Background of Wal-Mart and the Discount Mass-Retail IndustryFounded in the 1960’s Wal-Mart has experienced most of its rapid growth since the early 1990’s. The retail industry is vast; apart from Wal-Mart, the case study mentions other big US retailers such as Target, Costco, Home Depot, Best Buy, and Circuit City, and in the UK names like Tesco and Dixons could be added to the list. The trend in retail seems to be toward consolidation, offering customers “one-stop shopping”. One of Wal-Mart’s best features from a customer point of view is the concentration of most everything a customer could be seeking in one store: groceries, clothing, household items, entertainment items, and services such as pharmacies, auto repair, and banking.
Target stores are apparently organised in much the same fashion, and traditionally-focused stores such as Tesco are moving in that direction. Even more specialised stores such as Home Depot, which sells home-improvement and building products, and Best Buy, which specialises in consumer electronics, offer what could be described as the maximum possible product mix within their particular segments. The reason that the retail industry is so large is because it primarily serves customers’ needs rather than wants.
People need to buy food and clothing and have their autos repaired; what they buy and how much they wish to spend are matters of discretion, certainly, but they really have no choice to simply forego spending entirely in these areas. Convenience, having the opportunity to purchase the greatest variety of products with the least amount of effort, seems to be a major driver of the retail business. Shopping malls were successful against individual retailers because many different goods could be concentrated in a small area; major mass-retailers like Wal-Mart are another level of convenience because everything is concentrated in a single store. But there also seems to be an upper limit to how much generalisation consumers find desirable.
Quality may be perceived as lower for products coming from a mass-retailer than a more specialised one, and indeed Wal-Mart is sometimes criticised for sacrificing quality for price. This presents an opportunity for smaller retailers to make inroads in different niches of the retail market, particularly if they are able to present more specialised customer service expertise and personal attention to customers as a better value than the low price focus of mass-retailers.
Even Wal-Mart has recognised some opportunity in this area, expanding its store format mix to include some smaller neighbourhood stores instead of relying exclusively on very large mega-stores. SWOT Analysis of Wal-MartStrengthsOpportunitiesVery strong brand recognition. Large product selection. Reputation for low prices. Large number of stores. Efficient supply chain. Strong buying power. Well-developed HRM program. Solid financial state (consistent returns). Many regions available for expansion. Merger opportunities with other retailers in new areas. New store formats give opportunities to expand market segments. Economic slowdown means customers are reducing expenses, making Wal-Mart’s bargains more attractive. Economic slowdown also gives Wal-Mart added buying power with suppliers. Economic slowdown also potentially reduces competition; some competitors may go out of business. WeaknessesThreatsSize of organisation and diversity of products increases management complexity. Large product mix limits focus and flexibility in any one segment (e. g., foods, clothing, house wares, etc. )Large number of stores distributed among relatively small number of countries. High-profile labour disputes have hurt company’s reputation. Purchasing tactics have been criticised as unfair. Wal-Mart affected by bad publicity over poorly-made & unsafe Chinese products. Low prices sometimes perceived as meaning low quality. Margins are relatively small, which reduces pricing flexibility. Customers reducing expenses may also reduce their spending at Wal-Mart. New markets can carry a political risk (e. g., the unionisation of Chinese employees). Since Wal-Mart is number one, all competitors are targeting Wal-Mart’s market share. Expansion into services such as pharmacies and banking carry the likelihood of increased regulation. Threat of increasing unionisation – “nightmare” and “Teamsters’ Union” probably mean the same thing in Wal-Mart’s dictionary. Expanding supplier base in emerging markets can reduce Wal-Mart’s purchasing power edge. Porter’s Five Forces Analysis of Wal-MartBargaining Power of CustomersThe bargaining power of Wal-Mart’s customers is quite high.
Customer loyalty to Wal-Mart seems to be based mostly on price. Wal-Mart’s advertising mantra is “Low Prices Everyday”, so despite whatever other benefits the store may offer customers, Wal-Mart has already established price as the priority; with competitors very near in most areas where a Wal-Mart store can be found, customers can easily make another choice, even for just a few items.