WAL-MART'S MIDLIFE CRISIS

John E Fleming, Wal-Mart's newly appointed chief merchandising officer, is staring hard at a display of $14 women's Tshirts in a Supercenter a few miles from the retailer's Bentonville (Ark.) headquarters. The brighthued stretch T's carry Wal-Mart's own George label and are of a quality and stylishness not commonly associated with America's über-discounter . What vexes Fleming is that numerous sizes are out of stock in about half of the 12 colors, including frozen kiwi and black soot. Fleming may be America's most powerful merchant, but a timely solution is beyond him even so. Wal-Mart failed to order enough of these Chinamade T-shirts last year, and so they and other George-brand basics will remain in short supply in most of its 3,443 US stores until 2007's second half, depriving the retailer of tens of millions of dollars a week it sorely needs. "The issue with apparel is long lead times," says the quietly intense

Fleming, who spent 20 years at Target Corp. before joining Wal-Mart Stores Inc. "We will get it fixed." For nearly five decades, Wal-Mart's signature "everyday low prices" and their enabler-low costs-defined not only its business model but also the distinctive personality of this proud, insular company that emerged from the Ozarks backwoods to dominate retailing .

Over the past year and a half, though, Wal-Mart's growth formula has stopped working. In 2006 its US division eked out a 1.9% gain in samestore sales - its worst performance ever - and this year has begun no better. By this key measure, such competitors as Target, Costco, Kroger, Safeway, Walgreen's , CVS, and Best Buy now are all growing two to five times faster than Wal-Mart .

Wal-Mart's botched entry into cheap-chic apparel is emblematic of the quandary it faces. Is its alarming loss of momentum the temporary result of disruptions caused by transitory errors like the T-shirt screwup and by overdue improvements such as the store remodelling program launched last year? Or is Wal-Mart doing lasting damage to its low-budget franchise by trying to compete with much hipper, nimbler rivals for the middle-income dollar? Should the retailer redouble its efforts to out-Target Target, or would it be better off going back to basics? If Wal-Mart seems short of answers at the moment, it might well be because there aren't any good ones. Increasingly, it appears that America's largest corporation has steered itself into a slow-growth cul de sac from which there is no escape. "There are a lot of issues here, but what they add up to is the end of the age of Wal-Mart ," contends Richard Hastings, a senior analyst for the retail rating agency Bernard Sands. "The glory days are over."

Simple mathematics suggest that a 45-year-old company in an industry growing no faster than the economy as a whole will struggle to sustain the speedy growth rates of its youth. In Wal-Mart's case, this difficulty is exacerbated by its great size and extreme dominance of large swaths of the US retail market. Wal-Mart already controls 20% of dry grocery, 29% of non-food grocery , 30% of health and beauty aids, and 45% of general merchandise sales, according to ACNielsen.

However, the expansion impulse is as deeply embedded in Wal-Mart's DNA as its allegiance to cut-rate pricing . Wal-Mart was able to boost total US revenues by 7.2% last year by opening new stores at the prodigious rate of nearly one a day. According to Wal-Mart CEO H Lee Scott Jr., the company plans to sustain this pace for at least the next five years. In fact, he is on record saying that room remains in the US for Wal-Mart to add 4,000 Supercenters - the largest of its store formats by far - to the 2,000 it now operates . Does Scott, 58, recognise any limits whatsoever to Wal-Mart's growth potential in the US, which accounted for 78% of its $345 billion in sales last year? "The real issue is, are [we] going to be good enough to take advantage of the opportunities that exist?" - BusinessWeek