walmart Essay

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Describe the nature of the industry in which Wal-Mart competes

The discount retailing industry, in which Wal-Mart competes, suffered slower growth in industry sales and in new store increases by reaching maturity. This resulted in a shakeout that has left the industry very concentrated. These trends are likely to continue due to intensified competition driven by companies seeking to expand market share by gaining efficiencis and economies of scale in distribution and purchasing. Indeed, in 1993 the top 5 discounters accounted for over 70% of total industry sales. Consequently, barriers to entry are high. Other barriers to entry include the high capital expenditure requirements of leasing or buying the
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This pattern of growth, allowing it to build market share and secure volume advantages quickly, through large expenditures on warehouses, is also evident in the manner in which Wal-Mart built its stores. Wal-Mart stores were initially built of a smaller average size than its direct competitors and only if there was space in the location for future expansion; this increased Wal-Mart’s flexibility and it helped reduce unnecessary costs, as indicated by Wal-Marts lower proportion of rental expense and its significantly higher sales per square foot. Indeed, this is just one manner in which Wal-Mart, unusually for a service industry, was able to create a real competitive advantage. However, because this advantage is clearly imitable Wal-Mart has been aggressive in maintaining its technological lead.
Wal-Mart’s promotions and advertising expenses, in proportion to discount store sales and in terms of circulars offered, was significantly less than competitors; rather it touted itself, and gained recognition for, as offering ‘everyday-low prices’ on national brands. Most of the products it sold were nationally advertised baranded products, although a growing
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