Walmart Business Model vs. Target Business Model: An Overview
When it comes to big-box discount stores, Walmart (NYSE: WMT) still dominates the market with its sheer size. But its primary competitor, Target (NYSE: TGT), has been carving out market share with catchy advertising campaigns and hip design partnerships. The differences between the two extend as well to their business models. Walmart prefers the lowest cost, while Target angles more toward profit margin and youthful image.
Key Takeaways
Walmart and Target are both low-cost retail stores with gigantic revenues. As of 2019, Walmart is about 20 times the size of Target.
Walmart controls supercenters sometimes over 180,000 square feet, aiming to offer the lowest price possible.
Target runs large stores as well, but they are more focused on profit margins through the supply chain, which is why they are able to post lower revenues but higher profit margins.
A shortaccount receivable collection period is typical for the retail sector as proved by these figures.Both companies have lower inventory turnover ratios than the sector.
Walmart Stores Inc (WMT) is the world’s largest retail company that operates 11,368 stores worldwide as of the end of June 2019—with around 5,000 of those in the United States (including Sam's Club locations).
Walmart is a retail giant that is at least five times larger than its primary competitor, Target. Walmart also seems more efficient in business operations than Target—this is reflected in its higher inventory and asset turnover, as well as its operational dollar generated per dollar of asset.
Walmart commands nearly 20 times the market share of Target.
It only takes a glance at its balance sheet and market cap to see how huge Walmart is compared to Target. By the financial year ending on June 30, 2018, Walmart’s total assets were $204.5 billion, about five times larger than Target’s comparatively modest $39 billion. In terms of market capitalization, Walmart's $319.67 billion is more than 6.5 times larger than Target’s $44.41 billion, as of early July 2019.
Walmart may be a lot bigger than Target, but size isn’t everything. For one, size does not tell how efficiently a company operates. For that, investors should look towards the inventory turnover, asset turnover, and receivables turnover ratios. By comparing these numbers against competitors’ numbers as well as against the retail sector (Walmart, Target, Costco Wholesale Corp (COST), and Dollar General Corporation (DG) are large players in the sector), we can figure out how efficient the business is (for FY 2017):
Wal-Mart
Target
Sector
Receivable Turnover
88.31
18.35
53.6
Inventory Turnover (TTM)
8.53
5.91
7.43
Asset Turnover (TTM)
2.41
1.72
0.82
Walmart beat the sector in receivable turnover,but Target lagged behind.Walmart also has a higher receivable turnover ratio and asset turnover than Target.
It takes Walmart about 43 days to turn its inventory, whereas Target needs 62 days. The sector needs 49 days on average. Comparing asset turnover, we can conclude that Walmart is highly efficient compared to both Target and the sector because it has a higher asset turnover than the latter two. High asset turnover implies a high level of sales per dollar of total assets.
Target Business Model
Walmart's main rival, Target Corp(TGT), operates approximately 1,800 stores in the United States. Target has utilized a low pricing strategy similar to Walmart, but is more focused on the e-commerce platform, experiencing over 30% of e-commerce sales growth in 2018. Instead of mega-stores like Walmart, Target's business model focuses on slightly smaller stores, focusing less on direct bottom-line savings than on a younger commercial draw.
In terms of profitability, Target seems to perform better than Walmart and, in some instances, the sector overall. Target beats Walmart in both gross profit margin and net profit margin. This may be in part due to Walmart’s low price guaranteepolicy under which Walmart promises the lowest possible prices for its products.However, both companies have a below-industry-average net profit margin (for the quarter ending June 30, 2018):
Wal-Mart
Target
Sector
Gross Margin (TTM)
25.35%
31.15%
23.53%
Gross Margin - 10 Year Average
25.23
29.22
21.83
Net Profit Margin (TTM)
-0.67
4.49
6.65
Net Profit Margin - 10 Year Average.
1.02
4.19
5.35
When comparing the two from a financial perspective, Target is slightly more profitable than Walmart. Walmart's lower gross profit margin and net profit margin can be explained byits everyday low price strategy which features a low price guarantee policy.
The Walmart business model revolves around delivering low prices to a wide range of patrons through efficient supply chain management, massive scale, and a diverse product offering.
Target is willing to price match most competitors, but it can't match Walmart's cheaper generic brands. What sets Target apart from its competitors are its “wider aisles, less crowded shelves, department store-like merchandising and trendy design touches,” as described by Reader's Digest.
Target differentiates itself by focusing on the customer experience. Walmart focuses on saving customers the most. Another difference between both is how they communicate their brand values. Target's slogan is “Expect More.
How does Target's business model differ from other retailers? Target's business model focuses on offering a curated selection of products, combining affordable pricing with trendy and high-quality merchandise. Their emphasis on creating a unique shopping experience sets them apart from other retailers.
Walmart has always been focused on low prices. They will do everything they can to slash their prices as low as possible because that is the value that they aim to provide to their customers. They want to beat the competition by convincing their audience that you won't find these goods for cheaper than anywhere else.
Size: Walmart is significantly larger than Target, with over 10,500 stores worldwide compared to Target's roughly 1,931 stores. This can affect the types of products and services that each company can offer. Pricing: Walmart is known for its low prices, often achieved through its vast size and economies of scale.
The differences between the two extend as well to their business models. Walmart prefers the lowest cost, while Target angles more toward profit margin and youthful image.
From the availability of staff, cleanliness of the store, and plentiful checkouts, Target is top-notch in my book. Moving through Target was also easier compared to Walmart, with less dodging of shopping carts and little to no bottle-necking from store staff restocking shelves.
In terms of age groups, Target was more favored by the 25 to 34 age group, with 47% selecting it as their top choice, followed by the 18 to 24 age group, with 41%. After Target, the survey finds that American consumers like Walmart the second most for in-store shopping, with 27%.
We have found Target, Walmart's competitor, to be a much better example of corporate social responsibility. Target has never been involved in protests or litigation, as Walmart commonly is. Surprisingly, Target does not pay its employees more, on average, than Walmart does. Target may even pay less.
Weaknesses. Dependence on Physical Footprint: Despite the growth in digital sales, Target's business model remains heavily reliant on its physical stores. This dependence poses a risk in an increasingly digital retail landscape where consumer preferences are swiftly shifting towards online shopping.
And it's through our curated, multi-category assortment and outstanding value, along with our stores, digital experience, fulfillment services and loyalty ecosystem, that we bring all that joy to life.
Design For All is what sets Target apart from the pack. To us, design means taking the expected and making it extraordinary. Be it products, brands or services — we design every detail to inspire our guests and meet their needs.
Outsourcing inventory control with vendor managed inventory (VMI) Walmart has further strengthened and simplified their supply chain by implementing a vendor management inventory (VMI) model. VMI involves suppliers managing their own inventory that's stored in Walmart's warehouses.
And indeed, Walmart generates the majority of its revenue from selling physical retail products in its more than 10,000 brick-and-mortar store locations. Walmart stock has underperformed the market over the past decade.
The retail business model is useful if you're selling products directly to customers. With a retail business model, you sell a product for an agreed price, often (but not always) receiving payment before you release the goods. It's perfect for opening a physical store, an online shop, or even a combination of both.
Introduction: My name is Carlyn Walter, I am a lively, glamorous, healthy, clean, powerful, calm, combative person who loves writing and wants to share my knowledge and understanding with you.
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