Walmart Inc.

Five Forces Analysis (Porterʼs Model), Recommendations - Panmore Institute 08/09/19, 11(27 AM

Walmart Inc. Five Forces Analysis

(Porterʼs Model), Recommendations
Updated on February 22, 2019 by Roberta Greenspan

Walmart Inc. (formerly Wal-Mart

Stores, Inc.) competes against major
firms in the retail industry, such as
Amazon.com Inc. and its subsidiary
Whole Foods Market, as well as
Costco Wholesale, Home Depot, and
eBay Inc. The variety of competition
Entrance to a Walmart store in Pincourt, Canada. A compels Walmart to develop
Porterʼs Five Forces analysis of Walmart Inc.,
strategies to protect the business
pertaining to external factors in the retail industry
environment, gives insight on the companyʼs from the issues in its industry
strategic direction. (Photo: Public Domain) environment, such as the ones linked
to external factors identified in this Five Forces analysis of the business.
Michael E. Porterʼs Five Forces analysis model is a strategic management
tool that evaluates the effects of external factors that determine the
competitive landscape of the industry. These external factors define the
bargaining power of customers or buyers, the bargaining power of
suppliers, the threat of substitution, the threat of new entrants, and
competitive rivalry. In this case, the five forces refer to the retail industry,
where Walmart focuses its operations. The companyʼs strategic direction
is representative of strategic responses to competitive forces in the retail
industry environment.

A Porterʼs Five Forces analysis of Walmart Inc. shows the implications of

the competitive rivalry or intensity of competition on the business and the
retail industry. This condition of the industry environment pushes the
company to explore strategic measures to manage the negative effects
of competition. Considering that the retail market is saturated, Walmart is

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Walmart Inc. Five Forces Analysis (Porterʼs Model), Recommendations - Panmore Institute 08/09/19, 11(27 AM

in a continuous process of improvement to counteract the impact of

strong competition.

Summary and Recommendations: Five Forces

Analysis of Walmart Inc.
Summary. In determining the degree of competitive rivalry in the retail
industry, a basic consideration is market saturation. The retail services
market is highly saturated. As a result, Walmart Inc. faces tough
competition, which warrants strategies and tactics that build on the
companyʼs strengths. The SWOT analysis of Walmart Inc. enumerates a
number of strengths that the business can utilize to maintain its industry
position despite aggressive competitors. Based on the external factors
enumerated in this Porterʼs Five Forces analysis, Walmart experiences
the following intensities of the five forces in the retail industry
environment:

W. Competitive rivalry or competition – Strong

Y. Bargaining power of buyers – Weak
Z. Bargaining power of suppliers – Weak
[. Threat of substitutes or substitution – Weak
\. Threat of new entrants – Strong

Recommendations. Walmart Inc.ʼs strategic planning must prioritize

competition and new entry in the retail industry. Based on this Five
Forces analysis, the business needs to continually improve its capabilities
to sustain its competitive advantages. Walmartʼs generic strategy and
intensive growth strategies establish the basic approaches to grow the
business and keep it competitive. However, the company needs to
develop additional enhancements. It is recommended that the company
increase its investment in the automation of internal business processes,
including its supply chain. This recommendation aims to improve overall
efficiency and, as a result, improve cost effectiveness to satisfy

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Walmart Inc. Five Forces Analysis (Porterʼs Model), Recommendations - Panmore Institute 08/09/19, 11(27 AM

Walmartʼs corporate vision and mission statements. It is also

recommended that the company further enhance its human resource
management. Such improvement can contribute to workforce
competencies that support business growth. These resulting
improvements based on these recommendations can help counteract the
effects of the strong forces of competition and new entry, which are the
most significant issues determined in the results of this Five Forces
analysis.

Intensity of Competitive Rivalry or Competition

(Strong Force)
The intensity of competitive rivalry is strong in the retail industry. There
are many firms of different sizes competing in this industry environment.
The following external factors are the most significant considerations in
Walmartʼs strategic management of the strong force of competition:

Large number of firms in the retail market (strong force)

Large variety of retail firms (strong force)
High aggressiveness of retail firms (strong force)

Walmart experiences the strong force of these external factors that

define the competitive rivalry in the retail industry environment. In
Porterʼs Five Forces analysis model, a large number of firms typically
strengthen competition. In relation, the high variety of firms imposes
challenges in developing Walmartʼs competitive advantages, considering
the diversity of approaches that these competitors use. Also, higher firm
aggressiveness leads to stronger competitive rivalry. Thus, the company
must remain aggressive to remain competitive. Walmart must keep
growing to remain in its position as a major global retailer.

Bargaining Power of Buyers or Customers (Weak

Force)

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Walmart Inc. Five Forces Analysis (Porterʼs Model), Recommendations - Panmore Institute 08/09/19, 11(27 AM

Walmart faces the weak intensity of the bargaining power of buyers in the
retail industry environment. Based on Porterʼs Five Forces analysis
model, the large population of buyers makes it difficult for them to
impose significant pressure on retail firms. Walmart is subject to the
following external factors concerning the weak bargaining power of
buyers or customers:

Large population of consumers (weak force)

High diversity of consumers (weak force)
Small size of individual purchases (weak force)

The large population of buyers exerts a weak force on Walmart and the
retail industry. Individual buyers have negligible impact on the companyʼs
global revenues. The weak force of buyer diversity and the weak force of
small individual purchases further weaken the bargaining power of
customers. Higher buyer diversity makes it more difficult for customers
to collectively impose pressure on the company. In effect, the bargaining
power of buyers is weak in influencing Walmart and other firms in the
industry.

Bargaining Power of Suppliers (Weak Force)

The bargaining power of suppliers has weak intensity in the retail industry
environment. There are many suppliers in the industry. Large firms like
Walmart can easily affect these suppliers. Based on this condition,
Walmart experiences the weak force of the bargaining power of
suppliers, based on the following external factors:

Large population of suppliers (weak force)

Tough competition among suppliers (weak force)
High availability of supply (weak force)

This Porterʼs Five Forces analysis of Walmart Inc. considers the large
population of suppliers as having weak potential to impact the company.

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Walmart Inc. Five Forces Analysis (Porterʼs Model), Recommendations - Panmore Institute 08/09/19, 11(27 AM

Individual suppliers have minimal influence on large retailers like Walmart.

Also, there are many suppliers competing for limited space in retail
stores. The high availability of supply makes it difficult for suppliers to
impact the strategic growth of Walmart. Thus, the company faces the
weak intensity of the bargaining power of suppliers. Walmartʼs corporate
social responsibility strategy helps in managing suppliersʼ influence on
the business.

Threat of Substitutes or Substitution (Weak

Force)
The threat of substitutes or substitution has weak intensity in affecting
the retail industry environment. Walmart offers a wide variety of goods
and services that have a few or no substitutes. The following external
factors impose the weak threat of substitution against Walmart:

Moderate availability of substitutes (moderate force)

Low variety of substitutes (weak force)
Higher cost of substitutes (weak force)

Some substitutes to Walmartʼs goods are readily available. However, the

external factor of the low variety of substitutes makes it difficult for
consumers to move away from products available from retailers like
Walmart. Also, some substitutes are more expensive than the low-cost
goods and services available at the companyʼs stores. In Porterʼs Five
Forces analysis model, the combination of these external factors lead to
the weak threat of substitutes or substitution in Walmartʼs industry
environment.

Threat of New Entrants or New Entry (Strong

Force)
Walmart Inc. must address the strong intensity of the threat of new
entrants. New entry of retail firms is easily achieved even in the presence
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Walmart Inc. Five Forces Analysis (Porterʼs Model), Recommendations - Panmore Institute 08/09/19, 11(27 AM

of giants like Walmart. Small retailers can enter the market and compete
on the basis of convenience, location, specialty, and other factors. Based
on this Porterʼs Five Forces analysis, the strong force of new entry is
broken down into the following component external factors:

Moderate to high cost of brand development (moderate force)

Low cost of doing business (strong force)
Moderate capital costs (strong force)

It is costly to develop a new entrantʼs brand. Nonetheless, some large

new entrants have the financial resources to build a strong brand. This
condition exerts a moderate force on Walmart Inc. The cost of
establishing a new retail firm and the cost of running it are low to
moderate. For example, small retailers have low costs of doing business
relative to larger firms. This condition makes it possible for many smaller
retailers to compete against Walmart. Initial capital outlay varies, but it is
typically high in terms of funding for business space, human resources,
and equipment, among other variables. Still, smaller new entrants can
establish their operations with low to moderate capital outlay. These
external factors in the context of the Five Forces analysis show that new
entrants can keep operating and become potential threats to firms like
Walmart.

References

Dobbs, M. (2012). Porterʼs five forces in practice: Templates for firm

and case analysis. In Competition Forum (Vol. 10, No. 1, p. 22).
American Society for Competitiveness.
Dobbs, M. (2014). Guidelines for applying Porterʼs five forces
framework: A set of industry analysis templates. Competitiveness
Review, 24(1), 32-45.
Gerdeman, D. (2012). Location, location, location: The strategy of
place. Harvard Business School.
Grundy, T. (2006). Rethinking and reinventing Michael Porterʼs five
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Walmart Inc. Five Forces Analysis (Porterʼs Model), Recommendations - Panmore Institute 08/09/19, 11(27 AM

forces model. Strategic Change, 15(5), 213-229.

Hicks, M. J., Keil, S. R., & Spector, L. C. (2012). Mom-and-pops or
big box stores: Some evidence of WalMartʼs impact on retail
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Meeks, M., & Chen, R. J. (2011). Can Walmart integrate values with
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Forces Analysis. VDM Publishing.
Roy, D. (2011). Strategic Foresight and Porterʼs Five Forces. GRIN
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Walder, J. (2013). A Critical Evaluation of Michael Porterʼs Five
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Walmart Inc. – Form 10-K.
Walmart Inc. – Walmart establishes strategic partnership with
Microsoft to further accelerate digital innovation in retail.
Walmart, Inc. – E-commerce Website.
Zentes, J., Morschett, D., & Schramm-Klein, H. (2007). Strategic
Retail Management. Springer.

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