Should Retail Target the Shale?

While energy and transportation companies profit from the shale boom, some retailers could also profit from the boom in North Dakota and Texas by opening brick and mortar stores there.

Apr 25, 2014 at 11:55PM

While companies in related industries benefit by drilling for dollars and transporting supplies and finished products, could retailers also benefit from the domestic energy boom by expanding in the oil patch? 

Large companies like Wal-Mart Stores (NYSE:WMT), McDonalds (NYSE:MCD), and Home Depot (NYSE:HD) could profit from the excess cash that oil-field workers and their families can afford to spend. 

Let's build something together
Home Depot made an exception to its strategy with the recent opening of a new store in Williston, North Dakota. The company had put a hold on its brick and mortar expansion, as it was instead targeting growth from online sales and its "integrated retail" strategy. 

Although this is only one store, could this be the beginning of a change of pace for Home Depot? As the shale oil and gas gushes out of the ground, cold hard cash flowing into the company's coffers might be hard to pass up. 

Home Depot doesn't really need a lot of help right now. However, the company might want to plan for the future and profit from the petrodollars being generated in North Dakota and Texas. The stock is reasonably priced at a P/E of around 20. Home Depot's EPS has been increasing at double-digit rates over the last half-decade as the company has benefited from operating improvements initiated by management and a rebirth in the housing market. One thing that could be temporarily holding back Home Depot from expanding is its high debt load, which currently stands at 100% of equity. 

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Wal-Mart is also focused on online as it tries to take away some of the market share of e-commerce giants like However, the Bakken region proved too tempting to pass up for the Bentonville, Arkansas company as well--the world's largest retailer and private employer has also opened a store in Williston, ND. Wal-Mart is well represented in Texas too with 493 stores, which is 10% of its domestic total. 

The company recently announced that it will get into the money transfer business in a big way by undercutting the fees that its competitors in the field charge today.

All of this has probably come as a bid to counteract a slowdown which has occurred over the past year or so for the company. An economy stuck in neutral and the expiration of the payroll tax holiday in 2013 probably hurt the lower-income consumer that Wal-Mart targets. Its EPS and revenue growth have taken tumbles and the company is looking for ways to reverse its course. Perhaps more expansion in the shale might help matters.

McDonald's isn't lovin' it
The fast food giant McDonald's has been reporting declining same-store sales for some time now, likely for the same reasons as Wal-Mart. The disposable income of its generally lower-wage customers has been dropping while the company was emphasizing its higher-priced Extra Value meals. McDonald's has since reversed course and developed an ad campaign that features the Dollar Menu.

Things have stabilized somewhat for McDonald's. However, perhaps the company should look into growing near the shale wells too as competition heats up, especially in the breakfast arena, from the likes of Taco Bell of Yum! Brands

Foolish conclusion
Will retailers take advantage of the shale boom like the energy and transportation companies are already doing?

It appears that some large companies are dipping their toes into the Bakken shale. Home Depot and Wal-Mart have recently opened stores in North Dakota and they are already well represented in another big oil patch, Texas. McDonald's has stores there too.

Perhaps Wal-Mart and McDonalds might need to dive in and further expand in order to reverse weaknesses in their businesses. Home Depot is doing fine right now, but oil profits might be too hard to pass up in the future.


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Mark Morelli owns shares of McDonald's and Wal-Mart Stores. The Motley Fool recommends, Home Depot, and McDonald's. The Motley Fool owns shares of and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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