ebook essays pieces of the puzzle
Monday, May 9th, 2011
out of money

Wal-Mart (WMT) CEO Mike Davis has been quoted as saying that the firm’s core customers are “running out of money,” that the end-of-month sales fall-off is becoming more noticeable as high gas prices and increasing food inflation take their toll.  But it’s not just a cyclical story.

The lower panel in the chart shows a steady decline in revenue growth — and not much of an uptick during recoveries.  The twenty years prior to the start of the chart featured an explosive growth in the number of stores, a grabbing of market share from other retailers, and a stupendous rise in the stock.  But now the firm must rely on the fortunes of its customers for growth, and they’re on the short end of the economic stick.

As for the stock, it seems destined to be a place to get relative performance during weak economic periods (as marked in the middle panel), when consumers trade down and Wal-Mart benefits from that cyclical retrenchment.  A tough situation for the company, but not as tough as what many of its customers are facing.  (Chart:  Bloomberg terminal.)