Retailers are opening stores at a pace that would have seemed delusional three years ago. The numbers are striking: major chains across the United States have announced plans to open thousands of new locations in 2025 and beyond, according to Business Insider. This isn’t a tentative toe-dip. It’s a full-blown land grab.
But here’s the question nobody in the C-suite wants to answer honestly: does the underlying economics actually support this level of brick-and-mortar expansion, or are retailers chasing a post-pandemic narrative about “physical retail’s comeback” that flatters their capital allocation decisions?
The data tells a more complicated story than the press releases suggest.
Start with the headline numbers. Dollar General, which has been the most aggressive expander in American retail for years, continues to push new unit growth even as its comparable-store sales have wobbled. The discount chain has targeted hundreds of new openings annually, a strategy that looks impressive on an earnings call but masks deteriorating per-store productivity. Reuters reported earlier this year that Dollar General’s same-store sales growth has lagged behind its square-footage expansion, meaning the company is spreading itself thinner with each new lease signed. That’s not growth. That’s dilution.
Contrast that with Aldi. The German-owned grocer’s U.S. expansion — targeting 800 new stores by 2028 — is backed by a fundamentally different model. Aldi’s stores are small, carry roughly 1,400 SKUs compared to a typical supermarket’s 30,000, and operate with skeleton crews. Their unit economics are tight enough that even modest foot traffic generates acceptable returns. When Aldi opens a store, it doesn’t need to become a destination. It just needs to exist on someone’s commute. So the expansion math works, but only because the cost structure was designed for it from the start.
Not every retailer expanding today can say the same.
Take the fitness and specialty retail sectors. According to Business Insider’s tracker of 2025 expansion plans, brands ranging from Burlington to Five Below to various fast-casual restaurant chains are all pushing aggressive new-store programs. Burlington has publicly committed to growing its footprint to over 2,000 locations, up from roughly 1,000 today. Five Below, which targets teens and tweens with discretionary-income products priced at $5 or less (a threshold it has quietly abandoned with its “Five Beyond” sections), plans hundreds of additional openings.
The logic is straightforward: off-mall, small-format retail in suburban strip centers offers cheaper rents and captures trade-down consumers. And in a high-inflation environment, that thesis has held up. But inflation is cooling. Consumer spending on discretionary goods has softened. CNBC reported in May 2025 that U.S. consumer confidence dipped again, with households pulling back on non-essential purchases. If the trade-down consumer starts trading down further — to Temu, to Shein, to simply not buying — the traffic assumptions baked into these expansion models collapse.
There’s a real estate angle here too. Commercial vacancy rates in many suburban markets have tightened precisely because of this wave of retail expansion. That means rents are climbing. Retailers who signed favorable leases in 2021 and 2022, when landlords were desperate, are now competing for space at significantly higher rates. According to data from CoStar Group, asking rents for retail space in the U.S. hit record highs in late 2024 and have continued rising into 2025. The cheap-space arbitrage that made many of these expansion plans pencil out initially is disappearing.
Walmart, characteristically, is playing a different game entirely. The company announced plans to invest heavily in store remodels and e-commerce fulfillment capacity rather than pursuing raw unit growth. Its strategy treats existing stores as distribution nodes — a recognition that the value of a physical location increasingly depends on what it can do beyond just selling merchandise on the floor. The Wall Street Journal reported that Walmart’s capital expenditure plans for 2025 emphasize automation and supply chain upgrades over new store construction. That’s a telling signal from the world’s largest retailer.
Costco continues opening warehouses at a measured clip — roughly two dozen per year globally — but its membership model insulates it from the traffic-volume anxiety that plagues conventional retailers. Each new Costco location comes pre-funded, essentially, by membership fees collected before a single item is sold. The economics are structurally different from a Five Below or Burlington that depends entirely on walk-in discretionary spending.
And then there’s the labor question. Every new store needs workers. The U.S. unemployment rate remains low, and retail wages have risen substantially since 2020. Bureau of Labor Statistics data shows average hourly earnings for retail workers climbed over 20% between 2020 and 2024. Opening hundreds of new stores means competing for employees in an already tight market, which drives up operating costs and compresses margins further. Some retailers have responded with automation — self-checkout, electronic shelf labels, reduced staffing models — but those investments add upfront capital costs that extend payback periods on new locations.
The bullish case for physical retail expansion rests on a genuine insight: e-commerce penetration in the U.S. has plateaued at roughly 15-16% of total retail sales, per U.S. Census Bureau figures. The vast majority of consumer spending still happens in stores. That’s real. But it doesn’t automatically follow that more stores equals more captured spending. Market share in physical retail is increasingly zero-sum. When Burlington opens next to a TJ Maxx, they’re splitting the same customer, not growing the pie.
Some of these expansion bets will pay off. Aldi’s will. Costco’s will. Retailers with differentiated models, disciplined cost structures, and genuine pricing advantages can absorb the rising costs of expansion and still generate returns. But the broad-based optimism driving the current wave — the idea that opening stores is inherently a winning strategy because “physical retail is back” — is dangerously simplistic.
The retailers most at risk are the ones expanding fastest into the most discretionary categories, with the thinnest margins, in a consumer environment that’s showing clear signs of fatigue. Five Below’s stock has already reflected this concern, dropping significantly from its 2023 highs as investors question whether new-store economics can hold. Bloomberg noted that several analysts have downgraded the stock citing exactly this issue — growth that looks good on a map but doesn’t translate to the income statement.
Physical retail isn’t dying. That obituary was always premature. But the current expansion cycle has the hallmarks of late-cycle exuberance: rising costs, tightening capacity, and strategic plans built on assumptions that made sense two years ago but are eroding fast. The smart money isn’t counting new stores. It’s counting returns per square foot. And for too many retailers right now, that number is heading the wrong direction.
WebProNews is an iEntry Publication