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Dancing on Wal-Mart's Grave

Posted: 08/20/11 03:17 PM ET

In less than 11 months, Wal-Mart will turn fifty.

No longer a company in its adolescent growth spurt, the giant retailer is showing its advancing age. In fiscal year 2011, Wal-Mart's U.S. store count grew by only 49 units, or 1.3%. In 2010 by only 52 stores, or 1.4%. For some companies that would seem like an enormous expansion -- but for Wal-Mart, it's definitely a powering down mode. Ten years ago, Wal-Mart 's U.S. stores division opened 220 new stores -- 4.5 times as many units as today.

In his August 16th earnings report, Wal-Mart U.S. President Bill Simon admitted that his company was feeling the recession. "We remain concerned about the economic pressure on our customers and the uncertain impact it can have on their shopping behavior." Some analysts have claimed that the recession was forcing shoppers into the waiting arms of Wal-Mart -- but the disappointing comp store sales from the past nine quarters tell a very different story.

If you go back to May of 2009, Wal-Mart's Chief Financial Officer proclaimed that his company was "in a great financial position." But even then Wal-Mart was forecasting flat same store sales.

But things got worse. By the following quarter, Wal-Mart admitted the sales environment was "more difficult than we expected." The third quarter "continued to be difficult," and by the end of fiscal 2010, the company told investors "U.S. sales will be more challenging" in the coming year. By February of 2011, Wal-Mart was resigned to the reality that "it will take some time to see positive comparable store sales."

Some of Wal-Mart's woes have been self-inflicted. For many years Wal-Mart has been over-building superstores, packing them in as close as three miles apart. The Ozark-based retailer was cannibalizing its own sales. 'Old' stores -- sometimes built as recently as the mid-1990s -- were being abandoned to build a bigger store down the street. This pattern is still happening today. In Seekonk, Massachusetts, for example, Wal-Mart is proposing a 156,000 s.f. superstore just half a mile from an existing Wal-Mart discount store of almost the same size. This "parking lot hopscotch" is wasteful, and an embarrassment for a company that prides itself on "sustainability."

No surprise then that Wal-Mart Realty currently has 145 empty buildings on its hands -- what they call "excess property," totaling a staggering 12.6 million square feet of dead stores. That's the equivalent of 217 empty football fields. Based on new store openings in 2011, if Wal-Mart retrofitted the 145 stores it has for sale or lease, it would have enough room to grow in the United States for the next three years -- without having to do any new building or engage in ugly site fights with angry neighbors.

The other remarkable fact about Wal-Mart as it nears fifty, is that its U.S. division is rapidly shrinking in importance to the overall economic vitality of the company. In 1999, Wal-Mart's International segment accounted for only 1.6% of the company's total net sales. Today, net sales from International stores represents 26% of the company's total sales.

In the past ten years, net sales at Wal-Mart U.S. have doubled -- adding $138 billion. But International sales have more than tripled, adding $77 billion. Stores outside of the U.S. have become the beacon for the future of Wal-Mart. While Wal-Mart U.S. sales grew only by .1% in 2011, International sales grew by 12.1%. During the same stores sales slump of the past two years in America, Wal-Mart International has been described by CEO Mike Duke as "an impressive growth engine."

If this International growth is trended forward another ten years, the dominant economic focus for Wal-Mart will have shifted from America to the giant emerging markets of Africa, China and India. The power center will incrementally shift from Bentonville to Beijing. Right before our eyes, Wal-Mart, the erstwhile "Made in America" icon, is year-by-year morphing into China-Mart.

As Wal-Mart's U.S. operation loses momentum, and lack-luster same store sales performance from its overbuilt domestic inventory continues to disappoint, shareholders will suffer from Wal-Mart fatigue, and look for more nimble, faster-growing competitors. At that point in the not too distant future, there will be plenty of people ready to dance on Wal-Mart's grave.

Al Norman is the author of 'The Case Against Wal-Mart.' He has been helping communities fight big box stores since 1993. His website is http://www.sprawl-busters.com>.