Among big box retailers, Wal-Mart (NYSE:WMT) historically has had an edge when it comes to low-income customers. Its low prices often undercut those of competitors like Target (NYSE:TGT) and membership warehouses like Costco (NASDAQ:COST).

One of Wal-Mart's biggest strengths has been the Supplemental Nutrition Assistance Program, or SNAP. This program offers nutrition assistance to millions of eligible, low-income individuals, and it is the largest program in the US that provides a safety net against hunger.

However, the temporary boost in government food stamps through SNAP expired on Nov. 1, 2013, and along with other key changes that have affected Wal-Mart and the overall retail industry this highlights the gift and the curse of Wal-Mart's low-income customer.

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Wal-Mart generated $473.1 billion in sales in 2013.  By Walmart Corporate, via Wikimedia Commons

The gift of Wal-Mart's low-income customer
More than half of Wal-Mart's total annual sales come from groceries. Recently, Wal-Mart estimated that it is the recipient of 18% of all available food stamps each year. This is a big reason for Wal-Mart's first-place ranking in the U.S. grocery market at nearly 30% market share. It is also a key reason why Wal-Mart benefits from any temporary boosts that the government provides to SNAP.

Groceries have also been a key element of Wal-Mart's overall dominance in retail. Wal-Mart brings low-income customers through the door to buy food and these same customers often find other things to purchase like electronics, appliances, clothes, and other accessories. Although Target and other retailers offer groceries too, Wal-Mart's food selection, scope, and prices make it too hard for others to attract low-income customers like Wal-Mart can.  Furthermore, even when price comparison studies have come up in the past where Target either matches Wal-Mart's prices or even undercuts Wal-Mart, Wal-Mart has too many other auxiliary items that bring customers through the door who prefer to complete all their errands in one trip at one location. That location usually ends up being Wal-Mart.

Meanwhile, Wal-Mart edges out Costco in to store placement. Historically, Costco has generally located its locations in newer shopping areas.  Costco tends to expand into new development areas to not only build membership counts, but also to build a predictable revenue stream where higher-income individuals are more likely to make large weekly or monthly purchases. 

A study last year showed the difference between Wal-Mart and Costco locations in the same proximity of downtown Chicago. Taking 12 Costco locations and 11 Wal-Mart locations within 30 minutes of downtown Chicago revealed that the Costco's were in zip codes where the average income was $63,500 per person, while the Wal-Mart's were in zip codes where the average income was just $26,200 per person.

While Sam's Club, a Wal-Mart subsidiary, does follow a paid membership model, many of Wal-Mart's supercenters offer products at prices comparable to those of membership warehouses like Costco. The ability to buy these comparable items without incurring the cost of membership gives Wal-Mart the advantage in attracting low-income customers.

Most recently, Wal-Mart announced that it will debut a cash-wiring business on April 24 that will feature store-to-store transfers within the U.S. for low fees. This move follows Wal-Mart's March announcement that it will enter the used video game business. Both moves look like strategies to generate store traffic growth across all income brackets.

However, the move into the cash wiring business seems more directed toward low-income customers. In 2011, 29% of households in the U.S. didn't have savings accounts. Furthermore, the business is similar to that of many existing check-cashing service companies which serve clienteles that often don't have bank accounts or access to banks.

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Wal-Mart has nearly a 30% market share in the U.S. grocery business.  Credit: Wal-Mart 2013 Annual Report

The curse of Wal-Mart's low-income customer
For the first time ever, Wal-Mart cited changes in the amount of payments made under SNAP and other assistance programs as a risk factor in its 2013 annual report. Last November, legislators cut food stamps by an average of $29 per month for a family of three. This past January, legislators cut food stamps by another $90 per month.

To say that Wal-Mart is feeling the impact of these changes is an understatement.

In 2013, Wal-Mart saw its consolidated net sales increase 1.6% to $473.1 billion. However, Wal-Mart has had four straight quarters of same-store sales declines in the U.S. as its store traffic has turned negative. Traffic last quarter was down 1.7%.

Additionally, rising gas prices offer a double whammy for Wal-Mart.

Gas prices have been climbing recently as the weather warms up and the price has now risen above $3.60 per gallon nationwide. Higher gas prices mean fewer trips to Wal-Mart stores.

Although Wal-Mart ranks in the top five in online sales annually, just 19% of Wal-Mart's in-store shoppers shop at This highlights an important vulnerability which shows that Wal-Mart's low-income customer is only loyal to low prices, not necessarily the brand itself.

Lastly, the low-end marketplace has continued to become more saturated. Some discount dollar store chains have recently announced that they are reducing their store counts due to competition and lackluster sales. This is bad for Wal-Mart because it suggests that customers have many other low-end stores to choose from and it may also explain why Wal-Mart's traffic has turned negative recently.

Bottom line
Low-income customers will remain an asset for Wal-Mart for years to come. Its new cash-wiring business could be a huge catalyst for improving store traffic, increasing sales, and disrupting the existing cash-wiring industry.

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April 24th is the debut of Wal-Mart's cash wiring business. Credit:

Although Target and Costco have their own strengths in business strategy and philosophy, Wal-Mart is likely to maintain a firm hold on its low-income customers for the time being.

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Michael Carter has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. 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.