Case Study No. 2: Wal-MartI. IndustryWal-Mart's competitive environment is quite unique. Although Wal-Mart's primary competition comes from general merchandise retailers, warehouse clubs and supermarket retailers also present competitive pressure. The discount retail industry is sizable and is constantly undergoing growth and change. The best competitors compete both nationally and internationally. There is strong competition on price, location, store size, layout and environment, product mix, technology and innovation and overall image. The market is certainly characterized by economies of scale. The best retailers vertically integrate many functions, such as purchasing, manufacturing, advertising, and shipping. Large-scale functions like these give major competitors a significant cost advantage over small-scale competition. In general merchandise retailing, Wal-Mart's main competitors are Target and Kmart. Retail superstores such as Circuit City and Bed, Bath and Beyond also provide retail competition. One survey found that most respondents prefer Wal-Mart over stores like Target and Kmart. Respondents said Wal-Mart offered lower prices, better variety and selection, and good quality. Consumer needs are an important economic characteristic in all competitive environments. Which attributes (price, variety, quality, etc.) drive shoppers to choose one retailer over another are very important in the competitive landscape. In the warehouse segment, Wal-Mart's Sam's Club competes hard with Costco. Costco has fewer warehouses but higher sales and revenues. Additionally, Costco customers shop at Costco more frequently than Sam's Club customers and, on average, also spend more at each visit. Costco's dominance could be the result of better innovation. Costco offers luxury items and was the first to sell fresh meat, produce and gasoline. This is important because innovation is a key factor in evaluating competitors in an industry. Finally, Wal-Mart is also in direct competition with large supermarkets. Manufacturing capacity in the food industry is quite extensive, and Wal-Mart represents a serious threat to many retail supermarkets, large and small. Kroger, Albertson's, and Safeway all find it very difficult to compete with Wal-Mart's low prices. Because the industry is so crowded, even large supermarkets are trying to differentiate themselves to stay afloat. Referring to the five forces model, as the largest retailer in the world, Wal-Mart's position is strong overall. The rivalry between the competitors is rather weak.