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Porter's Five Forces Walmart

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Business Studies

From humble beginnings. To redefining retail.

- corporate.walmart.com

Every company is affected by its competitive environment. The competitive environment is where different businesses compete within a defined market. It relates to how an enterprise is affected by its competition and how it adapts its practices to compete effectively. An example of a firm highly affected by its competitive environment is Walmart.

To learn more about the competitive environment have a look at our explanation on strategic direction and areas of competition.

Introduction to Walmart

Walmart Inc. is a multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. It was founded in Rogers, Arkansas, United States where on the 2nd of July 1962 Sam Walton opened the first Walmart store. Currently, Walmart is the largest company by revenue, operating approximately 10,500 stores and clubs under 48 banners in 24 countries and eCommerce websites. The company employs 2.2 million associates around the world - nearly 1.6 million in the USA alone.

Porter's five forces analysis

Porter's Five Forces is a method for analyzing a company's competitive environment. It identifies and analyzes five competitive forces that shape the industry:

  • Competitive rivalry,
  • New entrants,
  • Power of buyers,
  • Power of suppliers,
  • The threat of substitutes.

To learn more about the analysis read our explanation about Porter's Five Forces.

Below you will find the analysis of Porter's five forces based on Walmart Inc.

Competitive rivalry

Competitive rivalry is an external factor that has a huge impact on a business's overall wellbeing and its existence in the market. To begin with, there are numerous retail companies in the market. Walmart's competitors are typically stable retailers such as Whole Foods and Costco, but also online sellers such as Amazon and eBay. All of those companies are retail giants making profits of billions of dollars.

Moreover, they are of a large variety. Although they offer similar products such as groceries, clothes, and household items, there are numerous items that can be found in one store, but not any other.

For instance, Whole Foods offers more local, organic, and plant-based food items compared to Walmart and Costco. Therefore, people looking for such products will head to stores like Whole Foods, rather than its competitors.

What must also be noted is the high aggressiveness of retail companies. All the companies in the sector continuously compete with each other, coming up with new ideas, products, and promotions to draw customers' attention. This allows them to remain aggressive and not stop until they have finally driven their competitors out of business.

To conclude, the large number and variety of retail firms and their high aggressiveness make competitive rivalry a very strong force for Walmart Inc., meaning competitive rivalry is high in the industry.

New entrants

New entrants to the market are an external factor that can threaten a company's sales volume and market share.

To revise the difference between internal and external factors take a look at our explanations on SWOT analysis and external environments.

First of all, the costs of developing a new brand are moderate to high. Therefore, opening a chain such as Walmart would require the necessary funds to make an investment. However, as it turns out, both in the US and globally, there are people who have the money to do so.

Even though the costs of developing a brand-seeking are moderate or high, the costs of doing business are low. This applies particularly to small retailers which operate only a few or even one local store only, yet still manage to compete in the market with Walmart due to geographical factors. For example, the small grocery store may be located in the center of a small town where larger grocery stores are only available to reach by a long car drive. For this reason, one does not necessarily need a lot of funds to open up a store that could become Walmart's competition. However, it must be noted that since Walmart has around 10,500 stores globally, a collapse of one or two of them would be just a relatively smaller loss for the corporation than for a small local shop owner.

Lastly, there are moderate capital costs. Since it requires a business space, human resources, equipment, and other variables, the capital costs can be relatively high. Nevertheless, it is also possible to establish a smaller grocery business with lower capital.

To sum up, moderate or high costs of developing a brand, low costs of doing business, and moderate capital costs make new entrants a strong force for Walmart, meaning that the threat of new entrants into the market is high.

Power of buyers

The power of buyers is an ability that customers have in driving prices lower or higher.

To start with, there are numerous consumers. That being said, individual buyers do not have a negative impact on the company's total revenue. If one customer drops out, there will always be another, meaning that the revenue can be easily recovered by someone else due to the large volume of consumers.

Additionally, the consumers are very diverse. With Walmart stores operating all over the world and customers ranging from New York to China, their diversity is associated with different needs and wants. This large diversity weakens the power that buyers can exert on the company.

Finally, people shopping at Walmart typically make small purchases. As a result, the number of purchases would have to be significantly reduced in order to deteriorate the company's performance. One individual who decides to stop purchasing at Walmart is not able to influence the entire global company.

To summarize, a large number of very diverse consumers and their small purchases make the power of buyers a weak force for Walmart, meaning the power of buyers is low.

Power of suppliers

Power of suppliers is an ability that suppliers have to drive up the cost of inputs.

Firstly, there are numerous suppliers available, which means that Walmart can choose between a wide range of different suppliers. If there were only one or two suppliers in the market, Walmart would have to be more cautious about its suppliers as they would hold more bargaining power. However, due to the large volume of suppliers, Walmart is the one with more power, as it can always switch to a different supplier.

What is more, there is tough competition between suppliers. That being said, they all fight with each other to draw customers' (like Walmart) attention and thrive in the market. In doing so, their power is weakened and taken over by customers who can take advantage of incentives such as sales and price cuts - as competing suppliers will do everything to make customers buy their products rather than their competitors.

Lastly, there is a high availability of supply. Since most of the products offered by Walmart are necessities and everyday use products, it is relatively easy for the company to find a supplier that would suit their needs.

To sum up, a large number of suppliers, tough competition between them, and high availability of supply make the power of suppliers a weak force for Walmart, meaning that the bargaining power of suppliers is low.

Threat of substitutes

Most products can be substituted for other offerings, not necessarily in the same category.

When it comes to Walmart, the availability of substitutes is moderate. Even though some of Walmart's products can be substituted, many of them are necessities such as bread, milk, paper towels, or nappies which people are always going to use. Alternatively, if there came a substitute for these necessities, it would probably also be available in Walmart and other retail stores.

Moreover, there is a low variety of substitutes. Some products' alternatives do not particularly vary from products available in Walmart.

Taking paper towels as an example, most consumers do not care too much about the branding and type of paper towels available. Consumers are more likely to choose which paper towel to buy based on the one that offers the best value for the price. As a result, they are unlikely to substitute the paper towels available at Walmart with those available at another store.

What is more, substitutes are typically more expensive. Since most of the products offered by Walmart are everyday-use products at low prices, consumers are not likely to substitute these products for more expensive ones.

All in all, moderate availability, low variety, and the high price of substitutes make the threat of substitutes a weak force for Walmart, meaning that the threat of substitutes is low.

In conclusion, for Walmart, competitive rivalry seems to be the strongest force of Porter's Five Forces. The only other force that could have an influence on the firm is new entrants. Besides these, the power of buyers, power of suppliers, and the threat of substitutes does not seem to pose a danger to the company. Despite the high competition and threat from new entrants, Walmart successfully develops strategies to protect the business from the issues in its industry's environment, which is reflected by its enormous revenue.

Porter's Five Forces Walmart - Key takeaways

  • Walmart Inc. is a multinational retail corporation that operates a chain of hypermarkets, discount department stores and grocery stores.
  • It was founded by Sam Walton in 1962 in Rogers, Arkansas, United States.
  • Walmart is currently the largest company by revenue.
  • The strongest force of Porter's Five Forces for Walmart is the competitive rivalry.
  • Walmart competes with companies such as Whole Foods, Costco, Amazon and eBay.
  • The only other force posing a threat to Walmart are new entrants.

Sources:

https://corporate.walmart.com/about/history

Porter's Five Forces Walmart

No, because of a large number of very diverse consumers and their small purchases make the power of buyers a weak force for Walmart.

Walmart’s biggest competitors are Whole Foods, Costco, Amazon and eBay.

Yes, there are some substitutes available. However, they are typically more expensive and since most of the products offered by Walmart are everyday use products at low prices, consumers are not likely to substitute these products for more expensive ones.

Final Porter's Five Forces Walmart Quiz

Question

Who founded Walmart?

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Answer

Sam Walton

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Question

When and where was Walmart founded?

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Answer

in 1962 in Rogers, Arkansas, United States

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Question

Is Walmart available in the U.S. only?

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Answer

No

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Question

How many countries does Walmart operate in?


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Answer

24

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Question

By revenue, what is a company bigger than Walmart?

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Answer

There is no company bigger than Walmart by revenue.

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Question

What is the strongest force in Porter’s Five Forces for Walmart?

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Answer

Competitive rivalry

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Question

Why is competitive rivalry such a strong force for Walmart?

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Answer

It is because of the large number and variety of retail firms and their high aggressiveness.

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Question

Give an example of Walmart’s competitor that has stationery shops.

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Answer

For example:

  • Whole Foods
  • Costco

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Give an example of Walmart’s competitor that is an online seller.


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Answer

For example:

  • Amazon
  • eBay

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Can new entrants pose a threat to Walmart?


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Answer

Yes

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Why can new entrants pose a threat to Walmart?

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Answer

Low costs of doing business and moderate capital costs make new entrants a strong force for Walmart. 

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Question

Why is the power of buyers weak?

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Answer

There is a large number of very diverse consumers who make small purchases.

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Question

How strong is the power of suppliers?


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Answer

For Walmart the power of suppliers is weak. 

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Why is the power of suppliers a weak force for Walmart?

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Answer

A large number of suppliers, tough competition between them and high availability of supply make it a weak force for Walmart. 

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Question

Is the threat of substitutes a high force for Walmart?


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Answer

No, because of the moderate availability, low variety and the high price of substitutes the threat of substitutes is a weak force for Walmart. 

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Question

Competitive rivalry is a strong force for Walmart due to the large number and variety of retail firms. 

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Answer

True

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Question

The power of buyers is an ability that customers have in ...

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Answer

driving prices lower or higher. 

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Question

For Walmart, the power of buyers is high since there are a large number of customers who make small purchases. 

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Answer

True

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Question

..., ..., and the ... make the threat of substitutes a weak force for Walmart.

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Answer

moderate availability, low variety, high price of substitutes 

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Question

Despite the high competition and threat from new entrants, Walmart successfully develops strategies to protect the business from the issues in its industry's environment.

Show answer

Answer

True

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Question

What does low variety of substitutes mean?

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Answer

there are not many alternatives to the product a company is selling. 

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Question

For everyday-use products at low prices, consumers are ... to substitute these products for more expensive ones. 


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Answer

likely

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Question

What does a high number of suppliers available mean for Walmart?

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Answer

Walmart can choose between a wide range of different suppliers. If there were only one or two suppliers in the market, Walmart would have to be more cautious about its suppliers as they would hold more bargaining power.

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Question

For Walmart, the power of suppliers is low while the power of buyers is high.

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Answer

True

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Question

New entrants are unlikely to pose a threat to Walmart. 

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Answer

True

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Question

Name some of Walmart's products that are substitutable by other retail stores.

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Answer

products people always use such as bread, milk, paper towels, nappies, etc. 

Show question

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