Porters Five Forces Walmart

Every company is affected by its competitive environment. The competitive environment is where different businesses compete within a defined market. It relates to how an enterprise is affected by its competition and how it adapts its practices to compete effectively. An example of a firm highly affected by its competitive environment is Walmart.

Introduction to Walmart

Walmart Inc. is a multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. It was founded in Rogers, Arkansas, United States where on the 2nd of July 1962 Sam Walton opened the first Walmart store. Currently, Walmart is the largest company by revenue, operating approximately 10,500 stores and clubs under 48 banners in 24 countries and eCommerce websites. The company employs 2.2 million associates around the world - nearly 1.6 million in the USA alone.

Porter's five forces analysis

Below you will find the analysis of Porter's five forces based on Walmart Inc.

Competitive rivalry

Competitive rivalry is an external factor that has a huge impact on a business's overall wellbeing and its existence in the market. To begin with, there are numerous retail companies in the market. Walmart's competitors are typically stable retailers such as Whole Foods and Costco, but also online sellers such as Amazon and eBay. All of those companies are retail giants making profits of billions of dollars.

Moreover, they are of a large variety. Although they offer similar products such as groceries, clothes, and household items, there are numerous items that can be found in one store, but not any other.

What must also be noted is the high aggressiveness of retail companies. All the companies in the sector continuously compete with each other, coming up with new ideas, products, and promotions to draw customers' attention. This allows them to remain aggressive and not stop until they have finally driven their competitors out of business.

To conclude, the large number and variety of retail firms and their high aggressiveness make competitive rivalry a very strong force for Walmart Inc., meaning competitive rivalry is high in the industry.

New entrants

New entrants to the market are an external factor that can threaten a company's sales volume and market share.

First of all, the costs of developing a new brand are moderate to high. Therefore, opening a chain such as Walmart would require the necessary funds to make an investment. However, as it turns out, both in the US and globally, there are people who have the money to do so.

Lastly, there are moderate capital costs. Since it requires a business space, human resources, equipment, and other variables, the capital costs can be relatively high. Nevertheless, it is also possible to establish a smaller grocery business with lower capital.

To sum up, moderate or high costs of developing a brand, low costs of doing business, and moderate capital costs make new entrants a strong force for Walmart, meaning that the threat of new entrants into the market is high.

The power of buyers is an ability that customers have in driving prices lower or higher.

To start with, there are numerous consumers. That being said, individual buyers do not have a negative impact on the company's total revenue. If one customer drops out, there will always be another, meaning that the revenue can be easily recovered by someone else due to the large volume of consumers.

Additionally, the consumers are very diverse. With Walmart stores operating all over the world and customers ranging from New York to China, their diversity is associated with different needs and wants. This large diversity weakens the power that buyers can exert on the company.

Finally, people shopping at Walmart typically make small purchases. As a result, the number of purchases would have to be significantly reduced in order to deteriorate the company's performance. One individual who decides to stop purchasing at Walmart is not able to influence the entire global company.

To summarize, a large number of very diverse consumers and their small purchases make the power of buyers a weak force for Walmart, meaning the power of buyers is low.

Power of suppliers

Power of suppliers is an ability that suppliers have to drive up the cost of inputs.

Firstly, there are numerous suppliers available, which means that Walmart can choose between a wide range of different suppliers. If there were only one or two suppliers in the market, Walmart would have to be more cautious about its suppliers as they would hold more bargaining power. However, due to the large volume of suppliers, Walmart is the one with more power, as it can always switch to a different supplier.

What is more, there is tough competition between suppliers. That being said, they all fight with each other to draw customers' (like Walmart) attention and thrive in the market. In doing so, their power is weakened and taken over by customers who can take advantage of incentives such as sales and price cuts - as competing suppliers will do everything to make customers buy their products rather than their competitors.

Lastly, there is a high availability of supply. Since most of the products offered by Walmart are necessities and everyday use products, it is relatively easy for the company to find a supplier that would suit their needs.

To sum up, a large number of suppliers, tough competition between them, and high availability of supply make the power of suppliers a weak force for Walmart, meaning that the bargaining power of suppliers is low.

Threat of substitutes

Most products can be substituted for other offerings, not necessarily in the same category.

When it comes to Walmart, the availability of substitutes is moderate. Even though some of Walmart's products can be substituted, many of them are necessities such as bread, milk, paper towels, or nappies which people are always going to use. Alternatively, if there came a substitute for these necessities, it would probably also be available in Walmart and other retail stores.

Moreover, there is a low variety of substitutes. Some products' alternatives do not particularly vary from products available in Walmart.

What is more, substitutes are typically more expensive. Since most of the products offered by Walmart are everyday-use products at low prices, consumers are not likely to substitute these products for more expensive ones.

All in all, moderate availability, low variety, and the high price of substitutes make the threat of substitutes a weak force for Walmart, meaning that the threat of substitutes is low.

In conclusion, for Walmart, competitive rivalry seems to be the strongest force of Porter's Five Forces. The only other force that could have an influence on the firm is new entrants. Besides these, the power of buyers, power of suppliers, and the threat of substitutes does not seem to pose a danger to the company. Despite the high competition and threat from new entrants, Walmart successfully develops strategies to protect the business from the issues in its industry's environment, which is reflected by its enormous revenue.

Sources:

https://corporate.walmart.com/about/history