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Report: Competing For The $4 Trillion US Retail Market, Wal-Mart Has An Advantage Over Amazon
- Oct 27, 2018 -

According to a team of analysts at Morgan Stanley (International Financial Services), the total retail sales of auto and parts dealers in the US in 2017 was $3.9 trillion, and could reach $4.3 trillion by 2021. In the process of competing for this retail market, Wal-Mart has an advantage over Amazon.


Analysts said that as the retail war between Wal-Mart and Amazon continues to escalate, Wal-Mart will capture more sales thanks to its current consumer base.


The analysis team led by Simeon Gutman said in a recent report to clients: "Wal-Mal dominates low-income consumers, who account for about 30% of total consumption, while Amazon dominates High-end consumers account for 50% of total consumption. Therefore, Wal-Mart's chances of expanding its scale may be much greater than Amazon's chances of shrinking."


Gutman said that in the face of the difficult battle to reshape the consumer base, Wal-Mart may have to increase investment in distribution, vigorously promote the grocery business and acquire more brands. These initiatives will also help Wal-Mart shake off its negative brand image as a retailer focused on low-income people.


However, Wal-Mart's investment cycle in distribution, software upgrades and Click & Collect (online ordering, in-store pickup) services will be longer than originally thought. In addition, Gutman added that the Prime Now delivery service launched by Amazon and Whole Foods will provoke a war on price and convenience, which may put pressure on Wal-Mart's profit margins.


Gutman said: "Wal-Mart needs to improve its distribution capabilities to provide the same day delivery and next-day delivery service in the top market to attract Amazon's loyal customer base. This is crucial to curb Amazon's erosion of the retail industry. However, it may dilute Wal-Mart's profit margin. According to relevant data, Wal-Mart's EBIT (EBIT) in the US will drop 15 basis points per year in the next three years and will fall by 5% in FY 2021."


In early August, Wal-Mart announced earnings per share of $1.29 and revenue of $128 billion, exceeding analysts' estimates of $1.22 and $126 billion, respectively, mainly due to the increase in same-store sales and digital orders.


Morgan Stanley’s target price for Wal-Mart is $98, which is 3% higher than its current trading price. In addition, Wal-Mart's current stock rating is "Equal-weight."


It is understood that since the beginning of this year, Wal-Mart shares have fallen by 3.7%.