Take a Second Look at These Discount Variety Stores

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With the holiday season drawing closer, an investor might find it advantageous to explore investing in a company in the ‘Discount Variety Store” sector. Not only have these stocks benefited through the last few years of lean economic conditions, but they should continue to prosper in 2013 as consumers continue to tighten purse strings and focus upon essentials. Here are three good companies to consider taking a deeper look at.

TARGET

Although not growing nearly the speed of Wal-Mart in the U.S., Target (NYSE: TGT) is still growing. For a number of years it opened about 85 stores an average every year (2005-2009) but this year its goal was to open only 20 stores. As Wal-Mart has been experimenting with smaller store space, so have other retailers. Best Buy (NYSE: BBY) has been opening fewer bigger boxes and experimenting with smaller formats as more customers flock to Internet shopping. Target’s growing store space dropped nationally from 7.8% in 2007 to 0.7% by 2010.  

But it is big moving into Canada. Target was planning to jump start there in a big way buying as many as 220 Zellers store leases from Canadian retailer Hudson's Bay Co. It will likely choose 100 to 150 of the former Zellers stores to operate as namesake stores.

SuperTarget- These stores offer everything found in a regular Target as well as a full grocery selection, fresh produce, bakery and deli, with most locations having a Target Optical.

CityTarget- these new prototype stores first started opening this summer. CityTarget stores carry groceries, prescriptions, cosmetics, clothing, electronics, toys, and apartment essentials such as furniture, linens, and kitchen utensils.

Urban Stores- Building stores in urban environments carries an elevated cost which is offset by the high potential for business that urban locations can bring in. The Target store located on Nicollet Mall in Minneapolis features a three-story glass entrance and a design that sets it apart from suburban Target stores.

DOLLAR TREE

Another Discount Variety Store, Dollar Tree (NASDAQ: DLTR) is benefiting from a cash strapped populous that is focusing more on necessities than anything else. It continues to grow and systematically open new stores. With more than 4300 stores nationwide and a process to review less profitable stores, it is doing well. Dollar Tree shares have been on a dazzling run over the last four years, rising more than fourfold - and they still remain attractive. Trading at 21 times current earnings. And with the holiday’s season coming up, it may be a good investment. The stores that typically offer most items for $1 or less have evolved into a go-to spot for holiday shoppers on a tight budget or trying to get more value for their money.

WAL-MART STORES

Wal-Mart Stores (NYSE: WMT) should be confident as we head into the holidays. The retailer will also be pursuing smaller stores and increasing its ecommerce. In fact, by “fiscal” 2014 the retailer is projecting $9 billion in online sales alone. In 2011 Wal-Mart U.S. had total sales of about $260 billion, including e-commerce, accounting for roughly three-fifths of the company's business.

In terms of adding stores over the next year, there are three areas the retailer is focusing on.

Supercenters- are hypermarkets that stock everything a Wal-Mart discount store does, and also include a full-service supermarket. They plan on adding 125 new stores next year.

Neighborhood Markets- a chain of grocery stores used to fill the gap between discount store and supercenters, offering a variety of products, which include full lines of groceries, pharmaceuticals, health and beauty aids…etc. Wal-Mart should end the year with 240 stores with a goal of adding another 115 in fiscal 2014.

Wal-Mart Express- a smaller discount store, with a range of services, from simple grocery shopping, to check cashing, and even gasoline service. The concept is focused on small towns that are not able to support a larger store, and in large cities where physical space is at a premium. It should end the year with about 12 stores like this officially opened.


johnmylant has no positions in the stocks mentioned above. The Motley Fool owns shares of Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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