Wal-Mart Stores Inc. (NYSE:WMTC), the world’s largest retailer, and The Procter & Gamble Company (NYSE:PGC) the world’s biggest consumer-goods company, are duking it out despite the fact the two corporations have had a long-standing partnership that has increased value of both companies.
Why are the companies at odds and what does it all mean for consumers and investors alike?
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Store Brands Vs. Name Brands
A big part of the problem has to do with the fact Wal-Mart has been cutting back on promotional display areas, pressuring companies like P&G to slash prices and reducing dedicated shelf real estate for suppliers (like P&G) in favor of Wal-Mart’s Great Value store brand products.
It’s all part of Wal-Mart’s attempts to increase profits and compete with discount chains like Target Corporation (NYSE:TGTB), Costco Wholesale Corporation (NASDAQ:COSTB), Dollar Tree Inc. (NASDAQ:DLTRD) and others. In addition, online retailers like Amazon.com (NASDAQ:AMZND) have cut deeply into what was once exclusive territory for WMT.
More recently, Wal-Mart has said it planned to cut back-office positions at about 500 stores in an attempt to further streamline operations. The employees – about 3 per store – typically handle accounting and invoicing for individual stores.
According to Wal-Mart, in the future this work will be handled by the central office in Bentonville, Arkansas. Wal-Mart says it’s goal is to move as many store workers as possible “onto the floor” to assist customers.
As both Wal-Mart and P&G fight to hang on to their core customer base, the battle rages on. Both companies are feeling the squeeze of Amazon as well as the fact middle income consumers have to make tough choices when they shop.
Those choices include name brand versus store brand, convenient home delivery versus driving and shopping and more.
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Analysts Weigh In
For the most part, analysts have seen the upside for both companies with little downside to muddy the investing waters.
Jefferies analysts, after initiating coverage of the Dow component with a “buy” rating and a price target of $95, had this to say about P&G: "We expect P&G's slimmed down portfolio, better focused on geos/categories where it can (and should) win, to drive a return to 3.5% org sales by FY18, in-line with the industry, but ahead of ~2.5-3 percent expectations."
As for Wal-Mart, Jefferies analyst Daniel Binder upgraded the company’s share to “buy” from “hold” in early June and lifted the price target from $60 to $82.
Binder said, "Based on our store checks and survey work, we believe Wal-Mart's store investments are yielding broadly improved store conditions and first-quarter sales results seem to confirm this.”