Brick-and-mortar retail is a sorry state of affairs. Amazon (AMZN) has changed the entire landscape with its online-only sales model, and each year, more and more consumers take to the web instead of the local superstore.
As you might imagine, this has been horrible for Walmart (WMT) stock, which is underperforming the S&P 500 over the one-, five- and 10-year periods.
Walmart needs to start doing something differently, and 2015 only hammered that point home further. The Walmart stock price fell 30% on the year, far worse than Target’s (TGT) 3% loss, the S&P’s 2% dip and, ahem, Amazon’s 118% gain.
While the Arkansas mega-retailer desperately plows billions into mobile and online commerce out of necessity, it’s also searching for other ways to save a penny here, a nickel there.
It’s in that context that WMT finds itself entering the ultra low-margin business of operating gas stations.
In the past, Walmart had outsourced the gas station business to Murphy USA Inc (MUSA). “Wait a minute,” you might think, “what gas station business? Walmart is a big-box retailer, plain and simple. Where do gas stations come into play?”
Gas stations are actually a bigger strategic component of Walmart’s business than most Walmart stock owners, or shoppers, realize. They attract traffic, and over the course of the 20-year Murphy-Walmart alliance, Walmart stores with Murphy gas stations enjoyed 2% higher sales, according to Murphy USA CEO Andrew Clyde.
Traditionally, Murphy will open a gas station in a Walmart parking lot, lease the land, then eventually buy it. While WMT already operates several hundred gas stations of its own, 1,000 of the roughly 1,300 Murphy’s locations are intentionally located near a Walmart store, according to the Wall Street Journal.
Costco (COST) famously operates its own low-cost gas stations in order to drive traffic to its stores, and the Walmart-owned Sam’s Club also frequently employs the same strategy.
So, as it turns out, the gas station biz is a pretty integral part of big-box retail strategies.
Walmart’s decision to build and operate its own gas stations at every new location it can from now on won’t be a game changer for the company, but it should be incrementally more profitable over the long term.
Not only will Walmart get to pocket the markup on gasoline, but it will now get a cut of every overpriced bag of Doritos and pricey Gatorade it sells to customers fueling up.
At the end of the day, investors should be far more interested in whether Walmart can make material inroads in e-commerce and make a dent in Amazon.com’s business.
That’s a tall order with a lot riding on it. But right now, Walmart isn’t anywhere close to achieving it.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at email@example.com.
More From InvestorPlace
- Nike Inc Slugs It Out With Under Armour: Which Is the Better Buy?
- 5 Great Investing Videos Every Investor Should Watch
- 6 Companies That Won’t Be Around in 2017