Walmart's Fantasy $100B Expansion Plan

Last Updated May 11, 2010 6:24 AM EDT

Denial at Walmart (WMT) over whether the company's hit its U.S. limits deepened this week as the mega-retailer laid out its battle plan for capturing another $100 billion of domestic sales through ministores. But the Bentonville behemoth will have to face the music at some point -- America can only hold so many Walmarts, whatever the size.

U.S. operations head Eduardo Castro-Wright recently told the Financial Times that Walmart would infiltrate urban markets where labor unions, scarce real estate and anti-chain consumers have shut them down. One strategy already being deployed: opening smaller stores in dead real estate such as a former Mervyn's in Torrance, Calif. Such takeovers don't come before a building code-review board and thus can skirt the angry mobs that have prevented Walmarts from coming to many towns.

But small Walmart stores are kind of like jumbo shrimp -- an oxymoron. The reason people shop Walmart is the one-stop, cheap-price advantage. Smaller stores won't have that. They'll also be harder to operate at the same margins, as they won't have the staffing economies of the larger stores.

Walmart small-store experiments haven't gotten very far to date, including two versions of a Neighborhood Market format (one 10,000 square feet, the other 20,000 square feet) and a Supermercado de Walmart aimed at Hispanics that's 40,000 square feet. None has turned into a rapid expansion vehicle. Yet Castro-Wright envisions opening 400 or so small stores a year, despite lukewarm customer reviews for existing Neighborhood markets. Perhaps he's been watching the progress of niche gourmet grocer Fresh Market, which recently filed to go public.

Seasoned chain-watchers have heard this story before. Not long ago, Starbucks Corp. (SBUX) was telling rapt stock analysts it could add stores endlessly, too. Its store-opening machine was legendary for its uncanny ability to pick good sites at lightning speed. Until one day it hit the wall and started to close stores, eventually shuttering more than 900.

And Starbucks stores are a lot smaller than even Walmart's small-store prototypes. If Walmart keeps throwing up stores without regard for what the marketplace will bear, retrenchment will be inevitable.

Photo via Flickr user On the White Line Related:

  • Carol Tice

    Carol Tice is a longtime business reporter whose work has appeared in Entrepreneur, The Seattle Times, and Nation's Restaurant News, among others. Online sites she's written for include and Yahoo!Hotjobs. She blogs about the business of writing at Make a Living Writing.