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A lot has been made recently in the investment community about Wal-Mart (NYSE:WMT) and their struggles to grow domestically. In recent years, the majority of Wal-Mart’s growth has come from breaking into foreign markets. Wal-Mart is now operating in 15 different countries under 55 different names. Rapid success abroad has prompted the retail giant to shrink CapEx for its U.S. division by 7.4% as it increases international division investment by 11.8% for fiscal 2012. Despite the decrease in domestic CapEx, Wal-Mart still has big plans to grow US earnings. A major part of domestic growth plans is the opening of smaller stores to compete directly with smaller retailers.

In full disclosure, I am a huge fan of Wal-Mart and the low prices they offer. However, I will openly admit that shopping at supercenters can be a horrible experience. The long checkout lines, the crowded and cluttered aisles, and the long distances to the nearest store are big turnoffs. The money saving benefits only outweigh the costs if I’m buying a lot of items. When I run out of milk and bread, I refuse to drive four miles to a supercenter when I have a traditional grocery store two blocks away. By creating smaller stores in more locations, Wal-Mart is able to capture consumers that before were willing to pay higher prices for more convenience. They will be taking market share away from smaller retailers that can’t offer the same low prices because of higher overhead and a lack of purchasing power. Smaller stores are also easier to push through zoning boards and are helping Wal-Mart break into urban areas they have long been shut out of. Below are the three new store concepts Wal-Mart is currently testing or rolling out.

Neighborhood Markets

Already in full rollout mode nationwide is the Wal-Mart Neighborhood Markets concept. These stores are roughly 50,000 square-feet (about a third the size of a supercenter) and look a lot like a conventional grocery store. They carry produce, meat and dairy, dry goods, pharmaceuticals, pet supplies, and health and beauty products. The Neighborhood Market format is delivering a return at the same level as supercenters, which have the best ROI in the company. These results have encouraged Wal-Mart to move faster on rolling out the stores in urban areas. There are currently 160 Neighborhood Markets and Wal-Mart plans to open approximately 200 more in the next two years.

Wal-Mart Express

Early in its initial test phase is Wal-Mart Express, the answer to the traditional drugstore/dollar store. The test stores average 15,000 square-feet, and offer general merchandise, grocery essentials, health and wellness products and services, over-the-counter medicines, and a full pharmacy. There are currently three test markets (Arkansas, North Carolina, and Illinois) and Wal-Mart plans to open 20 more stores over the next year.

Wal-Mart on Campus

The first and so far only test store for Wal-Mart’s newest concept was opened at the University of Arkansas in early 2011. Wal-Mart on Campus is about 3,500 square-feet and includes a full pharmacy, food, personal items, and school supplies. Reviews of the store have been very optimistic with students and faculty commenting positively on the low prices and convenient location. Although no other locations are currently planned, you can bet it’s only a matter of time before Wal-Mart breaks into the convenience store business.

Investment Conclusion

Wal-Mart is the largest position in my portfolio and at current valuations it is a great buy for long-term investors. Although U.S. same store sales have struggled the last few years, international growth is solid and there has been consistent EPS growth and P/E compression over the last decade. Seeking Alpha contributor J. Mintzmyer does a fine job with the bull case on Wal-Mart’s stock here. The new smaller store concepts will help reverse the domestic sales struggles by breaking the company into larger urban centers. It also allows Wal-Mart to take market share from smaller retailers where they were previously noncompetitive. Use the negativity surrounding Wal-Mart’s domestic sales as an opportunity to buy.

Source: Wal-Mart's Smaller Plan To Grow Domestically