The overall worth of any business is vested in its competitive advantage. Availability of sustainable competitive advantage puts a firm in better positions to beat its competitors, improve its earning power, and dominate the market. In retail industry, there is intense competition characterized by few competitive advantages of any one kind. Despite this, Wal-Mart has managed to develop significant competitive advantages which have made it the world’s largest retailer.
Competition in the retail industry is based on the prices of products and services, the service level, the access or location, product selection, and customer experience. Wal-Mart has ensured that it remains at the top of its peers due to its low-cost, high volume strategy. This strategy is aimed at ensuring customer satisfaction through relatively low prices and high customer service. Undermentioned are the competitive advantages, how the company has developed these advantages and how sustainable the advantages are.
Wal-Mart is a low cost merchandiser and distributor of basic goods. The company’s strategy of everyday low cost has resulted in continuous focus on how to reduce the prices of its goods and services. This has been achieved through elimination of inefficiency in the supply chain. Most retailers add enormous additional costs such as damage allowances, handling charges, and display fees, which are then passed to the consumers. At Wal-Mart, there is one price policy which discourages all the incentives for wastages in the supply chain. The company partners with all its suppliers to ensure that inefficiencies and wastages are cut out. This strategy has been sustainable despite being copied by most competitors as most suppliers are willing to work with Wal-Mart, their leading customer.
The company’s highly efficient distribution system is another recipe for the low cost advantage. Wal-Mart’s operating expenses are far much lower than the industry average. This is due to the superior distribution capacity resulting from the location of stores, superior information management, the inside-out growth patterns, and cross-docking. This has enabled the company maintain low levels of inventory compared to its peers. The continued improvement in the company’s inventory turnover reveals the sustainability of this strategy.
High volume and the economies of scale
The company’s high volume makes it enjoy the economies of scale. This has greatly contributed towards the low costs of products and services. Wal-Mart is by far the largest retailer whose size and volume of sales give a strong bargaining power with the suppliers. The company is able to purchase its products and services at lower costs and sell them at the relatively lower prices. Traditionally, the company managed to acquire the high volume through its careful consideration of the locations - which is normally away from its competition. Currently, the company extends the original strategy besides internalization, expanding products range to include more complete solutions, and introducing different formats such as neighborhood stores. This is a very sustainable strategy which Wal-Mart’s peers cannot attain in the foreseeable future. The company’s sales is currently 6 times its nearest competitor.
Despite being a self-service retailer, the company’s low prices, large size, and advanced data management results in better customer experience. The large size of the store offers great convenience as the customers are able to get wide range of products. This strategy, however, is not very sustainable as competitors capitalize on the unionizing their workers, which greatly motivates them. Wal-Mart’s workers, on the other hand, are not unionized so as to lower the costs.