Earlier this month, Wal-Mart (WMT 0.22%) announced that it's closing 269 of its stores around the world. Overall, the plans will eliminate less than 1% of Wal-Mart's total square footage, and impact a similar share of the company's revenue. In fact, the company will likely open more stores this year than it's closing.
But what's particularly notable about these closures is that it marks the end of Wal-Mart Express. Wal-Mart Express are smaller, 10,000 square foot stores designed to compete with dollar-store chains and drugstores. But with the end of the five-year experiment, Wal-Mart will have to look elsewhere for growth.
A growing concern
Wal-Mart hasn't seen much revenue growth over the last five years despite the launch of about 100 stores in the Express format as well as hundreds of other Super Centers and Neighborhood Markets. Net sales growth from fiscal 2009 to the end of this fiscal year is estimated to come to just 3.2% per year. This year, sales are expected to decline 0.4%.
Comparatively, Amazon.com (AMZN -0.53%), is expected to more than quadruple its net sales during that same period, reaching $107 billion for fiscal 2015. That's growth of more than 20% over 2014, and it's expected to accelerate growth slightly this year. During 2015, Amazon's sales growth accounted for about one-fourth of total retail sales growth in the United States, and more than half of all online sales growth.
With the growth of Amazon, Wal-Mart must look to differentiating formats to continue growing net sales. The company previously said, "Small stores continue to represent a great growth opportunity for us in many of our markets" as recently as the first quarter of fiscal 2015.
Shutting down Wal-Mart Express not only means that the store format failed to gain traction, but one of Wal-Mart's biggest sources for future sales growth is non-existent.
Not growing online or internationally
Wal-Mart has made a big effort to boost its online sales over the past three years, investing billions of dollars in its Internet store infrastructure. Last quarter, the company saw online sales growth dip below 10%, the lowest number since it started reporting the metric.
The slowing growth can't be blamed on the law of large numbers. While Wal-Mart generated an estimated $13 billion from online sales in 2015, Amazon sold an estimated $88 billion. What's more, Amazon's sales grew approximately 33% in 2015.
Wal-Mart simply can't compete with Amazon online.
Wal-Mart's other plan for revenue growth is international expansion. The store closures include 60 underperforming stores in Brazil and 55 other international stores. Last year, international store count grew slower than in the U.S. and total sales grew just 3.6%. With the global economic slowdown over the past six months, Wal-Mart faces further headwinds growing internationally.
Investors have surely punished Wal-Mart stock over the past year as sales declined. The stock price is down 30% over the past year. As a result, the stock is trading near its all-time low price-to-sales ratio. But the anemic sales growth prospects don't make it any more than an income investment.