By Teresa Rivas

"New Starbucks Opens In Rest Room Of Existing Starbucks," proclaimed The Onion in 1998. That satirical take came at a time when the coffee chain was expanding rapidly, but eventually oversaturation became a problem for it -- and remains one for many retailers.

Growth is a tricky proposition for consumer companies. At some point, it's a necessity: Having enough location density to encourage loyalty is key, economies of scale are a tailwind, and no one ever complains that Walmart is too big.

However, it's not all upside. Analysts have pointed to companies that have grown too quickly, losing their cachet along the way. Then there is the cannibalization issue: At some point, new stores don't attract new customers, but rather the same customers who previously visited a different location.

The latter is what Bernstein analyst Zhihan Ma believes is hurting a number of retailers today. She wrote in a Monday note that across her coverage of major retailers, "the total number of stores in the U.S. more than doubled from about 17,000 in 2007 to some 39,000 in 2025," a rate of expansion that now means plenty of stores are cheek to jowl.

Dollar General is the poster child for this problem. In 2010 the company, freshly public again after going private during the throes of the financial crisis, had more than 9,000 stores, only 13% of which had a Walmart within a five-mile radius. Fast forward to the present, and roughly half of the 20,000 Dollar Generals are within five miles of Walmart stores; 7% are less than one mile away from a Walmart location. Dollar General shares rose more than 1,000% between 2010 and 2022, but have lost almost half their value in the past five years.

Of course, there were other factors at play in that decline, such as understaffing and theft. Plenty of stores, from Target to Costco Wholesale, also tend to locate their stores together, figuring that shoppers will stop by both locations before heading home.

Yet Ma questions that logic. "Stores that are not co-located with competitors generated higher year-over-year visits growth," she writes. It's not just Dollar General either, as she observed similar patterns with Dollar Tree and most Target stores that tend to be near Walmarts or other large players.

There are exceptions, too. Dollar General may just work better when it's focused on its core rural market, which naturally isn't saturated with stores. Likewise, poorly-performing Target stores that aren't located near a Walmart likely do so because they're in dense urban areas where shoppers have more options overall, Ma suggests.

Nonetheless, the implication is that investors need to rethink their typically positive reaction to store expansion, at least for bigger brands. "The underperformance of co-located stores suggests saturation in the US retail market. With a few exceptions (e.g., Five Below, Costco), we don't see meaningful store growth opportunities for most retailers in our coverage," Ma writes. "Instead, for retailers with less differentiated value propositions, their existing footprint could be at risk in more competitive markets."

The idea of being the only game in town is certainly appealing, although avoiding competition isn't always feasible. It's much easier to build a new store than cultivate a business that stands out from the crowd and consumers naturally think is a good value. No wonder so many retailers are struggling to find their footing.

Write to Teresa Rivas at teresa.rivas@barrons.com

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June 03, 2026 01:00 ET (05:00 GMT)

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