Bloomberg has a stunning story out about Walmart’s dropping sales figures. In it, they cite leaked internal emails between company executives where they describe in plain language how bad sales are. The emails are only a few days old. Here are some quotes:
On February 12, Jerry Murray, Walmart’s vice president of finance and logistics, wrote:
“In case you haven’t seen a sales report these days, February MTD sales are a total disaster. The worst start to a month I have seen in my 7 years with the company… [since Wal-Mart is gaining market share steadily] that points to our competitive landscape, which means everyone is suffering and probably worse than we are.”
A few days earlier on February 1st, Cameron Geiger, senior vice president of Wal-Mart U.S. Replenishment wrote:
“Have you ever had one of those weeks where your best-prepared plans weren’t good enough to accomplish everything you set out to do? Well, we just had one of those weeks here at Walmart U.S. Where are all the customers? And where’s their money?”
Walmart has long been considered a leading indicator of overall consumer spending; a significant drop in its sales numbers is frightening to analysts worrying about the possibility of a double dip. The emails were leaked less than a month after last year’s Q4 GDP numbers contracted -0.1 percent. Furthermore, the lethargic numbers come in at a time when interest rates have been at 0 percent for the last 4-years, quantitative easing is ongoing and the government is running $1 trillion a year deficits. Put simply, the situation is far from stable.
The Bloomberg article blames the sales drop on the payroll tax increase which went into effect last month. However, the payroll tax rate is now at the same rate as it was in 2009, right in the middle of the economic crisis. If sales are worse now then they were in 2009, it’s hard to argue that the 2 percent increase in the payroll tax caused the collapse sales.
Other possible explanations were mentioned as well. The official unemployment rate rose slightly in January. There were “delayed tax returns” and “declining consumer confidence.” None of these explanations are particularly convincing; cyclical or structural problems with the economy seem more likely as the economy risks sliding back into recession even despite unprecedented stimulus.
Regardless of the reasons, soft sales figures aren’t limited to Walmart. McDonalds (another measure of the spending among low income earners) also fell in January by 1.9 percent, more than analysts had predicted. Whole Foods lowered their growth forecasts for the year. Kraft Foods saw their revenue decline by 72 percent year over year although some of it was due to structural changes, some of it is clearly due to softening sales. The article notes, “organic revenue, which exclude acquisitions, divestitures and currency effects, fell 7.2 percent.”
What does it all mean? We’ll have to wait and see, but the likelihood of a new recession seems more probable than ever.
