Range bound
Wal-Mart Stores, Inc. (NYSE:WMT)’s stock has been largely range bound since the start of the century. Two bear markets and two recession haven’t helped any, but there have been other factors, too. Externally, the rise of dollar stores has stolen customers from the low end of the market. Competitors Costco Wholesale Corporation (NASDAQ:COST) and Target Corporation (NYSE:TGT) have also kept the pressure on.
Internally, the company tried unsuccessfully to shift away from its everyday low prices model only to quickly retreat. It has also spent a lot of time focusing on international growth in places like China and Africa. Such efforts can be distracting for management teams. In the end, Wal-Mart Stores, Inc. (NYSE:WMT) remains among the industry’s fieriest competitors, but it has suffered many wounds along the way.
Self inflicted
Equity analyst Colin McGranahan of Sanford Bernstein summed up the problem for Bloomberg: Workers are “being asked to do more than they can accomplish in a shift.” How true is this statement? A look at the company’s public documents backs up McGranahan’s assertion.
For example, in early 2009 the company had 1.4 million employees in the United States at a time when it had 3,667 Wal-Mart Branded stores and 602 Sam’s Clubs. In early 2013, the company had 1.3 million associates, 4,637 Wal-Mart Stores, Inc. (NYSE:WMT), and 620 Sam’s Clubs. More stores and less employees?
With the store count going up and the employee count going down, a deterioration at the store level seems like it was almost inevitable. Wal-Mart is known for its efficiency, but it may be taking it too far.
An opening?
This comes at the same time that Wal-Mart has been hit from Dollar Stores. Dollar General Corp. (NYSE:DG), for example, has more than 10,000 stores in 40 or so states. That’s up from around 8,800 in 2009. Family Dollar Stores, Inc. (NYSE:FDO), meanwhile, has around 7,500 stores in 45 states. Its store count was around 6,600 in 2009.
Clearly these are fast-growing concepts with room to expand. As they both enter more states they will increasingly take share from Wal-Mart’s position at the low end of the customer spectrum.
The two dollar stores have plenty to offer, too. Both have been adding grocery items to their stores, which tends to bring customers back on a regular basis. It also makes it far more appealing to visit a local dollar store than make a special trip to a Wal-Mart. While Wal-Mart is testing a small footprint store to compete with dollar stores, until it rolls it out, Dollar General Corp. (NYSE:DG) and Family Dollar Stores, Inc. (NYSE:FDO) will be able to eat into Wal-Mart Stores, Inc. (NYSE:WMT)’s market share.
A better experience
On the other side of the spectrum is Target Corporation (NYSE:TGT) and Costco Wholesale Corporation (NASDAQ:COST). These companies have focused on creating a better customer experience. That includes such things as Target Corporation (NYSE:TGT)’s store design and Costco Wholesale Corporation (NASDAQ:COST)’s focus on happy employees. Wal-Mart Stores, Inc. (NYSE:WMT) tend to be cavernous and uninviting, and it has historically had a tense relationship with its employees.
To give a reference point, between 2009 and 2013, Target increased its store count by almost 100 stores, but also increased both its peak and non-peak hiring by nearly 10,000 employees. These companies, then, are set to benefit as disappointed Wal-Mart shoppers defect.
Solvable
It would be foolish to think that this is an unsolvable problem. Wal-Mart Stores, Inc. (NYSE:WMT) management will figure out how to get its shelves filled and improve customer satisfaction. And its everyday low prices will again draw customers once it does. However, with the company’s stock breaking out of its decade long trading range, the shares aren’t a particular bargain at present. And store level problems hitting the news isn’t a positive development.
Investors might find paying up for higher quality Target Corporation (NYSE:TGT) and Costco Wholesale Corporation (NASDAQ:COST) shares a better long-term option. Trading down to the Dollar stores might also be a good idea, but those concepts are more appropriate for aggressive investors.
The article Empty Shelves Equals Soft Sales originally appeared on Fool.com and is written by Reuben Gregg Brewer.
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