Recently, a supposedly internal communication between Walmart’s top executives was leaked to the public. The email displayed how the company worries over how the US economy has been affecting sales, the worst in over seven years. In the email, 2013 was even referred to as a year of “total disaster.” According to Bloomberg, the decrease in Walmart sales can be attributed to the payroll tax hike that got started in January. The tax increase has cut the average family’s take-home pay by as much as $1,000 this year alone.
Is Walmart’s Struggle a Bad Omen for the Economy?
Walmart is the largest retailer in the US. It contributes to 2.3% of the GDP in 2006; it is the biggest chunk in the economy that is coming from a sole company. Hence, a lot of economists look at Walmart as a key bellwether.
Matt Stoller once wrote that Walmart is so gigantic that its accumulated data and statistics about the economy are more granular than most other macro-economic forecasters out there. As such, Walmart knows what the retail sales are even before the numbers are officially broadcasted.
In 2004, Walmart successfully predicted the increase of energy prices and that the consumers will be living paycheck to paycheck. In 2005, the company even hinted about the credit bubble even before the Federal Reserve noticed it. To cut the long story short, Walmart pays attention to what is happening so they remain to be on top of their competitors.
Study: Walmart does Better in Weak Economy
According to a study published by an economist at the University of Missouri, Walmart does better during weak economic periods. The theory suggested is that this huge retail chain is referred to as an “inferior good”. When times are difficult, most consumers would opt to do their shopping at the cheap retail company. So if Walmart is seeing weak sales today, then that could mean the economy is actually doing good.
Banks are lending, people are borrowing, the credit cycle is alive and add to that the availability of bad credit loans online and consumers get plenty of income to shop somewhere else. The housing market is also booming, providing more jobs. Since the economy is now better, Walmart’s higher-priced competitors get more of the market share.
Are Loan Availability Pulling Walmart Down?
With more loan options available to anyone who is 18years old and currently employed, Walmart may be losing more customers. This is because the availability of loans ensures the availability of funds used for groceries.
The reason why it is so easy for consumers to use bad credit loans is because the terms are too lenient. Anyone who can proof some sort of monthly income and of legal age can take advantage of the service. Application only takes a few minutes, approval has a timeframe of 24-48 hours and collection of loan happens after a month.
Financial analysts warn against this. Bad credit loans and any other loan services must be used sparingly because of their higher than usual interest rates. Also, these loan services only run for shorter terms.
So while loans remain to be easy-to-each, the housing market booming, jobs continue being added and all the usual positive signs of the economy take place, studies show Walmart will continue to lose sales over their competitors.