Walmart Inc. (NYSE: WMT) has shown that brick-and-mortar retailers can nearly hold their own in a world dominated by e-commerce. Its huge store footprint and the surge in its online presence have ensured it will be one of the few successful survivors as other traditional retailers, crippled by the pandemic on top of already faltering sales, chop locations and, in some cases, go bankrupt. However, shareholders are much less optimistic about Walmart’s prospects. The challenge is that it has stores.

Walmart’s stock has posted a notably poor performance this year when compared to the tech-heavy Nasdaq. The widely followed index is up 27% so far this year. Walmart’s stock has moved up 20%. Amazon.com Inc. (NASDAQ: AMZN), Walmart’s primary competition, has posted a stock price gain of 78% during that period. Such comparisons show that investors still believe Walmart’s transformation remains inadequate to make it an unqualified retail success in the future.

Walmart’s primary strength, and weakness, remains its store network. The global total includes 11,500 stores, of which over 4,700 operate in America. By some estimates, 90% of all Americans live within 15 miles of one of its locations. While its U.S. comparable-store sales rose 9.3% in the most recent quarter, revenue from these stores continues to dominate the overall revenue. And 9.3% is nowhere near the increase Amazon had for its most recent quarter. Walmart management said e-commerce revenue rose 97%. However, the number was listed as a contribution of about 600 basis points, which is not impressive.

Among Walmart’s burdens is its 1.1 million workers in the United States. It added 200,000 people as sales spiked due to COVID-19-driven demand. However, Walmart’s employee base is expensive, even though its workers continue to be among the most poorly paid of America’s largest companies. The U.S. revenue of Walmart drives only about 7% in operating income margin. With e-commerce backed out, that figure is worse.

Walmart’s physical locations require billions of dollars to maintain each year, some portion of which simply keeps them at current levels of operations. That demonstrates one of the largest challenges for retailers with large numbers of stores. Repeated modernization and upkeep drive large expenses.

Walmart may post steady improvements in revenue, perhaps at a rate of 10% per year. However, in the United States, that revenue produces an increase in operating income not even modestly above the rise in sales. Walmart cannot move beyond the burden of its huge number of locations.

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