I’ve always looked at publicly-traded retail companies as being an important bellwether of the overall US economy.

I sort firms into rough categories by who their typical customers are and how much things cost. From most expensive to least, they are:

–super luxury, which is basically invisible

–luxury goods

–specialty retail

–Costco

–clothing stores

–Target, Walmart

–fast fashion

–dollar stores

–sub-dollar-store, which is also in stealth mode as far as stock market presence is concerned.

It’s possible to segment each of these categories further, like dividing dollar stores into Dollar General, Dollar Tree and Ollie’s Bargain–each serving different segments of the dollar-store market, but that’s more detail than I’m usually interested in.

It’s also important to recognize that luxury goods companies typically charge much more for their wares outside the US than here, so even modest sales increases in places like China (where the opposite is the case right now) or the Middle East can move the needle a lot.

The basic idea is that consumers trade up and down in sync with the economic cycle. In bad times, the specialty retail customer trades down to Walmart, the Walmart customer to the dollar stores, and the dollar store customer to venues that aren’t publicly traded. …and vice versa.

So, where are we now?

The dollar stores are a mess. Walmart is booming. Target is finally putting its aggressive pandemic-era overstocking of consumer electronics, but is not growing as fast as Walmart. Luxury in general is struggling. (I don’t pay much attention to this segment any more. My impression, though, is that the collapse of the Chinese property market is the main culprit …and that so-so sales in the US and Europe are a much lesser issue.)

Overall, this is not a picture of economic strength. If we put Walmart to the side, it would appear that lower income domestic consumers are still struggling and that a reversal of the typical cyclical trading down has yet to begin.

What about Walmart (I bought shares starting early this year, when I realized that WMT offered camera stuff online that was much cheaper than anywhere else)? Three factors are involved, I think. In what I’m guessing is the order of importance, from most to least important, I think they are:

–management seems more interested in making market share gains than in defending the status quo

–it’s online business has become a more effective competitor to Amazon, although its recent discontinuing its Walmart credit card may well be a serious mistake

–it has been unusually successful in holding on to customers who would have begun to trade up in previous cycles

–political pressure from already-established merchants has limited Walmart’s presence in California, and late arrival in the Northeast has made finding prime locations relatively difficult. I don’t have a strong opinion, but being out of these two areas may have been a plus this year.

the stock

WMT is up by over +60% so far in 2022 vs. +24% for the S&P 500. For now, I’m content to hold what I have but don’t feel a strong need to buy more.