How the Holiday Season is Helping This Consumer Company
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Wal-Mart (NYSE: WMT) saw its best ever Black Friday with its three events at 8 p.m., 10 p.m. and 5 a.m. where it sold 5000 items per second during the time frame. The early Friday morning helped it to set record sales, taking its stock price up 1.9%. The company is good at capturing every demographic which appreciates good value for its decent products and also its Layaway program made it a preferable choice over its close rival Target. This program will help it further to increase sales in the coming holiday season. The Company's stock is up 20% for 2012 making it an all time high.
The Holiday Season has put Wal-Mart in a pretty good position in comparison to its competitors Target and Amazon. For last 12 months the company is trading at the P/E ratio of 14.44x which is much lower than the industry average of 24.44x.
Let’s see how these companies have been performing-
Target (NASDAQ: AMZN) : Target, a rival to both Wal-Mart and Amazon, is expected to face a tough time during Christmas if it continues with its conservative inventory planning which will affect its same store sales. The company's efforts for Thanksgiving Day were less successful as compared to Wal-Mart which saw increased consumer traffic. Wal-Mart opened its stores at 8:00 pm whereas Target opened at 9:00 pm. Wal-Mart dropped its toy prices by (-4.9) % as compared to Target (-3.6) % which made Wal-Mart more competitive.
Amazon (NYSE: TGT) : The online competitor of Wal-Mart is right now facing quite a threat in the holiday season and is expected to lose its magic on pricing. The Internet Merchant has a price advantage in states like California with no sales tax but the advantage has started to disappear gradually thus adding 7%-10% of the cost to each order. Target is facing stiff competition from Walmart.com. Wal-Mart has increased its activity towards customer satisfaction through Same Day Delivery for online orders, which has been Amazon’s core business model. This program is running initial test runs in San Francisco, San Jose, Northern Virginia, Philadelphia and Minneapolis. Also, Wal-Mart is removing Amazon’s Kindle tablets from its store, further creating problem for Amazon.
While maintaining the price leadership over its competitors Wal-Mart works hard to maintain its winning position in the retail sector with its long term growth initiatives.
Wal-Mart International Growth:
Wal-Mart’s international operations remain the key focus for its future growth. Last year Wal-Mart’s international segment contributed 28% of the net revenue and increased 29% from year 2010 to 2012 and with this the international segment contributes 40% of the company's value. Mexico, China and Brazil being Wal-Mart’s main revenue generating regions the company has planned to slow down its expansion in these regions to improve its comparable same store sales. With this the company has planned to make its ever largest expansion in the Canada region for 2013 with 73 projects. This shows that the company operates at a higher level of profitability in its international operations.
Holiday Season Spiking Up:
Wal-Mart has several strategies to increase its consumer traffic. The company on Thanksgiving Day has opened its stores 2 hours earlier at 8:00 pm than last year when it opened at 10:00 pm and it also had a One Hour Guarantee program which meant that customers already inside the store or in the queue between 10pm- 11 pm local time on 22 Nov could purchase electronics items like Apple IPad, LG Blu Ray Player and Emerson 32HDTV at the lower prices. The crowd was huge as compared to the last year and the company’s stores served almost 22 million customers on Thursday. This reflects that Wal-Mart is well positioned in the Holiday Season as it has been in previous years.
Wal-Mart’s new Polaris search engine on Walmart.com has increased the conversion rate online by 10%-15%. This expanded online initiative is benefitting the company in China, Brazil, the United Kingdom and the U.S. At present the company's online business is $7 billion which is expected to reach $9 billion in 2013. To continue this growth in the future too, the company has made investments in Yihaodian (the fast growing Chinese ecommerce site in China with 24 million registered users) and increased its stake to 51% with which the company will ramp up its online capabilities and reach worldwide. It is believed that this stake will support Wal-Mart to grab a larger share in the Chinese market for online shopping.
To conclude, I can say that with these fundamentals the company will continue to grab good market share as the supercenters remain its best vehicles. With addition of 130 to 135 supercenters, Wal-Mart US is also looking forward to open 80 to 100 small and medium stores with the aim to capture the small urban markets. And after the Thanksgiving Day and Black Friday Wal-Mart is preparing itself for the upcoming holiday season; Christmas where the company is expected to make 40% of its annual revenue with best discounts and broader assortment of merchandise to bring in more shoppers. This makes me believe that the company's potential is not limited but highly promising.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!