How Walmart and Macy’s explain economy

The Washington PostNovember 15, 2013 

WASHINGTON — While lots of other companies represent pieces of the economic picture, Macy’s and Walmart encompass a broad variety household goods, for two ends of the market.

Upper-income folks spend more money at Macy’s — which also owns the tonier Bloomingdales — while Walmart depends on the lower and middle classes. Right now, they’re telling us something that’s been apparent for a while: While the wealthy in America seem to be doing all right, everybody else remains very, very cautious.

Macy’s, whose stock has been on a steady upward trend since bottoming out in the recession, increased sales by 31 percent over last year in the third quarter and issued a rosy projection for the holiday season. Its sales in October were the best of all, government shutdown notwithstanding.

Walmart released its earnings Friday, and while overall sales grew slightly in the last quarter, the closely watched metric of comp sales — that is, revenue from established stores compared to a year ago — posted its third straight decline, especially in groceries and electronic entertainment. The new, urban Neighborhood Market stores did better; most of the weakness came in the giant rural superstores. And despite aggressive plans for deep discounts on Black Friday and an earlier-than-ever opening time on Thanksgiving, it decreased its earnings projections for the holiday season, citing the poor financial state of its core demographic.

“Lack of clarity about what personal health care cost would be is another concern,” said Walmart U.S. President Bill Simon, whose division makes up 58 percent of the company’s revenue. “Our customers’ No. 1 concern is still around jobs and employment. Their income is going down and food is not. Gas is still eating up their budget despite abating. We aren’t going to see a rebound in consumer spending. The continued noise and angst with the government is still not good for consumer confidence.”

The other factor: a cut in food stamp spending that kicked in at the beginning of this month, and is expected to hit Walmart harder than any other retailer, since it ultimately receives 18 percent of the program’s disbursements (and will affect how much recipients spend on other items as they stretch to make up for the loss in benefits).

Walmart didn’t do too badly during the recession, since the “always low prices” mantra is what people on a budget want to hear. Macy’s, on the other hand, took a much steeper dive after the financial crash and recovered much more quickly. Its customers respond to values of assets like stocks and real estate, which have been increasing, rather than metrics like long-term unemployment and wages.

All of which makes Walmart’s move toward smaller urban formats even more important — if it can diversify into higher-income ranges, it won’t be as dependent on those without much to give.

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