Walmart vs. Target Business Model: What’s the Difference?

Walmart Business Model vs. Target Business Model: An Overview

When it comes to big-box discounters, Walmart (NYSE: WMT) still dominates the market with its size. But its main competitor, Target (NYSE: TGT), is gaining market share with catchy ad campaigns and trendy design partnerships. The two also differ in their business models. Walmart favors the lowest cost, while Target leans more toward profit margins and a youthful image.

Key conclusions

Walmart and Target are low-cost retailers with huge revenues. In 2019, Walmart was about 20 times larger than Target.
Walmart controls supermarkets that sometimes exceed 180,000 square feet in size, striving to offer the lowest prices possible.
Target also operates large stores, but is more focused on profit margins across its supply chain, so it can achieve lower revenues but higher profit margins.
The short collection period is typical for the retail sector, as confirmed by this data. Both companies have lower inventory turnover rates than the sector.

Walmart’s Business Model

Walmart Stores Inc. (WMT) is the world’s largest retail company, operating 11,368 stores worldwide as of the end of June 2019, approximately 5,000 of which are in the United States (including Sam’s Club stores).

Walmart is a retail giant that is at least five times larger than its main competitor, Target. Walmart also appears to be more efficient in its business operations than Target—reflecting higher levels of inventory and asset turnover, as well as operating dollars generated per dollar of assets.

Walmart has almost 20 times more market share than Target.

You only need to glance at its balance sheet and market cap to see just how huge Walmart is compared to Target. Through the fiscal year ending June 30, 2018, Walmart’s total assets totaled $204.5 billion, or about five times larger than Target’s relatively modest $39 billion. In terms of market cap, 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 much larger than Target, but size isn’t everything. First, size doesn’t tell you how efficiently a company is operating. To that end, investors should look at inventory turnover, asset turnover, and receivables turnover. By comparing these numbers to those of its competitors, as well as the retail sector (Walmart, Target, Costco Wholesale Corp (COST), and Dollar General Corporation (DG) are all big players in the sector), we can determine how efficient a company is (in fiscal 2017):

Wal-Mart

Objective

Sector

Due

88.31

18.35

53.6

Stock Turnover (TTM)

8.53

5.91

7.43

Asset turnover (TTM)

2.41

1.72

0.82

Walmart beat the sector in accounts receivable turnover, but Target fell behind. Walmart also has higher accounts receivable turnover and asset turnover than Target.

Walmart takes about 43 days to turn over its inventory, while Target takes 62 days. The sector takes an average of 49 days. Comparing asset turnover, we can conclude that Walmart is highly efficient compared to both Target and the sector, as it has a higher asset turnover than the latter two. High asset turnover means a high level of sales per dollar of total assets.

Target business model

Walmart’s main rival, Target Corp. (TGT)operates about 1,800 stores in the United States. Target has used a low-price strategy similar to Walmart but is more focused on its e-commerce platform, reporting over 30% growth in e-commerce sales in 2018. Instead of mega-stores like Walmart, Target’s business model focuses on slightly smaller stores, focusing less on immediate net savings than on younger commercial appeal.

In terms of profitability, Target appears to be outperforming Walmart, and in some cases the entire sector. Target beats Walmart in both gross profit margin and net profit margin. This may be due in part to Walmart’s low-price guarantee policy, whereby Walmart promises the lowest possible prices for its products. However, both companies have net profit margins below the industry average (for the quarter ended June 30, 2018):

Wal-Mart

Objective

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

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 by its everyday low-price strategy, which includes a low-price guarantee policy.