Walmart Case Study

Founded by Sam Walton in 1962, Wal-Mart has grown to be the largest company and retailer in the world. In this essay, it aims to find out the success of Wal-Mart with the analysis of the retail industry structure and study the practices that Wal-Mart uses to expand globally. It comes to the recommendations for Wal-Mart's further development made by the author.

Retail Industry Structure

Generally speaking, retail industry is considered to be any business that sells final products to the end user (retailindustry.about.com, 2012). The analysis of retail industry structure can helps us have a better understanding of the Wal-Mart's success.

Capturing the concept of discount retailing, Sam Walton established his first Wal-Mart in 1962. At that time, discount retailing was at the innovation stage of retail life cycle. Pushed largely by Wal-Mart and other discount chain companies, discount retailing has grown to be a global industry. Taking the competitive advantages of economies of scale and inventory-turn velocity in discount retailing business, Wal-Mart gains great success in retail industry.

With the theoretical framework of Porter's five forces theory, it presents the how Wal-Mart makes its strategy and achieves success.

Bargaining Power of Supplier: Weak

Suppliers have weak bargaining power with retailers. The low switching cost and large amounts of alternative suppliers put retailers in a strong position. Also, due to the large volume purchases, discount retailers have a powerful negotiation position over suppliers. Wal-Mart exactly makes a prefect use of this advantage. In addition, there are only a few big discount retailers and this phenomenon results in an imbalance between suppliers and retailers. Wal-Mart is one of the most important methods to make profit and boost sales.

Bargaining Power of Buyers: Relatively high

Since there are a number of substitutes and low switching cost to shop in other stores, customers have relatively strong bargaining power. In addition, the differentiation among the big discount retailers is much obvious and big. In this case, customers are price-sensitive. Wal-Mart' low cost advantage has become popular among customers.

Threat of New Entrants: High

Concerning the threat of new entrants, the barriers to start up a business is relatively high because large volume is primary to a discount retailer which means that capital investment is high It is difficult for start-ups to gain competitive advantage of partnership with suppliers and distribution network compared to major players such as Wal-Mart and Carrefour. In addition, the big discount retailers such as Wal-Mart. Carrefour and Target have occupied the most market share in the industry. It is hard for new entrants to survive because they lack economies of scale.

Threat of Substitute: Moderate

The substitutes are quite large, such as department stores, grocery stores etc. these formats of stores is more convenient but at a high price. Large discount retailers differentiate themselves by providing lower prices and greater varieties of products and services. In addition, since online shopping is more and more popular, online sellers can be a potential threat to discount retailers.

Existing Competition: High

The existing competition in this industry is intensive. Target, Carrefour, Tesco and other global discount chains are the stiff competitors to Wal-Mart. It is important for Wal-Mart to sustain its competitive advantages and keep innovating to gain greater success than others.

Resources of Competitive Advantages

With the analysis of retail industry structure, it comes to the study of competitive advantages that Wal-Mart has. The core competitive advantage of Wal-Mart is the low-cost advantage. Value chain analysis is adopted to analyze how Wal-Mart gains its low-cost advantage and other sustainable competitive advantages.

The primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. Supporting activities are used to develop the primary activities. Wal-Mart earns its typical competitive advantages especially on inbound logistics and outbound logistics to achieve low cost, which refer to its supply chain management and distribution channels. The resources that help Wal-Mart gain these competitive advantages mainly from three aspects.

A. Technology

The first and foremost resource is its advanced information technology system. Wal-Mart has a competence to use technology to maximize the operational efficiency and earn its competitive advantages. Wal-Mart requires all of its suppliers to use Retail Link. It is an information processing system that helps to track each purchase order, invoice, payment and inventories electronically. Thanks to the systems, Wal-Mart can earn better competitive advantages of inbound logistics and inventory management. Remote Frequency Identification Devices are also required to some suppliers. In addition, a point-of-sales system records all the information of each item sold. To be noticed, all these systems help Wal-Mart to find out insights of customers preference and buying patterns.

A central hub-and-spoke system of warehouses and distribution centers directs the outbound logistics of Wal-Mart and develops a great competitive advantage of efficient and effective distribution channels. The company uses cross-docking to transship inventory from inbound trucks to outbound trucks to get to the stores. This system has guaranteed a 48-hour replenishment cycle, which is very important to Wal-Mart. With the help of the system, Wal-Mart has formed a perfect distribution channels and supply chain management.

B. Infrastructure

Besides information technology, infrastructure plays a big part of it. Different stores target at different market segment and they are discount stores, supercenters, neighborhood markets and Sam's clubs. The locations of Wal-Mart stores are mainly in the rural network and the suburbs which is lower costs than in the urban area. All the stores are uniform and a cheerful greeter is displayed at the door of the stores. This cheerful greeter has been the symbol of Wal-Mart and helps it to establish it powerful brand name. The stores has little inventory storages and the central hubs are located within 250-mile radius, as it can supply goods to the store conveniently. With the help of this resource, Wal-Mart can