walmart

Describe the nature of the industry in which Wal-Mart competes

The discount retailing industry, in which Wal-Mart competes, suffered slower growth in industry sales and in new store increases by reaching maturity. This resulted in a shakeout that has left the industry very concentrated. These trends are likely to continue due to intensified competition driven by companies seeking to expand market share by gaining efficiencis and economies of scale in distribution and purchasing. Indeed, in 1993 the top 5 discounters accounted for over 70% of total industry sales. Consequently, barriers to entry are high. Other barriers to entry include the high capital expenditure requirements of leasing or buying the stores; promotional costs; vast capital costs of leasing or buying warehouses and distribution channels in order to buy and store the product; costs of training and hiring the work-force to provide high-quality customer service. Finally, the threat of subsitution is high, for all the merchandize is readily available at many types of stores; this reinforces the need to compete on prices, costs and customer-focus. As growth in this industry slowed securing more market share is the critical way to compete as only then are you able to leverage your economies of scale to build cost advantages.

The nature of Wal-Mart’s competitive priorities are based on the foundational of minimizing all its costs vis-à-vis its competitiors so that it may provide the lowest cost merchandise, and thereby boost its market share. Wal-Mart aims to differentiate itself, and enhnce it’s competitiveness, by making technology, its advanced computer and telecommunication system, a core competency. This maintenance of superior technology greatly enhances Wal-Marts ability to focus on building and maintaining relationships with its customers, suppliers and employees; for example, it cuts down on unnecessary large inventory levels and enables intimate and timely contact with suppliers. Wal-Mart further competes on cost, ‘value of the dollar’ philosophy, and also performance quality, by adding value through its training program and its corporate culture which increases customer satisfaction. However, Wal-Mart’s management which initially portrayed itself as the lowest cost provider had to change this policy partially because it becam...

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...r relative to its suppliers, Wal-Mart was able to implement and enforce radical cost-cutting measures; these included saving realized by eliminating manufacturer’s representatives from negotiations with suppliers; by making its vendors pay for communicating expenses. Wal-Mart’s decentralized, incentive driven corporate cultural program is also a major asset in reducing costs for, despite non-unionization, employees assisted in realizing savings and in keeping ‘shrinking’ costs below their competitors. This program also raises employee satisfaction, and probably reduces employee turnover (thereby reducing costs for training new workers), and boosts customer satisfaction. Wal-Mart’s hihgly-automated two-step hub distribution network, involving greater supplier participation, and usage of techniques such as ‘cross-docking’ enabled the company to utilize even quicker inventory control (resembling a manufacturing firm’s JIT). Finally, even the location of the distribution centers and stores, which were grouped together, enhanced the speed with which inventory was managed. It also meant that trucks could be used which further reduced costs and increased reliability and speed of service.