The Wal-Mart Weekly: How many stores is too many?

Wal-Mart store history back to 1989

With that, let's take a gander at Wal-Mart's store count across the U.S. Is the retailer spreading itself too thin? Will it ever be able to enter some of the high-population markets (California, New York) that would really help it goose more U.S.-based revenue?

A quick look at this unofficial chart shows Wal-Mart store growth at the start of every year (reliably) since 1989. In 1989, there were roughly 246 million people in the U.S., and Wal-Mart, while growing, was nowhere near what it is today. The Supercenter concept was on Bentonville whiteboards (most likely) and would take the U.S. landscape by storm in the 1990s. In fact, Wal-Mart's unbelievable Supercenter store growth would come to define the retailing term "big box" more than anything in retail history.

So, in 1989, there were over 1,200 discount stores and 2 (yes, two) Wal-Mart Supercenters in the U.S. market. Retailers like TG&Y, Venture and Target Corporation (NYSE: TGT) existed (some just regionally), but the independent discounter would face some big-time competition in 1990 as Wal-Mart went nuts and started popping up huge Supercenters almost as fast as new McDonald's restaurants.

What it looks like today

From the latest figures, there are now just over 298 million people in the U.S., an increase of roughly 54 million people in about 18 years (since 1989). At the same time, Wal-Mart grew its stable of stores (multiple formats) from just under 1,300 total stores (just Wal-Mart -- no Sam's Club) to just under 3,100 locations.

That's approaching a tripling of Wal-Mart retail locations (discount stores and Supercenters) by 2009 if the retailer's store growth projections are correct. So, in twenty years, the retailer would have (possibly) tripled its store count while the U.S. population (while growing steadily) reaches over 300 million by 2009 as well (probably over that by a good degree).

Without graphing all the store locations and income/population demographics across the entire country, it's pretty easy to deduce that Wal-Mart's growth fit the 1990s, as the retailer attacked areas it had not operated in before in order to take market share. Can the retail behemoth continue that torrid growth to 2010 and beyond? Sure it can, but at a certain time the point of diminishing returns will kick in. I'm not sure anyone knows where that will be. One thing to count on: Wal-Mart probably knows this already.

What can Wal-Mart do to continue its growth?

When adding stores to increase sales doesn't meet the expectations of WMT management or shareholders, what else is there? Why, growth in existing stores is the answer, right? How about international expansion? In case you haven't noticed, both of those became focus areas for the retailer in 2006, as Wal-Mart started trying to duplicate Target's success of "personalizing" the shopping experience to the area and the individual customer.

Also, it set out on an effort to remodel stores and make them more inviting for the kind of shopper who avoided Wal-Mart based on the overall shopping environment (not just price alone). That effort is still underway, but it is making slow progress. After all, you can't disrupt business in over 3,000 stores while you remodel them, right?

Wal-Mart also started looking more closely at its international operations last year, and must have set some internal metrics in place within that arena. As a result, the company got out of South Korea and Germany probably due to those markets not being profitable enough. In addition, Wal-Mart's international strategy changed to one of partnership. It worked this concept over well by partnering with established companies in both India and China. Wal-Mart partnered with Bharti in India and outright bought about 35% of Taiwan-based Trust-Mart to get a foothold in China.

What can Wal-Mart not afford to do?

The retailer's store count in the U.S. may have scaled to a point where it can't grow any longer without the risk of over-saturating the markets where it already operates. Wal-Mart's foes in some California markets and in New York City has been well-documented, with Wal-Mart CEO Lee Scott even losing his cool based on NYC shunning the retailer entirely.

Can Wal-Mart not afford to continue pursuing these huge markets? That would be a great way to get U.S. sales pumped up -- or would they? Even if customers had access to the store in those areas of California that remain Wal-Mart free, and in New York City, would they shop there? Is the "get outta town" mentality of these two lucrative markets straight from ideological groups who opposed big-box stores, or from the population itself in those areas?

It's been said that Wal-Mart has single-handedly kept inflation down in the last decade, and has given more value to the Wal-Mart shopper overall. Would California and New York City residents want a taste of that, or are these markets afraid of competition from the retailing giant? Another poke in the side of opinion is the prevailing wisdom that Wal-Mart drives smaller businesses out of town. There are gobs of documented small business owners going out of business when Wal-Mart comes to town and starts lowering prices. Is that a whiff of self-protection I smell there?

Any way you cut it, there are some markets that have and will continue to reject the lure of Wal-Mart's siren call of low prices. On the other hand, Wal-Mart's growth in established markets may be getting saturated and it has to look for areas that are under served and try to "crack those nuts." I doubt it will stop trying anytime soon, although it has in NYC (heh).

Next week

A week from today, I'll be taking a stab at Wal-Mart's attempt to compete with home improvement retailers such as The Home Depot, Inc. (NYSE: HD) and Lowe's Companies, Inc. (NYSE: LOW). These competitors took the "big box" format to home improvement and have most surely taken business from Wal-Mart in several areas. Stay tuned for that next week. Until then, have a great Friday!