Explosive growth sets stage for new Wal-Mart rallying cry: '200 in 2000' - Chapter 2: The Sales Explosion

Discount Store News, Dec 5, 1994 by Laura Liebeck

Wal-Mart's sales should top $85 billion this year, crack the $100 billion mark next year and breach the $200 billion mark at the turn of the century.

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As Wal-Mart achieves these humongous sales numbers, its retail empire will leap various oceans to encompass at least four continents and upwards of 10 countries. To accomplish this, Wal-Mart will chart completely new retail territory and create a new retailing model. No retail company has ever achieved a similar level of dominance in sales, market share or geographical reach.

The nation's largest retailing company is poised to dominate the world's major markets much the way it has the United States. The only difference will be that Wal-Mart's chief growth vehicle in the second phase of its empire-building is the supercenter and not the traditional discount department store on which it built its fortune and reputation. The supercenter achieves 30% to 50% greater sales in general merchandise products per unit than does the traditional discount store, which itself outperforms all other general merchandise discounters in the world.

Wal-Mart's generals have mapped out a comprehensive plan to conquer the globe in an effort to reach sales growth and return-on-investment requirements. As a result, the company is destined to destroy existing retail structures in some cases and to introduce never-before seen retail excellence in others, all in its quest for company growth.

The chain seems invulnerable. It will become the largest food retailer in the country by the end of the decade. Its position at the head of U.S. retailing shows no sign of abating. And, according to Wal-Mart watchers, the presumption is that the Bentonville, Ark.-based chain will realize its goals simply because it has never failed before.

However, Wal-Mart is beginning to assume real risk for the first time; its brand of retailing may not be exportable to all corners of the globe, and its continent hopping may result in less than spectacular bottom-line results, strain its resources and cut into traditionally high profit levels.

While no models yet exist to paint Wal-Mart's vulnerability, a couple of company watchers have made some presumptions concerning risk.

Douglas Tigert, professor of retailing at Babson College, Wellesley, Mass., and a veteran Wal-Mart watcher, noted that while Wal-Mart's dominance of the U.S. discount store field is rooted in its productivity, the company's 20% compounded annual growth rate could be in jeopardy if it fails to enter one very large country every three to four years or even a moderate-size country (with 25 million to 30 million people) every year.

"If they can't get into a couple of new countries then they'll hit a wall in 1997 and 1998; then their rate of growth slows down," Tigert said.

He noted that Wal-Mart continues to grow its assets faster than its earnings--"they're still very healthy, but they've been falling for seven straight years"--the profits/expenses multiple has been declining and the stock price has been flat. At press time, Wal-Mart's common stock was 22 5/8, just above its 52-week low of 22 3/8.

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Furthermore, as large and as invulnerable to competitors as Wal-Mart now seems, its dominance of the U.S. retail scene could still be fleeting and its aspirations to replicate that dominance in foreign lands could prove elusive. Dominance now doesn't necessarily translate into dominance tomorrow.

Consider this: In 1982, Sears controlled 26% of the sales for the country's top 10 retailers, with a seven-point lead over No. 2 Kmart. Ten years hence, Sears' position in the market slipped to No. 3 in total sales and 13.5% of the sales generated by the nation's top 10 retailers, according to data released by Citicorp Securities.

Ten largest retailers, 1983 vs. 1993 (dollars in millions)

1983

  1. Sears                               $25,089
  2. Kmart                                18,754
  3. JCPenney                             12,647
  4. Federated Dept. Stores                8,690
  5. Dayton Hudson                         6,963
  6. Montgomery Ward                       6,003
  7. Woolworth                             5,456
  8. Wal-Mart                              4,667
  9. May Dept. Stores                      4,229
 10. Melville                              3,923
Sears as % of Top 10's total sales:          26%
GAF(1) sales for period:                $287,535
Sears as % of total GAF sales:             8.7%

1983

Breakdown as % of total GAF sales

  1. Sears                                  8.7%
  2. Kmart                                  6.5
  3. JCPenney                               4.4
  4. Federated Dept. Stores                 3.0
  5. Dayton Hudson                          2.4
  6. Montgomery Ward                        2.1
  7. Woolworth                              1.9
  8. Wal-Mart                               1.6
  9. May Dept. Stores                       1.5
 10. Melville                               1.4
1983 Top 10 as % of total GAF sales:       33.5%