Submitted by Emma Davis of
as part of our
All of the talk about the negative impact of the sequestration
on consumer spending appears to have some validity.
While the rich consumers are continuing to spend on luxury
items, those who are making less money and are influenced by the
fragile jobs market and flat income levels continue to worry, which
could likely impact consumer spending going forward. The effects of
this, along with the widening gaps between the rich and the poor
and the middle class are affecting consumer spending by Americans.
In fact, we are seeing a widening income gap in many countries
around the world, so it's not just an American phenomenon?its
impact on consumer spending is global.
Wal-Mart Stores, Inc. (NYSE/WMT) is a good barometer on the
state of consumer spending around the world, especially with the
lower- to middle-class consumers.
The company reported its results last Thursday, and it seems
like Wal-Mart is facing some hesitation in consumer spending.
In the fiscal first quarter, the company's net sales grew a mere
one percent year-over-year to $113.4 billion, which was below the
Thomson Financial consensus estimate of $116.4 billion. The sales
reading was also shy of the low range of the estimate of $114.6
The low-cost retailer blamed the decline in consumer spending on
a delay in tax refunds, adverse weather, and the rise in payroll
taxes. The key comparable U.S. store sales fell 1.4% for the 13
weeks ended April 26, 2013, which represents the first contraction
in this key metric in many quarters.
My concern is that Wal-Mart is facing sales pressure at a time
when money is cheap. What will happen to consumer spending when
interest rates edge higher due to rising carrying costs?
While the decline in same-store sales is worrisome for Wal-Mart,
there are also concerns regarding the foot traffic in the stores
worldwide. Retailers want to see rising and high foot traffic. The
thinking is that everyone who walks into the store is a potential
customer and represents an opportunity to convert the foot traffic
into sales at the register.
In the case of Wal-Mart, there are issues, according to Patrick
McKeever, a discount retail analyst at MKM Partners: "The foot
traffic trend has been deteriorating at Wal-Mart, pretty much
across the entire portfolio, both domestically and
internationally," he states. (Source: Chang, A., "Wal-Mart Has a
Bigger Worry Than Sales Growth," Yahoo! Finance web site, May 16,
2013.) McKeever says the foot traffic for Wal-Mart is declining in
North America, Mexico, Brazil, China, and Japan, and predicts it to
fall even further this year.
Wal-Mart estimates it will see a rise in comparable store sales
in the next 13-week period. If the company doesn't deliver on this
estimate, then you have to pause and consider that maybe all is not
as rosy as the media is letting on.
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