Every week, 100 million customers visit Wal-Mart stores worldwide, making it the world’s largest retailers. A leader in the discount industry, Wal-Mart posted $218 billion in sales last year as it continued to specialize in selling discounted household goods. The company has 1.3 million employees working at 3,200 locations in the United States and1,100 locations in Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, Germany, and the United Kingdom. Wal-Mart aims to instill its logo, “Everyday Day Low Prices” in each and every division. Currently the company is broken down into four divisions: Wal-Mart Supercenters, Discount Stores, Neighborhood Markets and SAM’S Club Warehouses. The magnitude and global presence of Wal-Mart allowsit to be a dominant player in the retailing market place. It is essential that fundamental relationships within the industry and the company’s environment need to be analyzed in order to efficiently evaluate the correct market price for the company’s stock (WMT (NYSE)).
Household products, retail drugs stores, and personal care segments are expected to produceabove-average revenue growth and increase market share in the coming months. The uncertainty between the U.S. and global economies should not affect the sector because many of the products are basic necessities. The retail sector is expected to perform in line with the overall market in the next 6-12 months.
Mega retailers such as Wal-Mart are expanding their product variety by focusing ongroceries and pharmaceutical drugs. To combat the market intrusion, Walgreen, CVS and other drug stores are adding groceries to their shelves. The mass merchandising industry is only getting bigger as the major players are offering more selections in order to gain a competitive edge. Many companies like Wal-Mart, Carrefour, Royal Ahold and Kroger are expanding by acquisitions. The industry isgetting larger while the number of members is declining.
Porter’s Five Forces
Stable growth, expertise management, operating efficiency, and competitive pricing make Wal-Mart a strong company when assessed using Porter’s Five Forces Model. The model helps to evaluate the company by looking at the bargaining power of the suppliers and buyers, the threat of substitute products or services, thepotential threat of new entrants and the rivalry among existing firms. Wal-Mart relies heavily on these 5 factors to ensure long lasting relations and customer satisfaction.
Wal-Mart, being a dominating customer to its suppliers, uses this as an advantage for them. The company is the largest customer to companies such as Kraft Foods, Gillette, and P&G. In order to maintainand satisfy Wal-Mart as a customer, suppliers are willing to provide favorable payment terms, discounts, and priority delivery dates. These mutual business relations are evident throughout Wal-Mart’s increasing success.
Due to the fact that Wal-Mart is not monopolistic, the goods offered are substitutable by competing organizations. It is the size of its stores and the wide selectionit carries daily, not to mention the quality emphasis it place on merchandises that allows it to rank high in customer preference. Contrary to belief, customers of Wal-Mart have bargaining power since Wal-Mart strives to satisfy its customers by matching the prices of any of its competitors. As Wal-Mart’s growth and profitability have shown, customers are mostly satisfied with the chain’s lowprices and convenient locations.
Threat of New Entrants
New entrants are always possible, but to seriously compete with Wal-Mart they will need enormous capital. The company is expanding rapidly leaving less room for new competitors. For the fiscal year ending 2004, the company plans to open 45 to 55 new discount stores and 200 to 210 new Supercenters domestically. Wal-Mart International...