At first glance, a discount retailer walmart (NYSE:WMT) and the goal (New York Stock Exchange: TGT) Similar enough. Both offer a wide range of household items, including groceries, at affordable prices. In fact, the two retailers sell almost the same products. Both companies’ stores are easily accessible to most consumers living in the United States. So how different is it really?
But the reality is, from an investor’s perspective, Walmart and Target are very different. One is worth owning right now, the other is not.
Walmart is the better buy of the two. Here’s why:
3 reasons why Walmart stock is a better choice
To be fair, the two companies are more similar than different. They often serve the same consumers in the same geographic market. Many of the products consumers buy most often can be purchased at either venue, usually at similar prices.
However, here are three distinctive factors, in no particular order, that work in favor of Walmart and against Target.
1. Product composition is important
If you feel like the product mix is ​​different between Walmart and Target, you’re not imagining it. There’s a lot of overlap, but there’s also a lot of uniqueness. Target offered more fashionable apparel, giving rise to the expression “cheap chic” that has been in use since the beginning of this century. Walmart offers even more products in categories such as hardware, jewelry, and car care, to name a few. Most Walmart stores are also grocery stores. In fact, Walmart is the largest grocery store in the United States, accounting for more than half of U.S. retail revenue (which accounts for the majority of companywide sales).
This is especially important now.
With inflation putting pressure on even wealthy households, the discretionary purchases that once took place at Target stores are no longer as easy to make. As Christina Hennington, Target’s chief growth officer, acknowledged during the company’s second-quarter earnings call in August, “consumers continue to face difficult choices with every purchase.”
Indeed, these same headwinds are blowing at Walmart. But we are in a good position to handle it. After all, consumers are prioritizing grocery shopping, making Walmart a viable trade-down option for those in need of such relief. The company even reiterated since late last year that most of its recent sales growth has come from consumers making more than $100,000 a year.
Many of these people are regular Target shoppers and may be looking for better bargains.
2. Walmart’s e-commerce platform is becoming a mainstay
Kudos to Target for entering the online fray. However, the company’s e-commerce platform falls short of Walmart’s.
Although Walmart does not regularly update these numbers, it has been reported in the past that there are hundreds of millions of items listed on Walmart.com at any given time. Of course, most of these listings are not from Walmart. This retailer opened up its website to third-party sellers, making their websites more similar. Amazon.com. As of the latest count reported, more than 150,000 unique sellers utilize his Walmart.com as a sales platform.
Still, this model is highly advantageous for Walmart itself. Not only does Walmart earn a commission on sales through Walmart.com, but the assortment also draws users to websites and apps where the company can collect valuable consumer data. Walmart.com’s reach is gradually generating sales growth, even if indirectly.
The kicker: Walmart isn’t just using website and app traffic to convert shoppers into consumers. This traffic itself is also monetized. The company’s retail media network, his Walmart Connect, allows sellers to pay for ads to feature their products on his Walmart.com.
This makes CFO John David Rainey’s words earlier this year even more persuasive. “The more attention a digital platform receives, the more advertisers are willing to put money into it,” he explained at an investor conference. He went on to point out that the profit margin on this advertising revenue could be as high as 80%. That could be a hidden hint of the company’s plans for Walmart.com.
Target’s online store simply doesn’t have this kind of reach or monetization potential.
3. Walmart enjoys overwhelming scale, Target does not.
Last but not least, Walmart is a far more important distributor of branded goods than Target, and a far more convenient shopping choice for U.S. consumers. This means leverage that Target doesn’t have.
As of the end of July, there were 4,616 Walmart stores operating in the United States. Most are supercenters that also sell groceries. That’s a huge reach. It’s so huge, in fact, the company reports that 90% of U.S. residents live within 10 miles of a Walmart store. He also has 599 Sam’s Club warehouse stores.
For comparison, Target operates fewer than 2,000 stores in the United States, many of which are within easy driving distance of Walmart stores. If Walmart has a larger selection or better prices on a particular product (which it often does), consumers will choose Walmart over Target.
But perhaps the real power is the influence Walmart has over the suppliers of the products it sells. In November of last year and again in February of this year, the company flatly told vendors that they were done paying ever-increasing wholesale prices for their products. These manufacturers seemingly listened and responded because they didn’t want to jeopardize their relationship with their single largest customer.
The target has no such muscles.
It doesn’t predict the target’s doom, but…
None of this suggests that Target can’t own it. it will survive. In fact, once inflation returns to more normal levels and the economy is booming again, the target will return to its original state. Meanwhile, the dividend is well protected, and the current dividend yield of 4% makes it attractive for profit seekers.
So there’s no need to panic if you already own one.
Until further notice, however, the economics favor Walmart. The appearance of advertising on the company’s e-commerce site only strengthens the bullish view. After all, this is high-margin revenue that doesn’t eat into existing profit centers.
Of course, these differences are already reflected in the disparate performance of both stocks recently. Walmart stock is rising. The target stock is falling. The only question is how long these two tickers will continue to move in opposite directions.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. James Brumley has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon.com, Target, and Walmart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
