What’s bad for Wal-Mart is good for the economy

Byline: | Category: Economy, Media | Posted at: Friday, 11 May 2007

[See UPDATE below] 

Don Surber:

When it comes to economic reports, I start from the bottom and work my way up.

Good advice.  Reading this Guardian report about slumping sales at Wal-Mart from the bottom up gave me a whole new appreciation for the real story.

Here’s the lead:

Wal-Mart, the world’s largest retailer, yesterday posted its worst monthly sales figures since its records began in 1980.

The company said same store sales fell 3.5% in April on the same month a year ago. Same store sales measure the performance of stores that have been open for at least 12 months.

But Wal-Mart was not the only US retailer turning in a poor performance in April, triggering fears that the US housing slump might be spilling over into consumer spending and that the economy might be taking a turn for the worse.

Bad news for the economy, right?  Well, not really.  Here’s the last paragraph:

More upmarket retailers did appear to have escaped the downturn. Saks reported an 11.7% same store gain during the month and Nordstrom was 3.3% ahead. American Eagle Outfitters, in the same bracket as The Gap and Abercrombie, recorded a 10% drop.

One thing I’ve noticed over the years is that if Wal-Mart does poorly on the day after Thanksgiving sales, it’s going to be a boom Christmas.  The reverse is also true: when sales are up at Wal-Mart, it’s a bad sign for the economy.

Why is that?  Well, simply put:  No-one likes to shop at Wal-Mart unless they have to.  It’s always crowded, the checkout lines are understaffed, the place is dirty, the parking lot is a mess . . .  My discount retailer of choice is Target because it’s clean, the aisles are wider, and I can rush in and out quickly if I need just a couple things.  

If it weren’t for the fact that things are just so damn cheap there, people wouldn’t go to WalMart.  It’s not just me saying that.  This is from another report of the same “bad” economic news at Wal-Mart:

. . . Julia Russ [a] 42-year-old federal contract administrator in Grand Prairie, Texas, visited a Wal-Mart in her city four times last month for groceries, pet supplies, toiletries and paper goods. But she often finds the store crowded and hectic. “The wait at checkout is getting longer all the time,” Ms. Russ said. “I may lose patience and pay the difference for my time” to go elsewhere. 

Another data point in support of my contention that Wal-Mart is a reverse bellwether is the fact that last month’s downturn in sales replaces April 1996 as the previous worst month in Wal-Mart history.  Remember how bad the economy was in the mid-90s? 

When sales are down at Wal-Mart and up at Nordstrom’s what do you think that says about the economy?  No, it doesn’t mean that Wal-Mart shopper are flocking to Nordstroms directly, but indirectly, they are since they choose Target, while Target’s shoppers go to the mall stores, and their customers go to Nordstroms instead.

The Guardian report also misses some key information about retail sales that the more thorough Wall Street Journal includes:

Most U.S. retailers are reporting their monthly results a week later than usual this year due to a change in the National Retail Federation’s calendar to account for a 53rd week last year. That resulted in retailers including the first week of April in their March results, which inflated the March tallies because March got the benefit of sales leading up to Easter, which fell on April 8.

How much of a difference did that calendar change make?

Wal-Mart posted a 4% gain for March to offset its 3.5% loss in April. Archrival Target Corp. notched a 12% gain for March and a 6.1% decline for April.

Given that last bit of information, the Guardian’s last paragraph should have read: 

Oops . . . Never mind.

UPDATE:

One commenter asked if I had data to support my statement that when the economy is up, Wal-Mart is down.  A quick analysis looks to generally support part of my thesis:

wmt.jpg

What the chart above shows is the annual change in same store sales (Blue for Wal-Mart and Red for the Retail Average) versus annual Real GDP Growth over the last fifteen years.

While it doesn’t show that good economic times hurt Wal-Mart, it shows instead that Wal-Mart’s sales are inelastic relative to the state of the economy.  Meanwhile the retail average same store sales growth is highly related to GDP growth.  If you think about that, it’s not at all surprising.

While, there is quite a bit of noise in the Wal-Mart data that would require further analysis to better understand, I may have to modify my thesis to:

Bad News for Wal-Mart = Good for the Economy Irrelevant to the Economy.

Data Sources: 

GDP, Wal-Mart Same Store Sales (here and here), and Retail Average Same Store Sales.  Note: because Wal-Mart’s fiscal year ends on the last day of January, its same store sales data is compared with the “previous” year’s GDP and Retail Average.  i.e, the FY 2007 data is compared with 2006 since FY 2007 is actually February of 2006 through January of 2007.

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29 Responses to “What’s bad for Wal-Mart is good for the economy”

  1. Shawn Says:

    Did Yogi Bera say ,”No one shops there. It’s too croweded”

    From Bob…
    “No-one likes to shop at Wal-Mart unless they have to. It’s always crowded,”

    That made me laugh.

  2. bob Says:

    Touche!

    The Yogiism is:

    Don’t always follow the crowd, because nobody goes there any more. It’s too crowded.

    BTW, his birthday is Monday.

  3. John Says:

    I think you are referring more to Wal*Marts near cities or dense suburban areas. I live in Northern VA and Wal*Marts are horrendous due to the large number of relatively poor immigrants (mostly illegal, but some legal also I am sure) shopping there.

    When I travel to rural Ohio or Missouri or Illinois for work, the Wal*Marts are clean, pleasant, and spacious. The contrast is amazing.

  4. Becky Says:

    No one shops there, it is too crowded. Ha, ha! Thanks for giving everyone a good laugh.

    John said, “The contrast is amazing.” That is a true statement. I shop for produce at the local WalMart. It is not the cheapest, but it is the freshest because it moves though so quickly. I never buy their meat or bread because they never seem to have what I want. I usually pick other things up while I am there because it is convenient or they are so cheap I can’t pass them up. Our WalMart is clean and relatively quick – but I’ve noticed that in the last year or so, their quality, price and service have all seemed to suffer: I think it must be management. If their sales are slumping everywhere – maybe it is a nationwide management problem.

  5. Jeff Says:

    The Wal-Marts I’ve been to in rural Virginia, New Hampshire and Alaska have all been clean and well-stocked. I’ve never been to an urban Wal-Mart, but the Brooklyn Target is a hellhole compared to every single suburban Target that I’ve ever been to.

    I wonder why?

  6. Becky Says:

    I can’t imagine why anyone would shop at Target. The entire store is full of cheap quality at not cheap prices. At least at WalMart, their cheap quality stuff is cheap. It seems to me that Target is the worst shopping experience of all. If I want cheap – I’ll go to discount and if I want quality it doesn’t exist at Target.

  7. anony-mouse Says:

    John hits it on the head — not all Wal-Marts are created equal. Here in the Denver area, we have several large stores that are new or recently renovated, and the changes from you old-school store include:

    1. Recycled plastic ‘hardwood’ (fairly convincing, and having a far superior wear index) under all of the clothing areas;

    2. Dark grey, stone-texture tiles in all entry areas;

    3. Brighter, whiter floor tiles everywhere else;

    4. Lower shelving heights in all aisles; and

    5. Contemporary fixture styles in electronics, produce (if a Super Wal-Mart), and some other sections.

    I shop Wal-Mart because they typically have 2-3 times as much as the average K-mart and at least twice as much as the average Target store. This is espcially noticable if you happen to be shopping for something in hardware, home-improvement/garden, automotive, office supplies, or electronics.

    The crowds are the price I’m willing to pay for low-cost, widely-available consumer goods in the 21st century. No non-royalty generation in history ever had it this good, and yet we still find small things to complain vocally about, eh?

  8. Nashville is Talking » What’s Bad for the Wal*Mart Is Good For Us Says:

    [...] yesterday was the news that Wal*Mart had its worst sales in more than a quarter of a century. Bob Krumm says this means that the economy is in great shape because: One thing I’ve noticed over the years is that if Wal-Mart does poorly on the day after [...]

  9. Grace the Heart Breaker Says:

    You’re on to something Bob…

    working at the bar, I’ve noticed that you can tell the shape of the economy by looking at which credit card people pay with.

    The more American Express cards you get, the better the economy is, since those (are supposed to) get paid in full each month.

    The time to run and hide for cover is when people start whipping out the Discover card.

  10. Becky Says:

    My friend just told me that the reason I don’t like Target is because I don’t have young children. I suppose that may be true since Target tends to have cute, trendy stuff. For kids, it would make sense to shop there.

  11. Common Sense Says:

    According to this logic, the US economy must have been pretty crappy for the last 25 years while Walmart’s stock price appreciated 12,000%

  12. bagblog » Blog Archive » Wal-Mart profits down - good or bad? Says:

    [...] thought this was an interesting [...]

  13. Rob Says:

    A bit of historical perspective: when Sam Walton was alive, Walmarts were generally cleaner and neater, and there were stringent rules about opening more registers as soon as lines got at all long.

    Customer service – return policy, etc. – in that era was world class. Not like now.

  14. Mark Buehner Says:

    “If it weren’t for the fact that things are just so damn cheap there, people wouldn’t go to WalMart.”

    Kind of disdainful of the market, isnt that? People shop at Walmart because they value price over all the things you dislike about Walmart. I just think your point is kind of self defeating- if people only shop at Walmart for the price, and then people arent shopping at Walmart anymore, yeah, maybe they are buying things elsewhere, or maybe they arent buying at all. Losing Walmarts in that case puts those people even further from getting ‘back in the game’. I dont think the Nordstrum argument is very good- if people stop buying Kia’s but BWM sales are up, I dont know that you can infer the Kia buyers are upgrading to midranged cars and driving the moderately wealthy to spend more. A rising tide doesnt _always_ lift And regardless, if you can afford not to shop at Walmart, whether they have long lines and dirty stores is immateial to you isnt it? I think this really showcases that all kinds of people shop at Walmart because they are a really good company that places their stores so well and conveniently they make it hard not to shop there. Isnt that just good business? Target could have bought the land across the street from my office, after all.

  15. Ryan Says:

    The factor that everyone has missed is the spike in gas prices. Many who shop a Wal-Mart live check to check without any surplus in their budgets and an increase in gas prices means less to spend elsewhere. Higher income shoppers are less impacted by the increase in gasoline prices and thus the stores they frequent see less impact. Wal-Mart’s sales are indicative of the economic health of the bottom third of the population in income. A reduction in sales this large is a major problem not a boon to the wealthy.

  16. Jim Manzi Says:

    “One thing I’ve noticed over the years is that if Wal-Mart does poorly on the day after Thanksgiving sales, it’s going to be a boom Christmas. The reverse is also true: when sales are up at Wal-Mart, it’s a bad sign for the economy.”

    Do you have the data to support this statement?

  17. George B Says:

    My local Wal-Mart in Plano, TX is clean and usually well stocked AND it’s open 24 hours a day! At night it becomes the ultimate convenience store. The local Target closes at night. To avoid the crowds at Wal-Mart, simply shop at night or very early in the morning. They have several self checkout lines open, so checkout delay isn’t a problem at night.

    Wal-Mart does seem to attract a fair number of less affluent customers, but so what. I’m a guy. We go to the store to buy stuff we need, walk directly to those parts of the store, pick up what we need, pay for our purchases, and leave. We don’t shop for entertainment.

    On the positive side, Wal-Mart has a good selection of automotive supplies like motor oil and filters, air filters, etc. at good prices. Target has attractive displays of home decor items, but their automotive section is pathetic. If one needs a new car battery of headlight at night or on a holiday weekend, its very comforting to know that Wal-Mart is always open, always.

  18. John Says:

    Too often Wal-Marts in suburban areas are like Tijuana on a Saturday night.

    I’m close to a Target and a Wal-Mart, and while I can’t vouch for all the stores, after comparison shopping at both stores, most prices are the same. The biggest difference I found was .50 (Target was .50 higher in price). Everything else (snacks, shampoo, etc: the “daily stuff”) was maybe ten cents higher.

    I think Wal-Mart has created a cult of personality among consumers that rivals those that the high end retailers have. Some people think it’s the ONLY place to shop.

  19. Wiz Says:

    I think Bob’s premise may be exactly correct. There are only two reasons we EVER go to WalMart — 1) frustratingly enough, it often has items in stock that Target and other stores don’t have, and 2) some items are SO much less expensive than the alternatives, that we can’t justify getting them anywhere else — if the prices were even close, we’d pay the extra money not to have to go to WalMart.

    (Case in point: we like Multi-Bran Chex. It’s an insane $4.25 (!) at the local grocery, but $2.25 at WalMart. Solution: bite the bullet, go to WalMart as few times as possible, buy 10 boxes of Chex while there, and save $20.)

  20. HokiePundit Says:

    Those who’ve noted the different types of Wal-Marts are on to something. I think the difference can be clarified: rural Wal-Marts tend to be Wal-Mart Supercenters that have a major grocery section, are open 24 hours, and have several related stores, such as optical, food, photography, and a barber’s. At the regular Wal-Mart near my parents in Northern Virginia nearly all of the shoppers are immigrants and most people wouldn’t shop there unless absolutely necessary, due to the lack of cleanliness, huge lines, and general confusion. At the super Wal-Mart near me in SW Virginia, it’s the norm to shop there as it’s clean, well-stocked, and lines are rarely more than three deep. Non-bestseller books are the only everyday items I can think of that you couldn’t really get there.

  21. Carmigniani Says:

    Interesting theory, and it fits with my own shopping patterns.

    My household income has nearly tripled* over the last two years while my Wal-Mart patronage has gone from weekly trips down to none at all. Instead my fiance and I have been going to mid-market department stores (Kohl’s, Target etc) even though Wal-Mart is closer to home.

    C.

    *I blame Bush :-)

  22. Anthony (Los Angeles) Says:

    I’m not sure what Target you shop at, but the one near me is a disaster. I *wish* there were a Wal-Mart nearby.

  23. Becky Says:

    Hokie Pundit – well said. You named the reasons that I shop there. I agree with the poster above that noted the demise of Sam Walton is having an effect on WalMart. Soon it will just be another Corporate Sears or K-Mart.

    To the poster who said they can tell the wealthy by what credit card they pull out – let me give you a “tip”. People who use American Express may tip well because they want you to think they have money. People who have money don’t care and use Discovery or whatever card provides them the best terms.

    Rich people are cheap and they check those “terms” – that’s why they have money.

  24. Heather B Says:

    I’m a Wal-Mart convert. I used to be “too good” to shop there and would only buy groceries at Kroger. Wal-Mart was ‘too crowded’, ‘yucky produce’, ‘narrow aisles’, etc. Then our family income dropped by half and I became a Wal-Mart shopper. At first I bought the same groceries and saved $60 – 100 a week. That shamed me. I could have spent that money on other things, or saved. Then, I started really appreciating how $0.10 difference in an item adds up and went all generic except for my laundry detergent. In any given grocery run I’ll buy 100 – 150 items. That’s ten bucks every week. The produce is fresher, the meat is great and amen on the cereal prices.

    I don’t go shopping after church, or after work, or on Friday nights. Me and the retired people shop at 8:30 am, weekdays. Shop weekends before 9:00am unless it’s an emergency.

    Kroger has more obscure health foods and three more kinds of vinegar. Whoop-whoop. Ditto for Target. If I really need something designer-looking, I’ll go somewhere really nice or go online.

  25. Ilkka Kokkarinen Says:

    “No-one likes to shop at Wal-Mart unless they have to. It’s always crowded”

    Heh.

  26. Katherine Coble Says:

    I worked as a supplier to the retail industry for 5 years, and have a lot of access to inside baseball from that industry.

    The see-saw effect is just a commonly accepted fact among retail professionals. When the economy does well, Big Box Bargain retailers suffer and Department/Boutique retailers do well. And vice-versa.

    That truism has actually been a driving factor with buyers at Wal-mart over the last 8 years as they’ve tried to upstyle their in-house brands to maintain market share in better economies.

  27. WetWorx » Blog Archive » Ever see the chain smoking, spandex wearing, obese, toothless shoppers there? Says:

    [...] SALES PLUMMET, but Bob Krumm thinks that’s actually economic good news: “Well, simply put: No-one likes to shop at Wal-Mart unless they have to. It’s always [...]

  28. Charles Frith Says:

    Getting back on topic. The US property market and public debt. I wonder how high this can go theoretically before it’s considered a problem?

  29. Bob Krumm » What’s bad for Wal-Mart is good for the government Says:

    [...] Wal-Mart’s same store sales were way down last month, federal tax receipts were way up. I bet, however, that you saw [...]