The Widdershins

So is Walmart now too expensive?

Posted on: February 10, 2014

Victorian poor in Braxton London

Victorian poor in East End London

All I can say is that I was almost floored when I read the headline on this Yahoo Finance article which was titled “Why Walmart is getting too expensive for the middle class”.   I thought “Wait a minute.  Walmart is maybe for the ‘lower’ middle class and the poorer folks, not for the ‘regular’ middle class”.  Now I do admit I shop there myself for certain things and on certain occasions.  But I just kind of thought the regular middle class folk go to Target or some place like that.  But apparently in our recovering economy (?) Walmart’s fortunes are not doing that well.

The sliding fortunes of Walmart (WMT) may best represent this recovery gap. Overall, retail sales rose 4.2% in 2013, or about 2.7% after accounting for inflation. And consumer confidence surveys show Americans on the whole feel considerably better now than they did a year ago. That ought to indicate good times for the nation’s biggest retailer.

The article says that Walmart’s stock is underperforming and sales are off:

The company recently cut its profit outlook, with analysts polled by S&P Capital IQ expecting just a 2.1% gain in sales when Walmart reports its quarterly earnings on February 20. That’s for a company that has consistently outcompeted nearly every other retailer except, perhaps, Amazon. Walmart’s stock has suffered, rising just 4% during the past year, while the S&P 500 index rose 17% during the same timeframe.

Joe Brusuelas, chief economist for financial-data firm Bloomberg LP says that “Their consumer is shifting downward,”.  “The competition for Walmart is changing. It’s now dollar stores.”

The article points out three things that happened during 2013-Jan. 2014:

  • Congress repealed a payroll tax cut that had been in effect for two years.  When the full withholding amount was restored, people saw it as some type of “new” or extra tax.  For the record, I was against this because I knew folks would get used to the lower amount and then gripe when the full withholding was put back in place.  Of course what do I know.
  • In November, the “extra” amount in SNAP benefits was eliminated causing a reduction in those benefits.
  • On January 1st Congress did not restore or extend the “enhanced” jobless benefits which had been available since 2008.

The end result of these events was that for many folks,disposable income (what we spend in those stores) took a hellacious plunge or flattened as shown here:

The article goes on to state that it’s not only Walmart, but merchants like J.C.Penneys, Target and yep, even Amazon had disappointing sales numbers.  So, if that’s the case and retail sales have been rising, who is doing the buying and who are they buying from?

Mostly high-end merchants such as Nordstrom (JWN) and Michael Kors (KORS), luxury automakers such as BMW and Mercedes, upscale appliance manufacturers including General Electric (GE) and even yacht manufacturers. As the New York Times noted in a recent article, demand is much stronger for GE’s top-of-the-line dishwashers and refrigerators than for cheaper, mass-market models. And a modest boom in home remodeling is being driven by a small portion of homeowners who have both cash and home equity, a combo many mortgage holders can only envy.

In this article for Yahoo Finance, two economists, Steven Fazzari, of Washington University in St. Louis, and Barry Cynamon, of the Federal Reserve Bank of St. Louis have some interesting statistics to look at:

In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.  [Bold and italics mine]

As Fazzari says in the second article:  “It’s going to be hard to maintain strong economic growth with such a large proportion of the population falling behind,” he said. “We might be able to muddle along — but can we really recover?”

Now another area that is mentioned in the article concerns appliances.  Quoting from the 2nd article:

At G.E. Appliances, for example, the fastest-growing brand is the Café line, which is aimed at the top quarter of the market, with refrigerators typically retailing for $1,700 to $3,000.

“This is a person who is willing to pay for features, like a double-oven range or a refrigerator with hot water,” said Brian McWaters, a general manager in G.E.’s Appliance division.

Well I have news for Mr. McWaters:  I’ve been doing some “window shopping” on refrigerators (although not his brand) just a decently sized refrigerator  is going to set you back starting at the $1,000 price level.  I’ve been checking them out online at Home Depot and Lowes.  I’ve read that side-by-side fridges tend to break down more often and I don’t care for them as to me they have too little room on either side.  Top freezer fridges don’t have enough room in that top freezer.  So that kind of left me looking at the French Door models.  I don’t have to have the biggest of them but I do want things such as water and ice through the door if possible.  The cheapest I could find in stainless with ice/water through the door was a Whirlpool model for$1700.

Oh well, that was just a little personal aside there.  Still, the thrust of these two articles is that the American Dream for most Americans is not so dreamlike anymore but rather like a nightmare folks can’t wake up from.  Incomes are not rising for the majority of folks, they’re stagnant if not going down.

I’ll repeat here what Mr. Fazzari said:

“It’s going to be hard to maintain strong economic growth with such a large proportion of the population falling behind,” he said. “We might be able to muddle along — but can we really recover?”

To this non-economist the answer is a big NO.  When we have organizations like the Koch Bros. Americans for Prosperity who are only interested in the prosperity of certain Americans or certain types of Americans, then the “average” American is not only starting from behind but being kept behind.  These folks will be ecstatic if the only places some of us can afford to shop are not Walmart or Target, but the Dollar General and Dollar Tree stores.  They believe those stores are just fine for the rest of us.

This is an open thread.

24 Responses to "So is Walmart now too expensive?"

Great post, Fredster. Wow. I knew this “recovery” was a whole lot of happy hooey, but this story really brings it home.

mb@1: Like you I knew the recovery wasn’t what we normally think of as an econ recovery. And like I said, I do shop at Wally-world on occasions. The stores in this little place all close at 9 p.m. and there are times I need to pick up a few things. I’ve noticed that this local Walmart is not very good now at keeping things stocked up and I found that odd.

That stat on inflation-adjusted spending by the lower 95% was very telling. What’s the quote from Dickens:

It was the best of times, it was the worst of times,

Also, anyone trying to email me, it seems that yahoo is fubar-d once again. Getting a msg that they “exceeded capacity”.

Early on, economists predicted a jobless recovery. So, in other words, a jobless recovery is anything but/

did anyone every ask the econs what that means, i.e. a jobless recovery? So who “recovered”? Oh that’s right, we already know the answer.

Well, the alarms, bells, and whistles just went off with the wx radio and we are under the winter storm warning now…and it’s dry as a bone outside.

Stay warm and safe.

chat@7: This storm is going to be a bit different. We’ll get the rain/sleet/ice mix and then tomorrow it is supposed to warm up some, but then we’re supposed to get a 2nd round of it. That may be the tricky part of it. Guess we’ll have to see how this plays out.

Here’s the local weather “gawd” on the situation.

Winter storms…we had three last week and are looking at a potential biggie Wed-Thurs. No one knows if it will be snow, rain or a “wintry mix.” Quelle joie!

mb@9: Well we showed the last time that we are completely not capable of handling these things when they come this way. One tv station already has the crawl at the bottom of the screen showing how many places are opening late tomorrow and some schools are not even going to open at all. Wintry mix = the weather service saying “we don’t know what the hell it’s going to be!” LOL!

Great post Fredster — you really brought home the point — in a consumption economy what happens when the consumers don’t have any money. Underlying all the “jobless” recovery is that a large portion of the jobs have been taken by robotics. No one is really drilling down on the subject because it is so depressing to unpack what this really means for the next decade or so.

Scary stuff.

@11, we got three inches of sporadic flurries last night — go figure.

Prolix, the first linked article mentioned that it was difficult to analyze spending “by income category” which is kinda confusing to me so I didn’t include that but here’s the quote:

There’s not much real-time data that breaks down spending by income category, though there are plenty of proxy measures showing the top 10% or perhaps 20% of earners may account for the whole increase in retail sales during the past couple of years

And I think the study by Fazzari and Cynamon was able to demonstrate that. I’ve wondered myself about what occurs when consumers don’t have the money to “consume” anymore? That undermines the basic idea of our economy the way it’s structured now.

chat@11: I’ve had the buttery nipple before. Kinda sweet but good.

Just wanted to pass along that I’m *still* having trouble with yahoo mail. 👿

I haven’t felt like part of the mainstream economy for a long time. I don’t shop at WalMart because it’s out in the boonies here and I can’t get there without a car. I don’t know if it has become too expensive but Target certainly has. I prefer the dollar stores as well as second-hand places like the Salvation Army. My friends and I also give each other stuff we no longer need or want like used books, clothes, and furniture. We just pass things around. When I was healthier, I went to garage sales and flea markets for things I needed. There’s a whole underground economy that operates like that. It seems to be becoming more common even with the so-called middle-class. Some people also buy stuff at pawn shops although I haven’t ever done that. It’s all a way to survive when you have little money.

I hope my comment relates in some way to Fredster’s post. 🙂 I’ve been kind of out of it lately and not following the news.

Beata: Your comments are very much on point. That’s very interesting that you and some friends have a kind of barter system amongst yourselves.

Hope you are doing okay…as well as possible. You’re in our thoughts.

@18: I’m okay. My friends here have been helping me get through this. One friend stayed with me the first week after my mother died so I wouldn’t be alone. I feel very blessed.

Thank you for caring, Fredster. You are a good friend even though we have never met in person.

Beata@19: We’re still online friends Beata and those are good to have too. I’m glad you had someone with you after your mom passed. That’s a time when you need some folks around.

Sending hugs & best wishes to you Beata. You’ve been in my thoughts a lot.

Fredster, great post. I can see this happening here. It takes 4 or 5 incomes per household to have what we had as kids on one income in the 70s.

What do you guys think of the Olympics?

annie@22: I’ll tell ya, that article shocked the hell out of me. First, that Wally-world’s stock was not performing and then that sales were off for them. I had always thought of Walmart as the store that was at the bottom of the barrel as far as “dept.” stores go. But then reading further and after seeing the triple whammy that hit some folks, it kind of made sense. And you are absolutely right about how wages have not kept up with where folks were back in the 70s.

What do you guys think of the Olympics?

I haven’t even watched them, although the photos of the bathroom issues have been funny as hell! 😆

RIP, Shirley Temple.

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