Each industry has certain barriers to entry that limit the number of competitors in the market and enable control. There are basically four barriers to entry including ownership of resources, copyrights, restrictions by the government and the cost to start-up the business. In the discount retail industry, the overall threat of the entry of new competitors is relatively low as compared to the other retail industries. The biggest reason is the high barriers to entry in terms of competition, capital and investors. The retailers in this industry have global presence with hundreds of outlets in the chains. They specially target the largest population of the globe; the people who are price sensitive. Sustaining in this industry requires huge amounts of capital; there is intense competition in the industry where a long time is required for a potential rival to settle (Schivardi & Viviano, 2011).
High price of land is one of the biggest obstacles for the potential entrants. The biggest factor in the discount retail industry is the low switching cost to the consumer; as the price decides the purchase, the consumer easily shifts to other retailer in case of any price increase. The bigger chains have also developed a strong brand image in their consumers that also acts as a barrier for the new entrants. The retails like Wal-Mart have significant competencies like the superior logistics system, the extraordinary customer service, environment friendly initiatives and most importantly the low price offered with a wide variety of products at the same place.
The biggest hurdle for the new entrant is to compete with the giants of the industry; the already established retailers have their own distribution system, and achieve economies of scale. This helps them to sustain even with low price offerings; it is impossible for a new entrant to cut the costs to the extent that the large players can afford (Zhu & Singh et al., 2009). Surviving with lower prices is not possible for the new entrants especially at smaller levels. In addition, knowing the culture and the attitude of the people is another hurdle; people from all regions have different purchase preferences.
Schivardi, F. & Viviano, E. (2011). Entry barriers in retail trade*. The Economic Journal, 121 (551), pp. 145--170.
Zhu, T., Singh, V. & Manuszak, M. D. (2009). Market structure and competition in the retail discount industry. Journal Of Marketing Research, 46 (4), pp. 453--466.