While everyone wants to get a good deal, selling based on low price alone is not always the best strategy for overall profits or shareholder value. Although this technique has worked for Wal-Mart Stores, Inc. (NYSE:WMT) for many years, with the economic changes of late, this big box retailer may have some quality competition on its hands.
Does price really matter?
With its market cap of more than $250 billion, Wal-Mart operates its retail stores in a number of different formats today. It’s three key business segments include Wal-Mart Stores, Inc. (NYSE:WMT) U.S., Wal-Mart International, and Sam’s Club.
Although Wal-Mart has competed for years on price, there is one area in particular, that of specialization, where it may fall a bit behind. With this in mind, savvy consumers who are seeking specialty products, or even customer service after the sale, may be better served elsewhere. For those who are still price conscious, especially with regard to consumer staples like canned goods and other more generic items, though, Wal-Mart Stores, Inc. (NYSE:WMT) may still offer the perfect solution.
In 1998, Wal-Mart opened a chain of grocery stores in the name of Wal-Mart Neighborhood Market. With the premise of being the “opposite” of its much larger superstores, the company aimed to woo shoppers with easier parking, aisles that were less crowded, and even a speedier checkout, a long-standing issue in Wal-Mart Stores, Inc. (NYSE:WMT)’s more traditional locations.
Over the years, Wal-Mart has also entered into the service arena, offering a myriad of options including banking, auto services and tires, eye examinations (including prescription eyewear), and cell phone plans.
This added convenience has pulled countless numbers of consumers into Wal-Mart Stores, Inc. (NYSE:WMT) stores, many who would not otherwise have considered the retailer, knowing that nowhere else can they pick up groceries, get the oil changed in the car, be tested for glaucoma, and apply for a home loan all in one place!
The competitors’ advantages
While the discount retailer Wal-Mart may stress its low prices, its close competitor, Target Corporation (NYSE:TGT), is more about appearing to be an “upscale discounter.” Over the past few years, Target has worked hard to re-define itself, touting quality, yet with comparatively low prices to boot.
From an investment standpoint, Target Corporation (NYSE:TGT) projects quality as well. For 45 consecutive years, the company has raised its shareholder dividend, currently offering a tad over 2% as far as dividend yield. And, thanks in large part to strong consumer spending in the company’s U.S. locations, Target is now eyeing an international expansion focused on Canada, with plans to open roughly 200 new stores in the great white north over the next five to ten years.
This aggressive growth has the potential to be a positive for both consumers and investors. In addition to likely share price growth, Target Corporation (NYSE:TGT)’s rate of dividend increases also appears quite positive over both the short and long-term horizon.