Wal-Mart Takes Its Game on the Road

Shopping at Wal-Mart Stores (NYSE: WMT  ) is often an adventure. There's the constant crowd, unnaturally long lines, and, inevitably, a kid screaming its head off while some frazzled parent with five carts tries desperately to keep it together. So what is it about Wal-Mart that makes its customers willing to face this zoo? Low prices -- and the ability to buy almost everything a person could need in one location.

The power of Wal-Mart
One of the main forces behind Wal-Mart's success is its ability to keep prices low because of its low cost structure, streamlined logistics and distribution network, and vendor partnerships. In fact, "saving people money" was Sam Walton's goal when he founded Wal-Mart in 1962, and it is arguably the reason Wal-Mart has become such a dominant superstore.

The power of rock-bottom prices could clearly be seen in the past few years, when the economy was bottoming out and people were looking to save money. In year ended January 2008, Wal-Mart's net income was $12.7 billion. But when the economy tanked, and higher-priced competitors such as Safeway (NYSE: SWY  ) , Whole Foods Market (Nasdaq: WFM  ) , and Target (NYSE: TGT  ) saw their net incomes drop, Wal-Mart's grew to $13.3 billion. Not too shabby.

Since then, Wal-Mart's net income has continued to climb and now sits at $16.5 billion for the past four quarters, which shows that though shopping at Wal-Mart can be more than a little hassle, its low prices keep customers coming back for more.

Welcome to the rest of the world
Wal-Mart's net income in North America would be enough to keep many companies happy for years, but Wal-Mart is taking its focus on low costs and profit growth international. In late May, it announced the acquisition of Massmart Holdings (OTC BB: MMRTY.PK), a South African retail and wholesale distributor.

Wal-Mart says it intends to strengthen Massmart financially, increase the number of Massmart stores, and ensure that the majority of its products and fresh food are sourced from South Africa, all while keeping prices low. This acquisition is expected to grow Massmart's food business by 50% over the next five years.

If Wal-Mart's growth in South Africa is anything like its growth in Mexico and other international countries, this is great news for investors. Subsidiary Wal-Mart de Mexico (OTC BB: WMMVY.PK) has been able to grow revenue and profit at around 14% annually for the past five years.

Currently, international sales make up just 26% of total revenue. But its international ambitions are a major contributor to sales growth, especially with U.S. sales sluggish. With a total of 4,424 stores in the United States and 4,774 stores internationally, it's clear that Wal-Mart is investing globally. It's already moving in India, Brazil, and China, among many other high-growth markets.

Welcome to the future
What does this mean for the future of Wal-Mart? As with any new business venture, there are risks that Wal-Mart faces in moving globally. However, the potential to expand in Africa and elsewhere around the globe makes for what looks like a very promising future. 

Want to keep up with Wal-Mart? Add it to your Foolish Watchlist!

Fool contributor Katie Spenceis hoping to make it out of Wal-Mart's express line before her 60th birthday, but it's not looking too good. She owns no shares of any company named above.

The Motley Fool owns shares of, and Motley Fool newsletter services have recommended buying shares of, Wal-Mart and Whole Foods Market. Our services have also recommended creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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  • Report this Comment On June 16, 2011, at 8:26 PM, madmilker wrote:

    [the potential to expand in Africa and elsewhere around the globe makes for what looks like a very promising future. ]

    Now....lets see...

    They left South Korea...

    They left Germany...

    They even had to close their office in Russia from the lack of interest....

    And didn't they lose market share in China...what was all that about....did it have anything to do with depriving the nice people of China from purchasing foreign made products by putting less than 5% foreign in their stores there...

    and what about growth in the United States of America....ain't they busting their butt to get nine straight quarters of declining same store sales ...

    oh! but they gonna make that up by building smaller stores.....duh! as if the foot traffic that is leaving the big supercenters will go down the street into a mini Wal*Mart and look at the same O' foreign made stuff....duh again!!!

    Oh! and when are they gonna hire another person out of Harvard....like Leslie Dach...the experienced lobbyist, field organizer and media relations strategist.....

    and since you mention Africa....are they gonna make a port deal like they did in Mexico.....

    That heading from above..."The power of Wal-Mart".....one needs to remember that Retail makes NOTHING and the power is in the hands and pocket books of we the people....when they vote and when they shop....

    Sam Walton knew that...

    "There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else." - Sam Walton

    Katie, Sam didn't take the hyphen out of the name years ago and replace it with a big single star....he didn't move the Global Procurement Office to Hong Kong....and he didn't move it from Hong Kong to China....and it wasn't his idea to put less than 5% foreign in all Wal*Mart stores in China....

    and with that....may be a lot of people in this world thinking....the game is over when it comes to kite flying George Washington's out of every store each day from this big place we call Earth and spent in Bentonville, AR on the next.

    Have a great Friday....the market is gonna be like a Timex....takes a beating but keeps on ticking....and there be a lot of down ticks left.

  • Report this Comment On June 16, 2011, at 10:52 PM, madmilker wrote:

    sad....not even Chic can afford a proofreader....

    [[[NFL Arizona Cardicals]]].....

    People from Harvard do things like that....

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