Wal-Mart Stores, Inc. (WMT), Costco Wholesale Corporation (COST), Target Corporation (TGT): This Big Box Store Doesn’t Like a Good Economy

Tough road ahead for the lower-class store

Costco has made the most moves in terms of planning for the future with the increase in the cash rewards ceiling bringing in new members, as well as the general plan of rotating product lines and minimal store beautification to keep profits up. This explains why it has the best price-to-book ratio of the three companies at 4.7, as well as year-over-year quarterly revenue growth of 7.9% thanks to the increase in executive-level memberships. The reliance on memberships to push the company over the top also leads to a razor thin 1.94% profit margin, however, while the other two companies come in at over 3.6% thanks to a steady stream of customers who buy in bulk.

With the economy improving, more shoppers will go to Costco or Target Corporation (NYSE:TGT) than Wal-Mart if they can because they can afford to. The perils of Wal-Mart’s model is that its customer base tends to live paycheck to paycheck, causing something like the recent payroll tax hike to hinder customer buying habits more than it would at the other two stores, whose customers tend to have a stronger financial footing.

As the economy improves, Costco and Target Corporation (NYSE:TGT) will improve for investors as well. Wal-Mart, on the other hand, will most likely stagnate as it adjusts to the new economic realities its customers face. It’s not that the bad economy is hurting Wal-Mart, but rather that a good economy is helping its competitors.

The article This Big Box Store Doesn’t Like a Good Economy originally appeared on Fool.com and is written by John McKenna.

John McKenna has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale (NASDAQ:COST). The Motley Fool owns shares of Costco Wholesale.

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