Predicting Future Trends for Wal-Mart, Target, Kohl’s, and Kmart
Food stamp funding has recently been cut by $800 million per year, or 1 percent, over the next five years. Considering that 20 percent of Wal-Mart’s (NYSE:WMT) shoppers are on food stamps, this should have a big impact on sales. As Wal-Mart has admitted, it’s likely to have a negative impact, especially after the end of the payroll tax cut (really, the end of a payroll tax holiday) last year. However, some other demographic stats for Wal-Mart might surprise you. While there is some interesting information on Wal-Mart, there is a lot of clarity on Kohl’s (NYSE:KSS), Target (NYSE:TGT), and Kmart – a Sears Holding (NASDAQ:SHLD) subsidiary.
Predicting Trends By Age Group Demographics
The following stats are based on BIGInsights Monthly Consumer Survey. What might surprise you is that these stats are from February, 2012 — but there’s a reason for this. How can we predict future trends without looking at the effectiveness of past results? We’ll soon see if age demographics, as well as annual household income levels, have played a role in the successes or failures of these four retailers recently.
The biggest discrepancy for age group demographics is between Target and Kmart, and these trends strongly favor Target over the long haul. Of Kohl’s, Kmart, Target, and Wal-Mart, Target has the largest percentage of shoppers ages 18-24 (15.1 percent of its shoppers.) Additionally, 23 percent of its shoppers are ages 25-34, and 20.7 percent of its shoppers are 35-44. These are all higher percentages than Kohl’s, Kmart, and Wal-Mart.
Kmart is on the other end of the spectrum, attracting an older customer base. For Kmart, 24.2 percent of its shoppers are 45-54, 20.6 percent of its shoppers are 55-64, and 20.4 percent of its shoppers are 65 or older. With more than half of its customers 45 or older, long-term trends aren’t good. Consumers tend to spend less as they enter retirement.
The most important generation right now is the Millennials, since it’s the second-largest generation to Baby Boomers, and is going to have the most spending power for the next several decades. Without these consumers, Kmart will lose. Considering Kmart represents approximately 35 percent of revenue for Sears, this is bad news for Sears Holdings. Target attracts the youngest crowd of this group, which is a big plus for the long haul.
Predicting Trends By Annual Household Income
While 20 percent of Wal-Mart shoppers are on food stamps, that shouldn’t be an excuse for subpar sales performance. Why? It’s because 22.3 percent of its customers have an annual household income of $50,000-$74,999, and 11.1 percent of its shoppers have an annual household income of $75,000-$99,999.
Target attracts a higher-income consumer than Wal-Mart. For Target, 4.4 percent of its customers have an annual household income of $150,000 or higher, 12.7 percent have a household income of $100,000-$149,999, and 15.0 percent have a household income of $75,000-$99,999. But what really jumps out here is Kohl’s.
Kohl’s might be known as a department store that offers discounts on a broad range of merchandise, but it primarily attracts a fiscally strong consumer. For instance, 27.6 percent of its customers have an annual household income of $50,000-$74,999, 18.3 percent have an annual household income of $75,000-$99,999, and 13.2 percent of its customers have an annual household income of $100,000-$149,000. This doesn’t play a big role toward growth, but it does play a big role for sustainability.
Kmart is once again on the wrong side of the stat sheet. For Kmart, 14.7 percent of its customers have an annual household income of $15,000 or less (higher than Wal-Mart at 12.1 percent), 17.7 percent have an annual household income of $15,000 to $24,999 (higher than Wal-Mart at 12.8 percent), 16.1 percent have an annual household income of $25,000 to $34,999 (higher than Wal-Mart at 14.4 percent), and 19.8 percent have an annual household income of $35,000 to $49,999 (higher than Wal-Mart at 17.4 percent). Since these numbers are from February 2012, let’s see if they predicted what was to happen in the future.
Over the past year, Wal-Mart grew its top line (revenue) faster than its peers, but only at a 0.97 percent clip. Selling food and being within driving distance for most Americans plays a significant role. Contrary to popular belief, Wal-Mart should continue to see top-line growth thanks to its geographical expansion in Canada, and its continued rollout of small-box stores (to compete with the dollar stores.)
Target wasn’t far behind over the past year, seeing top-line growth of 0.91 percent. Given its financially sound customer base (for the most part) and the youth of that customer base, long-term potential is good. Kohl’s “delivered” top-line growth of 0.20 percent over the past year. This fits the sustainability theory. Kohl’s will have to remodel more stores and get more popular brands in its stores if its wants to fuel its top line more. Sears Holdings suffered a 3.03 percent revenue decline over the past year.
If you look at a five-year time frame, Wal-Mart, Kohl’s, and Target delivered respectable top-line growth of 17.70 percent, 17.51 percent, and 13.59 percent, respectively. Sears Holdings’ revenue plummeted 17.27 percent. There are no growth catalysts for Kmart, and Sears stores don’t offer differentiation. It has stronger competitors for everything it sells.
While Target isn’t likely to perform well in the near future due to its massive data breach, you should keep it on your watch list. Thanks to customers with deeper pockets and a young customer base, long-term prospects are good. Wal-Mart and Kohl’s should continue to plod along, finding ways to deliver methodical top-line growth while delivering capital to shareholders in the form of dividends and stock buybacks. As far as Sears Holdings is concerned, it needs Kmart to succeed, and based on an aging and struggling customer base, long-term success doesn’t seem likely. Therefore, you might want to stay away from Sears Holdings.
More From Wall St. Cheat Sheet: