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Let us begin with the obvious: Wal-Mart Stores (WMT -0.13%, newsis stupendously large. Its revenue for fiscal 2013, which ends Jan. 31, will come in at around $468 billion, a touch under Norway's gross domestic product in 2011. Wal-Mart is also the world's largest private employer.

Wal-Mart is not just the world's largest retailer -- it is larger than the next four combined. Wal-Mart's international business alone would be the world's second-largest retailer. It is also the largest gun retailer in the United States.

So, any company with the moxie to say it will take on Wal-Mart directly has its work cut out for it.

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Still, there are a few companies that look like they could mount a challenge to Wal-Mart, including Costco Wholesale (COST), Target (TGT) and Amazon.com (AMZN). But all face serious logistical and marketing head winds. And, with the possible exception of Amazon, they may be content to stick with their existing strategies and continue to dominate their pieces of the retail world. In the cases of Target and Costco, such strategies are working.

That's why, as investments, they look like good alternatives to a stalled Wal-Mart.

At the same time, I have found a few smaller retailers that are growing rapidly despite Wal-Mart and could produce returns that will make investors happy. Here's a look at the current state of Wal-Mart -- and then why these alternatives look attractive.

The wizardry of Wal-Mart

There are a lot of things that make Wal-Mart unusual. It's not just its size or the fantastic wealth it created, astounding for a company based in Bentonville, Ark., in the northwest corner of the state. If you bought 100 shares at $16.50 when Wal-Mart went public in October 1970 and never sold -- through thick and thin and 11 two-for-one splits -- you'd have 204,800 shares today worth $14.2 million. And you'd be receiving about $326,000 a year in dividends.

Wal-Mart is also unusual because, despite its huge presence in the market, the Walton family effectively controls the company. The three surviving children of founder Sam Walton and the estate of Walton's fourth child, the late John Walton, who was killed in a 2005 airplane crash, own about half the stock. That makes them collectively worth at least $104 billion, more than Microsoft's (MSFT) Bill Gates and Berkshire Hathaway's (BRK.A) Warren Buffett combined. (Microsoft is the publisher of MSN Money.)

What gave them this extraordinary wealth was an amazing strategy that worked beautifully for more than 40 years in the United States: big stores located in rural or semirural communities with few competitors; low, low prices; lots of choice; and, most of all, plenty of inventory, sent to Wal-Mart stores from huge distribution centers no more than a day's drive away.

A key innovation was to add groceries to the five-and-dime tradition that Sam Walton came out of. His first stores were Ben Franklin stores. He opened his first Wal-Mart in 1962.

To the basic formula, Wal-Mart has added the Sam's Club chain of warehouse stores, which look like Costco stores. And its international business has become an increasingly important source of growth. The company has operations in 26 countries, including Canada, the United Kingdom, Mexico, Brazil, China, South Africa, Japan and India.

Hitting a wall

But like many giants, Wal-Mart has run into a wall in recent years in the United States. This is in part because of controversy: Critics charge that it doesn't pay workers enough or offer a good health plan -- and that it fights off unionization ruthlessly. Its aggressive expansion into Mexico succeeded because, The New York Times has written, company executives bribed their way to choice locations.

Plus, as retail consultant Burt Flickinger noted, Wal-Mart in the United States has lacked an edge. There have been problems keeping stores adequately stocked. There have been embarrassing problems like tramplings and other violence at after-Thanksgiving sales.

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The opening of a Wal-Mart near a small town can often damage local retailers. Whether that invariably happens and how much blame Wal-Mart deserves for it are still a matter of a raging debate.

But Neil Stern, a senior partner at McMillanDoolittle, a Chicago retail consulting firm, sees three more, relatively prosaic, reasons why U.S. sales growth has shrunk in recent years:

  • Competition has intensified -- from Costco, Target and Amazon.com for somewhat higher-end customers, and all the dollar discount stores at the lower end.
  • It's harder to find enough land to build classic big-box stores, especially near big cities. The nation is "site saturated," Flickinger adds.
  • The 2008-2009 recession and the slower-than-usual recovery have squeezed Wal-Mart's primary U.S. audience.

So how does Wal-Mart grow in the United States? The short answer: more slowly.

That may explain why the stock has been range-bound since it hit $70.25 on Dec. 31, 1999. It didn't cross $70 again until the summer of 2012, trading between roughly $42 and $64 in the interim.

That means its international business and Sam's Club will become increasingly important. And here Wal-Mart has had a lot to learn. The Wal-Mart model doesn't always work outside the United States. It didn't work in Germany, for example, where it faced stiff competition from the Aldi chain of discount stores and pulled out after several years of effort. "They weren't bringing anything new," Stern says.

Wal-Mart has had greater success in the United Kingdom, Mexico and Brazil, in part because it bought existing successful operations. Another key test will come in the next few years in Canada. Target plans to open its first stores there this year.

If not Wal-Mart, then what?

As a stock, Wal-Mart has been outperformed since the end of 1999 by its biggest domestic rivals: Amazon.com, Costco and Target. It has been outperformed by the same group in the past 10 years, since the market bottom in March 2009 and the end of 2011.

In fact, it is not a stretch to say Wal-Mart has been dead money so far in the 21st century. That's why it's worth looking for alternatives to the retailing leader.

How about the four other big competitors -- France's Carrefour (FR:CA +0.67%, news); Britain's Tesco (GB:TSCO +0.69%, news); Germany's Metro (DE:MEO +0.48%, news) and Kroger (KR +0.84%, news), the giant supermarket chain that is the world's fifth-largest retailer? Possibly not. The European companies are still struggling with weak economies, which make business tough for the supermarket or hypermarket businesses. And supermarket margins are always thin.

It is, however, worth looking at that trio of big, direct U.S. competitors. Flickinger sees Target and Amazon.com as potential winners against Wal-Mart. Both are as focused on relentlessly pushing prices lower as Sam Walton ever was. But they join the fight from different points of view.

Target believes in offering quality as much as price, and its somewhat more stylish image should help it as the economy recovers. Its apparel business, in particular, is much stronger than Wal-Mart's. 

Amazon.com gets cost savings from not having to operate brick-and-mortar stores, and benefits from the move of consumers to the Internet. Amazon has already proved it can dominate the areas it specializes in and put competitors out of business. It won't do that to Wal-Mart, but it can split off key areas, such as electronics.

Both have been better stocks to own that Wal-Mart over the past 10 years; Wal-Mart's stock is up roughly 40%, compared with 106% for Target and more than 1,340% for Amazon. And the prospects for both look brighter right now.

Costco cannot be ignored, either. It is a $100-billion-a-year business; like Target, it also makes a big deal out of the quality of what it sells. Costco's reputation for treating workers well and delivering for its members is also in sharp contrast to Wal-Mart's image woes.

And it, too, has been much better than Wal-Mart long term, with the stock up 260% in a decade. All three also beat Wal-Mart on the one-year and year-to-date charts.

Beyond the giants

Of course, all of these are already sizable companies, so if you're looking for the truly huge gains of buying Wal-Mart in its infancy, you have to seek out small companies and bet they'll grow into giants. It's a big bet, but here are two smaller operations with promise:

  • PriceSmart (PSMT) is a San Diego retailer that operates stores in Latin America and the Caribbean. It's modeled after Costco's warehouse stores. In fact, the company was once part of Costco. The stock is up more than 1,400% since hitting a bottom in May 2004. Wal-Mart is up just 25% in that time. If there's a problem with PriceSmart right now, it's that the stock looks pricey based on current profits.
  • WinCo is a Boise, Idaho, supermarket chain that's entirely employee-owned. Once known as WareMart, it is expanding rapidly around the West. Since employees are owners, says McMillanDoolittle's Stern, they are passionate about the business and do whatever it takes to help it succeed. The problem for an investor, of course, is that the stock isn't publicly traded. You'll have to wait until that happens or go to work there.

Perhaps the determining factor of what will be the next Wal-Mart, says Stern, is China.

Wal-Mart is there already, but as important to that market is Sun Art, which operates two chains on mainland China: RT-Mart and Auchan. Kantar, a global retailing consulting firm, sees RT-Mart and Wal-Mart battling for dominance on the mainland.

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Sun Art, which had $10.8 billion in revenue in China in 2011, is a joint venture of Taiwan conglomerate Ruentex Group and privately held French retailer Groupe Auchan. The shares went public (in Hong Kong) at $7.20 a share in July 2011. The stock is up 62% since, and roughly 19% in the last year. If you can trade in Hong Kong, you can buy it under the ticker 6808.

At the time of publication, Charley Blaine did not own or control shares of any company mentioned in this column.