Walmart Inc. Five Forces Analysis (Porter’s Model), Recommendations

Walmart Five Forces Analysis, Porter’s, competitive rivalry, power buyers, suppliers, threat substitution, new entrants, retail case
Entrance to a Walmart store in Pincourt, Canada. A Porter’s Five Forces analysis of Walmart Inc., pertaining to external factors in the retail industry environment, gives insight on the company’s strategic direction. (Photo: Public Domain)

Walmart Inc. (formerly Wal-Mart Stores, Inc.) competes against major firms in the retail industry, such as Inc. and its subsidiary Whole Foods Market, as well as Costco Wholesale, Home Depot, and eBay Inc. The variety of competition compels Walmart to develop strategies to protect the business from the issues in its industry environment, such as the ones linked to external factors identified in this Five Forces analysis of the business. Michael E. Porter’s 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 company’s strategic direction is representative of strategic responses to competitive forces in the retail industry environment.

A Porter’s 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 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 company’s 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 Porter’s Five Forces analysis, Walmart experiences the following intensities of the five forces in the retail industry environment:

  1. Competitive rivalry or competition – Strong
  2. Bargaining power of buyers – Weak
  3. Bargaining power of suppliers – Weak
  4. Threat of substitutes or substitution – Weak
  5. Threat of new entrants – Strong

Recommendations. Walmart Inc.’s 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. Walmart’s 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 Walmart’s 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 Walmart’s 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 Porter’s Five Forces analysis model, a large number of firms typically strengthen competition. In relation, the high variety of firms imposes challenges in developing Walmart’s 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)

Walmart faces the weak intensity of the bargaining power of buyers in the retail industry environment. Based on Porter’s 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 company’s 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 Porter’s Five Forces analysis of Walmart Inc. considers the large population of suppliers as having weak potential to impact the company. 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. Walmart’s corporate social responsibility strategy helps in managing suppliers’ 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 Walmart’s 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 company’s stores. In Porter’s Five Forces analysis model, the combination of these external factors lead to the weak threat of substitutes or substitution in Walmart’s 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 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 Porter’s 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 entrant’s 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.