QUOTE AND NEWS
Forbes  3 hrs ago  Comment 
Shares of Wal-Mart (WMT) have slid since midway through January and appear to have reached a point of attractive pricing. Despite being a Dow component, the price pattern of WMT has been relatively uncorrelated with the Dow Jones Industrial...
Forbes  7 hrs ago  Comment 
This year, Walmex is planning to invest a smaller amount as compared to last year for store and web expansion. The company is looking to increase its overall floor area by just 1.7 million square feet this year, while it added over 2.8 million...
Jutia Group  7 hrs ago  Comment 
[at 24/7 Wall St.] - A couple of investment banks have weighed in on Facebook. Should the social media powerhouse be valued the same as Wal-Mart? Read more on this. Wal-Mart Stores Inc. (WMT), valued at $269.09B, started trading this morning at...
Yahoo  8 hrs ago  Comment 
Yahoo Finance's Midday Movers is live each weekday at 12pm ET, covering all the latest news on the markets, the economy and the biggest stories of the day.
Wall Street Journal  Mar 23  Comment 
In a case that could determine how much influence investors can have over companies, New York’s Trinity Wall Street church, a Wal-Mart shareholder, is challenging its sales of assault rifles.
Yahoo  Mar 21  Comment 
Efforts the past two years were unsuccessful to unseat current board Chairman Rob Walton, scion of the billionaire family that founded the world's largest retailer. Because the Walton family controls more than 50 percent of the retailer's shares,...
New York Times  Mar 20  Comment 
The children of the James McNair will split the settlement, which was reached with Walmart in January, months after one of its trucks hit a van carrying Mr. McNair, Mr. Morgan and others on the New Jersey Turnpike.
Benzinga  Mar 20  Comment 
In a report published Friday, Gilford Securities analysts maintained a Buy rating on Wal-Mart Stores Inc (NYSE: WMT) from Outperform to Market Perform, while maintaining the price target at $36. The analysts expect the company's EPS growth in...
TheStreet.com  Mar 20  Comment 
NEW YORK (TheStreet) -- Wal-Mart made news recently for increasing workers' wages above the federally mandated minimum, while Target reportedly is considering a similar move. But the steps may not make much of a difference in...




 

Wal-Mart Stores, Inc. (NYSE: WMT) is the world's largest retailer and grocery chain by sales. Wal-Mart is so large that its almost 50% more than its 5 closest competitors combined, including Target (TGT) and Sears Holdings (SHLD). Because of its mammoth size and buying power, Wal-Mart can buy its products at rock-bottom prices, exchanging high purchase volumes for low cost while passing the savings onto its customers. Many suppliers give in to Wal-Mart's pressure because they depend on the discount retailer for a majority of their sales.

Conversely, Wal-Mart's reliance on Chinese-made imports makes the company vulnerable to a weakening dollar or strengthening of the Yuan. Wal-Mart purchases billions worth of merchandise directly from China every year with many of its other inventory from companies like Mattel (MAT) coming indirectly from China. In fact, if Wal-Mart were a country, its imports are so substantial that it would be China's sixth largest export country. A stronger Yuan means that Wal-Mart will have to pay more for its merchandise from China, an issue that threatens Wal-Mart's bottom line.

Company Overview

Wal-Mart operates 8,000 stores across three business segments of retail stores worldwide that offer a wide array of general merchandise including groceries, apparel, electronics, and small appliances. In addition, the company is the world's largest retailer and grocery chain by sales and just over half of the company's sales comes from grocery items. Over half of the company's stores are located in the United States, with the majority of international stores located in Central and South America and China.

Business Segments

Wal-Mart Stores (63.8% of Revenue)

Wal-Mart stores come in one of three traditional formats:

  • Supercenters average about 185,000 square feet in size and carry general merchandise and include a supermarket.
  • Discount Stores average approximately 108,000 square feet in size and carry a wide assortment of general merchandise, but a limited assortment of food products.
  • Neighborhood Stores are usually about 42,000 square feet in size and carry a limited assortment of general merchandise, but have a full supermarket.

Sam’s Club (11.5% of Revenue)

Provides goods for stores, restaurants, offices, daycares and schools, and motels. Sam’s Club management remains focused on growing this foundation and improving its relationships with small business owners. To this end, the company has expanded its offerings of office furniture and restaurant supplies. The company also has services geared towards small business, such as prescription drug plans and worker’s compensation claims.

Wal-Mart International (24.7% of Revenue)

Wal-Mart operates international locations of its Wal-Mart and Sam's Club stores as well as other retail and supermarkets in Central and South America, Mexico, Canada, Japan, China, and the United Kingdom. The company also has a global e-commerce unit called Global.com. The purpose of the site is to drive online growth in new and existing markets.

Trends and Forces

Relying on Imports from China Makes Wal-Mart Vulnerable to Currency Rate Changes

Wal-Mart depends heavily on China for manufacturing its merchandise as it purchases billions of dollars worth of merchandise every year. Additionally, many of the company's suppliers like Mattel (MAT) manufacture their products in China, which in turn are sold in Wal-Mart stores. Wal-Mart's imports are so substantial in fact, that if Wal-Mart were a country, it would be China's sixth-largest export market. By outsourcing to China, Wal-Mart is able to secure lower costs of inventory, which the company in turn passes on to low prices for customers.

However, as a result of its dependency on Chinese manufacturing, Wal-Mart is vulnerable to fluctuations in the value of the dollar compared to the Chinese Yuan. If, for example, the dollar weakens compared to the Yuan, the price of Wal-Mart's Chinese imports would rise. As a result, the company would either have to raise its prices or would have to cope with narrowed gross margins, reducing its profitability. Additionally, the company is vulnerable to adverse legislation, such as higher tariffs, that would raise the cost of its Chinese imports.

Wal-Mart Low Cost Leadership

Wal-Mart is the largest retailer in the world by sales, with almost 50% higher sales than its 5 closest competitors combined, including Target (TGT), Sears Holdings (SHLD), and Macy's Inc. (M). Wal-Mart uses its enormous size and buying power to pressure its suppliers into extremely low prices, offering orders of high volumes of merchandise in exchange for low prices. Wal-Mart then passes on these savings to its customers. Since many suppliers depend on Wal-Mart for a majority of its business, companies often give in to Wal-Mart's cost cutting demands, narrowing their margins or even redesigning their product offerings.

Wal-Mart's bargaining power has helped the company maintain its low price leadership despite fluctuating commodities prices. For example, to fight rising prices of gasoline, grain, and dairy products, Wal-Mart pressured companies like General Mills (GIS) to shave its costs by implementing redesigns of its products and packaging.

Competition

Domestic Competitors

Target (TGT) is Wal-Mart's most direct competitor, offering a range of general merchandise in a similar store format (standard Targets, with limited food offerings, compare to Wal-Mart's discount stores, and Supertargets compare directly to supercenters). Target’s major competitive advantage over Wal-Mart lies in its customer base: the average household income for Target customers is about $50,000 a year, whereas the average yearly income for a Wal-Mart customer is only $35,000. Finally, because of its focus on low prices, Wal-Mart has found it difficult to promote higher-quality items or private labels that come in at a higher price point; meanwhile, Target has had success with its quality-at-value-prices strategy among higher-income demographics, where price is not the only influence on sales. This higher-income customer base gives Target more stability than Wal-Mart, particularly as energy costs rise and the real estate market slows.

Kmart (SHLD), as the third discount retailer of the "Big Three", has seen steadily declining sales since 2000, losing considerable market share to both Wal-Mart and Target.

Other Retailers

As a large-scale retailer, Wal-Mart competes with a wide variety of other, specialized retailers, such as Safeway in groceries, Best Buy (BBY) in consumer electronics, and department stores such as Macy's in apparel and home decor. Wal-Mart’s focus on price differentiation means that these companies, while competing in overall market share, are not necessarily competing for the same type of customer; however, in more volatile or price-sensitive markets, such as consumer electronics, discounters like Wal-Mart are able to leverage their pricing advantage and apply increasing pressure on other retailers.

Sam's Club directly competes with Costco Wholesale (COST) and BJ's Wholesale Club (BJ) in the warehouse club sector, where Costco has the advantage in terms total sales.

International Competitors

Wal-Mart's major international competitors are Britain's Tesco, France's Carrefour, and Germany's Metro. Each of these companies have a competing presence in China, the UK, and Japan, with Wal-Mart contending with at least one of them in many of its other markets.

References

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