Dismal sales in January and February have some Wal-Mart executives concerned, but perhaps not as worried as analysts who see the retail giant as a harbinger of problems to come. If Wal-Mart is having troubles, some suggest, could a similar problem be running deep in the consumer economy as a whole?
Though Wal-Mart's worries have a lot to do with the rise in payroll taxes
and delayed tax returns for consumers shoppers which have Wal-Mart shoppers spending less this quarter, a problem for all retailers, the company's fiscal blues are also related to massive investments Wal-Mart made in 2012 to reduce prices.
To keep the company competitive, Wal-Mart announced it would invest $2 billion to reduce prices in 2012, a figure that ramped up to $6 billion in the United States, the Wall Street Journal
February marks the anniversary of the move which resulted in the best store traffic across the U.S. that Wal-Mart had ever seen. The company experienced four straight quarters of increased sales in the U.S.
However, the success hasn't lasted. By the end of 2012, the company faced flagging returns, and the past month and a half has been particularly difficult for Wal-Mart
, according to leaked emails.
Cameron Geiger, Wal-Mart's senior vice president of U.S. replenishment, called consumers' lack of funds, thanks to the payroll tax hike and the late tax returns, "a potent one-two punch,” according to emails Bloomberg News acquired.
“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?" Geiger wrote in one email. "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 U.S. CEO Bill Simon commented on the competitive nature of the industry in another email.
“In an environment like this, we can’t afford to hurt ourselves," Simon said. “Self- inflicted wounds are our biggest risk and our toughest enemy."
Jerry Murray, Wal-Mart’s vice president of finance and logistics, said in a Feb. 12 email that the report has been the company's worst in seven years.
“In case you haven’t seen a sales report these days, February MTD sales are a total disaster. The worst start to a month I have seen in my +7 years with the company,” Murray wrote.
The company later released a statement saying the internal emails were not entirely accurate and lacked proper context.
However, Wal-Mart customers are an important barometer of the economy, and the emails are sparking concern among investors about the fragile recovery.
As Forbes' Helaine Olen noted, the leaked missives need to be taken seriously because "Wal-Mart has been one of the best canaries in the coalmine for our downwardly mobile society for years," with executives there among the first to note recessionary trends.
Janney Montgomery Scott analyst David Strasser told Bloomberg the bad news is not Wal-Mart specific. “Anyone with any low-end exposure is going to feel this. That customer runs out of money every day as it is. Now they’re really going to run out of money.”
Family Dollar, Target, and grocery stores are experiencing a similar problem, said Strasser.
Wal-Mart will announce quarterly earnings on Thursday.
© 2013 Newsmax. All rights reserved.