I've been thinking again, this time about Super Wal-Mart.

I am not entirely sure that bigger is necessarily better…and for pure self-interested financial reasons, not 'hippy-isolationist, heaven help the small local business' reasons.

It is my conjecture that having oodles of retail space only helps you if you oodles of different types of stuff to sell.

Given the hypothetical situation of a store that sells only the 1 square foot Product A that costs the store 5 dollars to buy and they sell it for 10 dollars. Let us also say that the store has 100 square feet of space in which to sell it. Naturally, they keep 100 units of Product A in stock. Now, so at any given time they have $500 invested on their inventory. If they sell 100 units each week, the store makes $500/week. Now, while that 100 units is in stock the store has to in effect 'borrow' the amount of money which it paid for it's inventory. So, each week the store is making $500 on an investment of $500, or a relative earnings rate of 100% per week.

*side tangent for those of you with only minor understandings of economics* Anytime you hold money with out doing anything with it, you are essentially 'borrowing' else you could invest the money and earn interest, (if you're stand still, you're falling at the back)
*no more side tangent for you*

Now, if the store expands the amount of retail space to 200 square feet, but still sells only 100 units/week. The inventory investment at any given time is $1000 and the return in $500, and the store has effectively halved their relative earnings rate to 50% per week. And this doesn't even take into account the extra money spent on acquisition and upkeep of the new space.

Granting the premise that a shiny new store with wide-open space will add business. Let's assume that store now sells 125 units/week, a 25% increase. That still gives a relative earnings rate of 62.5%

Using this math you see that in order to keep the same relative earning rate, sales would need to increase at the same rate as inventory expansion.

Now in reality, a store would continue to expand and sell more units until their relative earnings ratio was just above whatever interest rate they could get by investing their money.

Now I said all that so you'll understand me when I say this:

There is NO economic reason to display Cheerios boxes 37-abreast and 15-deep instead of 1-abreast & 15-deep unless you sell 37 times more Cheerios boxes that way. And yet, I saw this very arrangement last evening at Super Wal-Mart.

Yes folks, I'm and Aerospace Engineer, and I just explained economic principles to you that most economics graduates don't understand. Ever wonder why I take offense to all college grads being considered of the same intelligence.