This Store Is Changing the Face of American Retail
Rashmi is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With giants like Wal-Mart (NYSE: WMT), Tesco and Metro running over the small mom and pop stores, Family Dollar(NYSE: FDO) has done well to firmly establish itself as one of the fastest growing discount retail chains in the American landscape.
With the American economy in a rebuilding phase, consumer spending is still tight as people grapple with the after effects of the economic meltdown.
Nevertheless, the tide is passing as the economy gets back on its feet supported by the Federal Reserve and its liberal monetary stance.
A 2013 survey of U.S. retail industry executives by global consulting firm KPMG reveals how most executives consider technology to be a major inflection point in the industry and a medium responsible for the next phase of high growth.
Data analytics is fast emerging as a critical tool retailers are using to predict customer demand, map preferences & brand loyalty and monitor consumers’ social media behavior, allowing the company to devise strategies to gain an advantage over competitors and offer personalized shopping experience to the customers.
Fiscal 2012 saw the company grapple a challenging economic situation, which the leadership tackled by diversifying revenue streams, introducing new product lines and accelerating investments in core drivers of profitability.
Be it the addition of Pepsi to its family of beverage brands or tobacco in all of its 6200 stores apart from introducing over a thousand new brands of food, health, beauty and personal care items, the company has been aggressive to woo the customers to its store.
The company has extended its partnership with Mc-Lane, the leading supply chain solutions provider for grocery and food products, inking a 6-year deal to solidify their relationship and give it a strategic advantage to ensure timely availability of products and manage its inventory levels smartly.
The company’s efforts did pay off relatively well as comparable store sales grew 4.7% year-over-year, diluted EPS grew almost 15% to $3.58 and the company recorded a 34% return on shareholder equity, or ROE, in 2012.
With over 7400 stores and presence across 45 states in the U.S., Family Dollar has smartly established itself at convenient neighborhood locations, offering merchandise at extremely competitive prices, creating a strategic advantage for itself in a market dominated by Wal-Mart.
As a brand, Wal-Mart has made its presence felt in every major developed and developing market around the world.
Nonetheless, the company has been embroiled in a series of serious corruption scandals in countries like Mexico, India and China; a clear violation of U.S. FCPA (Foreign Corrupt Practices Act), which prohibits any American citizen or corporation from bribing government officials in any country they operate.
The company has initiated a massive cleanup drive and is conducting in house fraud investigations to identify the culprits and get things back in order.
With the global powers still reeling under a phase of low growth and lukewarm economic recovery, Wal-Mart is looking at innovative ways to approach customers using e-Commerce and social media and entering strategic alliances with different players around the world in order to leverage its position globally.
All these initiatives have seen the company grow successfully in every parameter, as the last five years saw the company serve over 2,045,000 customers every week, manage over 10,000 stores in 27 countries, record a 123% increase in free cash flows, achieve an EPS growth rate of 59% and return over $ 60billion in dividend and buy backs to shareholders adding significantly to their wealth.
The company is making a strategic shift broadening its delivery mechanism, integrating its e-Commerce offerings with its large chain of physical stores and superior logistics, offering a seamless experience to over 130 million weekly shoppers through convenient and flexible payment and delivery options.
Moving forward, the company has massive plans to diversify its potential income streams through a range of possible alternatives. From e-Commerce to opening smaller retail stores in neighborhood localities, the company is taking steps to enhance customer experience and win brand loyalty.
With the size and scale of Wal-Mart, I have little doubt over its financial growth in the coming times. However, what concerns me is the route it takes to reach its goal.
Another major player in the American retail market is Dollar General (NYSE: DG). It was recently in the news as a majority of its key investors and senior executives dumped the company’s shares to the tune of $1.5 billion in spite of the company’s consistent performance and soaring profits even during the peak of the financial crisis owing to its budget attuned pricing, which made it the preferred destination for the shoppers. The move has taken most analysts by surprise who rate Dollar General as a safe investment and a company with sound fundamentals and capable management.
The first quarter results have been good as the company recorded a growth of 2.6% year-over-year in same store sales and a 13% rise in adjusted EPS to $0.71. The latest move by the insiders may have sent mixed signals to the investor and the analyst community, but Dollar General continues to be a strong player in the market and looks to hold its dominant position in the U.S. discount retail chain in the foreseeable future.
As the situation improves and key parameters of economic recovery show signs of stability, I believe, the upcoming decade has plenty to offer for the retail industry in terms of growth in new markets and setting itself firmly in the existing markets.
Family Dollar has been a consistent performer, and in spite of the presence of Wal-Mart, has done well to establish itself in the American market through an innovative strategy and continuous commitment to enhancing customer experience.
I believe the company has solid fundamentals and a capable management, which will further cement its position in the American markets and make it a worthy addition to your portfolio.
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