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).
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.
Amazon is not going anywhere, reflected in its own 22 percent increase in sales, which came from a far larger pool of consumers. With its warehouses in place to improve shipping flow, Amazon is ready to go to war online. Whole Foods presents a more direct threat in the brick-and-mortar business of Walmart. Its continuous growth in sales (and stock prices) reflect Whole Foods’ ability to play to the organic market as well as a general grocery clientele.
In fact, Whole Foods senses vulnerability in the country’s largest retailer and is going after Walmart’s traditional sales base. Showing a clear path from a local farm to a nearby Whole Foods store, a recent ad is telling customers in the Midwest it can trust the food is fresher, while the business practices are unlikely to lead to thousands of deaths in a foreign factory.
Not that every Walmart customer cares about such things. CFO Charles Holley told reporters “we really haven’t had much feedback from that,” when asked about the recent disaster in Bangladesh. However, the writing on the wall is saying that customers who have a little bit of money in their pocket prefer shopping elsewhere.
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