Walmart just released another disappointing earnings report.
Overall revenue for the second quarter inched up just 2.3 percent the retailer said Thursday, but sales at U.S. stores open at least a year fell .3 percent from the previous year, after dropping 1.4 percent in the first quarter.
The retail giant responded by cutting its expectations for the rest of the year to 2 to 3 percent growth, instead of its earlier forecast of 5 to 6 percent.
Walmart is still the largest retailer in the world, and growing — it has opened 455 U.S. stores in just the last five years. But with sales trending in the other direction, some executives are worried. As one said in an internal email that was leaked to Bloomberg in February: "Where are all the customers? And where's their money?"
The answer depends on whom you ask. Walmart is blaming slow consumer spending.
"The retail environment was challenging across all of our markets," Chief Executive Officer Mike Duke said about the second quarter report.
Walmart U.S. boss Bill Simon agreed. "The customer remains challenged," he said, adding, "The 2 percent payroll tax increase continues to impact our customer," a reference to Congress allowing payroll taxes to increase at the beginning of the year.
But many were quick to point out that consumer spending has actually been on the rise. Retail sales in the U.S. rose 5.2 percent for the period from May to July from a year earlier, says a report by the U.S. Census Bureau.
Here, a few alternative theories for Walmart's struggles:
The dollar store:
Walmart has successfully shut down so many competitors with its rock-bottom prices that there's now less market share to capture. And at the same time, "other large retailers have become more competitive on price, with dollar stores, in particular, threatening to steal away lower-income customers," says Justin Lahart at The Wall Street Journal.
Amazon is doing to large chain retailers what Walmart did to smaller department stores — eating them alive. "I'd say Wal-Mart is feeling the tremors of the same macro-trend that already destroyed Borders and Circuit City and are dragging Barnes & Noble and Best Buy down: Online shopping is the new impersonal big box store," says Mattew Yglesias at Slate.
Though Walmart has announced a few plans to ramp up online sales, including building a network of warehouses and tapping sales-people to pack and ship from stores, Amazon's dominance online keeps growing, largely because it has decided to pursue a strategy of expansion over profits. "[T]he war of Always Low Prices vs Always Near-Zero Profit Margins isn't going to be pleasant for Bentonville," says Yglesias.
Walmart's low wages:
Walmart might find the answer to what's ailing it a little closer to home, says Daniel Gross at The Daily Beast. With more than two million employees worldwide, Walmart's wages have a direct impact on its own sales.
Walmart is the largest private-sector employer in the U.S. It accounts for about 10 percent of employment in the retail sector. It claims to pay average hourly wages of $12.78 in the U.S. Critics say those numbers, which are low ($12 an hour annualized for 52 weeks is less than $25,000), are inflated because they take into account higher salary managers. Check out Glassdoor.com’s numbers on the pay at Walmart. Plenty of Walmart’s rank-and-file associates earn less than $10 an hour.
This isn’t complicated. Or, rather, it shouldn’t be complicated. By paying low wages, Walmart is effectively limiting the ability of a large chunk of the American workforce to consume. By setting a low benchmark, it encourages other employers to do the same. [The Daily Beast]
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