It hasn’t been a pretty year for brick-and-mortar retailers, with a key index tracking retail industry stocks down over 10% since the beginning of the year. Store closures, competition from online retailers, and fear of disruption are all reasons for investors to be pessimistic about future earnings. Amazon.com’s$13.7 billion acquisition of Whole Foods last month was widely seen as the straw that broke the camel’s back, wiping billions from competing grocers’ market values in a matter of hours.
One retailer that won’t go down without a fight, however: Wal-Mart. Analysts from Goldman Sachs upgraded the stock to a “Buy” on Friday, citing the world’s largest retailer’s scale and strong presence in rural markets as a protective moat against aggressive competition from Amazon.
In order to offer two-day shipping to Prime members and build out a grocery delivery service, Amazon needs to be close to where its customers live. Offering the same level of service to shoppers spread out across rural areas would be prohibitively expensive, keeping Amazon from offering such low prices. Compared to its brick-and-mortar peers, Wal-Mart is much less exposed to big cities, with 53% of its stores in the top 100 markets in the U.S. by population versus 79% for Costco and 77% for Target. And 22% of Wal-Mart’s stores are in regions with fewer than 100,000 people — too sparse for Amazon’s delivery economics (until it gets its drones off the ground, that is).
Additionally, Wal-Mart overlaps much less with Whole Foods than other grocers. Just 43% of Wal-Marts are within 20 miles of a Whole Foods, compared to 81% of Costco stores and 71% of Target locations. What all of that means is that if Amazon turns Whole Foods stores into distribution centers for grocery delivery, Wal-Mart’s rural bias seems to make it safe — or at least safer than its peers. By continuing to add options such as online ordering followed by in-store pickup, Wal-Mart can offer rural customers a comparable experience to e-commerce without the high delivery costs, unlike Amazon.
The Goldman Sachs analysts raised their price target to $84, a 10% premium to Wal-Mart’s $76.46 Friday closing price.