Wal-Mart doesn’t “take over” small businesses: it drives them out of business by having lower prices than the small businesses can provide. Customers start shopping at Wal-Mart rather than at the small businesses.

Wal-Mart does it by buying in extremely large quantities, so it can sell things cheaper; probaby by using cash discounts; and by having loss-leaders (selling so low the store can’t make a profit) to bring in customers. It’s costs are lower because, at least until recently, it had very few benefits for its employees, particularly health insurance benefits.

1. Wal-Mart prices are so much lower because they have Massive buying power, therefore getting much lower prices.
Let’s say Joe’s Hardware buys 50 drills and has to pay $50.00 for them, and he marks them up 35%. So, that means he sells them for $67.50

Wal-Mart will buy 10,000 drills and get a much cheaper price of $28.00 per drill, and still does a 35% mark-up but means they can sell the same drill for $37.80

Wal-Mart buys in such Mass quantities and buy items far cheaper than any competitor. Plus, since Wal-Mart buys so many items, they will even negotiate even lower pricing from the manufacturer.

So Joes Hardware makes 35% by selling the item @ $67.00 versus Wal-Mart making 35% from selling it at $37.80 making the saving to the consumer $29.80 on the same drill.

This is probably a very extreme example, but you get the idea.

2. Wal-Mart may advertise an item at a “Loss” to get you in the store because they know once you are in the store, you will usually buy many other things that will make them money. Like they may advertise an MP3 player for $29 when it cost them $35 to buy it. They know they will lose $6.00 on that item but they hope you will fill your cart up with other items to make a bunch of money on.

The smaller stores cannot afford to stay in business, therfore closing down shop when Wal-Mart arrives

Well you just answered the question of why Walmart overtakes small business? Because their prices are much lower. Why are the prices much lower? is a different question.

Lets say you opened a small toy store and you want to sell a toy. 1. What kind of toy would this be? 2. How do you plan to make this toy? 3. Who do you plan to sell this toy to? 4. And how many of these toys do you plan to sell?

Depending on your answers to these questions you be able to have a business plan. A small toy store will answer in the following matter. 1. This will be a toy for kids? 2. I will have to buy the parts locally and put it together in my work shop. 3. I plan to sell this toy to local people who want to buy it. 4. I can only sell the number of toys that I can make in my workshop, plus this depends on how many people want to buy it.

Here is how Wal-Mart answers these questions. 1. We will access the behavior and desire of children ranging form ages 1 to 16 and will make toys for all markets in all cities based on demographics, age distribution, and local economic development. 2. We will set-up our toy making shops in locations where the labor rates are the lowest. We will set-up the most technologically advanced assembly shops that will allow us to produce 3 toys every second, and we will buy our materials at a premium because we will require a lot of material, so the supplier can now give us the best discount possible. 3. We will sell these toys to everyone in the world who wants to buy a toy, plus based on our regional psychological research we will make these toys irresistible to the local public. 4. Because of our seemingly unlimited corporate funding we will sell as many toys as anyone wants to buy in the whole world, plus we will keep looking in various regions of the world to expand and to obtain new customers.

I hope this explained it. Small stores think small… The bigger you think the more you will do.