Wal-Mart outlook reveals a tale of two consumers

As American consumers are seemingly driving the recovery forward, lower-income households are getting left behind.

By MSN Money Partner Aug 16, 2013 2:01PM

CNBC© Scott Olson/Getty Images By John W. Schoen

 

The Wal-Mart (WMT) consumer is revealing a troubling new side to the economy. As American consumers are seemingly driving the recovery forward, lower-income households are getting left behind.

 

The retail giant reported Thursday a surprise drop in sales for the latest three months and offered a very cautious outlook for the rest of the year.

 

"During the first half of the year, we saw consumers in both mature and emerging markets curb their spending, and we believe these trends will persist through the remainder of the year," said Wal-Mart's chief financial officer Charles Holley.

 

That's not what's happening to overall consumer spending, according to the Commerce Department, which reported earlier this week that retail sales rose 0.2% in July. The government's so-called "core" spending index -- which excludes cars, gasoline and building materials -- posted its largest gain in seven months, rising 0.5%.

 

The conflicting picture, some analysts say, is coming from two very different groups of American households.

 

"You're seeing a bit of a split economy where that lower income consumer has been under a lot of pressure but the higher end is doing OK," said Joe Feldman, a senior research director at the Telsey Advisory Group. "You're seeing borrowing is increasing actually for auto loans, for house loans. There is capacity to spend, but it's the high end that's getting that lending to spend. It's really the lower end where you're seeing a lot of pressure."

 

That pressure is a major drag holding back the tepid recovery from the Great Recession that has been marked by slower growth and higher unemployment than any rebound in the last 50 years.

 

Recent cuts in federal spending haven't helped. But with consumer spending driving nearly 70%of gross domestic product, a return to "normal" economic growth can't happen without stronger household spending.

 

Earlier this year, a pickup in demand for housing and cars sparked optimism that the American consumer was slowly digging out from a long, debt-burdened spending drought that lingered long after the recession ended three years ago. But the recovery has yet to reach the lower end of the income ladder.

 

After peaking at 1% in October 2009, the unemployment rate has fallen slowly but steadily to 7.4% last month. But much of the employment created since the recession ended has come from low-wage jobs in the service sector. More than half of the new jobs created in July, for example, were in either the retail or leisure and hospitality industries.

 

Overall, earnings tightened considerably last month for households living paycheck to paycheck. Real weekly earnings fell a half percent in July alone, according to the Bureau of Labor Statistics, as hourly wages dropped 0.2% and the average work week shrank by 0.3%. Wages dropped on an annualized basis as well.

 

The wage squeeze comes on top of the significant financial hit from an increase in payroll taxes that kicked earlier this year.

 

Many consumers have also begun spending more freely after paying down the epic pile of debt taken on during the wild borrowing spree of the mid-2000s. Homeowners who survived the housing bust are seeing healthy gains in home equity, giving them more confidence to spend.

 

But that confidence has yet to return to families that make less than $60,000 a year, according to a Gallup poll taken in June. That's roughly the threshold for those who report that they "feel good these days" about the amount of money they have to spend.

 

Only a third of those making less than $24,000 feel confident in their finances, while two-thirds of those with more than $180,000 a year in income say they "feel good about how much money they have to spend," according to the poll.

 

When asked if "they have enough money to do what they need to do" -- like buy a new car or appliance or tend to an emergency home repair -- fewer than half of those making under $48,000 a year felt financially prepared to do so, Gallup found.

 

The tale of two consumers was told in the July retail sales data, which showed that spending was strong for clothing, general merchandise and food -- both at home and at restaurants. Sales of gasoline, health care products and sporting goods were also strong.

 

But when it came to big-ticket items, consumers were more cautious. Sales of cars and trucks -- which have been zooming along this year -- eased in July, along with purchases of furniture, electronics and appliances. Sales also fell at building materials and garden stores.

 

"In other words, lower priced products were in; higher cost goods were out," said Joel Naroff, chief economist at Naroff Economic Advisors, in a note to clients.

 

Ordinarily, that should be good news for Wal-Mart, which has built the world's largest retail chain on a promise to keep prices as low as possible. But since the Great Recession spread thrifty shopping habits to a much larger share of households, that low-price strategy is now attracting a lot of competition.

 

"(Wal-Mart) continues to lose market share to the dollar stores which are more convenient but have the same sort of a value proposition," said Patrick McKeever, a retail industry analyst at MKM Partners.

 

Traditional retailers like Wal-Mart and Macy's (M) -- which also reported weak sales results this week -- are also increasingly losing price-conscious customers to the Internet, where a search of online outlets offers more powerful comparison shopping.

 

E-commerce volume broke another record in the second quarter, grabbing nearly 6% of all retail sales, according to analysts at IHSGlobal Insight, which estimates that online shopping volume for 2013 will be some 14% higher than last year.

 

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Tags: MWMT
80Comments
Aug 16, 2013 3:11PM
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Most people are only buying necessities now - and even with those things, they are holding off as long as they can.


Aug 16, 2013 3:00PM
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What goes around comes around. When you treat your workers and your consumers bad it comes back to bite you. Wake up America and quit shopping there. Hope there the next Montgomery Wards. They have run every mom and pop shop out of America. Quit buying Chinese junk.
Aug 16, 2013 2:56PM
Aug 16, 2013 3:54PM
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Wow Wal-Mart in trouble? Based upon my local Wal-Mart (sand springs, ok) could it be?:

1- Usually only two cashier lanes open

2- Shopping carts that are worn out

3- Poorly stocked store

4- Co-managers who are uneducated ,but  knew the right ppl to get those positions

5- Upright, alienating posture/walk co-managers use, shows public you truly are idiotic a$$e$

6- Sour puss expressions on most of their employees' faces

7- Half rotten produce

8- Virtually no store a/c in the summer showing they could care less about customers/employees

9- Shelves coated in dust

10- Selling out the US worker (jobs) to made in China, Mexico, etc. for the bottom line

11- US taxpayers supporting your poorly paid employees via food stamps/state healthcare

12- Discriminatory hiring practices: interviewing my long time neighbor, sending him for drug test, leaving him out to dry w/o even a phone call and giving him runaround when he followed up on his application. He used ME as a reference. Several of us that have known him for years now shop there little as possible over it. FYI another company hired him. What a great group of ppl/company.

13- Competitors now matching or undercutting their prices

 

There it is in a nutshell. This greedy, poorly managed company deserves to fall by wayside.

 

Aug 16, 2013 3:42PM
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Has anybody on this forum been to your local Wal-Mart store lately? I have. It will be a cold day in hell when I go back!
Aug 16, 2013 3:18PM
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Glad to hear Wal-Mart is doing poorly.  They deserve it.  Hope it kicks Chinas butt too.  If the lesser informed people would quit buying from all the companies who purchase their products in China, they might have a job.
Aug 16, 2013 5:38PM
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Well, let's see:  Gas prices $2.49 in 2007, $3.59 in 2013 +44%; Bread at my local store, 99 cents in 2009, $1.49 in 2013, +50%; State income taxes in my state 3% in 2010, 5% in 2013 +67%, Property taxes up 10%, Sales taxes up 5%, Cable and satellite + 20%, yadda yadda yadda.......

 

When the economic pie ain't growin' but everyone wants a bigger slice, the difference ALWAYS comes from disposable income. Wal Mart is the canary in the coal mine, first to see it because their clientele are the first to cut back.

 

Reading through these comments I think everyone here could have written this article in far fewer words and more accurately too.

 

Aug 16, 2013 3:30PM
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We have NO economy. All articles like this do is point out that a small minority are getting favored to pump Kool Aid while pushing paper and buttons. that's not even close to a recovery. World War III is straight ahead.
Aug 16, 2013 2:30PM
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The fed should have only three jobs.

 

1. Maintain an accurate and honest CPI.

 

2. Keep the real inflation rate between a deflationary 1% and 0% inflation (no more inflation). This will increase the purchasing power of the consumer. Also, this will bring real earnings to saving. If, savers can earn real income on savings, interest rates will stay low.  Also, it will increase the value of the dollar. This would move money to America (an estimate 5 trillion dollars).

 

3. Replace the fed with a computer program ASAP.

Aug 16, 2013 4:40PM
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Wally World did it to themselves.  They spent millions "refurbishing" stores that didn't need it.  They keep moving shelves around which is confusing to kids whose parents send them in on a quick trip for one item, or old folks who are looking for familiar items.  They advertise that all stores have the same items, and the same prices, and this is a flat-out LIE.  I've been to enough of the stores to see it with my own eyes.  When you lie to customers, trust is lost.  They discontinue items without notice - it's just gone one day when you go to buy it. 

If employees are disgruntled, it's because they are treated badly ever since old man Walton died and the bean-counters in AR even control the a/c in ALL the stores and treat human beings like cattle.  They used to be happy employees, but no more.  They took down the community bulletin board in my store.  We are in a rural area, so we don't have any choice but to go to WM for food and other items.  The parking lot is slanted UPhill from the store so that you have to push harder with a full cart.  A little prior planning would have fixed that.  Yes, many times very few lanes are open.  They took out the self-service lanes which some people did use.  So now there are long lines.  They even took out the McDonald's that used to be in the store, how dumb is that?  People would shop, have lunch, and continue shopping!  No more.  They took out the BATHROOM for the optometrist that used to be there.  What was she supposed to do???  She moved.  I moved with her.  WM has come to a really sorry state and you can't tell me that the bigwigs in AR haven't heard these complaints.  They just don't give a shi+. 

Aug 16, 2013 5:47PM
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I'd like to know who decided the GREAT RECESSION was over anyway.It's just a bunch of hype to get most of us still affected by the recession to loosen our "purse strings",so to speak.I do agree that there is a split economy,with the rich doing better than the rest of us.Increases in payroll taxes only hurt the workers who are paying them,and the gov't which usually misappropriates the distribution of these extra taxes.The governments of this world have almost always "printed their way out of trouble for years,increasing cash into their own respective  economic systems.I'm glad to see the numbers on e-commerce sales are up.I'm an advocate of anything where you get what you want without having to spend money on gas to shop.You can blame the slow growth of the larger retailers,in part on the greedy OIL companies.There's no magic solution to the slow economy,but when you have one entity with a stranglehold on our economy,NOBODY wins.
Aug 16, 2013 4:43PM
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The real reason I don't go into WALMat.. 28 lanes and 3 cash registers open... really? what's the point.. I go into Dollar Tree or Dollar General or any Dollar like store and they have most of the registers open.... I'm in an out in 20 minutes tops... Plus... I'm really not feeling the low wages they pay employee's...It's the company culture.. it's bad.. plain and simple.. we're tired of eating diet vanilla... and you can keep the little portions too...
Aug 16, 2013 4:41PM
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there are two WalMarts in San Angelo, Tx and I will never go into the one on Sherwood Way again. I will go to the other side of town, about 10 miles, to the newer one. The old store is absolutely filthy. unless you have been in it you can't imagine the filth and the smell. The restrooms are a nest for germs and are dirtier than the store itself. Some of the big wigs need to come into the store and check it out. But I guess as long as they are making profits they don't care how dirty the stores are.
Aug 16, 2013 2:25PM
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What did you expect with Obama's MASSIVE tax increases?   The economy  to pick up speed?   Tax increases have ALWAYS slowed economic growth.  We will be lucky to have 1% economic growth for the year.

The democrats seem to think that we can Tax and Print our way to Prosperity.   They also firmly believe that we can Borrow and Spend our way out of Debt.

Hunker down, it is going to get way worse...
Aug 16, 2013 3:14PM
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Left behind? O'Bama neglected to tell you that under O'Bamacare, is a LAW that goes into effect in 2014 in EVERY state. This LAW will greatly expand the criteria for welfare, and will about DOUBLE the numbers eligible. For eample, in our state (check with yours if you don't believe me) the numbers eligible for free medical, housing vouchers, prescription drugs, stamps and the rest of the freebie package is going to rise from 3.7 million currently collecting to an estimated 7.1 million. Socialism at it's finest and double the number the taxpayer has to carry-most of whom (note I said MOST, not ALL) are able bodied adults who are fully capable, just like the rest of us...but who instead choose either to not extend themselves, or if not eligible, simply purchase a SS card and collect the freebies...MOST, not  ALL are left behind because they CHOOSE to be, in one way or another..
Aug 16, 2013 7:01PM
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Individual Wal Mart stores vary greatly.  Some are very clean and orderly, some are a mess.  Here is a key to some commonalities in good and bad stores.

 

BAD DIRTY SLOPPY STORES: Lots of people speaking foreign languages,

non-Caucasian babies running around with bare feet,

signs posted near the cash register advertising "wire money anywhere outside the U.S.:

older cheaper cars with Obama bumper stickers on them.

people smoking right outside the entrance

charity drives or other funds collecting donations outside the entrance

 

CLEAN STRESS-FREE STORES

- primarily Caucasian, Asian, or Indian shoppers

- parents keep watch of where their children are

- English Indian, Japanese, Korean, or Chinese spoken by customers

- customers not arguing with spouse ./ significant other in the aisles

- bra straps not showing on overweight women

 

Aug 16, 2013 4:34PM
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What will the peopleofwalmart website do without 47%ers shopping there?? the madness must end
Aug 16, 2013 6:49PM
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Internet searches     for    making your own  soap ,laundry   soap,  deodorant,  shampoo and making your  own  baking mixes   etc    saves  even  more.   Yard sales  for  odds and ends  and furniture.  If you are on  a  tight budget   careful  shopping   can   save   a great deal   enabling   a family    to  live on less  with out setting foot in  a  WM.
Aug 16, 2013 4:50PM
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F.W. Woolworth of the new millennium.
Aug 16, 2013 8:20PM
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SHIRLEY,.,.,.,.,.WHERE ARE YOU ????????

I THINK THE STREET LIGHTS WENT ON AND IT WAS TIME FOR SHIRLEY TO GO HOME.
HERE YOU GO HONEY
AND BY USE OF THE SAME CURRENCY HOW DOES THAT QUALIFY THEM?
U S A #2

en.wikipedia.org/wik​i/List_of_countries_​by_GDP_(nominal)
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