Right now, the two companies are telling us something that’s been apparent for a while but is growing clearer month by month: The wealthy in America seem to be doing all right, but everybody else remains very cautious.
Take a look at the most recent earnings from Macy’s. The department store, whose stock has been on a steady climb since bottoming out in the recession, said third-quarter sales rose 3.3 percent compared with the same period a year ago, and it issued a rosy projection for the holiday season. Its sales in October were particularly strong, government shutdown notwithstanding.
Wal-Mart, however, is a different story. The mega-retailer released earnings Thursday, and although overall sales grew slightly in the past quarter, the closely watched metric of same-store sales — that is, revenue from established stores compared with a year ago — posted a third straight decline, hit especially hard by slumping grocery and electronic entertainment sales.
The company’s new, urban Neighborhood Market stores did better; most of the weakness came from the giant rural superstores. And despite Wal-Mart’s aggressive plans for deep discounts on Black Friday and an earlier-than-ever opening time on Thanksgiving, the company decreased its earnings projections for the holiday season, citing the poor financial state of its core demographic.
“Uncertainty out of Washington and kind of a lack of clarity around what personal health-care costs will be are also potential headwinds,” Wal-Mart U.S. President Bill Simon told reporters in a conference call. “Our customers’ No. 1 concern is still around jobs and employment. . . . Their income is going down while food costs are not. And . . . gas and energy prices, while they’re abating, they’re still eating up a big piece of the customer’s budget. Consumer confidence is an important aspect to retail, and I think until the issues are resolved that are making news these days, we’re not going to see a very large rebound in the middle of the economy in consumer confidence.”
The other factor: a massive cut in food-stamp spending that kicked in at the beginning of this month. It is expected to hit Wal-Mart harder than any other retailer, as the company ultimately receives 18 percent of the program’s disbursements. (It will also affect how much food-stamp recipients spend on other items as they stretch to make up for the loss in benefits.)
Wal-Mart doesn’t always do badly in times of economic stress. It didn’t sink nearly as much as other companies did during the recession because its “always low prices” mantra appeals to people on a budget. These days, though, it seems that its customers’ discretionary spending is shrinking — or is being sucked up by dollar stores, which have been doing well in recent years.
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 such as stocks and real estate — which have been increasing — rather than metrics such as long-term unemployment and wages — which disproportionately affect low-income people. It’s been recovering since the recession.
That’s a manifestation of the retail industry’s big buzzword of the past few years: bifurcation. The word has been used to describe luxury goods and their knockoffs and even the types of salad dressings that sell well.
Wal-Mart’s other problem is that some of its competitors, such as Kohl’s, Target, Kmart and J.C. Penney, are even more eager to get shoppers in the door. Beset by similar earnings troubles, they’re planning deep discounts this holiday season in what will become a promotional arms race.
“They’re really focusing on taking leadership of price,” says Jeff Clapper, who runs a consultancy in Bentonville, Ark., that advises Wal-Mart suppliers. “And with some other very desperate retailers out there, I think they’re projecting their numbers even lower than before because they realize basically what’s ahead.”
All of which makes Wal-Mart’s move toward smaller urban formats even more important. If it can diversify into higher-income ranges, it won’t be as dependent on a class of shoppers without much to give.