Will Walmart Express Be the Retail Giant's Winning Weapon Against Dollar Stores?

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Wal-Mart ExpressWalmart (WMT) recently opened its first Walmart Express, a 15,000 square-foot store that's a fraction of the size of its Supercenters, which average 185,000 square feet in area. Through these Express stores, Walmart aims to compete with the dollar stores that are increasing their footprint in the United States retail market. Walmart also competes with other big-name retailers like Target (TGT), Costco (COST), Amazon (AMZN) and Best Buy (BBY).

Our price estimate for Walmart stands at $74.46, which implies just about 40% upside to the market price.

The Right Road for the No. 1 Retailer

Walmart Express stores will carry everything consumers might need at the spur of the moment, from milk and eggs to DVDs. All locations will have a pharmacy while some will also sell gasoline. All stores offer check-cashing services and accept food stamps. Walmart plans to open about 15 to 20 Walmart Express locations this year, in rural municipalities in northwest Arkansas and North Carolina and also in urban markets in Chicago.

According to a report by the Associated Press, the Walmart Express design is sized to fit into cities where space is at a premium, as well as in rural areas that can't support a superstore. The first one was opened in rural Gentry, Ark. Walmart is also experimenting with a prototype for urban markets in Chicago which is expected to open this summer.



Dollar Stores Heightening Competition


Dollar-store chains have expanded quickly in recent years and pose intense competition to Walmart. They open stores closer to customers' homes, a big advantage in times of high gas prices. According to a Credit Suisse analyst, the average round-trip to a dollar store is six miles vs. 30 miles for a typical Walmart trip. These stores have enjoyed strong revenue growth as they've lured more shoppers with bargain prices and wider selections.

We believe Walmart's focus on Walmart Express stores could provide a big boost to its top line growth. This could also help Walmart build on its already established image as the world's largest low-cost retailer and gain an edge in this market segment.

See our complete analysis for Walmart stock here

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