Last Updated Aug 26, 2010 2:44 PM EDT
As the giant retailer adds locations and converts existing discount stores to supercenters, the company is taking sales away from itself. This "cannibalization" is hurting comparable store sales, which fell by almost one percent in the fiscal year that ended Jan. 31.
The phenomenon is not the end of the world, as more stores mean more market share and more marketing efficiency. However, Wall Street rewards strong comparable store sales gains and penalizes weak or declining numbers. In response, Walmart has been slowing store growth.
The company has blamed its comp sales weakness on lower gas prices and deflation in food and electronics. Deflation may seem like something beyond Walmart's control, but not entirely. It contributed to deflationary pressure across the retail industry, for example, by pricing its electronics so low.
In addition, Walmart made miscalculations for which it cannot blame anyone else. For example, the company recently reinstated several hundred everyday items it had taken off the shelves, in an effort to improve efficiency and eliminate clutter. It turned out that without those items to hand, consumers were more than ready to spend their grocery dollars elsewhere.
In the company's annual report, issued in advance of its June shareholders extravaganza -â€" folks like Miley Cyrus perform around executive presentations -â€" Walmart noted that cannibalization had cost it a little over one percent in its comparable store sales in fiscal 2009 and a little over 0.5 percent in fiscal 2010. Remove cannibalization, and you also eliminate most of Walmart's comp decline.
Walmart still has room to grow in the United States, and discount stores to convert to supercenters. Yet some of the markets where it has a lower concentration of stores, including urban areas, California and New England, include communities where the company has encountered political opposition.
Unless the retailer can convince Wall Street to look at it in a new way or a wave of consolidation takes a large number of retail stores out of the marketplace, making comparable store sales gains in the U.S. is going to be difficult for Walmart. In this sense, size matters.