Should Walmart Be Worried About an Improving Economy?

When people are hurting for money, they shop where the prices are lowest and, for many Americans, that place is Walmart (NYSE:WMT). What happens when economic conditions improve? Do Americans shrug off slightly higher prices and seek fresher food of higher quality? Unfortunately for Walmart, this trend might already be happening.

After reporting a 1.4 percent decline in sales in the first quarter of this year, investors are looking for reasons why Walmart is moving in the opposite direction of the rest of the economy. According to company leadership, the sales drop can be attributed to divine forces (bad weather) and Uncle Sam (the payroll tax hike and delays in tax refunds). Yet that didn’t stop Americans from eating out in unprecedented numbers. And it didn’t stop them from shopping at places considered more upscale, like Whole Foods (NASDAQ:WFM).

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Judging by these indicators, it looks like an improving economy is actually a bad thing for Walmart. An area where the company sees positive signs is in the online business. Though Amazon (NASDAQ:AMZN) is still running the show in e-commerce, Walmart showed a massive 30 percent increase in sales online. Still, few analysts believe the Internet increase can compensate for the impending drop-off in actual stores.