Commentary by George Anderson
In recent days, a number of retailers, Wal-Mart being the most notable, have gone public with disappointing financial results while offering an unhealthy dose of pessimism for the near future. As is always the case, company executives, analysts and assorted gadflies have rushed in to offer their insights as to the why behind the "I'm not going to buy" signs being put up by consumers.
In Wal-Mart's case, the retailer has blamed its race to become more hip and attractive to, let's be frank, Target's core customer as one factor in its own shoppers holding back on purchases. The perception by some on the outside is that Wal-Mart may have scared off some of its own who have come to think of it as not "always" having "low prices."
Of course, this supposition really doesn't hold up when you look at the numbers. Clearly, Wal-Mart didn't inspire consumers to buy its new fashion-forward apparel but when it came to everyday staples, such as food, HBC, household chemicals, paper, pet food/supplies and basic apparel (underwear and socks), the chain's regulars were in its stores shopping.
So that pretty much leaves the cause of the sales problem (we're only talking revenue here, not expenses) to the financial state of the Wal-Mart shopper. The bigger question arising from this is whether a struggling Wal-Mart will take the national economy with it.
Before we get into a discussion on the theoretical impact of what will happen should the retailer not pick up its sales pace in the U.S., let's look at consumers who fit the profile of a Wal-Mart shopper.
According to a number of sources we've seen, the average income of a Wal-Mart household is in the $35,000 to $40,000 range. It's fair to say that most of the chain's shoppers fall into three primary economic states: middle-class, the near poor and the impoverished.
Today, more Americans (numbers not percentage) are living below the poverty line than ever before. Real wages, according to Census Bureau numbers, have declined even as the wealthiest among us grow richer and many corporations post record profits.
Last year median household income was up slightly (good news) but it was the first gain since 1999 (not so good news).
Another good news/bad news scenario is being played out at the pump. It's true that gas prices are currently well below record highs set earlier this year. It is equally true that, while fuel prices have come down, they are still more than 50 percent higher (conservative estimate) than five years ago.
Wal-Mart shoppers, it seems obvious, have not fared well economically in recent years. Despite the many advances made on the macroeconomic level, there are a large and growing number of Americans who are not going along for the ride.
Last year, Wal-Mart CEO Lee Scott made a plea for legislators to raise the national minimum wage. "We can see first-hand at Wal-Mart how many of our customers are struggling to get by. Our customers simply don't have the money to buy basic necessities between pay checks," he said.
The last increase in the minimum wage, it is well known, was in 1997. Leading economists including Nobel winners Kenneth Arrow (Stanford), Lawrence Klein (Penn), Robert Solow (MIT) and Clive Granger (UC San Diego) have said the current rate, in real value terms, is at it lowest level since 1951.
Today, nearly 15 million workers, many of whom are likely to be Wal-Mart shoppers, work for the minimum wage. According to the Economic Policy Institute, 80 percent of these workers are 20-years of age or older. Families with minimum wage earners count on what they make for more than half the household's income. Nearly half are their household's sole source of income. More than 7 million kids live in minimum wage households.
Expectations are high that the new Congress with Democratic majorities in both houses will pass a higher national minimum wage. A number of states have already taken the step and pushed their own minimums higher.
The fact remains, however, that even with minimum wage increases there are serious challenges facing these and other Wal-Mart shoppers who are financially better off.
Housing now takes up about 30 percent of household income. In lower income households that percentage is often higher.
Energy prices while lower are bound to go up again.
Americans are carrying record levels of debt. The personal savings rate, according to the Department of Commerce, has been in negative territory since the second quarter of 2005.
Health insurance and medical care, even with $4 generics, in-store health clinics, etc., continues to place a heavy burden on many segments of the population not to mention employers.
So what does this all mean for Wal-Mart? It means some challenging times lie ahead, although there is little doubt that it will find a way to adapt. It did not get to be the world's largest retailer by accident.
To build on that point, there's no doubt that Wal-Mart is an economic engine. But what will happen to the national economy as Wal-Mart finds answers to the challenges before it? Does America go the way of Wal-Mart or does Wal-Mart go the way of America?
Discussion Questions: Do you see Wal-Mart as a bellwether for the national economy? If yes, what will that mean moving forward? If no, how do you make sense of the most recent financial results and projections made by the company?