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Woolworths Limited to open 108 new stores

Australia’s second-largest employer, Woolworths Limited (ASX: WOW), with more than 180,000 employees, has plans to add at least 7,000 to that number.

With the supermarket retailer planning to open 108 new stores this year, around 7,000 new jobs will be created.

That’s 23 more than the company noted it would open just last month. After opening 40 new stores in the last six months, Woolworths said it had plans to add another 45 stores in the second half. That has now jumped to 68.

Just last week, main rival Coles, which is owned by Wesfarmers Ltd (ASX: WES), said it had plans to build 70 new supermarkets in the next three years, creating 16,000 new jobs. Coles reported that it is investing $1.1 billion in those new stores, and reflected the confidence management had in the retail food sector.

Woolworths says its 7,000 jobs will range from customer service staff all the way up to senior level retail management.

Smaller competitors Aldi and Metcash Limited (ASX: MTS) are expected to open around 30 new supermarket stores a year.

But analysts suspect the supermarket store growth is unsustainable. Morgan Stanley analyst Tom Kierath believes the Australian market can support around 45 new mid-to large format supermarkets a year.

If that’s the case, it seems Woolworths and Coles are headed in the same direction as Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH). And that’s excess capacity, which could see earnings fall as expenses rise faster than revenues.

With Australia’s unemployment level slowly rising, the expansion by the two retailers would be welcomed by the government.

Foolish takeaway

Not all of those 108 stores Woolworths is targeting are supermarkets. Some will be liquor stores, hotels, Big W discount variety stores and home improvement chains Masters and Home Timber & Hardware. Woolworths looks set to continue generating revenue and earnings growth in the years ahead on the back of the new stores.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. You can follow Mike on Twitter @TMFKinga

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