Feeling the Pain at Walmart

October 22nd, 2008 5:14 pm | by John Jansen |

LOS ANGELES (Reuters) – Wal-Mart Stores Inc’s U.S. customers, increasingly worried about their own financial security, are waiting until they get their paychecks to buy even the most basic necessities, the retailer’s U.S. division head said on Tuesday.

Personal financial security, a recent poll revealed, was the No 1 concern for 80 percent of Wal-Mart shoppers, up from 65 percent a few months ago, said Eduardo Castro-Wright, president and chief executive of the Wal-Mart‘s U.S. operations.

And, in a “disturbing” trend, Castro-Wright said Wal-Mart for the first time is seeing a paycheck-related spike in sales of baby formula, suggesting consumers are rushing to buy such necessities as soon as they have the cash.

“Most consumers are worried about: ‘Will I have enough to put food on the table so my family can eat?” he told attendees of a luncheon sponsored by Town Hall Los Angeles.

He said credit used as a form of payment at Wal-Mart is falling and that the decline is expected to reach into the double digits this year.

U.S. consumers have been cutting spending for months due to falling home values, job losses, higher prices for basics like food and fuel, and a global credit crisis.

Castro-Wright signaled earlier this year that easy access to credit was disappearing and forcing consumers to make changes in their purchasing habits.

On Tuesday he said that many consumers have “maxed out. Credit card limits don’t allow them to use credit.”

Castro-Wright declined to comment about the general economy. When asked about the holidays, he said: “Christmas is going to come …. consumers are just going to be more cautious.”

As the economy worsens, Wal-Mart’s customers have increasingly shown signs of living paycheck to paycheck.

Wal-Mart’s sales typically surge around pay periods at the beginning and middle of the month. Castro-Wright said that spike has become more pronounced as consumers’ budgets become more stressed.

In the last few months, the percentage of overall sales from the days surrounding those pay periods has risen 250 basis points, he said.

Shares in Wal-Mart closed down 1.4 percent to $53.67, off their year-high of $63.40 in September.

(Reporting by Lisa Baertlein; editing by Gunna Dickson)

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  1. 6 Responses to “Feeling the Pain at Walmart”

  2. By JLA on Oct 22, 2008 | Reply

    I particularly liked his comment that WalMart customers likely weren’t affected by the fall of the stock market, as they weren’t likely to have owned stocks. They would be, however, psychologically impacted.

    John – Do you track the issuance of debt to cover LBOs at all? I’m particularly interested in the Roche/Genentech deal, and whether or not Roche will be able to come up with the necessary funding. Issuing junk debt in Genentech’s name probably won’t do it any longer.

  3. By John Jansen on Oct 22, 2008 | Reply

    I do not follow that…..I will ask around tomorrow and see if anyone has handle on the that

  4. By Aiden on Oct 22, 2008 | Reply

    Wal Mart: The Great Depression II has already begun.

    John,
    I was also thinking about the Mculley / Steve Liesman comments on CNBC about moves up the cap structure and at least RE: American Express, I wouldn’t want to put on a Cap structure trade, I.E. short stock, long bonds when the SEC could cause a vicious short squeeze at any time in the equity. Now a Short sub debt, long senior. Or the reverse: long sub, short senior might not be a bad idea with some of these financials.

  5. By brian on Oct 22, 2008 | Reply

    These comments could also be a marketing tool that WM uses. Using baby formula for the 2nd stimulus package. What a world.

  6. By John Jansen on Oct 22, 2008 | Reply

    I think the point vis a vis Mc culley and leisman was that the returns on bonds are such that they provide an attractive alternative to stocks at this point.

    So until bond yields normalize,whatever that is, equities have very little upside.

    I highlight that AMEX bond because I found the pricing in AUGUST amazing (+4 3/8) and find it still amazing that less than 3 months later it is nearly 100 bps wider.

    Yes they will have their struggles. i am not denying that. It just shocks me that a household name and industry leader is trading at a level a little more than a year ago would have been cheap junk.

  7. By Sean on Oct 23, 2008 | Reply

    I am new to understanding the basics of ‘following the curve’. I watched a video recently from bianco citing that the ‘all clear’ will come when term lending (30day and 90day) starts to re-appear. Do you feel that this is an accurate statement? If so where can I go to follow this data, and what would you consider normal to getting closer to normal type trading in the 30day and 90day term lending?

    Thanks for sharing your knowledge!

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