Wal-Mart executives’ emails
Last Friday Bloomberg published a summary of internal emails from WMT. In one of these the company’s VP of finance and logistics, Jerry Murray, reportedly wrote that this February has seen the worst start to a month he’d seen in his seven years with the giant retailer. He characterized the results so far as “a total disaster.”
The remarks are noteworthy if only because WMT is the largest store chain in the US, accounting for about $1 in every $10 spent at retail. But they’re especially eyebrow-raising because Mr. Murray’s tenure covers the entire Great Recession of 2008-09, none of whose depths apparently held a candle to this February.
What’s going on?
I don’t know. But this story is worth keeping an eye on. It’s also probably worth monitoring MWT’s earnings results presentation on Feb 21st.
WMT’s take
WMT singles out two causes:
1. the tax on payroll income that’s intended to fund Social Security (we wish) was raised back from 4% to 6% on January 1st
2. the fiscal cliff debate that occupies Washington for most of December mucked up the IRS schedule for sending out forms and processing tax returns. WMT estimates the IRS would have distributed almost $20 billion in refund checks during January to early filers–instead of the zero that actually occurred.
crosscurrents
It’s possible, of course, that Mr. Murray is highly emotional and sends out hysterical emails to colleagues as a matter of course. Let’s assume that’s not the case. If so, as investors we’ve got to consider that:
1. Ex the extremely wealthy, consumers adjust their spending depending on the overall economic situation. As we saw in 2008-2010, during bad times families:
—–defer buying big-ticket items, like cars, refrigerators…
—–buy cheaper generic rather than brands, and
—–trade down from, say, grocery/department stores to discounters, from discounters to dollar stores, or from dollar stores to places completely off the publicly-traded-stock map–all depending on where the individual’s starting point is.
WMT was a relative loser in this process.
Now the reverse is happening. WMT is getting back customers from the dollar stores–and losing them to more up-market venues. Symmetry argues that WMT should be a winner from this trend. Apparently not, however.
2. About a third of WMT’s customer base is families with annual income that’s just a bit over half the national average. For these families, the rise in the payroll tax means a hit to disposable income of about $50 a month. Doesn’t sound like much. But for people already living from paycheck to paycheck, this may mean significant belt-tightening, even though the nationwide employment situation is gradually improving.
In other words, WMT’s terrible, horrible, no good very bad month may be indicative of the lower middle class market segment it dominates, rather than of the US economy as a whole.
what I think
No conclusions yet, only that the situation bears watching.
The sales falloff may be WMT-specific, the result of some merchandising mistake the company made. It could also be indicative of the continuing struggles of lower-income Americans. We also can’t dismiss out of hand the possibility that the overall retail business in the US is beginning to wobble as WMT apparently is–although I’d be very surprised if this is so.
As an aside, we might also ask how Bloomberg ended up with the emails–though my guess is that this isn’t that important for us as investors.
We’ll know more when WMT reports.