Wal-Mart recently announced an increase in both sales and profits for the second quarter. Earnings increased to $1.18, up 8% from the prior year’s quarter and total quarterly revenue increased 4.5% to $114.3 billion.
Wal-Mart Stores (WMT) is the world’s largest retailer and its annual sales of almost $500 billion exceed the gross domestic product (GDP) of most countries. Only about 20 countries have a GDP greater than Wal-Mart’s total sales which makes Wal-Mart a key barometer of economic activity.
source: wikipedia.com
Wal-Mart competes ferociously on price and offers a huge selection of low priced goods. This has resulted in attracting low income shoppers who have the least amount of disposable income and are trying to stretch every dollar as far as they can. Comments by Wal-Mart management that accompanied the second quarter earnings release indicate that the number of customers living paycheck to paycheck has increased both in the U.S. and international markets that Wal-Mart serves.
Wal-Mart’s Chief Executive Mike Duke said that the number of customers exhibiting paycheck cycle behavior “remains pronounced” in the U.S. Wal-Mart noted that sales jump dramatically when customers receive their paychecks or government benefit checks and then rapidly fall until the next check arrives. High unemployment, weak wage growth and high gasoline prices have all contributed to the reduction in purchasing power by Wal-Mart customers. The situation is likely to get even worse since the severe U.S. drought is expected to cause higher food prices later this year.
Other stores benefiting from consumer frugality and smaller paychecks are Family Dollar Store and Dollar Tree, Inc. which specialize in selling low priced goods to low income consumers. The Dollar Tree, which offers most of its products at a price of only $1.oo, has seen a rapid growth in sales and income which has resulted in a rapidly appreciating stock price. While Dollar Tree customers may be hurting, Dollar Tree stockholders have made out extremely well with the stock price up over 700% since the beginning of 2008.
Courtesy yahoo finance
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