Walmart – Porters five forces analysis: A moderate economic moat

The Porters five forces framework is used to analyse the competitive position of Walmart, the American supermarket giant. Walmart has a moderately strong competitive position over its rivals due to its strong market share, breadth of products, strong bargaining power over suppliers and low threat of new entrants. Walmart’s competitive position is weakened due the extensive competition in the home goods retailing sector as well as ease of which consumers can substitute products.

Below you will find our comprehensive analysis of Walmart’s competitive position, using the Porters five forces framework. We also analysed Walmart using these other frameworks:

Walmart – threat of Substitutes

The clearest way to understand Walmart’s competitive advantage is to start our porters five force analysis by examining the threat of substitutes. Walmart is in the grocery and home goods business, selling largely the same things as their competitors. Consumers can easily substitute the goods available at Walmart and instead shop with a competitor. They will be inclined to do this especially if the product is cheaper or the location of the competitor’s store is superior.

An advantage Walmart does have when looking at its competitive position is the sheer range of products available. Competitors might not offer the same variety or breadth of products. Walmart provides groceries, apparel, homewares, small appliances, electronic, musical instruments, books, home improvement, shoes, jewelry, games, household essential, pharmaceutical products, and automotive tools. There are few competitors who provide such a range and provide customers the opportunity to have a one stop shop.

Walmart’s Competitive rivalry

Walmart is the world’s number one retailer and the world’s largest company by revenue and employee with 2.2 million associates. Walmart has 5,400 locations in the U.S, including 4,800 Walmart stores and 600 Sam’s Club warehouse clubs. Walmart has 6,000 locations outside of the U.S, which span across Asia, Africa, Europe, and Latin America. It is the number one retailer in Canada and Mexico. However the American retail giant Walmart faces extensive competition from its competitors as established retail chain shops like Target, Kroger, and Costco are available. Below are statistics for understanding the USA’s competitive retail market.

Whilst Walmart has more market share than its other competitors it is important to note they compete in a space where all the products sold are largely the same as that sold by their compeititors. This can give Walmart an advantage, but customer loyalty is not applicable in that industry as consumers are more concerned about the shop’s price and location. So, if any rival of Walmart sells products at a lower cost than Walmart, then consumers will prefer that shop instead of Walmart. Shops like Kroger, Target, and Costco sell products at discount rates and have shops in many locations, which directly threatens Walmart competive advantage. So, from the discussion, it can be seen that competitive rivalry is high for Walmart.

Walmart – Bargaining power of buyers

The bargaining power of buyers is medium for Walmart. Generally, retail shops face Medium to the low bargaining power over buyers because of consumer diversity and small purchases. Thus, Walmart has a diverse range of customers Walmart serves 230 million customers per week, representing the vast customer base for that retail chain. However, the switching cost of consumers also plays a vital role. Besides Walmart, various other retail chains are available for consumers to buy their needed products, and consumer switching costs are low for consumers, which can pose a threat to Walmart. So, from the discussion, it can be concluded that the bargaining power of buyers is medium.

Walmart – Bargaining power of suppliers

The bargaining power of suppliers for Walmart is low and this gives Walmart a huge competitive advantage. Walmart sell’s a wide range of products at a discounted rate. Therefore, they purchase products from sellers in bulk amounts and have considerable strength when bargaining with suppliers. The degree of strength they have over their suppliers is evidence by the fact that numerous suppliers priority to Walmart.

Walmart’s strength in the bargaining process has the end result of providing a more sustainable and socially responsible product for ocnsumers. For example, in 2013, Walmart canceled 500000 pairs of pajama orders from Simco group as the company failed to provide safety for its workers. For this, Simco group sustained huge losses, but Walmart sourced the pajamas from other manufacturers alternatively.

Walmart gathers its products from 100,000 different suppliers and because of their product diversity and strong supply chain they can easily switch suppliers for low cost. That is one of the prime reasons for the low bargaining power of Walmart. Therefore, the discussion shows that Walmart’s suppliers’ bargaining power is low.

Walmart – The threat of new entrants

Walmart’s threat of new entrants is low. Retail businesses are capital-intensive, and competing with a well-established company is challenging. Walmart is one of the biggest and most well-renowned retail chain shops in the USA, and for any new retail business, it is very challenging to source huge capital and builds a brand image. Brand image building needs time and cost. It would be hard for any new business to match Walmart’s advertising campaign. The company spent 3.11 billion dollars on the advertisement in 2021, which is a huge amount for any new retail shop. As Walmart has been operating its business for a long time with a reputation and it has much popularity, it would be hard for a new entrant business to compete with Walmart. So, it can be concluded that Walmart’s threat to new entrants is low.

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