Walmart: Five Forces Analysis (Porters

Model)
UPDATED JAN 8, 2017

Entrance to a
Walmart store in Pincourt, Canada. Walmarts Five Forces analysis (Porters Model) on
external factors in the retail industry environment gives insight on the companys strategic
direction. (Photo: Public Domain)

Walmarts strategic direction is based on the companys responses to the Five Forces in its
industry environment. The firm has succeeded in achieving the leading position in the retail
industry. Walmart now stands as the biggest retailer in the world. However, the external
factors in the industry environment impose pressure that must be addressed. Walmart needs to
develop strategies that address the bargaining power of buyers and suppliers. Effective
strategies are also needed for the firm to withstand the threats of substitutes and new entrants.
While Walmart has achieved success in this industry environment, this Porters Five Forces
analysis reveals that the company must keep evolving to ensure long-term viability.

A Five Forces analysis of external factors in the industry environment of Walmart, based on
Porters model, shows the implications of the competitive rivalry or intensity of competition,
bargaining power of buyers or customers, bargaining power of suppliers, threat of substitutes
or substitution, and the threat of new entrants. All of these factors impact Walmarts success
rate.

Overview: Walmarts Five Forces Analysis

In summary, Walmart must focus on competitive rivalry and the threat of new entrants, based
on this Porters Five Forces analysis of the retail industry environment. These two external
factors have the strongest force on Walmarts business:

1. Strong competitive rivalry or competition

2. Weak bargaining power of buyers

3. Weak bargaining power of suppliers

4. Weak threat of substitutes or substitution

5. Strong threat of new entrants

Recommendations. Walmart must create new strategies that develop and sustain the
companys competitive advantage in the long term. Emphasis on competitive advantage helps
address concerns on competitive rivalry and the threat of new entrants. For example, Walmart
can invest more in automation of internal processes in its supply chain. Improving human
resource development can also boost the companys competitive advantage.

Intensity of Competitive Rivalry (Competition)

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 for Walmart to consider with regard to competition:

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

2. Large variety of retail firms (strong force)

3. High aggressiveness of retail firms (strong force)

Walmart experiences the strong force of these three external factors in competitive rivalry in
the retail industry environment. The company must remain aggressive to remain competitive.
While it is currently the industry leader, Walmart must keep its growth pace to remain in this
position.

Bargaining Power of Buyers

Walmart faces the weak intensity of the bargaining power of buyers in the retail industry
environment. The large population of buyers makes it difficult for them to impose significant
pressure on retail firms. Walmart must address the following external factors concerning the
bargaining power of buyers or customers:

1. Large population of buyers (strong force)

2. High diversity of buyers (weak force)

3. Small size of individual purchases (weak force)

The large population of buyers exerts a strong force on Walmart and the retail industry.
However, the weak force of buyer diversity and the weak force of small individual purchases
counteract such condition. In effect, the bargaining power of buyers is weak in influencing
Walmart and other retail firms.

Bargaining Power of Suppliers

The bargaining power of suppliers has weak intensity in the retail industry environment.
There are many suppliers in the retail industry. Large firms like Walmart can easily affect
these suppliers. Based on this condition, Walmart and other retail firms must address the
following factors contributing to the bargaining power of suppliers:

1. Large population of suppliers (strong force)

2. Tough competition among suppliers (weak force)

3. High availability of supply (weak force)

The large population of suppliers has strong potential to impact firms like Walmart. However,
there are many suppliers competing for the limited space in retail stores. Also, the high
availability of supply makes it difficult for suppliers to impact retail firms. Thus, Walmart and
other retailers face the weak intensity/force of the bargaining power of suppliers.

Threat of Substitutes or Substitution

The threat of substitutes or substitution has weak intensity in affecting the retail industry
environment. Walmart offers a wide variety of goods and some services that have a few or no
substitutes. The following external factors are the most significant on Walmart, concerning
the threat of substitution:

1. Considerable availability of substitutes (moderate force)

2. Low variety of substitutes (weak force)

3. Higher cost of substitutes (weak force)

Some substitutes to Walmarts goods are readily available. This is a significant consideration
in the retailers strategic planning process. 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
available at Walmart stores. Thus, in the retail industry environment, the threat of substitutes
or substitution has a weak intensity/force on Walmart.

Threat of New Entrants (New Entry)

Walmart and other retailers must address the strong-intensity 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. This force is broken down into some of its component external factors, as
follows:

1. Low cost of doing business (strong force)

2. Moderate capital costs (strong force)

3. Moderate cost of brand development (moderate force)

It is costly to develop a new entrants brand. This condition exerts a moderate force on
companies like Walmart. However, the cost of establishing a new retail firm and the cost of
running it are low to moderate. Thus, new entrants can keep operating and become potential
threats to firms like Walmart.

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