Wall Street Analysts Predict The Slow Demise Of
Walmart And Target
The end of the big-box store era may soon be upon us.
That’s the message of a research note published by Goldman Sachs analysts on
Tuesday cutting their investment rating on shares of Walmart. Shoppers are
increasingly turning to the web or to smaller, more conveniently located stores,
cutting into the market share of big-box retailers like Walmart and Target, the
analysts wrote.
So-called "narrow format" shops -- think dollar stores, drug stores and warehouse
clubs -- have been thriving at the expense of big-box stores like Walmart and Target
for several quarters now, the analysts wrote. That suggests shoppers are interested
more in convenience than in having access to the kind of product variety Walmart
and Target offer.
That's partly because online shopping has made it much easier for people to find
whatever they want at a cheap price, so they're less likely to schlep to a store just for
its vast selection, the analysts wrote.
Sure enough, both Walmart and Target have struggled lately. Target's profit fell 16
percent in the first quarter from a year earlier, and U.S. same-store sales -- a metric
of retail health that tracks sales at stores open at least a year -- fell 0.3 percent.
Same-store sales have fallen in 12 of the past 20 quarters at Walmart's U.S. stores,
according to data-tracking firm Retail Metrics.
Walmart might already see the writing on the wall. The company announced last
week that its U.S. CEO Bill Simon would step down after years of poor store
performance. WalmartLabs, the retailer’s tech-development arm, has bought at least
14 companies in the past few years -- largely to get the tech talent it needs to build up
its online offerings, according to TechCrunch. It has been aggressively touting its site
and apps that help customers use their phones and computers to shop.
Still, Walmart hasn't kept up with the online juggernaut, Amazon. Walmart did
about $10 billion in web sales sales last year, compared to Amazon’s nearly $68
billion. Walmart’s global internet sales grew faster than Amazon’s last year, but that
was after a decade of struggle, according to Charles Fishman, the author of “The WalMart Effect.”
"Everybody needs diapers and everybody needs toothpaste," Fishman said. "People
have figured out that buying it online is easy and inexpensive and you don’t have
think about it.”
Both Walmart and Target also toying with the idea of getting smaller, experimenting
with mini-stores that aim to lure urban shoppers looking for convenience. In recent
years, many such customers have turned to dollar stores and pharmacy chains in
order to avoid the hassle (and gas cost) of driving out to suburbia to shop. So far,
these stores have done well for Walmart, and the company could add up to 300 more
this fiscal year.
Still, there aren't enough sales at these smaller stores to make a big difference yet:
Goldman expects they will add just 2.8 percent of revenue to Walmart's 2013 base.
The competition may only be getting more fierce in that area, as well. Two big dollarstore chains, Dollar Tree and Family Dollar, announced Monday that they would join
forces. The new, giant dollar-store chain could use its leverage to undercut
Walmarton prices and get close to more customers, according to a CNBC post from
Brian Sozzi, the CEO and chief equities strategist at Belus Capital Advisers.