Wal-Mart Stores Inc. (NYSE:WMT) and its investors are facing a very interesting mystery: where are the customers going? Traffic at the retail giant's U.S. stores has been falling for the past seven quarters. The billion dollar question for retail investors is, where are those customers going and why?
The conventional wisdom is that Wal-Mart is losing market share to small box discounters, AKA dollar stores such as Family Dollar Stores (NYSE:FDO), Dollar Tree Stores (NASDAQ:DLTR), and Dollar General (NYSE:DG). The problem with that thesis is that the available revenue figures show that the dollar store chains haven't been the big winners from Wal-Mart's decline.
Dollar Tree reported a TTM revenue figure of $6.97 billion in July 2012; that figure rose to $7.87 billion in July 2013 and $8.151 billion on July 31, 2014. That's a net increase of $1.181 billion in two years.
Dollar General reported a TTM revenue of $15.63 billion in July 2012; that figure rose to $16.8 billion in July 2013 and $17.79 billion in April 2014 (the last month for which figures are available). That's a net increase of $2.16 billion in a little under two years.
Family Dollar reported a TTM revenue of $9.101 billion in May 2012; that figure rose to $10.25 billion in May 2013 and $10.38 billion May 2014. That's a net increase of $1.279 billion.
The three biggest dollar store operators had a total revenue gain of $5.131 billion in over the last two years. In the same period, Wal-Mart's TTM revenue went from $460.69 billion in July 2012 to $468.81 billion July 2013 to $477.30 billion in April 2014. Even with the drop in traffic, Wal-Mart still managed to add $16.61 billion in revenue, or more than five times the amount of new revenue as the big three dollar stores combined.
The dollar store revenue increases have been impressive, but they do not seem to be enough to hurt Wal-Mart. Something else has to be going on here; other retailers have to be taking some of Wal-Mart's revenues. The big question is, who are they?
The Real Wal-Mart Killer: Costco Wholesale
Well, one big gainer is Costco Wholesale (NASDAQ:COST), which has done a great job of luring the middle class away from Wal-Mart and its Sam's Club subsidiary. In May 2012, Costco reported a TTM revenue figure of $95.01 billion; by May 2013 that figure had risen to $104.89 billion, and by May 31, 2014, it had reached $109.6 billion. If you do the math, you'll notice that Costco's revenue increased by $14.59 billion over the past two years.
The revenue figures indicate that Costco seems to be the big winner from Wal-Mart's decline. Costco's revenue growth was nearly three times that of the three dollar store operators combined. If anybody is stealing Wal-Mart's shoppers, it appears to be Costco.
Wal-Mart is not the only discounter Costco is taking revenue from. Target (NYSE:TGT) reported a TTM revenue of $71.34 billion on July 2012; that figure grew to $73.48 billion in July 2013 and fell to $73.23 billion on July 31, 2014. To be fair, Target is still reeling from the Canadian debacle, but its growth was slowing before it went north of the border.
Two More Wal-Mart Killers: Amazon.com and Kroger
Two other retailers have to be added to this revenue mix to understand what's happening to Wal-Mart and Target. First, there is Amazon.com (NASDAQ:AMZN); Amazon reported a TTM revenue figure of $54.33 billion in June 2012. That figure rose to $66.85 billion in June 2013 and $81.76 billion in June 2014. Amazon's revenue grew by $27.43 billion, or over five times as much as the three dollar store operators combined.
Second, there is Kroger (NYSE:KR), the giant grocer that has seen TTM revenue increases rivaling those at Costco. Kroger reported a TTM revenue figure of $91.98 billion in April 2012; that amount increased to $97.55 billion in April 2013 and $101.29 billion in April 2014.
Rising revenues at Kroger, Amazon.com, and Costco, and falling numbers of store visitors at Wal-Mart do not seem to be coincidences. The revenue figures indicate that these retailers have figured out how to steal Wal-Mart's customers. One has to wonder if the traditional discount store business model favored by Wal-Mart and Target works in today's retail environment. The revenue figures show it might not, which is bad news for Wal-Mart, Target, and the dollar store operators.
Disclosure: The author is long KR.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.