Walmart Five Forces Analysis

Walmart Five Forces Analysis

Walmart is the largest retailer in US and its large size and brand image give it significant clout. Whether it is regarding the suppliers, or the customers, Walmart always has the upper hand based on its unique strategy. The low prices available at Walmart are not found at other retail stores. Apart from that, the range of products it sells is also larger than its competitors. In terms of the five forces Walmart is in a very strong competitive position in the retail industry. The five forces model of analysis was developed by Michael E Porter.  It is used widely across the industry for the analysis of the forces that shape competition and to analyse how favorable the situation is for any brand. This is a five forces analysis of the famous retailer brand Walmart.

Bargaining power of suppliers: low to moderate

The Bargaining power of Walmart’s suppliers is low for several reasons. First of all it is a big retailer. As such it has a lot to offer to its suppliers. It buys in bulk which means major business for its suppliers. Walmart being the largest retailer holds a significantly large market share. Now, since it makes large purchases, it gives Walmart significant buying power. The switching costs for Walmart are low and it can switch from one supplier to another without have incurred any major costs. Moreover, it is easier for Walmart to try backward integration than for its suppliers to integrate forward. A few of its suppliers are large companies which gives them some bargaining power. So, overall the bargaining power of the Walmart suppliers is low to moderate. The higher bargaining power which brands like Walmart hold is because they always bring large opportunities for their suppliers.  They are in a position to impose special demands including asking for lower prices and even ethical guidelines to which these suppliers willingly agree. If the suppliers do not follow the guidelines issued by Walmart, it removes them from its supplier list. In this way Walmart holds immense clout over its suppliers.

Bargaining power of buyers: low

The bargaining power of buyers is not very high. It is mainly for the individual buyers do not make very big purchases.  Moreover, price and convenience of shopping are two very important factors that to a large extent limit the bargaining power of buyers.  Switching costs are not very high for the customers except that they may not find the same lower prices and convenience of shopping with the other brands that they can get with Walmart. The lowest pricing strategy of Walmart reduces the bargaining power of the buyers.  So, individual buyers exert little or no influence on the brand.  Consumer advocate groups on the other hand have been able to exert some influence on the brand. Overall the bargaining power of the buyers is a weak force for Walmart.

Threat from substitute products: low

There are several other retail brands too. However, the number of retailers offering prices as low as Walmart are not many. The only comparable brand is Costco which a membership based retail chain. There are other retail brands too where the customers can shop like Target and Best Buy but when it comes to pricing, none of the other brands provides the same price advantage as Walmart.  The online retailers pose some challenge but still they are not able to offer prices comparable to Walmart on all the products. Online shopping does offer the convenience where customers do not have to pick the product from the stores.  The products they shop for are home delivered.  So, while customers would like to shop online for convenience, the low prices of Walmart are still matchless. These factors keep the threat from substitute products to the minimum.

Threat of new entrants: low

The threat of new entrants exerts medium pressure on Walmart. It is because Walmart is the largest among the retail brands and it would require lots of investment to build a brand like it.  Having a distribution system and supply chain like Walmart is even difficult and can take years to build. All these things require investment and apart from that skilled human resources are also required to manage and maintain them. Walmart’s financial capital and other resources mitigate the risk from the new entrants. The existing retailers already have a difficult time dealing with the price challenge from Walmart. Walmart’s price advantage has helped it gain a large market share and this is also an important factor that deters the new players. So, overall the threat from new entrants is not a strong force.

Competitive rivalry among the existing players: Medium

Rivalry among the existing players is high in the retail industry. However, if Walmart has the upper hand then it is because of its pricing strategy.  While Target and Costco are important contenders, the other brands do not pose a significant competitive threat before Walmart. Kmart, Sears, Best Buy etc are not very strong to pose a competitive challenge before the largest retailer. In this way, when it comes to competition in the retail industry, Walmart is the King. The strength of competitive rivalry in the industry is medium.

More Resources on Walmart:

Strategic Analysis of Walmart

Walmart Business Strategy Case Study