Why is (was) Wal-Mart successful in the US? What are Wal-Mart’s competitive advantages?
Wal-Mart was established in 1962 and has since become the largest company in the US. Within five decades it has become one of the largest discount retailers in the country and is rapidly expanding around the world. “Wal-Mart serves customers and members more than 200 million times per week at more than 8,692 retail units under 55 different banners in 15 countries. With fiscal year 2010 sales of $405 billion, Wal-Mart employs 2.1 million associates worldwide”. Wal-Mart has maintained a leadership position in the retail sector despite stiff competition from its major competitors like K-Mart, Target and Costco. The company owes its success to a strategic focus on two key value drivers, price and service.
Wal-Mart is (was) successful because it:
• First targeted rural areas where real estate costs were lower which allowed it to grow its business “off the radar” and minimize competition from established rivals.
• Limits the power of suppliers by leveraging its purchasing power in contract negotiations for the goods it sells. It also partners with suppliers driving down their costs so that Wal-Mart can in turn lower their costs.
• Uses a “hub and spoke” distribution network leveraging the latest technology thereby reducing the costs associated with distribution and logistics. Wal-Mart leverages its supply chain to reduce profitability for new entrants who rely on third party distribution networks.
• Has created a culture that embraces cost cutting which allows the company to pass these savings on to consumers and increase the barriers of entry for new entrants.
• Has reduced the threat of substitute products by introducing a large number of private label brands which offer higher margins than “name brand” products.
The strategic use of the competitive advantages below has allowed Wal-Mart to maintain a leadership position in the US market and...