3 Most Valuable Retail Brands of 2014

BrandZ annually bestows top honors to the best global brands. Here are this year's retail winners:

Source: BrandZ. 

Amazon, the highest-ranking retail brand, gained more than 40% in brand value during the past year. An e-commerce company that started as an online bookseller two decades ago has transformed into the most valuable, and arguably most powerful, retail brand in the U.S. Amazon boasts more than 20 million members in its Prime program, which offers free two-day shipping on countless items and connects consumers with the brand.

The retailing giant is also growing its online content, including movies, as Amazon becomes a media company as well as a retailer. Roughly 14% of all primary U.S. household shoppers in 2012 were Amazon Prime members. Synonymous with convenience, Amazon has also expanded its online grocery business through its Amazon Fresh program. Amazon may be building a valuable brand, but some investors wonder how much further the company can diversify beyond its core.  

Cutthroat competition and economies of scale have given Wal-Mart a stranglehold on the competition for its more than 65 years of existence. The retailing giant has threatened five-and-dimes, mom-and-pops, grocery stores, department stores, and pharmacies.

Up until recently, it's left most everyone in its wake. But during the Great Recession, customers flocked to deep-discount retailers like Dollar Tree, which ultimately took some market share from behemoth Wal-Mart. Coupled with the improved economy and trend toward healthy living, Wal-Mart is making a concentrated push into the organic market by offering Wild Oats foods items to compete with the likes of Whole Foods. It's estimated Wal-Mart will undercut brand-name competitors by 25%. Wal-Mart has also beefed up its online sales, which now account for $10 billion annually. 

The Great Recession also substantially hurt Home Depot, which relies significantly on the housing industry. From early 2007 through the end of 2008, Home Depot's stock lost nearly half its value. But the retailer has benefited tremendously from the long-anticipated upswing in the housing market.

Whether homeowners were making improvements or homebuilders were buying supplies, Home Depot profited from the increased demand. In fact, it was one of 2013's best-performing stocks. A softening in the real estate market would pose a big problem for Home Depot and major rival Lowe's, but Home Depot will continue to sell goods to homeowners and builders fixing up existing homes. The retailer's market value gained 20% last year. 

Do top retail brands ring up great shareholder returns?
The three companies behind these brands have returned stellar profits to their stockholders over the course of their publicly traded lives. Yet, none of these brands have edged out the S&P 500's more than 18% return during the past year. In fact, Amazon and Home Depot have returned roughly 18% and 3%, respectively, during the same period. And Wal-Mart has been flat over the past 12 months. 

When we look at performance over a longer snapshot of time, two of these three retailing giants have outperformed the market. Amazon and Home Depot returned roughly 590% and 187%, respectively, over the most recent decade. Meanwhile, Wal-Mart returned nearly 67%. By comparison, the S&P 500 returned 111% during that same period. 

Of course, past performance gives us no indication as to how these companies will fare in the future. Instead, we must look to things like industry trends, growth prospects, profitability, and leadership. For example, Amazon's stock has performed the best of these three companies, yet the company still has a long way to go to reach the level of maturity of the other two retailing giants. Amazon's reputation for convenience in a society that craves timesaving and the growth in e-commerce and mobile provide strong tailwinds for the company. However, the online giant struggles to gain profitability while its stock sports a valuation that many investors, including myself, can't wrap their brains around.

Foolish takeaway
The three companies behind these brands boast a combined 125 years of experience, with Amazon -- founded in 1994 -- being the youngest of the companies mentioned. The longevity and fortitude of these retailing heavyweights coupled with their respective brand strengths have helped them gain worldwide recognition.