What Does Wal-Mart’s Warning Say about the Economy?

What Does Wal-Mart’s Warning Say about the Economy?

Wal Mart’s Warning Say about the Economy What Does Wal Mart’s Warning Say about the Economy?NEW YORK – This weekend all eyes have turned to Washington as lawmakers battle over a fiscal showdown that could lead to a prolonged shutdown of the Federal Government.  However, they should not overlook the fact that the world’s largest retailer, Wal-Mart (NYSE:WMT) is experiencing a slowdown of their own.


Last week, Bloomberg reported that Wal-Mart was cutting back on orders from its suppliers in a move to reduce inventory as sales were not meeting forecasts.  According to analysts, a review of the company’s most recent form 10-Q filed with the Securities and Exchange Commission (SEC) reveals that inventories were up more than 5 percent in the quarter ending July 31 for a total value of $ 42.8 billion.  At the same time, revenues were up only 2.3 percent and same-store sales in the U.S. actually fell by 0.3 percent.  In the past six months, the decline in U.S. sales has been even worse as same-store sales declined by .8 percent.

The company is blaming the decline, in part, on higher payroll taxes; which they claim are leaving customers with less disposable income.  For some analysts, this spells trouble for the broader retail industry.  While median family income has been steadily falling since the financial crisis began in 2008, consumer spending had remained relatively stable.  However, that has changed this year as persistently high gas prices and the increased payroll tax might have pushed median income families past the breaking point.  According to ShopperTrak, holiday sales, usually the busiest period for retailers, will hit their slowest growth since 2009.

Even though Wal-Mart announced plans to add over 55,000 seasonal workers to keep up with the holiday crunch, continued weakness in sales could force the company to scale back their plans.  Ultimately, this could spell the end of this year’s bull-run on Wall Street; the boom in luxury retail is unlikely to be sustainable as weakness at discount retailers is certain to ripple across the broader economy.

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Tech companies that rely on Wal-Mart as an important part of their distribution model could be the first to feel the pinch as customers who would traditionally go to the retailer to upgrade a wide range of consumer electronics might choose to sit out the holiday season.  As such, sales performance at Wal-Mart during the holiday season could be a reliable indicator of the economic outlook for 2014.