Investment Research Report On Wal-Mart

Investment Research Report On Wal-Mart

Introduction

Walmart Stores is the world's largest retailer and grocery chain by sales. According to its annual report, the company generated consolidated revenue of $419.0 billion in fiscal 2010 (latest annual data available) through its 8,970 stores worldwide. The company leverages its massive size to exert high buying power to its suppliers; as such, it can obtain significant cost savings and pass them down to consumers in form of heavily discounted prices.

Walmart operates three separate divisions: Walmart US, representing 62.1% of revenue and 42.4% of establishments; Sam's Club, representing 11.8% of revenue and 6.8% of establishments; and Walmart International, representing 26.1% of revenue and 50.8% of establishments. Under the Walmart US division, the company runs Supercenters that offer general merchandise and a full-line supermarket as well as general discount stores that offer the same products but no perishable groceries. Only Walmart US's general discount stores represent major players within the industry; the retailer's remaining operation (including Supercenters) is accounted in the Warehouse Clubs and Supercenters industry (William, 2006).

Walmart's first discount store opened in 1946 with the name of Walmart Discount City. Today, there are more than 800 discount stores in the United States and most are open 24 hours. General discount stores retail a wide assortment of general merchandise, such as apparel, electronics, toys, health and wellness products, home furnishings and house wares. In the five years to 2011, however, the number of discount stores has been declining at the expense of Supercenters, from 1,083 locations in 2006 to 708 stores in 2010; the number of Supercenters increased from 2,262 to 2,907. As a result, Walmart's share of Department Stores industry revenue has been falling steadily over the five-year period.

Walmart's Industry Analysis

This section of the paper will answer the dynamics and competitive nature of the industry in addition to its major issues and trends.

The departmental stores in United States have displayed varied trends of performance in the recent years. The departmental stores industry has been recently faced with challenges such as rising competition and decreasing demand which has reduced the overall profitability and sales. Overall, industry revenue is expected to decline at an average annual rate of 4.2% over the five years to 2012, with a 0.8% fall from 2010 to 2011 to make up a $187.0-billion industry. In the 10 years to 2016, industry value added, which measures the Department Stores industry's contribution to the GDP, is expected to decline an average annual rate of about 5.4%.

The industry's decline cycle is largely attributed to discount department stores like Walmart and Target increasingly exiting the industry by renovating their stores to add full lines of groceries, making these stores part of the Warehouse Clubs and Supercenters industry. On the strength of the economic recovery, revenue is forecast to increase at an average annual rate of 0.5% over the next five years to total $192.1 billion. With rising sales, profit margins are likely to increase to about 6.1% of revenue in 2016, providing much needed ...