Tags: Karlgaard | Wal-Mart | headwinds | economy

Forbes Publisher: Wal-Mart Faces Headwinds

By    |   Wednesday, 27 February 2013 03:02 PM

Wal-Mart confronts several obstacles that herald bad news for the entire economy, says Forbes publisher Rich Karlgaard.

The following are the problems the company faces:

• The expiration of the payroll-tax cut. “Wal-Mart's customers aren't thriving, and they will sorely miss that $80 lost per month,” he writes in The Wall Street Journal.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

• Food prices are rising faster than overall inflation. The Agriculture Department forecasts a 3 to 4 percent gain in food prices this year, while core inflation is about 2 percent.

• Gasoline prices are up 30 cents a gallon so far this year. “History says that gas hikes always hurt Wal-Mart (and other big-box stores),” Karlgaard explains.

• Wal-Mart shoppers have a higher unemployment rate than the national average. Only 23 percent of Wal-Mart shoppers had a four-year college degree, according to a 2003 Advertising Age study. And the unemployment rate for those without a degree is 8.1 percent compared with 7.9 percent overall.

“It once was true that as General Motors goes, so goes the U.S. economy,” Karlgaard writes.

“Today that is truer of Wal-Mart, and that's a problem. . . . If higher gas prices and lower income levels represent a new normal, consumer spending is in trouble — and with it, the fortunes of both Wal-Mart and the U.S. economy at large.”

Earlier in February, Bloomberg obtained internal emails stating that February’s sales so far were “a total disaster.”

Jerry Murray, Wal-Mart’s vice president of finance and logistics, said in a Feb. 12 e-mail to other executives, “The worst start to a month I have seen in my ~7 years with the company.”

“Have you ever had one of those weeks where your best- prepared plans weren’t good enough to accomplish everything you set out to do?” Cameron Geiger, senior vice president of Wal-Mart U.S. Replenishment, asked in a Feb. 1 e-mail to executives. “Well, we just had one of those weeks here at Walmart U.S. Where are all the customers? And where’s their money?”

Wal-Mart’s troubles aren’t going away anytime soon, says Morningstar analyst Michael Keara.

“Over the long term, we see sustained profit margin pressure as the company continues to aggressively use price to compete with the dollar store formats and Target, but that will be more difficult against lower-cost operators Amazon and Costco,” he writes on Morningstar.com

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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Wal-Mart confronts several obstacles that herald bad news for the entire economy, says Forbes publisher Rich Karlgaard.
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2013-02-27
Wednesday, 27 February 2013 03:02 PM
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