Walmart is having problems. The giant retailer had poor first quarter earnings for 2014. According to a CNN Money article by Matt Eagan, “Total sales inched up just 0.8% to $115 billion. Many were expecting $116 billion.” Earnings were $1.10 per share when the target was $1.15 per share. Walmart blamed colder than usual winter weather for keeping consumers out of their store. However, in his article “Walmart is Falling Apart Before Our Eyes,” Travis Hoium of Motley Fool points out a steady decline in “same-store sales” while overall consumer spending on goods has been increasing. That means that at each store, sales are down from same quarter in the prior year. One big question is why? One other big question: Is Walmart Doomed?
There are two categories at play in the decline of Walmart. First, there are larger economic factors that are beyond the control of the big box retailer. Second, there are factors involving the consumer perception of Walmart that the chain can clearly address. The long-term success and survival of Walmart are dependent on whether the factors Walmart can address can outweigh the factors beyond Walmart’s control.
Of the big picture factors at play, the economic decline of America’s middle class and poor is a major concern. Middle class incomes have only risen 0.3% since the year 2000. According to a Washington Post article, “wages for millions of American workers, particularly those without college degrees, have flat-lined. Census figures show the median household income in 2012 was no higher than it was 25 years ago. Men’s median wages were lower than in the early 1970s.” Many Americans have been pushed out of the middle class by the trend towards the automation and offshoring of routine tasks. In a Vox article, economics professor, Michael Boehm notes that “routinisation has not only replaced middle-skill workers’ jobs but also strongly decreased their relative wages.” Walmart has cited cuts to social programs that have hit the poor hard. According to CNN Money, “In February, Wal-Mart blamed Washington, citing cuts in food stamp benefits and higher payroll taxes for its gloomy results in the fourth quarter of last year.”
In the consumer perception arena, Walmart has lagged behind other chains like Target. Where Walmart used to be a consistent low price source of goods, like many middle class consumers, I have found that that Target often has better prices on many items. I have also been dissatisfied in areas like check out speed and customer service. Over the years, I have heard Walmart be blamed for the influx of cheap consumer goods from China and for poor compensation of their employees. It has become popular to make fun of Walmart customers on the internet with memes like women of Walmart. This all contributes to the negative perception of Walmart and probably helps keep the most affluent consumers out of Walmart aisles. Adding to this, Motley Fool says that the Walmart model of one-stop shopping is fading and notes that “for cost conscious shoppers, lower prices can often be found online and more affluent consumers are choosing style and quality products over one-stop shopping.”
Is Walmart doomed? Citing weakness in the supercenter business model, Travis Hoium of Motley Fool writes, “If the retail giant can’t adapt to new competition like online, specialty, and local retailers there’s a real chance the company is in danger of heading down a downward spiral we’ve seen so many retailers go down before.” However, in my opinion, as long as the middle class and poor continue to decline in America, they are going to need low cost retailers. Whether Walmart can meet their needs and stay profitable is another question that only time will answer.
Matt Eagan, “Walmart is Hurting for Shoppers” CNN Money, May 15, 2014
Travis Hoium, “Walmart is Falling Apart Before Our Eyes” MotleyFool.com, May 17, 2014
Michael Boehm, “Job Polarisation and the Decline of Middle Class Workers Wages” Vox, February 8, 2014
Carol Morello and Scott Clement, “‘Happy Days’ no more: Middle-class families squeezed as expenses soar, wages stall” Washington Post, April 26, 2014.