Walmart Five Forces Analysis

A Five Forces Analysis of the Physical Retail Giant Walmart

Walmart is a well known name in the world of physical retail. Its main market is the United States, but the company has also maintained a strong presence in physical retail in several more overseas markets. It has topped the Fortune 500 list for 11 years in a row. In fiscal 2023, the company generated $611.3 billion in net revenue.

Founded in 1945 by Sam Walton, Walmart has enjoyed solid growth over all these years and expanded its footprint in the US and 19 more nations. Why consumers love Walmart in the US is because of its pricing strategy. Its everyday lowest prices strategy has worked to attract customers in very large numbers. However, there are other things also that are special about Walmart apart from prices including its customer service and the large array of products it sells. Its large merchandise selection also makes it the favorite of shoppers.

The retail landscape has continued to see higher competition. Apart from the ecommerce players, there are several leading names that compete with Walmart in the US and other markets. Walmart has built its omni channel presence in the US and other markets to serve customers across both online and offline sales channels. Its investment in digital technology has also paid off as the company is experiencing growth in sales from the ecommerce channels.

Bargaining power of suppliers:

In the retail industry overall, the bargaining power of suppliers is moderately low. Most of the suppliers do not hold much bargaining power because of lack of differentiation and the large number of suppliers. Walmart sells a very large range of merchandise in several categories that it sources from suppliers in the US and the other corners of the world. Some of the suppliers may have somewhat higher bargaining power.

These suppliers are the larger firms that make differentiated products like Coca Cola. These suppliers also use other channels for sales like their own distribution channels and online channels. However, Walmart is the largest retailer in the US and therefore a significant retailer for many of these brands and it is why Wakart enjoys the upper hand even over the large suppliers. Walmart is not just the largest retailer in the US but also a financially very strong retail brand. It faces a minimum threat of forward integration from most of its suppliers.

The bargaining power of the suppliers is further moderated by several factors like Walmart’s strong presence in the US market, its brand image, sales volume and its financial strength. The overall bargaining power of suppliers in the case of Walmart is low. It purchases from them in very large volumes and lower prices and then it also charges the customers lower prices than the other retailers.

In this five forces analysis of Walmart, we will evaluate the retail giant’s competitive position in the industry sector and how well it is positioned for growth. Porter’s five forces analysis is an analytical tool used for analyzing the competitive position of a business through the lens of five important forces that drive competitiveness. This tool is used to support business strategy and decision making and has been named after its creator Harvard Professor – Michael E Porter.

Bargaining power of buyers:

The bargaining power of buyers in the case of Walmart is moderate. In the 21st century, the bargaining power of buyers has increased due to several factors including growth of the middle class, increased competition, growing use of technology and changing consumer behavior. Walmart’s customers include families as well as small and large businesses. There are a large number of businesses in the United States, that also buy products of their needs from Walmart. Walmart operates at an enormous scale and charges very low prices for the products it sells. It also faces a minimum threat of backward integration from its buyers.

There are multiple factors that have helped the company moderate the bargaining power of buyers. The first important factor that attracts customers in very large numbers to Walmart is its EDLP pricing. It charges the lowest prices in the market. Since customers cannot get better prices anywhere else, they prefer Walmart over the other retailers. Walmart also offers the largest selection of products to customers under one roof. This is also an important reason that families and businesses like to buy from Walmart. Walmart also places a strong focus on product quality which helps it maximize customer satisfaction and maintain strong demand.

In this way, there are several factors that have helped it moderate the bargaining power of buyers. Its focus on customer service and its excellent brand image have also helped it maintain strong demand and popularity.

Threat of substitutes:

The threat of substitutes for Walmart is moderate. Walmart is the largest physical retailer in the United States selling a very large range of merchandise in several categories. For Walmart, the threat of substitutes comes from several sources including the large and small retail brands, ecommerce brands as well as the dedicated retail channels of various brands whose products it sells.

There are many more players in the US retail industry including Costco, Krogers, Best Buy, Target, Koles and several more retail brands. While these businesses also sell a large range of merchandise, compared to Walmart’s collection, they offer a smaller range of products. Since Walmart offers a very large range of merchandise, it gains the upper hand over the other players. Another factor that moderates the threat of substitute products and brands is its pricing strategy. The company sells products at the lowest prices in the market and that is why consumers like to buy from Walmart. There are little to no switching costs involved for the customers and Walmart invests in building customer loyalty.

Lower prices, excellent customer service, large range of products, omnichannel retail experience, marketing and other factors have helped the company moderate the threat from the substitute products and helped it build strong growth momentum. To further moderate the threat from substitute products, Walmart has started several membership and loyalty programs which enable the customers to get products at even lower prices.

Threat of new entrants:

The threat from new players for the retail giant Walmart is low. As the largest physical retailer in the world, Walmart already faces very low threat from the small firms trying to enter the retail scene in the United States. Its share of the grocery market in the second quarter of 2023 was above 25%1. The company has also grabbed a nice share of the US ecommerce market. Most of its competitors are well known players in the retail sector and e-retail. New players face some significant barriers when trying to gain a significant market share. Walmart is a financially strong and well established player in the retail industry. The small retail brands do not pose any direct or significant challenge to the company which has grown an impressive presence in the ecommerce sector too.

A new player will need several strategic advantages to compete with a well established player like Walmart. First of all, Walmart has a strong presence in the United States and formidable financial strength. It sells at the lowest prices in the US since it buys from suppliers in very large volumes. It has a strong supply chain and its own logistics operations. A new player trying to enter and establish itself in the retail sector will need sufficient capital to invest in gaining operational efficiency, managing supply chain, marketing and other areas. Walmart’s strong brand image also minimizes the threat from new entrants. The existing players in the retail sector including Walmart and other large retailers are investing in marketing and technology to maintain their market share and customer loyalty. So, overall the threat from new players for Walmart is low.

Intensity of competitive rivalry:-

The intensity of competitive rivalry in the retail industry in the US and the other markets has continued to grow stronger year after year. There are several significant players in the US retail sector. Amazon leads the ecommerce sector in the US and the world. Some of the most significant competitors of Walmart include Costco, Target, Krogers, Best Buy, Lowe’s, Walgreens, Kohls’ and others.

These are the leading names in the US retail sector. Costco is a membership based warehouse chain that also offers a similar product selection to customers in the US. Costco, Target wholesale and several more retailers are also known for offering products at low prices. These companies have also maintained a strong brand image and invest in customer experience and product quality to maintain demand and sales.

Walmart also faces strong competition in ecommerce from the leading player Amazon. However, the physical retailers in the US are also investing in strengthening their ecommerce capabilities.

The competitive rivalry in the retail sector continues to intensify but there are many factors that moderate the threat in the favor of Walmart. It is the largest physical retailer in the United States and the world offering the largest selection of merchandise to its customers. Its lower prices compared to the other retailers are also an important factors that have helped it maintain a very high level of demand and beat the competitive pressure. Its strong brand image and focus on customer service have helped the company maintain strong brand loyalty.

Innovation is also a critical factor that is driving the popularity of Walmart high and has helped it overcome the competitive pressure. The company is investing in digital technology and improving customer experience which has grown the demand along its digital sales channels. It also invests in product quality and sells its own brands through Sam’s club. Overall, the intensity of competitive rivalry faced by Walmart is high because of the presence of several large players in this sector but the company has successfully maintained a strong competitive position and a large market share.

Conclusion:

Walmart is the dominant brand in the US retail sector that has continuously expanded its business through a focus on quality and customer experience. For the past several years, it has continued to top the Fortune 500 list which signifies its competitive edge and popularity in the US and the other markets. The company has managed the bargaining power of customers and suppliers very well. Its investment in innovation has helped the company maximize customer satisfaction while also helping it achieve superior ecommerce sales growth. While the competition in the US retail sector is intense, Walmart is also the most competitive brand in this sector. Its large array of products in various merchandise segments as well as its lower prices have helped it achieve solid customer loyalty. These are the key reasons that Walmart’s competitive edge has continued to strengthen and the company is also now a significant player in the US ecommerce sector.
Over the past several years, Walmart has continued to invest in technology to solidify its omnichannel presence in the US and several more markets. It has also made some acquisitions to cement its position. As a result, the company does not face any significant challenge from the new players and the threat of substitutes is also successfully mitigated. Walmart is investing in building customer loyalty and has adopted measures that will encourage brand switching among customers that have been purchasing from the other retailers. Undoubtedly, Walmart has formidable competitive strength and its position in the US physical retail sector of a leader is not easy to challenge.