Porter’s Five Forces Analysis
The discount retailing industry, which consisted of discount department stores, sold a wide variety of products such as health and beauty aids, household chemicals and consumables, home hardlines, sporting goods, automotive, paint and hardware, food, and stationary, amongst others. As a result, discount department stores competed with many retailers, from other discount department stores that also sold a wide variety of products, to specialty retailers that sold only certain products. To better understand the discount retailing industry in 1993, an understanding of Porter’s Five Forces Analysis is needed (Exhibit 1). Based on Porter’s Five Forces Analysis, rivalry was high. With Concentration Ratios for the …show more content…
First, the Company opened stores in isolated rural areas and small towns, usually with populations of 5,000 to 25,000. Consequently, Wal*Mart established itself in smaller markets its competitors were ignoring. As a result, customers started shopping at Wal*Mart’s in their proximities rather than driving to other cities to do their shopping. Second, the Company expanded from the inside out. As a result, in 1993, 55% of Wal*Mart stores faced direct competition from Kmart stores and 23% from Target stores. This was opposed to 82% of Kmart stores and 85% of Target stores that faced competition from the Company. Third, Wal*Mart was very competitive in terms of prices and as a result, gave its stores managers more latitude in setting prices than its competitors. As a result, using inventory and sales data, the Company’s store managers allocated shelf space for a product category according to the demand at his or her store. Furthermore, unlike its competitors, Wal*Mart had few promotions. In part, this led the Company to have prices lower than those of its competitors. Fourth, Wal*Mart developed its “Buy American” program in an effort to replace foreign made products sold in its stores with American made products. As this corresponded with values of the Company’s customers, it encourage them to buy at Wal*Mart. Fifth, the Company took approximately 120 days to open an average store that could possibly be expanded at a later date. A Wal*Mart store devoted 10% of its square footage to inventory, compared to the industry average of 25%. As a result, in 1993, the Company’s operating expenses were 18.1% of discount store sales compared to the industry average of 24.6%. Sixth, Wal*Mart was ahead of its competitors in implementing electronic scanning of Uniform Product Codes (UPC) at the point of sale. The UPC, which utilized radio frequency technology, communicated with the
The discount retailing industry, which consisted of discount department stores, sold a wide variety of products such as health and beauty aids, household chemicals and consumables, home hardlines, sporting goods, automotive, paint and hardware, food, and stationary, amongst others. As a result, discount department stores competed with many retailers, from other discount department stores that also sold a wide variety of products, to specialty retailers that sold only certain products. To better understand the discount retailing industry in 1993, an understanding of Porter’s Five Forces Analysis is needed (Exhibit 1). Based on Porter’s Five Forces Analysis, rivalry was high. With Concentration Ratios for the …show more content…
First, the Company opened stores in isolated rural areas and small towns, usually with populations of 5,000 to 25,000. Consequently, Wal*Mart established itself in smaller markets its competitors were ignoring. As a result, customers started shopping at Wal*Mart’s in their proximities rather than driving to other cities to do their shopping. Second, the Company expanded from the inside out. As a result, in 1993, 55% of Wal*Mart stores faced direct competition from Kmart stores and 23% from Target stores. This was opposed to 82% of Kmart stores and 85% of Target stores that faced competition from the Company. Third, Wal*Mart was very competitive in terms of prices and as a result, gave its stores managers more latitude in setting prices than its competitors. As a result, using inventory and sales data, the Company’s store managers allocated shelf space for a product category according to the demand at his or her store. Furthermore, unlike its competitors, Wal*Mart had few promotions. In part, this led the Company to have prices lower than those of its competitors. Fourth, Wal*Mart developed its “Buy American” program in an effort to replace foreign made products sold in its stores with American made products. As this corresponded with values of the Company’s customers, it encourage them to buy at Wal*Mart. Fifth, the Company took approximately 120 days to open an average store that could possibly be expanded at a later date. A Wal*Mart store devoted 10% of its square footage to inventory, compared to the industry average of 25%. As a result, in 1993, the Company’s operating expenses were 18.1% of discount store sales compared to the industry average of 24.6%. Sixth, Wal*Mart was ahead of its competitors in implementing electronic scanning of Uniform Product Codes (UPC) at the point of sale. The UPC, which utilized radio frequency technology, communicated with the