Walmart’s Biggest Problem

Consider the Bentonville-based company’s description of itself:

Each week, more than 245 million customers and members visit our 11,000 stores under 69 banners in 27 countries and e-commerce websites in 10 countries. With fiscal year 2013 sales of approximately $466 billion, Walmart employs 2.2 million associates worldwide.

The world’s largest retailer reported that its sales for the past fiscal year, which ended January 31, rose only 1.6% worldwide to $473.1 billion. Net income dropped 5.7% to $16 billion. Walmart’s situation in the United States was even more troubling. Comparable store sales in the U.S. fell 1.7% in the final 14 weeks of the year. The portion of its “11,000” stores that are located in America have become a drag on its overall prospects.

A look at the location of stores around America’s largest cities shows just how badly off Walmart’s chances are of reaching tens of millions of people by having stores close to where they live or work. Walmart does not have a single store in New York City. The closest location to the country’s largest city is in New Jersey. The situation in Los Angeles is not quite as bad. It has two stores in the massive city. Walmart’s situation is better in markets such as Houston and Chicago, but the fact of the matter is that, in many of America’s largest cities, local merchants and politicians have effectively blocked its expansion. The incentives these groups have to keep Walmart out will not change.

A review of Walmart’s prospects, at least in the United States, shows that its growth has capped. Management is smart enough to add significant numbers of stores to solve that, if it would help. This does not happen because management knows new stores will not mean more sales. The lack of a growing number of locations speaks volumes about how hemmed in Walmart has become.

The story of Walmart’s problems with urban expansion is an old one. As Walmart enters a new year, financially, with tepid projections, it is worth mentioning again. The world’s largest retailer has a very important problem it cannot solve.