What if Wal-Mart and Target Joined Forces?

Today’s economy and the increased unemployment rate have made the average American household drastically change their spending habits. The average household has to function on surviving with less. Which brings me to my topic. We have become a savvier shopper; ultimately looking for the establishment can offer the most for our money with out sacrificing quality. We have become “bargain shoppers”.

When I think of a discount store two major companies come to mind Target and Wal-Mart. The merchandise and services provided are pretty much comparable. Many of its customer population shops there for two simply reasons one is out of loyalty and the other being it’s a preference.

The founder of Wal-Mart Sam Walton major competition during the time was K-Mart and Target. Before opening Wal-Mart, Sam traveled the country studying everything he could about discount retailing. He became convinced American consumers wanted a new type of store. With his vision in mind Sam and his wife front loaded 95% of the initial cost to start the chain while many of the chains were expanded nationally. They opened their first store in Rogers, Arkansas. The chain was able to expand by 15 stores in the 1960’s. The company hit the stock market in 1972 and went viral with a current inventory of 1,402 stores and 123 Sam’s Club locations. Wal-Mart stores provide a wide variety of discount merchandise, groceries and prescription medication.

Sam stated in his autobiography which attributed to his success “if you think about it from the point of view of the customer, you want everything: a wide assortment of quality merchandise; the lowest possible prices; guaranteed satisfaction; friendly, knowledgeable service; convenient hours; and a pleasant shopping experience. You love it when a store exceeds your expectations, and you hate it when a store inconveniences you, gives you a hard time, or pretends you're invisible." Target which originally started out on the early 1900’s as the “Goodfellow’s Dry Goods Company”.

The company later became known as Target in 1962. The company was owned by a banker and real estate investor by the name of George Dayton. The first Target store was opened in Roseville, Minnesota on grandiose level. Currently, Target operates nearly 1,750 stores in 49 states, including more than 240 Super Target. Advertisers once introduced Target as "new idea in discount stores," Target differentiates itself from other retail stores by combining many of the best department store features — fashion, quality and service — with the low prices of a discounter. Created as, "a store you can be proud to shop in, a store you can have confidence in, a store that is fun to shop and exciting to visit,” Profitability Ratios

When looking at the profitability margins for both companies they are very similar. The industry average is 6.7%. The last 3 years of data for both companies reflect a lower return on sales dollars. The book goes into further explanation by explaining return on asset. Sometimes when a company profit margins are below industry average the return on asset sometimes make a difference in understanding the health of the company. Wal-Mart in this case captures that concept maintaining a 9% to 8% average. Target ranges from 7% to 5%. Target percents not only make them look substandard in comparison but the industry average is 10%.

Asset Utilization Ratios An asset utilization ratio allows insight on how quickly companies a company can mover merchandise. Data reflects that again Wal-Mart is beating the completion. The two company’s credit sales not being represented on the income sheet the research can be slightly misleading. Wal-Mart receivables turnover far exceed the industry average of 10 times. Higher number indicates the products are not sitting on the shelves but being bought by the consumer.

Liquidity Ratio The liquidity ration gives way to a company ability to turn assets into cash. When analyzing this category Target looks a bit better than Wal-Mart in regards to current and quick ratios. The industry average is 2.1 and 1. Target remains steady with a 2 and 1 rating. Wal-Mart on the other hand is below industry average with 1 and a 0.3. In this comparison Target comes out on top. Debt Utilization

Debt utilization allows analyst the ability to measure how well a company in using its credit. The average is 33%. Wal-Mart looks very good with a 27% while Target is slightly higher with approximately 36%. Although, Target range of 36% seems higher in comparison to Wal-Mart it’s below the prudent range of 50%.

Target Corporation (Target) operates Target general merchandise stores with an assortment of general merchandise and food assortment. Its expanded food assortment includes some perishables and some additional dry, dairy and frozen items. In addition, it operates SuperTarget stores with general merchandise items and a full line of food items. Target.com offers an assortment of general merchandise, including many items found in its stores and a complementary assortment, such as extended sizes and colors, sold only online. It operates two segments: Retail and Credit Card.

The Retail segment includes all of its merchandising operations, including its integrated online business. The Credit Card segment offers credit to qualified guests through its branded credit cards, the Target Visa and the Target Card. In addition, it offers a branded Target Debit Card (collectively REDcards). As of January 29, 2011, it had 1,750 stores in 49 states and the District of Columbia. Wal-Mart Stores, Inc. (Walmart) operates retail stores.

The Company operates in three business segments: Walmart U.S., Walmart International and Sam’s Club. During the fiscal year ended January 31, 2011 (fiscal 2011), the Walmart U.S. segment accounted for 62.1% of its net sales, and operated retail stores in different formats in the United States and Puerto Rico, as well as Walmart’s online retail operations, walmart.com. The International segment consists of retail operations in 14 countries. During fiscal 2011, the segment generated 26.1% of the Company’s net sales.

The International segment includes different formats of retail stores and restaurants, including discount stores, supercenters and Sam’s Clubs that operate outside the United States. The Sam’s Club segment consists of membership warehouse clubs in the United States and Puerto Rico, and the segment’s online retail operations, samsclub.com. During fiscal 2011, Sam’s Club accounted for 11.8% of its net sales.