Wal-Mart ( WMT) is the largest retailer in the world with more than $400 billion in store revenue in 2009. Major competitors include Costco ( COST), Target ( TGT) and Best Buy ( BBY) . Wal-Mart operates both retail stores and warehouse clubs, and stands out for its consistently low prices.

We estimate that Wal-Mart's international operations constitute roughly 33% of the stock's value. Although Wal-Mart operates more stores abroad than in the U.S., the international stores are generally smaller in size and produce less revenue per square foot of retail space compared to U.S. stores. In the future, Wal-Mart plans to slightly reduce the size of its U.S. stores. And the company will probably not build big box stores in emerging markets anytime soon.

Here's why.

In 2009, Wal-Mart's international stores generated close to $384,000 in revenue per square foot, compared with $433,000 for U.S. stores. On average, the international stores are less than half the size of Wal-Mart's U.S. stores. In 2009 Wal-Mart's international stores averaged 67,000 square feet in retail space according to our estimate, compared to 160,000 square feet figure for U.S. stores.

Small Format Stores Better in Emerging Markets

The typical big box model may not be appropriate for emerging markets. Recently, Latin American research by Booz Allen Hamilton suggested that many emerging market consumers prefer to shop at smaller stores in their immediate vicinity, rather than spending money and time to visit larger stores further away. Such expenses are significant in the context of emerging market consumer budgets.

Wal-Mart's Plans Indicate Store Size Reduction

Wal-Mart plans to reduce its U.S. retail space by remodeling its stores. Management has indicated that Wal-Mart stores in the future will occupy 8% less space, run more efficiently and cost 16% less to operate. Because smaller stores require less capital investment, the company should have excess capital to expand into new markets. Given Wal-Mart's emphasis on size reduction in the U.S. market, it seems likely that international stores will continue to be smaller in size as well.

You can see the complete $65.14 Trefis price estimate for Wal-Mart's stock here.
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