Remember when Sam Walton was building Walmart stores? They were often situated far away from each other, often in small towns, and many people had to drive long distances to get to a Walmart.
In the years following Walton's death, Walmart started growing so big that Walmart stores were ubiquitous. I have three Walmart stores within five miles of me.
What did this huge growth do? It started to cause cannibalism of their own stores and made their model less unique. It resulted in a long period of slow or flat growth.
Psychologically, it extinguishes the view of patrons that it is unique and scarce. People love to be part of an exclusive group. This is a key driver for private clubs, such as country clubs.
For the last 4 years, Costco has decreased the absolute number of stores they have built. It is well known that a key marketing strategy is having a product that is scarce and unique. Slowing the growth of new store construction is a key way to do this.
Take a look at the attached chart on Costco's stores. This information comes from their SEC 10K. If you look at the total stores they have, it looks like they are growing at a steady pace, but if you look at the incremental number of stores they add each year, it shows that they are currently focused on maintaining scarcity and maximizing the productivity of their existing stores.
By maximizing the productivity of their existing stores, they achieve a better return on the assets they employ in their business. While this is not a common strategy for many chain stores now days, it is very effective if management is trying to achieve the best bang for their shareholder's investment. That is smart, really smart. This is just another reason of many why Costco is so successful.
Be smart, be well-read and be successful!
