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

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

Walmart Business Model vs. Target Business Model: An Overview

Walmart (NYSE: WMT) continues to dominate the big-box discount retail sector due to its sheer size. Target (NYSE: TGT), on the other hand, has been carving out market share with clever advertising campaigns and trendy design collaborations. The distinctions between the two extend to their business approaches as well. Walmart prioritizes cheap costs, but Target prioritizes profit margins and a young image.

Key Takeaways

  • Walmart and Target are both low-cost retailers with massive profits. Walmart is almost 20 times the size of Target as of 2019.
  • Walmart has supercenters of up to 180,000 square feet in size, with the goal of offering the lowest feasible price.
  • Target operates huge shops as well, but their emphasis is on profit margins across the supply chain, which allows them to record lower sales but better profit margins.
  • These numbers show that a short account receivable collection term is common in the retail industry. Both firms have lower inventory turnover percentages than the industry as a whole.

Walmart Business Model

Walmart Shops Inc (WMT) is the world’s biggest retailer, with 11,368 stores globally as of the end of June 2019—approximately 5,000 of them in the United States (including Sam’s Club locations).

Walmart is a retail behemoth that is at least five times the size of its main rival, Target. Walmart also seems to be more efficient in business operations than Target, as seen by greater inventory and asset turnover, as well as operational dollar created per dollar of asset.

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Walmart commands nearly 20 times the market share of Target.

It simply takes a quick look at its financial sheet and market capitalization to understand how massive Walmart is in comparison to Target. Walmart’s total assets were $204.5 billion as of June 30, 2018, over five times higher than Target’s comparably modest $39 billion. As of early July 2019, Walmart’s market value of $319.67 billion was more than 6.5 times that of Target’s $44.41 billion.

Walmart is far larger than Target, but size isn’t everything. For one thing, size does not indicate how effectively a business functions. Investors can consider the inventory turnover, asset turnover, and receivables turnover ratios for this. By comparing these figures to those of rivals as well as those of the retail industry (major participants in the sector include Walmart, Target, Costco Wholesale Corp (COST), and Dollar General Corporation (DG), we may determine how efficient the firm is (for fiscal year 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

None

Walmart led the industry in receivable turnover, while Target trailed. Walmart also outperforms Target in terms of receivable turnover ratio and asset turnover.

Walmart needs 43 days to flip its inventory, but Target requires 62 days. On average, the industry requires 49 days. When asset turnover is evaluated, we may infer that Walmart is more efficient than both Target and the sector since it has a larger asset turnover than the latter two. A high asset turnover rate suggests a high sales per dollar of total assets.

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Target Business Model

Target Corp (TGT), Walmart’s major competitor, runs over 1,800 locations in the United States. Target, like Walmart, has adopted a low price approach, but it is more focused on the e-commerce platform, with over 30% e-commerce sales growth in 2018. Instead of mega-locations like Walmart, Target’s business strategy concentrates on somewhat smaller stores, with a greater emphasis on a younger marketing pull than on straight bottom-line savings.

Target seems to outperform Walmart and, in certain cases, the industry as a whole in terms of profitability. Target outperforms Walmart in both gross and net profit margins. This might be attributed in part to Walmart’s low price guarantee policy, which guarantees the lowest feasible pricing for its items. However, both firms have a net profit margin that is lower than the industry average (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

None

Target is marginally more profitable than Walmart in terms of financial performance. Walmart’s lower gross and net profit margins may be attributed to their daily low pricing strategy, which includes a low price guarantee policy.

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