Yahoo Finance Wal-Mart Stores, Inc. Declares a Price War (WMT)
The retail drama has never been pretty, but recent signs are pointing to an even uglier battle.
Wal-Mart Stores Inc. (WMT), which is running on an eight-quarter same-store sales rise streak and is still slashing prices, could possibly take away $35 billion in business from Target Corp. (TGT), Dollar General Corp. (DG) and Family Dollar Stores Inc. (DLTR), according to a recent UBS research paper.
This isn't necessarily news to retailers, given recent efforts. Fortune cites Dollar General's August price cut announcement and Target's renewed push to highlight low prices through marketing as evidence the loss of business is already happening.
Fortune also points out a key piece of the UBS report that spells trouble for Target. Seventy-one percent of Target stores are a 10-minute drive or closer to a Wal-Mart store. This jumps to 90 percent when accounting for a 20-minute drive, according to UBS analyst Michael Lasser.
What's more, Wal-Mart's efforts could have a negative effect on its smaller competition in certain markets.
"We think Wal-Mart's price investments could lead to some weaker players getting squeezed out of markets, which in turn should give it more power with its suppliers," according to Lasser's team in the report.
Retail, much like all industries, is amid a wave of change as technology (in this case, e-commerce) supersedes tradition, and Amazon.com (AMZN) continues its steadfast industry disruption. This is an addition to an always increasing emphasis on pricing and convenience to appease flighty consumers and results-seeking investors.
K.C. Ma, director of the George Investments Institute at Stetson University in DeLand, Florida, recently compared TGT and WMT stocks for U.S. News & World Report.
"Forward-looking valuation models suggest that WMT has a fair value around $80, approximately 9 percent undervalued. TGT has a fair value of $74 with 7 percent undervaluation," he says. "So if the election happened today, Wal-Mart would win."
Wal-Mart stock is up less than 12.4 percent on the year, while Target is down more than 7.2 percent.
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