Can Wal-Mart Support 5,200 Stores?

By Douglas A. McIntyre Updated Sep 4, 8:17AM EDT · Published Sep 4, 7:01AM EDT

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Added up, all of Wal-Mart Stores Inc.’s (NYSE: WMT) retail outlets in the United States total 5,200. This includes all Wal-Mart store formats, from supercenters to discount stores and the company’s 651 Sam’s Clubs. With flat same-store sales, and a future that makes a downturn in same-store sales likely, Wal-Mart may not be able to keep all these locations, if it wants to improve its U.S. financials.

In the most recently reported quarter, Wal-Mart same-store sales rose 1.5% and the Sam’s Club number was 1.3%. These numbers are better than they have been recently, but operating income in the two divisions fell. While traffic to the stores may have ticked up, customer yields have dripped, at least as operating income is one key measure.

Wal-Mart is trapped between two trends in the United States. One is the number of brick-and-mortar stores its competition has, both big-box retailers and the largest department store companies. Some of these, such as Costco Wholesale Corp. (NASDAQ: COST), are healthy. Others, like J.C. Penney Co. Inc. (NYSE: JCP) are desperate. Taken together, there are too many retailers battling for customers in what has become a zero sum game, when e-commerce activity is not included.

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The Amazon.com Inc. (NASDAQ: AMZN) problem is greater. As it continues to post sales growth of 20% quarter over previous-year quarter, Amazon’s revenue in the United States is approaching $80 billion. That makes it as large as Wal-Mart’s primary rival, Target Corp. (NYSE: TGT). Wall Street is so impressed with Amazon that it has assigned the e-commerce company a larger market cap than Wal-Mart. Based on traffic and revenue, Walmart.com is tiny compared with Amazon. And there is not one bit of evidence that Wal-Mart can take online business from Amazon. Actually, the trend is the other way around.

One thing that is almost certain for a retailer with a large network of store locations is that some are much less profitable than others. With Wal-Mart’s thin margins, some probably even lose money. At the bottom end of the Wal-Mart network, financially, some locations are not worth keeping open. If Wal-Mart’s financial picture looked like Costco’s, that margin problem would not be so troubling.

Wal-Mart management may argue that all of its stores are profitable. Maybe some contribute a few dollars of operating profit a year, but that is unlikely. Wal-Mart’s growth period in the United States is over. To bolster margins, it needs to close some stores.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.