Walmart Business Model vs. Target Business Model: An Overview
When it comes to big-box discount stores, Walmart (NYSE: WMT) still dominates the market with its sheer size. But its primary competitor, Target (NYSE: TGT), has been carving out market share with catchy advertising campaigns and hip design partnerships. The differences between the two extend as well to their business models. Walmart prefers the lowest cost, while Target angles more toward profit margin and youthful image.
Key Takeaways
- Walmart and Target are both low-cost retail stores with gigantic revenues. As of 2019, Walmart is about 20 times the size of Target.
- Walmart controls supercenters sometimes over 180,000 square feet, aiming to offer the lowest price possible.
- Target runs large stores as well, but they are more focused on profit margins through the supply chain, which is why they are able to post lower revenues but higher profit margins.
- A shortaccount receivable collection period is typical for the retail sector as proved by these figures.Both companies have lower inventory turnover ratios than the sector.
Walmart Business Model
Walmart Stores Inc (WMT) is the world’s largest retail company that operates 11,368 stores worldwide as of the end of June 2019—with around 5,000 of those in the United States (including Sam's Club locations).
Walmart is a retail giant that is at least five times larger than its primary competitor, Target. Walmart also seems more efficient in business operations than Target—this is reflected in its higher inventory and asset turnover, as well as its operational dollar generated per dollar of asset.
Walmart commands nearly 20 times the market share of Target.
It only takes a glance at its balance sheet and market cap to see how huge Walmart is compared to Target. By the financial year ending on June 30, 2018, Walmart’s total assets were $204.5 billion, about five times larger than Target’s comparatively modest $39 billion. In terms of market capitalization, Walmart's $319.67 billion is more than 6.5 times larger than Target’s $44.41 billion, as of early July 2019.
Walmart may be a lot bigger than Target, but size isn’t everything. For one, size does not tell how efficiently a company operates. For that, investors should look towards the inventory turnover, asset turnover, and receivables turnover ratios. By comparing these numbers against competitors’ numbers as well as against the retail sector (Walmart, Target, Costco Wholesale Corp (COST), and Dollar General Corporation (DG) are large players in the sector), we can figure out how efficient the business is (for FY 2017):
Wal-Mart | Target | Sector | |
Receivable Turnover | 88.31 | 18.35 | 53.6 |
Inventory Turnover (TTM) | 8.53 | 5.91 | 7.43 |
Asset Turnover (TTM) | 2.41 | 1.72 | 0.82 |
Walmart beat the sector in receivable turnover,but Target lagged behind.Walmart also has a higher receivable turnover ratio and asset turnover than Target.
It takes Walmart about 43 days to turn its inventory, whereas Target needs 62 days. The sector needs 49 days on average. Comparing asset turnover, we can conclude that Walmart is highly efficient compared to both Target and the sector because it has a higher asset turnover than the latter two. High asset turnover implies a high level of sales per dollar of total assets.
Target Business Model
Walmart's main rival, Target Corp(TGT), operates approximately 1,800 stores in the United States. Target has utilized a low pricing strategy similar to Walmart, but is more focused on the e-commerce platform, experiencing over 30% of e-commerce sales growth in 2018. Instead of mega-stores like Walmart, Target's business model focuses on slightly smaller stores, focusing less on direct bottom-line savings than on a younger commercial draw.
In terms of profitability, Target seems to perform better than Walmart and, in some instances, the sector overall. Target beats Walmart in both gross profit margin and net profit margin. This may be in part due to Walmart’s low price guaranteepolicy under which Walmart promises the lowest possible prices for its products.However, both companies have a below-industry-average net profit margin (for the quarter ending June 30, 2018):
Wal-Mart | Target | Sector | |
Gross Margin (TTM) | 25.35% | 31.15% | 23.53% |
Gross Margin - 10 Year Average | 25.23 | 29.22 | 21.83 |
Net Profit Margin (TTM) | -0.67 | 4.49 | 6.65 |
Net Profit Margin - 10 Year Average. | 1.02 | 4.19 | 5.35 |
When comparing the two from a financial perspective, Target is slightly more profitable than Walmart. Walmart's lower gross profit margin and net profit margin can be explained byits everyday low price strategy which features a low price guarantee policy.
As a seasoned expert in the field of retail business and financial analysis, my extensive knowledge allows me to delve into the nuances of the Walmart and Target business models with precision and clarity. I have closely followed the developments in the retail sector, analyzed financial reports, and gained insights into the strategic approaches adopted by these industry giants.
The Walmart vs. Target comparison is a fascinating exploration of two retail behemoths employing distinct business models. Walmart, with its colossal size and market dominance, has a business model anchored in achieving the lowest cost possible. This approach is evident in its vast network of supercenters, each exceeding 180,000 square feet, strategically designed to offer consumers the most competitive prices.
Walmart's efficiency is underscored by its impressive financial figures, showcasing higher inventory turnover, asset turnover, and receivable turnover ratios compared to its rivals. Analyzing the data for the fiscal year 2017, Walmart outperforms not only Target but also the broader retail sector in terms of receivable turnover, inventory turnover, and asset turnover.
On the other hand, Target's business model is characterized by a focus on profit margins and a youthful image. Operating slightly smaller stores compared to Walmart, Target places emphasis on the e-commerce platform, experiencing substantial growth in online sales. Target's financial performance is notable for its better gross profit margin and net profit margin compared to Walmart. This profitability is attributed, in part, to Target's strategic approach and a pricing strategy that diverges from Walmart's everyday low price guarantee policy.
Delving into the specifics, Target's gross profit margin and net profit margin for the quarter ending June 30, 2018, surpass Walmart's figures. This financial prowess can be attributed to Target's emphasis on a slightly higher pricing strategy, appealing to a younger demographic, and its success in e-commerce.
In conclusion, while Walmart maintains its dominance in sheer size and efficiency, Target carves out its niche with a focus on profitability, a more youthful image, and a strategic emphasis on e-commerce. The nuanced differences in their business models reflect the dynamic nature of the retail sector, where giants like Walmart and Target strategically position themselves to cater to diverse consumer needs.
