Why Walmart Cannot Grow in America

Print Email

In three of the past four years, Wal-Mart Stores Inc. (NYSE: WMT) has posted a year-over-year decline in U.S. same-store sales, and the gain the company posted in its 2012 fiscal year was a skimpy 0.2%. In 2013 the drop in U.S. same-store sales was 0.4%.

The last year that Walmart stores showed a significant same-store sales gain was 2009 when the U.S. economy was in a recession. That year the company posted a same-store sales gain of 3.2%. The low prices attracted atypical customers to Walmart during the worst of the recession, but they did not return once the recession ended. It is enough to make a person conclude that the only way Walmart can grow in the United States is if the country’s economy is in the tank.

Has Walmart hit a wall in U.S. growth? Including the Sam’s Club warehouse stores and the company’s small format stores, Walmart has nearly 4,500 locations in the United States, but the company has been essentially shut out of the largest cities, and what progress it has made has been with the smaller format stores. But the company is not set up to be profitable with dozens or hundreds or even thousands of small stores. That is not to say that it couldn’t make money in the smaller format, but it would need a serious overhaul to achieve that.

Amazon.com Inc. (NASDAQ: AMZN) has also eaten Walmart’s lunch in e-commerce, although that might be turning around now. At the end of its 2014 fiscal year this past January, Walmart’s online sales growth surpassed Amazon’s. Global Internet sales at Walmart rose 30%, compared with 20% growth at Amazon. Of course Amazon’s total online sales of nearly $68 billion dwarfs Walmart’s total of $10 billion, and there is no certainty that Amazon will not fight back hard. If there is one company Amazon cannot afford to let run wild on its turf that company is Walmart.

ALSO READ: Amazon Now Tackling Costco and Sam’s Club?

And while Target Corp. (NYSE: TGT) is currently having its own set of problems recovering from the data breach and the sacking of the company’s CEO, it was a formidable competitor to Walmart for a while and could develop into one again when all the current dust settles.

Walmart was also hurt by cuts to federal nutrition assistance programs. More than half the company’s sales are in groceries, and the federal cutbacks were enough to warrant a mention in Walmart’s annual report as material factors that could lower the company’s profits.

And then there is the bad press. Walmart gets cuffed around for its low wages and for being a “corporate welfare queen” as a result of its low wages forcing its employees to rely on public assistance. Walmart isn’t the only welfare queen, but it is probably the largest.

Walmart touts its growing same-store sales in its small format Neighborhood Markets. That is good news for the company, but 5% growth on a low basis is not going to bring Walmart’s growth back.

In its first quarter 2015 report, the company boasted of its e-commerce and small-store sales. It also noted that some 10% of its 3,300 supercenters are underperforming and that it has taken steps to address sales in those poorly performing stores. If Walmart is going to post sales growth in the United States again, it will come from those supercenters.

ALSO READ: Were Walmart Earnings Really as Bad as They Looked?