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The Death of Wal-Mart

The Real Cash Kings Changing the
Face of Retail

For decades, it seemed as if consumers were on an all-out shopping spree, fueling massive growth in the retail sector.

But now that run is over.

The recession forced the nation's biggest retailers, like Macy's and J.C. Penney, to shutter up stores and halt their plans for expansion. And many others, like Circuit City and Linens n' Things, declared bankruptcy.

This news may sound grim... but Americans haven't completely stopped spending. In fact, a handful of retailers actually grew revenues during this difficult retail environment.

Yet when most people think of recession-proof stocks, Wal-Mart is usually the first that comes to mind. It's definitely a favorite of the financial media. Kiplinger's and Forbes both point out Wal-Mart's ability to hand investors steady gains throughout deep recessions.

But be warned! Wal-Mart is NOT the best stock you can buy right now.

That's because it's one of the most widely held stocks in the world. It would have to pack on another $230 billion in market cap to double your investment -- a monumental feat, to be sure.

But imagine if you could invest in two businesses very similar to Wal-Mart -- that attract more customers in tough economic times... That crank out cash no matter how bad things get... And that have market caps that are just a fraction of Wal-Mart's...

One is a brick-and-mortar competitor... the other is an e-commerce business that Fast Company calls "The New Wal-Mart."

So let's dive in and find out what makes these companies so special. And why David and Tom Gardner -- co-founders of The Motley Fool and co-advisors of the Motley Fool Stock Advisor investment newsletter -- believe these are excellent long-term retail holdings.

Put customers first and success will follow

That's what motivated the founder of our first company -- and as you'll realize, it's what has its stock price set to soar. Although the founder recently retired, we expect his successor to do the same. With bulldog tenacity, this company keeps prices low -- making sure customers come back time after time.

The company is so focused on creating bargains, markups never exceed 15% on any product -- pressuring suppliers to sell for cheap. It's not easy, but "that's why they call it work," he says.

Call it what you will, but it almost guarantees healthy cash generation and consistent growth! In just 29 years it's become the seventh-largest retailer in the world.

In fact, this company brought in more than $101 billion in sales -- in the past 12 months alone!

These kinds of results led to a No.1 "Specialty Retailer" ranking in Fortune magazine. It was also recently named the "20th most admired company in the world."

You're probably familiar with this company and maybe even its founder, Jim Sinegal. You may even be among his stores' 67.4 million members. But you might not realize just how big the stock's upside is.

Frankly, we've long considered Costco Wholesale [Nasdaq: COST] one of the best-run companies around. Its stock hasn't always been cheap, but the company is still a long-term favorite.

Because what Costco sells is big value. Each of the club warehouse retailer's 622 no-frills stores is as big as two and a half football fields with the end zones -- enabling each location to carry about 4,000 items. Many of those are in bulk. So if you need a 48-pack of toilet paper or 15 pounds of rib eye, Costco has you covered. Its wide variety of merchandise includes laundry detergent, tires, diamond rings, electronics, and tubs of trail mix big enough to sustain a Boy Scout camp for a week.

Costco makes sure shelves are stocked with big items carrying small price tags. Though this limits the profit it can make off merchandise, the primary focus is providing Costco's members with great value. And the company keeps things interesting for them by constantly stocking the shelves with new items, a concept Sinegal called the "treasure hunt."

More than 67 million people in 37 million households belong to Costco. And its membership base is a big part of its success. About 75% of Costco's operating income comes from the $55 annual household membership fee, which allows members to shop at any of Costco's stores or on its website.

And customers keep coming back for more. The renewal rate for membership approaches 90%, no doubt thanks to the company's refusal to substantially mark up merchandise. Costco is working on expanding its membership base and hopes to open hundreds more ware