This summer, I went into the Wal-Mart store in China. I was so curious why Wal-Mart can be so successful even in China because there are lots of competitors in this industry before Wal-Mart entered the Chinese market. I did some research online and figured out it’s all about competitive advantage.
Wal-Mart’s main competitive advantages are their low costs system and high product availabilities. By providing large varieties of merchandise to customers with discount price, Wal-Mart has been successful over the last century. The reason why it has been so successful is that Wal-Mart offers lower gross margin products compared to department stores and able to cut down their costs compared to other discount stores. Wal-Mart lowers its gross margin by 10-15% compared to typical department stores. This strategy allows Wal-Mart to cut down their service and other expenses without losing customers. Based on this concept of discounting store, Wal-Mart entered this industry, where sales volume steadily increased over the last few decades.
Here’s the link about the diffusion of Wal-Mart and economies of Density.