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Retail Business Environment

Notes

Caselet Wal-Mart Competitive Environment

Industry
Wal-Mart’s competitive environment is quite unique. Although Wal-Mart’s primary
competition comes from general merchandise retailers, warehouse clubs and supermarket
retailers also present competitive pressure. The discount retail industry is substantial in
size and is constantly experiencing growth and change. The top competitors compete both
nationally and internationally. There is extensive competition on pricing, location, store
size, layout and environment, merchandise mix, technology and innovation, and overall
image. The market is definitely characterized by economies of scale. Top retailers vertically
integrate many functions, such as purchasing, manufacturing, advertising, and shipping.
Large scale functions such as these give the top competitors a significant cost advantage
over small-scale competition.

In general merchandise retailing, Wal-Mart’s primary competitors are Target and Kmart.
Retail superstores such as Circuit City and Bed, Bath, and Beyond, also provide retail
competition. A survey found that the majority of respondents favored Wal-Mart over
stores like Target and Kmart. Respondents claimed Wal-Mart offered lower prices, better
variety and selection, and good quality. The needs of consumers is an important economic
feature in all competitive environments. What attributes (price, variety, quality, etc.)
prompt buyers to choose one retailer over another is very important in the competitive
landscape.

In the warehouse segment, Wal-Mart’s Sam’s Club competes harshly with Costco. Costco
has fewer warehouses but greater sales and revenues. Costco customers also shop at
Costco more frequently than Sam’s Club customers and, on average, spend more each
visit as well. Costco’s dominance may be the result of better innovation. Costco offers
luxury items and was the first to sell fresh meat and produce, and gasoline. This is important
because innovation is a key factor in assessing competitors in an industry.
Last, Wal-Mart is also in direct competition with large supermarket retailers. Production
capacity in the grocery industry is quite populated and Wal-Mart poses a serious threat to
many supermarket retailers, both large and small. Kroger, Albertson’s, and Safeway are
all finding it very difficult to compete with Wal-Mart’s low prices. Because the industry is
so crowded, even the large supermarket retailers are seeking to differentiate themselves
in order to stay afloat.
In reference to the Five Forces Model, being the largest retailer in the world, Wal-Mart’s
position is strong overall. Rivalry among competitors is fairly weak. The market is
crowded but Wal-Mart has the lowest costs, prices, profits, and market share. The threat of
substitute products is also weak. Wal-Mart exerts a great deal of effort in making sure they
are innovative and meeting customer demands. The bargaining power of suppliers is
weak as well. For most producers, Wal-Mart would be their largest account. Obviously,
they would do what Wal-Mart wanted them to do if they hoped to do business. Likewise,
the bargaining power of buyers is also weak. There is a very broad base of customers and
a significant demand for low prices. Last, the threat of new entrants is weak. Wal-mart has
a scale of operation that is so great, it would take years, maybe even decades, for a new
company to be on the same level. Even prominent companies today would have an
extremely difficult time matching the costs and prices Wal-Mart provides.

Contd...

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