Big-Box Stores Facing More Competition
CBS NEWS - Walmart and Target gained dominance by offering everything from groceries to children's toys, often putting smaller, local stores out of business in the process.
Now, it's the revenge of the smaller retailers.
Walmart is being forced to focus on "defensive investments" as it seeks to counter the popularity of online retailers such as Amazon (AMZN), as well as smaller chains such as dollar stores and drugstores. That's according to a new report from Goldman Sachs, which downgraded its investment rating on the retail giant.
Walmart is creating its own smaller stores through its Neighborhood Market and Express brands. But it may be tough for these operations to "move the needle" for Walmart, Goldman wrote in the Tuesday report.
"The firm contends that Neighborhood Markets offers competitive returns, but the jury is still out on its Express stores, as well as on the concept of tethering these boxes to supercenters for inventory, labor, and management," the Goldman analysts noted.
Walmart may generate only 2.8 percent of revenue off its total 2013 revenue base from these smaller stores, the report adds.
Yet with Walmart reporting fiscal second-quarter earnings on Aug. 14, Goldman said it doesn't see an "unusual 2Q earnings risk."
Both Walmart and Target have had tough years. Walmart recently said it's replacing Bill Simon, its U.S. chief, shaking up its management after several quarters of declining same-store sales. As for Target, it tapped a new chief executive following its data-breach debacle, which may have affected as many as 110 million customers and caused some people to shun the store.
On top of that, competitive pressure on big-box retailers may become more intense, given the recently announced $8.5 billion deal for Dollar Tree to buy Family Dollar. The combined ultra-discount retailers will have more than 13,000 locations -- more outlets than Walmart.
As consumers' pocketbooks grow more strained -- thanks to flatlining household income and higher prices for consumer items -- they're seeking out bargains at smaller stores, such as dollar stores, and at online retailers, such as Amazon.
Amazon, Goldman noted, "clearly lurks as the biggest external competitive threat" to Walmart.