Wal Mart Strategy Analysis

QUESTION 1. HOW ATTRACTIVE WAS THE DISCOUNT RETAILING INDUSTRY IN THE USA WHEN WAL-MART FIRST BEGAN OPERATIONS IN THE 1950s?

The discount stores emerged in the United States in the mids-1950s on the heels of supermarkets which sold food at unprecedently low margins. But how attractive was the discount retailing industry by this time? And what means by attractiveness?

By attractiveness within an industry we mean create value for firms and shareholders or making supernatural profits or, in other words making a return in excess of cost capital.

To analyse the attractiveness of this industry in the mids-1950s the best way is by using the 5 forces framework for industry analysis developed by Michael Porter (1985).

The approach of five forces tries to analyse the attractiveness or value within an industry identifying 5 fundamental competitive forces. These 5 forces determine the competitive intensity and therefore attractiveness of a market.

пÑ"? FORCE 1: THE THREAT OF ENTRY

'Average profitability is influenced by both potential and existing competitors'. The more profitable is a market or industry yielding supernatural profits, the more this markets will draw firms to entry in order to gain market share and take a piece of the cake. The result of this many entrant is an increase of the competition level and consequently a reduction of industry's profit margin. Therefore, the key concept which allows incumbents firms to block entries on the already profitable industry is the entry barriers. Entry barriers exist if it is difficult or not feasible economically for outsiders to replicate the incumbents' position and rest on irreversible resource commitments, such as economies of scale, capital requirements, brand identity, low-cost production design and so on.

The discount retailing industry