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How Attractive Was the Discount Retailing Industry in the Usa When Walmart First Began Operation?

Essay by   •  December 15, 2011  •  Case Study  •  789 Words (4 Pages)  •  2,665 Views

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How attractive was the discount retail industry in the USA when Wal- Mart first began operations in 1950's?

The discount stores emerged in the United States in the mids-1950s on the heels of supermarkets.

The first store opened by Sam Walton was a franchised Ben Franklin variety store in 1945. During this period Americans were benefiting from a post war boom with an "era of rising living standards and growing consumption" Adams (2006:214). Wal-Mart started off in small towns where they had opened up a few discount stores during the 1950s. The discount stores came into place in order to serve the consumers needs at the end of Second World War. Sam Walton seemed to become the pioneer of the discount retailing market.

In the early years consumers had a lot of competitors to choose from when shopping in supermarkets which meant they were able to shop around in order to see comparisons on prices and products. Soon enough Sam Walton used his initiative in finding a strategy to establish large supermarkets in order to cater for the majority of consumers from different areas. Distribution was an initial problem Wal-Mart had faced for a few years. However, Wal- Mart came up with their own brand which was Sam Walton's choice. Therefore they were differentiating from their competitors.

Michael Porter's five forces framework (1985) can help us analyse the attractiveness of retail discounting. These forces consist of the buyers bargaining power, the degree of rivalry, the threat of entry, the threat of substitutes and supplier power. The forces illustrate the competitive intensity of the market. Wal- Mart has obtained a high position in the market in which rivals find it hard to compete against them.

Threat of new entrant

Wal- Mart during the years has expanded rapidly from the few stores that it started off to be the leading superstores. The most common forms of entry barriers are usually the scale and the investment required to enter an industry as an efficient competitor.

"The need to invest large financial resources in order to compete creates a barrier to entry" (Porter 1980). One of the main barriers to entry in terms of financial provisions would be the start-up cash flow required to purchase the large amount of stock required in this new layout superstore. This financial requirement makes the discount retail industry unattractive.

Bargaining Power of Suppliers

"Suppliers can exert bargaining power over participants in an industry by threatening to raise prices" (Porter 1980:27) and in the case of suppliers to the discount retail industry this was the case.

Mirror of the buyer power, the power of supplier is strong, at the end of the 1950s. Fewer suppliers there are, the more power they have on Wal-Mart. Pressure on

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