It's hard to go anywhere without running into one of the three major big box retailers that exist in modern day America. However, while it may appear that Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and Kmart (owned by Sears Holdings (NASDAQ:SHLD) are doing increasingly well in terms of sales revenue and growth within the United States, this is simply not the case. These companies have experienced decades of growth, leading them to dominate the landscape. Unfortunately all of this success has caused the fruits of their demise as all of the low-hanging fruit, at least domestically, appears to be gone.
Actions speak louder than words
The recent actions of all three big-box retailers are very telling. Wal-Mart and Target, for instance, are opening stores at a slower pace, and the return on investment has been dismal at best. In the United States, for example, Wal-Mart had a total of 4,005 stores at the end of December 2012 and 4,092 stores by the end of July 2013 for a 2.1% increase in just 6 months. However, their sales during this period were up only 1.2% over the same period in 2012 while factoring in the much larger percentage gain in store count. How they perform in the remainder of the year will be key for investors, but it doesn't look pretty. Similarly, Target's U.S. store count, which came to 1,778 at the end of FY 2012, increased by just ten stores or 0.5% between February 2 and August 3. Sears Holdings' Kmart, the laggard of the three, actually closed 25 of its stores to make-up for its lost revenues. This move, which amounts to nothing short of a retreat from the onslaught brought by Wal-Mart and Target, brings their store count down to 1,196.
The recent sales reports for these big box retailers tell a similar tale. Wal-Mart's total revenue for the quarter ending July 31, 2013 came in at $116.2 billion which is up only 2.36% from the same time last year. This growth is after opening 87 new stores. Likewise, Target's sales growth also disappointed investors. The company's total revenue increased by only 1.02% from its second quarter earnings in 2012. Kmart, though, had the worst report of them all due to store closings and lack of customers. For the period ending August 3, 2013, Kmart's total sales decreased from $6.8 billion in August 2012 to $6.3 billion for a -7.35% in revenue growth.
Go where the growth is
These big box retailers see the writing on the wall and have aimed their efforts in a different direction to stir up profits. Wal-Mart stores has chosen to focus its attention abroad in China, where they plan to open 110 stores in the form of superstores and Sam's Clubs within the next three years. Target also has invested its money in developments outside the United States. In addition, Wal-Mart has begun experimenting with smaller more urban-focused stores within the U.S. to generate domestic growth. These smaller stores, called Wal-Mart Neighborhood Markets, totaled just under 300 locations at the end of the company's most recent Fiscal Year ended January 2013 double the store count from just 5 years before. Currently, Target is in the process of opening 124 new stores throughout Canada by year's end. Unlike the other two retailers, Sear's Holdings Kmart has retreated its efforts after a cruel onslaught by its competitors.
Clearly, these big box retailers are not going anywhere anytime soon in the States. They must take action, and for Wal-Mart stores and Target that means going international. For Kmart, unfortunately, the ride may be over. With fingers crossed, Wal-Mart and Target forge ahead to try their luck on a new crowd because the United States just has too many big box retailers these days. This doesn't mean any of these companies make poor investment candidates for Foolish investors, the key takeaway is that most of the domestic growth is gone. As always, Foolish investors should do their own research before making any investment decisions.
Fool contributor Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.