Wal-Mart sinking in a recession?
Three Modern Myths:
1. The Titanic cannot possibly sink.
2. An offshore oil drilling platform cannot possibly blow up and spew oil into the sea.
3. Wal-Mart cannot possibly fail.
“There is business opportunity in the world, but the world is changing fast in big, disruptive, complex ways,” Wal-Mart CEO Mike Duke told shareholders yesterday.
You said it, Mike. You know you’re in Bizarro World when Wal-Mart, the traditional low-price leader retailer, is losing business in a recession. But Wal-Mart is infamous for beating suppliers into submission on prices. Their margins are healthy enough. So what’s wrong with this picture? 
What’s wrong at Wal-Mart has little to do with where Wal-Mart is and everything to do with where its customers are moving, economically. Which is mainly down.
Effectively, we now have two classes: the can’t-buys and the can-buys. And neither shops at Wal-Mart.
When the recession was younger, penny-pinching middle class shoppers switched to Wal-Mart from Target or mall stores. That was a good time for Wal-Mart. But then, as the recession continued, a lot of those shoppers lost jobs and sank to lower-middle-class status. Without jobs, they sank further, to lower-class. So former Wal-Mart shoppers can’t afford Wal-Mart. Now they hunt for even lower prices at dollar stores or grocery stores.
Imagine dreaming of being flush enough to shop at Wal-Mart! This recession stuff is tough.
Meanwhile, the upper-middle class (the still-employed) can afford full-price jeans, big flat-screen TVs and new cars. The things the middle class used to buy. Lucky ducks. They don’t have to pinch every penny. So they snub Wal-Mart and shop at Target or at mall stores.
The question for Wal-Mart is, do we dig down for the penny-pinching dollar store shoppers or aim for the upscale Target shoppers? My bet is on the latter. You just can’t undercut Dollar General.
Whee! Oh...
So what’s a retailer to do, when the economy is as unpredictable as a doodle bug on Ecstasy?
We can look to biological evolution. There have been millions of mass extinctions in the past. Those species that could adapt to changing conditions survived; others perished and ended up in the La Brea Tar Pits of failure.
Undoubtedly, some retailers will adapt successfully, and others won’t. The retail landscape will change in reaction to economic conditions. The questions are, “What will it change TO? And which retailers will be left standing?”
The strugglers can’t afford the happy face price rollbacks.
The non-strugglers can’t imagine slumming in Wally World.
Plus, a decent-sized chunk of the remaining potential customer base consists of people who’d rather slide a rough bamboo skewer soaked in hot sauce into their left pupils than to give those depraved Arkansas bullies so much as a the change in the car console.
If the recession can stick it to WM, it’d be evidence of the whole gray cloud/silver lining theory.
I’m not saying I’d trade 10% unemployment and its horrors to put the squeeze on Wal-Mart, but it would make it easier to handle.
As per Reich’s assessment about the need for the middle class to make gains… I just hope there’s a middle class left somewhere when the smoke clears. Some days, I have my doubts.
Carson,
Not sure that a lot of Wal-Mart customers want to stick it to the happy face. You should see the one in my neighborhood. Jammed to the gills any time, day or night. But that’s because I live in one of those “lucky” areas where people are employed in low-paying jobs and can’t afford Target, and shop at Wal-Mart AND the dollar stores. They’re teetering on the edge of lower-class-dom, and Wal-Mart is as upscale as it gets for them.