maximizing profits is typically a company's main goal. Grant and Jordan (2012) further emphasize that the presence of alternative products impacts consumer pricing in all industries.

Although Wal-Mart is the largest retailer worldwide, it does not offer a global selection of clothing, electronics, and groceries. If cheaper substitute products are available elsewhere, sales may decrease abruptly. In spite of this vulnerability, Wal-Mart remains one of America's leading businesses in

entertainment, health and wellness goods, electronic appliances, home furnishings and grocery sales. Grant and Jordan (2012) point out that Wal-Mart has fewer substitutes because the company offers many popular products within specific categories.

Wal-Mart offers a wide selection of groceries and electronic goods, home furnishings, and home appliances, making the threat of substitutes low. However, intense competition in the industry from price competition, advertising, and product differentiation poses a significant threat to the organization's position according to Porter (1980).

According to Deloitte (2016), Wal-Mart is currently facing tough competition from various retailers, including Wholesale Competition, Sears Holding Corporation, Wholesale Corporation, and Target Corporation. Despite this threat, a report by Fisher College of Business (2013) suggests that these companies offering similar products are small in scale compared to Wal-Mart. The company has established many distribution points such as supermarkets, hypermarkets, and wholesale centers across America, Europe, and Asia. Due to the significant size of its stores compared to competitors', Wal-Mart can offer goods at lower prices.

Fisher College of Business (2013) notes that Wal-Mart's competitive advantage over its main rivals is attributed to its low-cost strategy. This approach enables the company to match or offer comparable products at a lower price than competitors without adversely affecting its financial position. Furthermore, due to Wal-Mart's massive size, it possesses sufficient financial resources required for advertising its products - an essential element of any business. Although alternative and more affordable marketing channels exist, such as Facebook and Twitter social media platforms, there are also pricier options accessible to Wal-Mart because of their substantial financial clout.

According to Fisher College of Business (2013), Wal-Mart has a competitive advantage over competitors such as Costco and

Home Depot because it can finance expensive advertising channels. As a result of its large size and economies of scale, Wal-Mart is able to purchase goods from suppliers worth millions of dollars at discounted prices, which it then passes on to consumers. This enables Wal-Mart to maintain its competitive edge in meeting the needs of the middle class, who represent the largest consumer group in the retail sector across all 28 countries where Wal-Mart operates. Although these competitors may also possess significant financial resources, they lack the same level of resources that Wal-Mart has at its disposal for success in this industry.

Despite having a wide range of products that distinguishes it from rivals and allows customers to conveniently purchase most of their needed items at one location, Wal-Mart's Sam's Club division is facing competition from competitors such as Costco and Target. According to Soni (2016) and Wal-Mart (2017), in the fourth fiscal quarter ending on January 31st, 2017, Sam's Club experienced a decrease in traffic volume by 1.4% and sales by 0.4%.

As per Soni's (2016) research, the dip in gasoline prices at Costco and Target led to a drop in sales at Wal-Mart. This resulted in customers being attracted towards these rival stores, leading to a decrease in Wal-Mart's sales. Although this decline may seem trivial when compared to overall sales, it could potentially pose a future threat that could result in significant profit losses endangering the company's financial stability. However, Flannery (2006) proposes that Wal-Mart's presence across multiple retail categories provides them with an edge while competing against Kmart and Target for general merchandise, Costco for club warehousing, and Albertson's for the supermarket sector.

Hence, having outlets spread across different industries helps safeguard Wal-Mart against poor performance in any one area.

The top ten retailers globally earned significant revenue according to a 2016 Delloitte report. Wal-Mart ranked first, generating over $499 billion in revenue, which was more than four times the amount of the second-ranked retailer. This financial stability allows Wal-Mart to offer support for struggling departments like Sam's Club. Additionally, most consumers now prefer online shopping as their primary purchasing method.

In 2016, Deloitte reported that Wal-Mart's main driver for growth was its e-commerce segment. Although Amazon is the clear leader in online sales with six times more revenue than Wal-Mart, the latter benefits from a large distribution network. Nonetheless, to sustain expansion, it is essential for Wal-Mart to improve its e-commerce sales and catch up with top rivals.

By leveraging its physical stores, Wal-Mart can provide global customers, including those in America, with online purchases. The bargaining power of suppliers is determined by their impact on final product costs. Although some like OPEC wield considerable influence, they are reliant on buyers for consumption. Grant and Jordan (2012) note that most of Wal-Mart's suppliers lack organization and significant market presence.

With a commanding market share in the US, Wal-Mart is the foremost retailer and holds considerable power over supplier prices. According to its 2016 final report, an astounding 78% of American consumers purchased products from Wal-Mart, making it imperative for suppliers to comply with their demands for lower costs as losing such a significant market would result in substantial losses. Additionally, due to its vast market presence and industry expertise (Fisher College of Business, 2013), Wal-Mart possesses valuable knowledge about buyers.

Grant and

Jordan (2012) state that having access to essential information about a seller's product quality is crucial for making informed purchasing decisions and identifying any changes. If Wal-Mart's product quality were to decline, they could easily switch suppliers. Furthermore, they could return the products to the supplier for an exchange or a refund. The presence of a new market player can alter the market dynamics as established customers may shift their preferences to the new entrant.

Grant and Jordan (2012) stress the significance of manufacturers as inputs and customers as output for firms, highlighting how Wal-Mart's success is closely tied to consumers' crucial role in generating and boosting sales. According to them, multiple factors shape consumers' bargaining power, including price sensitivity and relative bargaining power. For instance, availability of alternatives, product differentiation, market saturation, competition intensity among rivals, and product importance relative to its total cost influence price sensitivity (Gordon & Jordan, 2012). If a high-cost product has a less expensive alternative available, consumers are more likely to choose the latter.

According to Marcilla (2014), Wal-Mart holds a leading position in the retail market due to its competitive advantage in product differentiation. This allows customers to buy similar products, resulting in increased sales and limiting consumer bargaining power. Furthermore, low competition from rivals further strengthens Wal-Mart's position.

Although retailers are mainly operated by individuals, they have limited bargaining power. Conversely, consumers possess the ability to reject a particular retailer, which can impact their bargaining position. According to Gordon and Jordan (2012), the consumer market's size in relation to the number of suppliers and their level of information is vital in determining consumers' bargaining power. As consumers outnumber suppliers

substantially, they play an essential role in setting market prices.

If Wal-Mart raises its prices, it runs the risk of losing customers to rivals such as Kmart, Kroger, and Home Depot within the US or Tesco and Carrefour in international markets. The ease with which consumers can access competitor pricing online means any unilateral price increase could result in lost business for the company. Additionally, new entrants into the market pose a threat to established retailers by disrupting competition. Grant and Jordan (2012) propose that higher returns on investment increase the likelihood of new competitors entering the market. In response, existing retailers may lower product costs to discourage newcomers from joining.

Currently, the first factor is in effect and the second factor has significant effects on both the domestic US market and the international market, as there are numerous prominent retail chains in both. Due to their ability to sell at lower prices than new competitors, retailers in both markets can easily cause new players to fail. Marcilla (2014) contends that entry barriers are crucial in preventing new retailers from entering the industry. These obstacles include capital requirements, government policies, economies of scale and supplier and product differentiation and retaliation.

Existing retailers were given an advantage by certain laws and regulations, while the high capital expenditures to start a new business may prevent some interested investors from entering the market. However, Wal-Mart has the ability to increase resources to compete against new challengers through price wars, advertising, and the opening of additional stores. Thus, the potential threat of new retail entrants in the US market is not likely to hinder Wal-Mart's efforts. Industry analysis focuses on predicting

the future and not on explaining the past for productivity forecasting.

Prior to dedicating extended resources, it is crucial for analysts to estimate the future profitability of an industry. Although existing profits may be uncertain, they can be considered reliable if the industry structure provides support. In order to anticipate impending competition and levels of profitability, a structural trend analysis must be conducted. To accurately predict an industry's profitability, one should analyze current and recent competition and profitability, detect trends within the market, and evaluate how structural alterations will impact Porter's five forces as well as resulting profit margins. Currently faced with tough rivalry from Sears Holdings Corporation, Wholesale Corporation, and Target Corporation (Deloitte, 2016), Wal-Mart is no exception.

While facing competition from other retailers like Costco and Target, Wal-Mart's Sam Club maintains its competitive edge by offering lower-priced products, thanks to the lack of similar large stores.

According to Fisher College of Business (2013), Wal-Mart's implementation of a low-price strategy gives them an advantage in price competition, setting them apart from their rivals. Nevertheless, Soni (2016) discloses that the Sam's Club branch has experienced a decrease in both foot traffic volume (1.4%) and sales (0%).

In the fourth financial quarter ending on January 31, 2017, Wal-Mart (2017) revealed a sales decrease of 4%. Soni (2016) attributed this decline to Target and Costco's decision to reduce gas pump prices, which attracted customers away from Wal-Mart. Despite its impressive history of sales figures, this reduction poses a threat to the company's future earnings as further declines may lead to significant profit losses and jeopardize its financial strength. Nonetheless, Wal-Mart maintains its position as the leading global retailer with revenue exceeding

that of the second-ranked retailer by over four times (Delloitte, 2016).

The revenue generated by Wal-Mart was $499 billion, indicating financial stability and the ability to support underperforming departments such as Sam's Club. Despite this, the entry of new industry players may lead to a decline in industry profitability. Therefore, Wal-Mart must reposition itself to maintain its market share.