In This Article:
TD Cowen senior research analyst Oliver Chen joins Catalysts host Madison Mills and Tematica Research chief investment officer Chris Versace to discuss the strength of retailers with bargaining power, such as Walmart (WMT), Costco (COST), and BJ's (BJ).
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I am curious if you can talk about what we're hearing from Walmart in terms of their negotiations with their Chinese suppliers to try and keep prices down. Do you think they're well-positioned to be successful in those negotiations?
Walmart has a long history of really pioneering everyday low price, EDLP. Um, so they've had dialogues with their suppliers constantly. They also have a program called rollbacks where they offer, uh, the best price possible and constant negotiations and asking a lot of suppliers to stick, uh, to lower prices, which has been essential in this environment. I think thematically bigger is better. So being an owning a stock where the retailer has more bargaining leverage is very important, and this is a company, um, that does a really precise job running the supply chain. That's true at Costco as well, and Costco is a place where you pay to shop, but it also has a fixed merchandise margin. So you can't get a better deal on many of the products that Costco offers, which is about 3,500 items only. That's a company that's well-positioned too, and as we think about Walmart, uh, there's a big technology component as well, including digital advertising, artificial intelligence, marketplace models. I teach a class at Columbia, and retail media is important. So at Walmart, you get a nice defensive grocery business, plus you get technology and a marketplace, uh, which enables a lot of nice growth.
So I'll I notice that you were talking about, uh, food prices. I know that consumers are feeling the pain. We're all feeling that pain candidly, but you know, when we think about Walmart, you know, nation's largest grocery store. When we think about Costco and how they have really leaned into food and fresh foods over the last several years, why, how is it that, you know, BJ's is, is your top pick? What, what really helps them stand out against that backdrop?
Yeah, Chris, as we, um, look at these stocks, they're those are all three in my top five, but the BJ's price to earnings multiple is 26 times. Uh, you see Costco at 45 to 50 times and Walmart in the 20, 20 to 27 times. So really the valuation of BJ's, um, being at that PE about half of Costco's quite attractive. And as we think about BJ's, they have a smaller store base, 250 stores, and you think about Sam's and Costco, they're at 500 plus. So BJ's entering new markets, growth prospects. Also, BJ's can improve their general merchandise. As we know, Costco has a legendary brand, Kirkland. BJ's can improve their general merchandise, get better toys. They're doing a lot of category management too, and they're they have a lot of initiatives around fresh and digital. So we spent a day with them recently, and we're excited about all of those growth opportunities as well as the price of the stock. Um, we also think many in this warehouse club space can win. Costco, as well as BJ's and Sam's Club have a place as they can gain share against traditional grocery as well as dollar stores, and that's happening. This has been a steady channel, and it's been a channel that does have higher household income customers too.
