4 Stocks That Beat Wal-Mart: Costco, PetSmart, Dollar Tree, And Dick's Sporting Goods

by: BubbleBustInvesting

by Panos Mourdoukoutas

After beating Sears (SHLD) in the 1970s, Wal-Mart became the king of retailing, dominating rural America, and eventually expanding to urban areas and overseas, trashing other retailers on the way. With market dominance came scale, rising market shares, and bargaining power with supplies. That translated into lower costs and lower prices that re-enforced further dominance and rising profitability. Who would dare to challenge Wal-Mart’s dominance?

A few companies did, some successfully. In an article published in Harvard Business Review (“Outsmarting Wal-Mart,” December 2004), Darrell Digby and Dan Haas identify eight retailers that compete effectively with Wal-Mart: Target (NYSE:TGT), Costco (NASDAQ:COST), Walgreens (WAG), Best Buy (NYSE:BBY), PetSmart (NASDAQ:PETM), Dollar Tree (NASDAQ:DLTR), Dick's Sporting Goods (NYSE:DKS).

As the authors explain, these companies did four things right:

  • focus on expanding local market shares;
  • offering customers what they want most, quality, convenience, selection, etc.;
  • analyze price elasticity differences across markets to set the appropriate prices;
  • take a close look at supply chain and marketing programs to come up with savings that narrow the cost gap with Wal-Mart.

But what happened since 2004? Did these companies all continue to beat Wal-Mart?

As can be seen from the table below, only four of the companies continued to beat Wal-Mart: Costco, PetSmart, Dollar Tree, and Dick's Sporting Goods. How did they do it?

Price on December 30, 2005

Price on June 2, 2011

Wal-Mart $41.68*


Target 51.09


Walgreens 41.23


Costco 46.47


Best Buy 40.67


PetSmart 24.52


Dollar Tree 15.96


Dick's Sporting Goods 16.62

Click to enlarge

*Adjusted for stock splits and dividends

Source: Yahoo.finance.com

Costco has a five-fold strategy. First, it caters to the middle and upper class of consumers who can afford to pay an annual membership fee. Second, it offers brand name products like Cartier watches and Godiva chocolates at deep discounts. Third, it offers a broad selection of products, including bakery and grocery items. Fourth, it packages products in bulk to entice re-sale vendors. Fifth, it uses extra help to expedite checkout time.

PetSmart has a two-fold strategy. First, it offers a wider product selection of pet products than Wal-Mart. Second, it packages pet products together with services, such as grooming.

Dollar Tree has a two-fold strategy, too. First, it carries products from multi-brand companies like P&G at a discount. Second, it caters to the lower end of Wal-Mart’s customers--who are most sensitive to price discounts.

Dick's Sporting Goods has a strategy similar to that of PetSmart. First, it offers a greater selection of sporting goods than Wal-Mart. Second, it bundles sporting products with professional advice, as in-store experts are standing by to help customers with their product selection.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.