Question

Walmart is of course a great example of economies of scale. What are the implications of that for us?

Answer 1

Walmart is a great example of economies of scale, no doubt. This means that it has an advantage over its rivals in terms of declining average costs as the volume increases. Walmart has roughly 5000 stores across the world, which means that the fixed cost is spread over a large volume and this brings down the average costs. It also saves on costs by not holding inventories, which most companies do so as to avoid running out of stock. They also purchase in bulk from their suppliers because of the large number of retail stores all over the world. Walmart also has a bargaining power over the suppliers, again due to the number of stores. Also, apart from inexpensive purchases, there is also the aspect of inexpensive distribution owing to its size. The large size also gives it a better grasp over data about consumer likes, dislikes, their preference and trends, to decide upon the products to focus on. This means that Walmart is more likely to provide us with products we actually go look for in accordance with trends. Not only that, the prices are also likely to be lower than the rival companies, which proves beneficial for us.