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Wal-Mart's Advantages and Disadvantages

Wal-Mart is the single largest retail chain in the world with $374.5 billion in sales (2008 Annual Report). Through its chains Wal-Mart and Sam's Club, it sells an incredible array of products, from gasoline to oranges to towels to power saws. It success is based on building new stores and bargaining for the highest possible profit on the lowest cost goods, usually buying products produced in poorer countries than where they are sold.

Wal-mart's central competitive advantage is its size. According to the 2008 annual statement, Sam's club offers its customers "treasure finds". These are items that are not usually offered in the store. Because of its huge buying power, Wal-Mart could go to a book publisher and buy, say, 5% of a production run at a lower price than is offered to anyone else. It cannot carry the product all of the time at that rate, but it can gain a short-term discount for its customers.

Wal-mart stores work under a similar philosophy. Items for sale at Wal-Mart are often priced at far less than is available at other stores. However, if you are looking for something specific, Wal-Mart can not guarantee that it is there.

Much of Wal-mart's large scale success comes from its association with emerging foreign markets, China in particular. These markets act as excellent suppliers because their labor supply is high and the cost of living is low, so wages can be reduced. They also avoid the restrictions on worker safety and quality that come with a market where most people are already employed. Wal-Mart can partner with a new firm, give it seed money to build its facilities (or convince the government to do so) and then have the products tailor made for only them. Since they are the only customer of the factory, Wal-mart can dictate terms of quality, price, delivery, etc. all to its advantage.

Wal-mart is extremely sensitive to the health of the American economy. Though in theory a lower-priced store w...

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