Introduction
The Five Forces Analysis, developed by Michael E. Porter, is a strategic management tool that analyzes the influence of external forces on a given industry’s level of competition. External variables are customers’ negotiating strength, suppliers’ negotiating power, the threat of substitution, new entrants, and the intensity of competition (Isabelle et al., 2020).
One might use Porter’s Five Forces model to better understand the state of competition in any given market. The scope and strategic nature of this tool’s application are both extensive. Additionally, the tool provides a good basis for choosing the most effective strategic options. Due to the model’s significance, it necessitates a concentrated effort in terms of practical analysis.
Description
Walmart Inc., headquartered in Bentonville, Arkansas, operates a network of hypermarkets (also known as supercenters), cheap department stores, and grocery shops across the United States. It faces stiff competition from other large retailers, including Costco Wholesale, Home Depot, eBay Inc., Amazon.com Inc., and its subsidiary Whole Foods Market (Liu et al., 2022). Walmart must adopt measures to safeguard the company against problems in its industry environment. Some of the measures are those related to external factors discovered through a Five Forces analysis of the firm due to the wide range of competitors it faces. The company’s plans are typical of strategic reactions to the intense competition in the retail sector.
Market saturation is a primary factor in evaluating the intensity of competitiveness in the retail sector. There is much competition for the services offered in retail. Therefore, Walmart Inc. must employ strategies and methods that capitalize on the company’s advantages to survive. To stay at the top of its field in the face of tough competition, Walmart Inc. can lean on several advantages detailed in the company’s own SWOT analysis (Pranadita et al., 2022). Porter’s Five Forces analysis reveals that Walmart faces pressure from the five external factors.
Porter’s Five Forces Analysis
A Porter’s Five Forces analysis of the retail giant reveals the effects of Walmart Inc.’s competitive rivalry or intensity of competition on the company and the retail sector. Due to the sector’s state, the corporation is compelled to investigate potential strategic responses to the challenges posed by rivals (Anastasiu et al., 2020). Subsequently, considering how saturated the retail business is, anyone can see why Walmart would need to constantly innovate to survive the onslaught of fierce rivals.
Risk of Entry by Potential Competitors (High)
For Walmart Inc. to survive, it must face the formidable challenge of upstart competitors. Even amid giants like Walmart, new entrants into the retail sector have relatively low barriers to entry (Anastasiu et al., 2020). Independent stores can compete with larger chains by offering customers greater choice, proximity, and a more specialized product offering. Porter’s Five Forces analysis decomposes the formidable threat of new entrants into external factors.
Entry Barriers:
- Branding can be expensive to build (moderate force).
- Advantageously low operating expenses (strong force).
- Moderate capital expenditures (strong force).
Building a name for a new competitor is an expensive endeavor. However, some extremely sizable new entrants have the means to establish themselves as credible brands. For Walmart, Inc., the impact of this circumstance is about average. In the retail industry, the initial investment and ongoing expenses are reasonable. In comparison to larger corporations, the overhead for a small retail outlet is relatively modest.
Given these circumstances, many independent stores now have a fighting chance against Walmart (Liu et al., 2022). The initial investment required varies widely depending on factors such as the size of the firm and its needs in terms of office space, personnel, and technology. Nevertheless, new entrants, especially smaller ones, can get started with a modest initial investment. Considering these extraneous variables within the framework of the Five Forces research demonstrates that upstart competitors can survive and develop into serious challenges for established businesses like Walmart.
Industry Rivalry (High)
Retail is a sector characterized by intense competitive rivalry. In this market, numerous companies of varying sizes compete with one another. To effectively handle the formidable force of competition, Walmart must consider external competition factors. When Walmart manages its competitive elements, it can impact the characteristics of the products, the number of sellers, the entrance hurdles, the accessibility of information, and the location.
Industry Barriers:
- Numerous companies compete in the retail sector (strong force).
- Wide range of retail establishments (strong force).
- Strong competitiveness among retailers (strong force).
These external variables considerably impact Walmart and help determine the nature of competitive rivalry in the retail market. According to Porter’s Five Forces model, increased competition is one of the benefits of many enterprises (Isabelle et al., 2020). Competition from such a wide range of businesses presents difficulties for Walmart because of its different strategies.
Increased company aggression also increases rivalry between businesses. Due to this, the corporation must maintain an aggressive stance in the market. Walmart must keep expanding to maintain its status as a significant worldwide retailer.
Bargaining Power of Buyers (Low)
In the current state of affairs within the retail industry, Walmart’s clients do not hold much clout regarding their bargaining power. According to Porter’s Five Forces model, the sheer vastness of the market prevents individual shoppers from significantly impacting local merchants. (Pranadita et al., 2022). As a result, customers affect the external variables that contribute to Walmart’s capacity to charge low prices due to the customers’ inability to haggle.
Buyers Barriers:
- The consumer base is quite numerous (weak force).
- Extreme variety in the market’s clientele (weak force).
- Single-item purchases of relatively modest size (weak force).
Due to their sheer number, customers generally do not have much influence over Walmart and other stores. The impact of individual customers on the company’s worldwide sales is minimal. Customers already have little leverage to negotiate better prices because of the weak forces of consumer diversity and modest individual purchases (Anastasiu et al., 2020). When there are more potential buyers, it is harder for them to band together and exert pressure on the business. This means shoppers cannot exert much pressure on Walmart or the competition.
Bargaining Power of Suppliers (Low)
In the retail sector, suppliers’ bargaining strength is low. An extensive number of suppliers serve the market, and these suppliers are vulnerable to large companies like Walmart (Liu et al., 2022). As a result of these external circumstances, Walmart’s bargaining power with its suppliers is relatively low.
Suppliers Barriers:
- Extensive range of suppliers (weak force).
- Supply-side rivalry is intense (weak force).
- Excellent supply availability (weak force).
According to Walmart Inc.’s Porter’s Five Forces analysis, many suppliers pose little competitive threat. Large merchants like Walmart are mostly immune to pressure from small suppliers.
Another issue is the intense rivalry between retailers and their suppliers for shelf space. With so much supply on the market, it is hard for suppliers to affect Walmart’s strategic development (Liu et al., 2022). Therefore, the corporation is challenged by the lackluster intensity of its suppliers’ bargaining power. Walmart’s approach to corporate social responsibility aids in mitigating the impact of its suppliers.
The Threat of Substitutes (Medium)
The retail industry is only mildly affected by the danger of alternatives or substitution. There are not many products or services comparable to the ones Walmart provides. Due to different external factors, Walmart faces a small risk of competition from alternative retailers.
Substitute Barriers:
- Medium availability of alternatives (moderate force).
- Few options for alternatives (weak force).
- The higher price of alternatives (weak force).
Walmart’s competitors have made some of their products readily available. However, consumers have difficulty straying away from products sold at big-box stores like Walmart due to the external aspect of a lack of substitutes (Isabelle et al., 2020). Some alternatives to the corporation’s cheap products and services are also more expensive. According to Porter’s Five Forces research model, the combination of these external variables results in low competition from substitutes or new entrants in Walmart’s business.
Conclusion
Businesses need to know what factors to prioritize in order to make informed strategic decisions, and Porter’s Five Forces analysis does just that. For Walmart to survive, it must address all five forces, all exerting pressure on the corporation. This will aid the store in maintaining a competitive edge over established and up-and-coming rivals. Additional funds should be invested in developing the company’s human resources and automating internal processes related to supply chain management. These strategic methods can enhance productivity and advance the company’s development, allowing Walmart to remain resilient amid intense rivalry.
Reference List
Anastasiu, L., Gavriş, O. and Maier, D. (2020) ‘Is human capital ready for change? A strategic approach adapting Porter’s five forces to human resources,’ Sustainability, 12(6), p. 2300. Web.
Isabelle, D. et al. (2020) ‘Is Porter’s five forces framework still relevant? A study of the capital/labour intensity continuum via mining and IT industries,’ Technology Innovation Management Review, 10(6), pp. 28–41. Web.
Liu, Z., Lu, X. and Pei, L. (2022) ‘Analysis on business model of Chinese retail industry in the post-pandemic era: Case study of Walmart and Freshippo,’ Journal of Education, Humanities and Social Sciences, 2, pp. 70–77. Web.
Pranadita, N., Rahayu, A. and Wibowo, L.A. (2022) ‘The effect of work creation law on the five forces of competition related to the formulation of competitive strategies according to Michael E. Porter,’ Proceedings of the 6th Global Conference on Business, Management, and Entrepreneurship (GCBME 2021). Web.