Porter’s 5 Forces Analysis of Walmart

Walmart LLC. is facing immense competition from industrial giants like Amazon, Whole Foods Market, Costco Wholesale, eBay, and Home Depot. Porter’s Five Forces analysis by examining the external factors gives the firm’s strategic vision. This management tool was given by Michael E. Porter which he used to examine the external forces relative to the competitive business environment. Walmart has devised strategies to shield itself from the arising external factors due to increased competition. These strategies help Walmart to solve problems based on the Five Forces examination of the organization. Weak forces of customers and suppliers, the risk of substitution and novel retailers, and swelling rivalry are external factors. Walmart’s major focus is on the retail sector industry; therefore, this analysis gives a view of the organization’s strategic orientation to address acting forces in the trade manufacturing business.

This Porter’s 5 Forces investigation of Walmart corporation reveals the insinuations of their intensifying competition in the market and retail industry. Nevertheless, the organization has adopted several strategic policies to mitigate the negative shocks of the competitive environment. Walmart devised an incessant process to tackle the condition of the saturated retail market due to the amplified competitive market.

Porter Five Forces Analysis: Summary and Recommendation

Summary

Market saturation is an important consideration that determines the intensity of competitiveness prevailing in the marketing business. Consequently, Walmart has faced intense competition and devised strategies and policies based on its advantages. SWOT analysis shows several strengths which can be utilized by the organization to survive the highly saturated and competitive market situation. The strong five forces dominating the retail business environment of Walmart which are acting external factors based on Porter’s Five Forces analysis are listed below:

1. Force of competition and rivalry – Strong
2. Consumers’ bargaining power– Weak
3. Sellers Bargaining power– Weak
4. Danger of substitutes or substitution – Weak
5. Risk of novel contestants – Strong

Recommendations

The corporation needs to grow continuously in a competitive environment. This is the only way to retain its position in the retail market. It must devise strategic planning according to rising competition and rivalry. Walmart must also take account of the new rivals. To this end, it needs to enhance its abilities to sustain the competitive benefits. In the meantime, Walmart’s generic, and concentrated strategies to grow business in the pertaining environment are applaudable. Still, there exists a large room for improvement in business to sustain the upper hand in a competitive environment against rivals and to improve the company’s steady growth. A chain is as strong as the weakest link. Walmart must undergo improvement in its internal business procedures. It may include venture in the supply chain which would result in enhanced efficiency and performance, and cost-effectiveness according to the shared vision and prescribed mission statement of the company. Importantly, the organization must undertake delicate practices of human resource management (HRM) to enhance workforce capabilities. These measures can significantly increase the growth rate, efficiency, and competitive advantages against rivals and new entrants. This Five Forces analysis has exposed the challenging factors among which are acting strong forces boosting competition by new enterers in the competitive retail market.

Intense Competitive Rivalry (Strong Force)

Firms of varied sizes are competing with each other in the merchandising industry which enhances the competitive environment with the increase in competitive rivalry to capture the consumer base. The below stated external factors contribute are imperative considerations while Walmart’s quest to devise strategic management to control the competitive forces:

• More than a few companies in the retail (strong force)
• Diversified retail corporations (strong force)
• Strong competitiveness of retail companies (strong force)

These prevalent strong forces of external factors determine the competitive competition of retail businesses. Where the number of corporations gives rise to a more competitive market, diverse ranged firms pose a threat as they use varied strategic policies to compete in the market. Furthermore, intensified competition between firms generates more competitional rivalry among the corporations in their urge to capture the market. Therefore, this Five Forces analysis reveals that Walmart must endure immense competitive strategies so that it may retain its leading position with an increase in growth and performance.

Bargaining power Buyers (Weak Force)

This analysis reveals that Walmart senses a feeble force of threat from the consumer’s end. The underlying factor pertaining to this weak force is the presence of huge masses of customers which reduces the pressure significantly. The subsequent external factors that are related to the exertion of a weak bargaining force on the Walmart corporation are listed:

• Consumers’ high intensity (weak force)
• Diversified consumers/buyers (weak force)
• Trivial purchases by single individuals (weak force)

The presence of high intensity of individual buyers or consumers exerts insignificant pressure on the Walmart retail industry. They do not add a considerable impact on the overall revenue generated by the company. The other factors exposed by this analysis are the diversity of buyers/consumers and the minute impact of individual purchases. The presence of diverse customers makes it impossible for consumers to pose any collective threat to the company. Moreover, individual purchases on a small scale feeble the consumers’ bargaining power.

Suppliers’ Bargaining Power (Weak Force)

Giants like Walmart have the capacity to undermine suppliers. The forces of suppliers have a weak force in the competitive retail market. Therefore, Walmart faces a negligible bargaining force with suppliers. These acting external factors are

• Suppliers Profusion (weak force)
• Suppliers’ Aggressive competition (weak force)
• Supply easy accessibility (weak force)

Individual supplies, although present in bulk quantity, have a minimal effect on the company. This analysis based on the Five Forces model highlights Walmart’s resistance to these suppliers. This limited availability of space to compete in the market does pose a minimal threat to Walmart’s position in the competitive market. Walmart’s social concern strategy aids the company to mitigate supplier’s impact on the corporate. In short, Walmart is facing weak force in bargaining power of suppliers.

Availability of Substitution or Substitutes (Weak Force)

This model helps to investigate the forces acting externally in Walmart’s retail business. Walmart has an extensive diversity of products and services in the market. These goods have rare or no alternatives. Therefore, Walmart is facing a weak threat of substitution. The following factors contribute to Walmart’s resistance to the threat of substitutes or substitution.

• Substitutes’ moderate disposal (moderate force)
• Substitutes Trivial diversity (weak force)
• Costly alternatives (weak force)

Although substitutes for Walmart products are generously available in the market, insignificant diversity in the goods make customers rely on Walmart’s retail stores. Furthermore, the company sells some goods and provides services at low prices as compared to its rivals. Therefore, this analysis reveals the weak forces of substitutes exerting externally in Walmart’s business atmosphere.

New Entrants’ Threat (Strong Force)

The company must act according to the robust competition of new competitors. These novel entrants pose a significant threat even to companies like Walmart. Small-scale retailers can beat their rivals due to their location, specialty, expediency, etc. The strong force of the threat of new entrants based on Porter’s Five Forces analysis is realized based on the following external factors:

• Costly branding (moderate force)
• Ease of corporate deed (strong force)
• Modest capital cost (strong force)

Strong financial bases are required to run the newly established business into a strong and reputable brand. In the same way, not all new entrants are in the position to spend resources except a few. However, the cost to run a retail business and the resources required to sustain are little to restrained. As we know, small retailers face low costs to run their businesses. Therefore, they can compete with giant firms more easily. Funding for starting a business varies, however, maintaining human resources, business procedures and equipment costs are high. Therefore, these smaller competitors can form their business at variable costs. To sum up, this analysis reveals the external factors that novel entrants run their businesses and pose threats ranging from low-moderate or moderate-high threats to Walmart’s competitive business.