What about Competition?
Retail is extremely competitive. In addition to Amazon, Wal-Mart’s many competitors include a very large number of discount stores, grocery stores, wholesale warehouses, drug stores, and specialty stores of various sizes. The following paragraphs provide some information on three of the most formidable competitors:
Dollar General Corp. (NYSE:DG) is a small discount retailer consisting of close to 10,000 small footprint stores in 39 states with annual revenues of $16 billion. There is no doubt that Dollar General and other similarly sized retailers are taking some market share from Wal-Mart due to their competitively priced products and small, conveniently located stores. However, I believe the damage to Wal-Mart is minimal because consumers mainly utilize Dollar General’s stores for small, low quantity purchases in between trips to Wal-Mart. Wal-Mart has some new, smaller footprint shopping options such as Wal-Mart Neighborhood Markets and Wal-Mart Express Stores. Wal-Mart is currently evaluating the effectiveness of these new stores. If successful, this could become a new growth area for Wal-Mart.
Costco Wholesale Corporation (NASDAQ:COST) is a membership-based warehouse that competes directly with Wal-Mart’s Sam’s Club stores. Costco consists of about 450 stores in the U.S. and close to 200 international locations with annual revenues of $101 billion. Costco and Sam’s Club stores both have room to grow, especially in international markets. Costco is a very effective competitor and a solid investment opportunity, especially if you would like to invest in a company that focuses only on the large membership markets.
Target Corporation (NYSE:TGT) is a discount retailer consisting of about 1800 stores in the U.S. and Canada with annual revenues of $72 billion. Most of Target’s products are similar to Wal-Mart’s, however Target is well known for some of it’s upscale clothing products. Target’s products have historically consisted of higher priced brands than Wal-Mart, although some believe that Target is becoming more price competitive.
These are impressive, growing companies, but competition is nothing new for Wal-Mart. It’s efficient retail operations and very large scale continue to allow Wal-Mart to provide the lowest priced products for their customers. I shop at Wal-Mart regularly and also pass by many Wal-Mart and Sam’s Club stores while traveling for work. I have noticed one thing in common at all of these stores–they are always crowded! Until this changes I will remain bullish on Wal-Mart.
Wal-Mart’s growth in international markets has been impressive, with a growth rate of over 15% in the 2012 fiscal year. Wal-Mart has retail operations in 27 countries including China, Brazil, Mexico, Japan, and Canada. In addition to Wal-Mart Supercenters and Sam’s stores, Wal-Mart’s international operations include Trust-Mart Hypermarket retail centers in China, Mercadorama grocery stores in Brazil, Maxi Pali stores in Costa Rica, and a wide variety of additional supermarkets and specialty stores. Wal-Mart’s international growth is in its initial stages and should provide growth for many years to come.
Although Wal-Mart’s stock price has been flat over the last 13 years, it has recently broken out of a narrow trading range between $50 and $60, reaching an all-time high of over $75. The share price has since fallen to around $70, creating a good buying opportunity. With Wal-Mart’s efficient retail operations, on-line opportunities, impressive international success and excellent dividend history, I recommend that you consider opening or adding to a Wal-Mart position as part of a diversified portfolio.
The article Live Better By Investing in Wal-Mart originally appeared on Fool.com and is written by Greg Williamson.
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