Wal-Mart Analysis

Porter’s Five Forces

When assessed using Porter’s Five Forces model, Wal-Mart proves to be a strong company due to their operating and management efficiency, competitive pricing, and stable growth in a downturn economy. The model helps to evaluate the company by examining: the rivalry among existing firms, the potential threat of new entrants, the threat of substitute products or services, and the bargaining powers of both the suppliers and the buyers.

1. Rivalry among existing firms. Currently, there are 3 main companies that exist in the same market as Wal-Mart: Sears, K-Mart, and Target. Sears and K-Mart do not present a major challenge to Wal-Mart. Target, however, is Wal-Mart’s strongest competitor. Target is proven to have a highly effective business model and a clearly defined niche, helping the company grow vastly in the domestic market. Wal-Mart, therefore, has medium pressure from existing firms, most notably Target.

2. Threat of new entrants. The retail chain also has a great competitive advantage over potential competitors with their low-cost strategy and large variety of products. The entry barriers, therefore, are comparatively elevated in this market in large part due to Wal-Mart alone.

As Wal-Mart is expanding their product variety through groceries and pharmaceutical drugs, the corporation is also raising the threat of having new entrants enter its market. To combat Wal-Mart’s market intrusion into the pharmaceutical drugs industry, Walgreen, CVS, and other drug stores are adding groceries to their shelves. There is also a high likelihood that grocers would enter into the mass merchandising industry. However, due to Wal-Mart’s outstanding distribution systems, locations, strong brand name, financial capital, and other internal factors, Wal-Mart only faces medium pressure with regards to the threat of potential competitors.

3. Threat of substitutes. Wal-Mart faces low pressure in regards to the threat of substitute products...