), which competes with other retailers like Costco (
), Target (
) and Amazon (
), has been strategically expanding into China since opening its
first Supercenter and Sam's Club in 1996. The rising purchasing
power of Chinese consumers and improving economy bodes well for
retail sales growth.
Our price estimate for Wal-Mart stands at $65.42
, roughly 20% ahead of market price. We estimate that the company
generates about 32% of its stock value from Wal-Mart international
Although Wal-Mart has traditionally expanded into China by
opening stores and joint ventures, a more recent move indicates
that it may be interested in capturing e-commerce sales as
well. Chinese e-commerce consumer electronics seller
360buy.com has stated that Wal-Mart, along with a few other
investors, has contributed a combined total of $500 million to
support 360buy.com's fast growing online retail business.
What Prompted Wal-Mart's Move?
China's e-commerce market is accelerating at an explosive rate.
The country boasts the largest number of internet users in the
world (about 420 million) and is expected to witness about 27%
average annual growth in its online retail market. Consequently
this market is expected to increase from about $50 billion in 2010
to almost $160 billion in 2015.
360buy.com is one of the fastest growing online retailers and is
expected to reach sales figures of close to $1.5 billion in 2010
compared, well beyond its $200 million in 2008. Considering that
retail sales are increasingly shifting online, Wal-Mart's
investment makes sense.
Where Will Future Capital be Directed?
Since the $500 million is a combined investment from several
retailers, Wal-Mart's investment contribution could be low. But its
Two questions emerge here: 1) Will Wal-Mart invest heavily in
pure-play online retailers in China going forward? 2) Will Wal-Mart
continue with its brick-and-mortar expansion in China by opening
It could be both.
Wal-Mart is unlikely to do away with its traditional store
format in international markets or the US. While specialty products
like electronics are often purchased over the internet, Wal-Mart's
product catalog spans a much wider range. Its appeal to the
everyday needs of the consumer will continue to make its stores
profitable and, going forward, the majority of its capital will
likely be directed to this area.
Still, we don't expect Wal-Mart to ignore the upside of
pure-play online retailers, particularly in large markets like
China. The company is likely to strengthen its own online platform
to compete, but may face headwinds from existing (and fast-growing)
online retailers in China.
We expect Wal-Mart to invest more in pure-play online retailers
in the near future, which could accelerate revenue growth in
international and domestic operations
See our company breakdown and estimates for key drivers of
Wal-Mart's stock value in the display above.
You can see
the complete $65.42 Trefis price estimate for
Wal-Mart's stock here.