That’s been a huge benefit, with the first quarter marking the 13th consecutive quarter of same store sales growth of 3% or more. That’s driven top and bottom line growth and a more than doubling of the profit margin since the recession ended. The shares have been hitting multi-year highs recently, but growth investors might still find the shares interesting. The price to earnings ratio is only around 14 and sales prospects remain solid. Conservative investors, however, should probably wait for a pullback.
Distribution
Amazon.com, Inc. (NASDAQ:AMZN)’s big business is really distribution and fulfillment. The company’s scale here is why it is a leader in the online space. That said, its margins started the century in the mid-single digits, but have now fallen into the 1% to 2% range as expansion costs have taken a toll on the bottom line. These expenses helped pushed earnings into negative territory last year.
The shares, meanwhile, are priced for perfection, trading near all-time highs. Should anything go wrong, investors will likely jump ship. Conservative and moderate investors are best served looking at other options.
Interestingly, Wal-Mart Stores, Inc. (NYSE:WMT) is also a distribution wizard. While scale is one of the most often cited strengths at the retail giant, its ability to cost effectively get wares to consumers through its massive store network is vital to its ability to keep costs low. It’s started looking at using that to its advantage in the Internet space.
More Hubs
Amazon uses a collection of large warehouses to fulfill its orders quickly and efficiently. Wal-Mart started with a similar model, but has been shifting its thoughts on the matter. Now it is experimenting with viewing its stores as the warehouses. It is using technology to pick the best store from which to fill an order, then getting an associate to pluck the item from the shelf and mail it.
That potentially puts Wal-Mart Stores, Inc. (NYSE:WMT)’s “warehouse” just down the street from its Internet customers. That saves mail time, reduces inventory costs, and reduces the need for dedicated warehouses. If Wal-Mart can pull off the technology and systems to make this work, it could quickly start to gain ground on Amazon.
In fact, the company’s margins are currently in the 6% range, several times larger than Amazon’s. That gives Wal-Mart a huge head start on the bottom line at the same time that Amazon.com, Inc. (NASDAQ:AMZN) has been sacrificing its margins for growth. If Wal-Mart can use existing stores to fulfill online sales, it should be able to build its online business without sacrificing its margins like Amazon has been.
And, while Wal-Mart Stores, Inc. (NYSE:WMT) may not be able to overtake the giant in developed markets where Amazon.com, Inc. (NASDAQ:AMZN) has great brand recognition, it does create a model that it can apply to up and coming markets. For example, the company purchased a majority stake in Chinese online site Yihaodian and already has around 400 stores in the country. If it can turn those stores into virtual warehouses, it can start to build a business in a market that Amazon.com, Inc. (NASDAQ:AMZN) has had trouble figuring out.
Lumbering or Nimble Giant?
Wal-Mart Stores, Inc. (NYSE:WMT) shares have been hitting all-time highs of late and don’t offer the same value they did at the start of the decade. However, if the company can get a handle on the Internet by using its stores as fulfillment centers, there could be notable opportunities for growth ahead. And its around 2.5% yield should still interest income investors.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com.
The article Will Brick And Mortar Stores Beat Out Amazon? originally appeared on Fool.com.
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