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.
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