At an investor conference in March 2014, Wal-Mart (NYSE: WMT ) disclosed plans to roll out more of its small stores in the near future. It expects to increase its Neighborhood Market store count from 346 in fiscal 2014 to over 500 in fiscal 2015; Wal-Mart Express stores will potentially grow from 20 locations to over 120 over the same period.
While dollar store operators are expected to bear the brunt of Wal-Mart's small store format expansion, an unexpected victim could be Five Below (NASDAQ: FIVE ) , a teen-focused specialty value retailer that offers convenience and low absolute prices. Given Wal-Mart's traditional strengths in wide product assortment and 'every day low prices', can Five Below compete successfully on the basis of either product differentiation or cost effectiveness?
Product differentiation strategy
Five Below differentiates itself from its peers by leveraging major brands & licensed products and creating an unique shopping experience.
Five Below's brands and licensed merchandise include Star Wars, Transformers, and Hello Kitty, among others. While this is undoubtedly a crowd puller, these licensing agreements aren't exclusive in nature. This means that nothing stops competitors like Wal-Mart from selling similar products if they become hot sellers at Five Below.
Five Below also adopts shopper-friendly elements such as a consistent floor layout with easy-to-navigate sightlines and novel merchandise displays (e.g. placing items in wheelbarrows and barrels) in its stores to engage its customers. Again, competitors can easily duplicate these features in their own stores as well
Sustainable differentiation strategies are rare in the retail industry, as there aren't any barriers to imitation. Five Below is no exception.
Low cost strategy
For the past five years from fiscal 2010 to 2014, Five Below has maintained its gross margin within a narrow range of between 32%-35%. Over the same period, its operating margin has increased from 5.5% in 2010 to 10% in 2014. This suggests that Five Below has managed its cost structure well. There are two key reasons for Five Below's consistently high margins (and low costs).
Firstly, Five Below has adopted a store-clustering strategy with most of its stores concentrated on the eastern side of the country. Over the years, it has expanded strategically, filling up individual markets with a sufficient number of its stores before expanding to adjacent states. In 2013, Five Below targeted the Austin and Dallas markets; it expanded into Tennessee and Houston this year.
More telling was the fact that Five Below opened eight new stores in Houston on a single day in June, which ties in closely with its store clustering strategy. By opening multiple stores in a concentrated geographical region, Five Below can spread its fixed advertising and distribution costs over a larger revenue base in a short time.
Secondly, Five Below carefully 'edits' its product assortment to ensure that it only stocks 'trend-right' merchandise. As a result, it boasts a relatively low number of SKUs at approximately 4,000, which helps keep its inventory holding costs low.
Five Below's relatively low cost structure enables it to price its items below $5, which makes its products affordable for its customer base. It's estimated that more than 60% of Five Below's customers have annual incomes below $75,000. However, it's unlikely that Five Below will be able to match Wal-Mart's low costs and low pricing.
With revenue close to 900 times that of Five Below, Wal-Mart's purchasing power with suppliers is unrivaled by any competitor including Five Below. Moreover, both dollar-store operators and retailers like Five Below have traditionally relied on product unbundling to sell individual items (in smaller quantities) at low absolute prices. On an apples-to-apples comparison (same quantity of identical items), Wal-Mart has the ability to price its products much lower.
The results speak for themselves. Wal-Mart's gross margin of 25% is almost 1,000 basis points lower than that of Five Below; its inventory turnover ratio is close to double that of Five Below. This suggests that Wal-Mart has always been willing to price its products aggressively in exchange for significantly higher volumes.
Foolish final thoughts
In my opinion, Five Below is a well-run retailer that leverages both product differentiation and low-cost strategies to carve out a profitable niche for itself. Unfortunately, like other retailers, it's equally defenseless against a tough competitor like Wal-Mart wading into its turf, especially with respect to Wal-Mart's huge cost advantage.
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By Wally Lyn
I'm a disabled Army veteran and former WalMart employee. The company claims it's pro-veteran? Here's the sick truth.
The Fourth of July is a time to cherish our independence. Enjoy fireworks. Be with our families. And hear more insulting mistruths from Wal-Mart about how it “respects” our veterans.
I am a disabled Army veteran and former Wal-Mart employee. I worked for four years at Wal-Mart store No. 2059 in Greensburg, Pennsylvania, as a service writer for the Tire & Lube Express division.
Despite the company’s purported commitment to honor veterans and provide us with quality job opportunities over the next five years, my experience at the retailer was a nightmare.
I served my country honorably, made countless sacrifices, and my managers didn’t care that I was a veteran. In fact, the only time management asked if any of us were veterans was last year on Memorial Day. Wal-Mart, as part of what I believe was nothing more than a shallow attempt to appear veteran-friendly that day, wanted us to wear a badge around the store to prove they were honoring their commitments.
But the dirty little secret is Wal-Mart is not veteran-friendly.
Most of my time at the company was spent justifying my needed visits to the doctor. Every time I stood up for my right to take off for medical treatment, my manager would use my disability against me and take away the electric cart I had to use to get around or make me walk around the building to exit or enter the store.
And then last November, on my way to work, I tried to save the lives of several people from a gunman who was behaving erratically and waving a gun at a busy intersection. I still went to work my shift at Wal-Mart. The very next day, I was abruptly fired for making an 18 cent mistake on a workers’ discount card. My manager knew what happened the day before, but it didn’t matter.
Wal-Mart says it values and respects our veterans, but I didn’t feel valued or respected that day I was fired without any regard for my service to my country or the company all those years — or to my community the day before.
Let me be clear: I didn’t want special treatment or recognition when I worked at Wal-Mart. But I did want to be respected. Instead I felt humiliated. I felt disposable. I felt duped.
Respect to me means having access to full-time hours and decent wages and benefits. Respect to me means working with good managers who will listen and respect my opinion instead of retaliating against me for speaking up for my right to medical care.
I knew I might have to fight overseas, but I didn’t expect that I’d need to fight here at home for respect and decent pay at the country’s largest employer — just so I could pay the bills. When I was fired, I was only making $9 an hour.
I know a better Wal-Mart is possible and I’m willing to fight for it. That’s why I became a member of the Organization United for Respect at Walmart (OUR Walmart), the group of current and former Wal-Mart associates who are united to make Wal-Mart a better place to work. We are calling on Wal-Mart to publicly commit to pay its workers a minimum of $25,000 a year for full-time work so associates can support and provide for their families. We are also calling for an end to illegal retaliation against workers who speak out for a better life and improved working conditions.
Recently, I traveled to Bentonville, Arkansas, with other OUR Walmart members — including a number of fellow veterans and striking Wal-Mart moms — to attend the company’s annual shareholders meeting to tell company leaders and shareholders that we urgently need a change of direction. We need change because Wal-Mart’s business model and empty promises are hurting workers and our communities.
Veterans from every American generation have put their lives on the line for our country, and it’s an insult that our country’s largest private employer pays us back with poverty jobs and erratic schedules that make it impossible to raise our families.
Wal-Mart veterans have had enough of the company taking advantage of our service for their public relations campaigns. If Wal-Mart really wants to honor us, it’s time to invest in us so we can support ourselves and our families.
Moms Demand Action has launched online petitions against corporations after members of open-carry groups brought loaded assault-style firearms into stores. In the case of Target, 400,000 signatures were collected.
The decision by Target, one of America’s largest retailers, to ask its customers to please not carry firearms to its stores anymore marks another surprising victory for gun control groups, which have rallied for attention and impact after the 2012 Sandy Hook school massacre.
Moms Demand Action, a part of the Everytown for Gun Safety consortium, which is funded by former New York Mayor Michael Bloomberg, now has six notches in its belt after targeting major corporations with online petitions and protests. In the case of Target, 400,000 signatures were collected. Chili’s, Starbucks, Chipotle, Sonic, and Jack in the Box have all responded to petitions by specifically asking customers to shop and/or eat unarmed.
Target is by far the biggest retailer to date to concede to the demands of Moms Demand Action. Target’s competitor Wal-Mart is the country’s largest firearms seller and has noted that it doesn’t plan to make any policy changes on gun carry.
The petitions have come in response to demonstrations by so-called open-carry groups where members bring loaded assault-style firearms into stores. Those tactics have sparked a rare public backlash against public gun carry and introspection among gun owners in a country where states recently have, on the whole, pushed laws strengthening gun and self-defense rights.
To be sure, gun rights groups point out that some recent corporate policy changes are meaningless since they don’t actually ban guns, but simply request nicely that customers don’t bring them. But after the pressure on corporations like Starbucks and now Target to change their policy on guns, it’s clear that what Moms Demand Action calls its “common-sense” approach on the Second Amendment is winning converts, and at least shifting the weight slightly on the long-running tug of war between pro-gun lobbyists like the National Rifle Association and gun control and antiviolence organizations.
“Moms everywhere were horrified to see images of people carrying loaded assault rifles down the same aisles where we shop for diapers and toys,” said Shannon Watts, founder of Moms Demand Action, after Target’s announcement Wednesday. “... Target recognized that moms are a powerful customer base and political force – and you can respect the 2nd Amendment and the safety of customers at the same time."
The open-carry demonstrations and ensuing petitions have been discomfiting for US corporations, which have in the past mostly allowed local ordinances to dictate whether customers could bring guns to their stores. Target, especially, is in a tough spot after alienating some of its customer base with its handling of a massive data breach that took place around Thanksgiving last year.
Coming out with an antigun policy is a potentially risky move that could alienate large swaths of the buying public. But in the end, Target could have been more worried about the effects of a month-long #OffTarget social media campaign, urging mothers to shop at other stores until Target changed its policy. The retailer’s stock price rose slightly Wednesday on the news.
“This is a complicated issue, but it boils down to a simple belief: Bringing firearms to Target creates an environment that is at odds with the family-friendly shopping and work experience we strive to create,” Target interim CEO John Mulligan said on the company blog. “[S]tarting today we will … respectfully request that guests not bring firearms to Target – even in communities where it is permitted by law.”
Target has 1,700 stores in the United States and made about $70 billion in revenue last year. It doesn’t sell firearms.
The NRA, in a blog post in May, chastised open-carry demonstrations as “weird” and ultimately damaging to gun rights. But chief NRA lobbyist Chris Cox later walked back those comments, saying that calling open-carry protests “weird or somehow not normal was a mistake.”
After Target’s announcement, at least some gun owners acknowledged that the move suggests gun control groups are winning this battle.
“They have been generating outrage and delivering it to companies who will listen. We have been sitting on blogs complaining about [Open Carry Texas], open carry, the state of Texas, and anything else we can think of to make ourselves feel superior while the antis were – quite effectively – lobbying for a policy change,” writes “Dave,” a commenter on the well-read “Shall Not Be Questioned” blog. “Their strategy was superior. [T]hat’s a bitter pill, but the fact is the other side beat us at a game we have traditionally owned.”
Carol Flynn of Sioux Falls, South Dakota, didn't know anyone was watching when she paid for diapers for the Walmart customer ahead of her.
Flynn, 73, also had no idea that another customer caught the random act of kindness on his cell phone on Sunday night, only to share on Facebook what would become a viral video.
"I was standing in line and there was kind of a hold-up," Flynn told ABC News. "I’m not impatient in my older days, but I noticed this young lady was standing at the checkout. I walked over to her, put my arm on my shoulder and I asked, 'Is there a problem?'"
The young lady said, "I’m just buying diapers."
Katie Kanefke, a mother, learned that Walmart would only match the price of one set of diapers.
Flynn noticed three boxes set aside. "I said, 'You probably need those.'"
Flynn, a former state director for the March of Dimes charity, said, "Diapers are for babies and babies are on my heart. We’re always concerned about moms and healthy babies."
As Flynn tells it, "[Kanefke] said, 'You don’t need to but thank you very much. I have one little boy and he sure goes through diapers fast.'"
"I said, 'I’m sure he does," Flynn recalled, as she bought about $120 worth of diapers.
Kanefke could not be reached for comment today, but she told the Argus Leader, "I couldn't believe it. I was shocked. I kept saying thank you and God bless you...Then I walked out in the parking lot and started crying. It just hit me. It was an awesome statement of what God's love does."
Kanefke is a stay-at-home mom with a four-month old son, Marcus, the Argus Leader reports.
Flynn told ABC News the growing attention since Sunday has been a bit "embarrassing," and her phone has been "ringing off the hook."
"I’m just not afraid to talk to strangers. It was not unusual to go up and talk to her," Flynn said.
Jason Yoshino, the Walmart customer who captured the moment on his phone, said he was just perusing Facebook while he and his wife waited in line.
From Huff Po:
A Target employee found a loaded handgun in the toy aisle of a South Carolina store last week, just days before activists began petitioning the retailer to ban firearms from its stores.
The gun, loaded with live ammunition, was found sitting atop a superhero Playskool toy box at a Myrtle Beach store last Friday, WMBF News reported Thursday morning.
"We take these matters very seriously and we are partnering with local law enforcement on this incident," Molly Snyder, a Target spokeswoman, said in a statement to The Huffington Post. "Because this matter is under investigation, we are unable to share additional information."
On Wednesday, the gun-control group Moms Demand Action for Gun Sense in America kicked off a national campaign calling on Target to prohibit the open carry of guns in its stores.
The petition has dragged Target into a bitter fight between Moms Demand Action and a collection of open carry advocates in Texas, who were photographed toting assault rifles through a Dallas-area Target in March.
Videos and photos of affiliated open carry groups hauling their firearms into Chipotle, Chili's and Sonic prompted the restaurant chains to announce no-gun policies last month. Under intense criticism, C.J. Grisham, president of the group Open Carry Texas, has since backed down, asking members of his group to stop bringing their rifles into businesses.
"Assault rifles and guns don't belong in the baby aisle, they don't belong in the toy aisle -- and they don't belong in any aisle of stores that American moms frequent like Target," Shannon Watts, the founder of Moms Demand Action, said in a statement on Thursday. "It's time for Target, a store that American moms flock to, to follow the lead of Chipotle and Starbucks and prohibit the open carry of firearms.”
For his part, Grisham, in a statement to HuffPost, suggested that "despicable" gun-control activists planted the gun.
"Target is currently in the crosshairs of gun control extremists who will stoop to [no] level too low to effectuate their agenda," he wrote in an email. "Our children are our most precious commodity and intentionally putting them in any kind of danger to exploit a personal agenda is deranged, sick and twisted."
UPDATE: 1:45 p.m. -- A spokeswoman for Moms Demand Action responded to Grisham's allegation with this statement: "The insinuation that an organization devoted to the prevention of gun violence would plant a loaded gun in the toy aisle of Target is utterly ridiculous. Moms Demand Action is solely focused on the safety and security of our families and communities. Only one organization has a history of bringing loaded guns into Target -- it's not us."
Walmart, the nation’s largest retailer, recently decided to go into the newspaper editing business.
The Arkansas-based company responded to an article from New York Times columnist Timothy Egan, titled “The Corporate Daddy” by doing the work that it felt Egan’s Times editors should have done.
“Thanks for sharing your first draft,” reads a red-inked note from Walmart, which is known more for its low prices than its snark.
“Below are a few thoughts to ensure something inaccurate doesn’t get published,” continued the note, which was posted at Walmart’s blog and is attributed to David Tovar, Walmart’s director of corporate communications.
The retail giant apparently couldn’t resist sarcasm after it found what it considered numerous problems with Egan’s piece in which he criticized the company for paying its 2.2 million employees what he called “humiliating wages.”
“Walmart is a net drain on taxpayers,” wrote Egan in the missive, adding that the company forces “employees into public assistance with its poverty-wage structure.
“We are the largest tax payer in America,” Tovar wrote in his edit. “Can we see your math?”
“We see more associates move off of public assistance as a result of their job at Walmart,” Tovar wrote.
Egan argued that “most advanced nations” look for ways to boost the middle class but that the U.S. had ceased doing that. “Witness the G.I. Bill, which helped millions of returning soldiers get a lift to a better life,” wrote the Times columnist.
“Did you know?” Tovar quizzed. “Walmart has hired more than 42,000 veterans this year.”
On the topic of veterans, Walmart has won unlikely support. First Lady Michelle Obama, who made veteran hiring on of her top issues, praised the company last year when it announced it would be hiring 100,000 veterans.
“Wal-Mart is setting a groundbreaking example for the private sector to follow,” she said in a statement at the time.
The columnist wrote that the company’s “humiliating wages force thousands of employees to look to food stamps, Medicaid and other forms of welfare.”
“A bit repetitive,” wrote Tovar, like a seasoned professor. “See above.”
Egan cited a story from an Ohio Walmart that went viral last year which showed a sign in the story’s break room. The picture was meant to show the company’s failures to provide enough for its employees.
“To clarify,” wrote Tovar, “associates were helping associated during unexpected hard times (fires, divorce, loss of life, etc.). And a noble cause, no doubt.”
The company also chastised Egan for using vague statistics.
“Walmart disputes these figures, claiming the average full-time store worker makes at least $12 an hour,” wrote Egan.
“Be specific,” reads Tovar’s edit. “Full time average associate wage is $12.91.”
“But these numbers are skewed by higher pay for management,” wrote Egan.
“False: Only includes associates paid hourly,” Tovar corrected.
“The average ‘associate’ at Walmart makes $8.81 an hour – poverty wage,” offered Egan.
“Argument incomplete — in this study, starting wage 3 years ago was $1.50 over minimum wage. That’s a good thing,” reads Tovar’s red ink.
Egan pointed out that Walmart reaped $17 billion in profits last year, that it’s highest paid executive earned over $20 million and that the six Walton heirs are worth $150 billion.
“Possible addition: Largest corporate foundation in America. Gives more than $1 billion in cash and in kind donations each year.”
“Confirm credibility of source?” wrote Walmart. “Consider Economist Jason Furman,” Tovar continued.
Furman is the chairman of President Obama’s Council of Economic Advisers. In an article at Slate, Furman wrote that Walmart’s low prices provide the “equivalent to a 6.5 percent boost in household income” for low-income households.
Egan then cited an opinion poll to suggest that the public dislikes Walmart.
“A new poll by Lake Research Partners found that 28 percent of consumers surveyed have an unfavorable view of Walmart – almost five times the negative sentiment felt for Costco,” Egan wrote.
“Pretty sure any corporation, politician even media outlet would like to have a 72% favorability rating,” Tovar responded.
Egan did not mention that Lake Research Partners’ clients are mostly Democratic politicians and labor organizations.
Egan then compared the retail giant’s education outreach initiatives to Starbucks’ recent announcement that it would be providing tuition assistance to store associates.
“Walmart in 2010 pledged to spend $50 million over three years to offset some of the cost for a small percentage of employees who enrolled in a for-profit, online university,” wrote Egan, who called the plan a bust, pointing out that only about 400 employees had earned degrees.
“Most college degrees take more than 4 years. Not 3.”
“Better idea for a piece,” Tovar concluded. “Could focus on bringing back US manufacturing…and expanding education, training, and workforce programs, i.e. things that will make a bigger difference, not just focusing on starting wages.”