Walmart Can't Entirely Blame the Economy for Bad Sales
When Walmart (WMT) reported disappointing first-quarter sales figures in May, it blamed poor weather and tax refund delays. And it set low expectations for the quarter to come: Same-store sales, it predicted, would grow anywhere between 0 percent and 2 percent over last year.
As it turns out, even those low expectations were too optimistic. This morning the company reported that same-store sales for the second quarter had actually declined by 0.3 percent over last year. Traffic in its U.S. stores was likewise down. While it hit its earnings estimates, those sales figures sliced $1.99 off the share price today.
In the earnings conference call, Walmart executives continually strove to place the sales figures in context, repeatedly referring to the retail environment as "challenging" and "disappointing" and suggesting that the "current economic environment" would keep sales flat in the quarter to come.
So is Walmart just a victim of economic hardships and spendthrift consumers, or has the world's biggest retailer lost its mojo?
"I think this does speak to the consumers," says Brian Sozzi of Belus Capital Advisors. "They're pulling in $30,000 to $40,000, and not making it to the end of their paycheck."
Indeed, Walmart executives cited "softer discretionary spending," pressured consumer spending in international markets and the impact of high gas prices in explaining poor sales figures. And it's true that median household income keeps falling (though to be fair, Walmart isn't exactly helping there).
But it's not entirely a victim of economic circumstance: It's also dealing with stiff competition.
Sponsored Links"There's a portion here that's [due to] more competition," says Sozzi. "They've got grocery stores and dollar stores surrounding Walmart stores, and Family Dollar is putting lots of money in putting coolers in its stores." And cash-strapped consumers may be more likely to hit Family Dollar (FDO) for a few items than go to a Walmart superstore and fill a cart.
So it's true that Walmart is dealing with consumers who just don't have as much money in their pockets -- but as a discount retailer, those consumers should be its bread and butter. Rather than wait around for the economy to get better and consumer spending to recover, it might want to find a way to reclaim what ought to be its target audience.
Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.