Bargaining power of customers: Our main question here is whether Wal-Mart customers can walk away from buying a product at Wal-Mart and find it cheaper elsewhere. For the most part, the answer is no. Wal-Mart has built its reputation by providing products at a considerably lower price than its competitors (Is Wal-Mart good, 2005). Certainly, customers can try to find lower prices at other retailers; and the proliferation of the Internet also allows customers to visit several e-commerce retailers. However, Wal-Mart's ability to keep prices at rock-bottom, coupled with the fact that it has such dominant market share in America, means that the bargaining power of customers has been trending downward.
Bargaining power of suppliers: By most accounts, the bargaining power of suppliers is poor - Wal-Mart holds all the cards. If a supplier wants to sell to the U.S. retail market, it has to sell through Wal-Mart, given the company's dominant market share. Without question, a company could decide to simply sell through other retailers, such as Target or K-Mart, or only focus on the higher-end retailers, such as Macy's. And suppliers are also free to sell products directly over the Internet, bypassing retail stores altogether. But many suppliers simply find it easier to give in to Wal-Mart, and the company is reportedly ferocious at the bargaining table.
Threat of new entrants: This threat, at the corporate level, is minimal. Certainly, an individual or company could open a discount retail store that would hurt a Wal-Mart store locally, but it's hard to imagine a new company making a major, national push to compete with Wal-Mart. Not only would such an effort be expensive and time-consuming, but the chance of success would be poor. Wal-Mart is too strong, has prices that are tough to match, and it has a history of putting competing retailers (such as Caldor and Ames) out of business.
Threat of substitute products: Certainly customers can buy products that will substitute for the products Wal-Mart sells. In fact, if you are looking to purchase a winter coat, for example, there is no doubt that Macy's will offer higher quality substitutes than Wal-Mart. Similarly, Circuit City will likely offer higher quality electronics. For many of Wal-Mart's products, a nicer, more expensive version can be found elsewhere. The company competes largely on price, and, when price is factored into the equation, it is hard to substitute for Wal-Mart products.
Overall rivalry: We can conclude that the overall level of rivalry in Wal-Mart's core retail market is trending downward. Consumers have little bargaining power - as Wal-Mart's prices are typically lowest - and suppliers have little power, given Wal-Mart's dominant market share. The number of major Wal-Mart competitors has decreased as retailers like Caldor and Ames have exited the business - and it would be hard for new entrants to challenge Wal-Mart (Is Wal-Mart good, 2005). In short, the company is in an excellent competitive position in its core retail market.
Gallagher offers a model that suggests there are three ways to describe a firm's business level strategies - low cost, differentiation and focus (Gallagher, 2004). In a low-cost strategy, the firm is simply trying to deliver the best value; in a differentiation strategy, a company is trying to make its products unique; in a focus strategy, a company is trying to appeal to a limited section of the overall market (Gallagher, 2004).
Through this lens, we can say immediately that Wal-Mart does not employ a focus-driven business level strategy. Through its Supercenters and a host of ancillary businesses and services, Wal-Mart tries very much to appeal to the entire U.S. consumer market, not just subsections of it.
Wal-Mart is arguably not focused on differentiation, either. The company often devotes its marketing to showing that it has the same exact products as its competitors, at a lower price. There is little effort to create a level of differentiation that customers would pay a premium for. The exception may be Wal-Mart's Sam's Club's locations, where the differentiating factor, ironically, is low price. Customers - often small business owners - pay a premium (a membership fee) for the privilege of shopping at a Sam's Club, for the purpose of receiving lower prices.
Really, there is little doubt that Wal-Mart's business-level strategy focuses on low cost. The company is built around providing the best value in the market, and it promotes this through its external marketing and even internal point-of-sale marketing, such as its "Roll-back Pricing" where it shows how much it is discounting a product. Wal-Mart has made a strategic choice to focus on bringing the lowest costs and highest value to American consumers.
Wal-Mart's strategy has been to look to international markets for growth as expansion opportunities in U.S. markets cool. Wal-Mart currently operates in 14 countries outside the United States, including Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Germany, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the United Kingdom.
Historically, Wal-Mart focused on establishing operations in the Western Hemisphere before targeting Europe and Asia. According to WalMartFacts.com, Wal-Mart's first international foray was into the Mexican market in 1991, followed by entry into the Puerto Rican, Canadian, Argentinian and Brazilian markets, respectively. Wal-Mart currently has a significant presence in Mexico (845 retail units); Japan (391 units); the United Kingdom (326 units); Brazil (296 units) and Canada (279 units) (International operations, 2006). Wal-Mart today is a major force in Mexico, where it controls 60% of the retail market (Naughton, 2006).
In general, Wal-Mart looks for international opportunities where it can achieve significant economies of scale, such as it has in the United States market. The company has shown it will aggressively target markets where it believes such opportunities exist, but also is not shy about avoiding or exiting markets where it does not believe it can become a dominant influence. For example, in July 2006 Wal-Mart announced the sale of all 85 of its retail centers in Germany, saying the business climate in Germany was not receptive to the type of strong and rapid growth Wal-Mart requires (Wal-Mart announces sale, 2006) Wal-Mart expects to take a $1 billion pre-tax loss related to this transaction (Wal-Mart announces sale, 2006).
At the same time, by all accounts Wal-Mart is now betting the future of its international business on China, where retail sales have been increasing nationwide at a clip of 15% a year (Naughton, 2006). Some time before the close of 2006, Wal-Mart is widely expected to announce a deal to acquire competing retailer Trust-Mart for approximately $1 billion, nearly tripling Wal-Mart's market share from 3.1% to nearly 9% and allowing Wal-Mart to inherit more than 100 stores in 20 Chinese provinces (Naughton, 2006). The company has even recruited Ed Y. Chan, who had been running the North Asian Division for Asian retail giant Dairy Farm Group, to run what would become Wal-Mart's new, expanded China operations (Wal-Mart appoints, 2006).
Going forward, Wal-Mart has made it clear that China is the focus of its international growth strategies. In an October 2006 conference call with analysts, international division president Michael Duke said that Wal-Mart believes it can achieve the same type of dominance in China that it achieved in the United States (Kabel, 2006). Even without Trust-Mart, Wal-Mart was on track to open 25 new retail outlets in China in 2006, betting on China's expanding middle class that is expected to quintuple to 200 million by 2015 (Kabel, 2006 and Naughton, 2006).
Wal-Mart has historically been an opportunistic company, and we can expect it to continue to grow strategically in markets where it already has a presence and to look for new international markets that may be growth oriented. and, certainly, Wal-Mart will look to protect the dominating market share it has built in Mexico. However, the company has made it clear that China will be the focus of its international growth strategies for the foreseeable future and we should take Wal-Mart at its word.
Wal-Mart is led by president and CEO H. Lee Scott, Jr., who has served at the pleasure of the company board of directors since 2000. The Wal-Mart board of directors consists of 13 members who are internationally renowned business leaders and is led by board chairman S. Robson Walton. Some of the notable members of the Wal-Mart board of directors are former Coca-Cola CEO Douglas Daft; former Small Business Administration Administrator Aida Alveraz; and Linda Wolf, former CEO of Leo Burnett Worldwide. The board of directors is elected by Wal-Mart shareholders to one-year terms and must be re-elected by shareholders each year (Wal-Mart to elect, 2006).
Daily operations at Wal-Mart, at a corporate level, are run by a team of senior managers. Among those senior managers are:
Thomas M. Schoewe: Chief Financial Officer and Executive Vice President
Eduardo Castro-Wright: Executive Vice President; CEO of Wal-Mart Stores Division of USA; and President of Wal-Mart Stores Division of USA.
Michael Terry Duke: Vice Chairman of Wal-Mart International; CEO of Wal-Mart International;…