Walmart Is Falling Apart Before Our Eyes
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Walmart Is Falling Apart Before Our Eyes

Walmart Is Falling Apart Before Our Eyes

By Travis Hoium

May 17, 2014

For most of the past five decades, Wal-Mart (NYSE: WMT  ) has been the retailer competitors feared most and as a result it made for a phenomenal investment for its shareholders. But Wal-Mart has begun to lose its cache with consumers and major holes are starting to form in its business.

Interestingly, Wal-Mart has hidden its financial problems from the headlines because challenges are different around the world, masking themselves in the overall picture. But when you dig between the headlines you can see a company in serious trouble and could be the latest in a long line of leading retailers to go from boom to bust in the blink of an eye.

Wal-Mart stores in the U.S. aren’t nearly as popular as they used to be. Source: Wal-Mart.

U.S. shoppers are abandoning Wal-Mart
The most alarming statistic at home in the U.S. comes from falling same-store sales. This measures how sales are growing location by location and any healthy retailer is looking to grow same-store sales at or faster than consumer spending grows because that shows increased market share locally. Overall sales can be increased by increasing store count, but if same-store sales are falling then the return on each store will drop, something well see in a minute.

Below, I’ve built a table that shows year-over-year changes in same-store sales at U.S. Wal-Mart and Sam’s Club stores compared to the growth in consumer spending on goods. You can see that Wal-Mart is growing far slower than what consumers spend on goods and has been consistently negative over the past year.

2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014
Wal-Mart 1.8% -1.4% -0.3% -0.3% -0.4%
Sam’s Club 2.2% -1.2% 0.1% -0.2% -0.4%
Consumer Spending-Goods 3.1% 3.7% 3.1% 4.5% 2.9%

Source: Wal-Mart and Bureau of Economic Analysis.

The problem for Wal-Mart goes far further than just cyclical swings in retail or a weak economy. Wal-Mart has long been able to lure customers with one-stop shopping and low prices, but consumer trends are now working against that core strategy. For cost conscious shoppers, lower prices can often be found online and more affluent consumers are choosing style and quality products over one-stop shopping. This can be seen clearly by the growth in online retailers like Amazon.com as well as specialty retailers like Williams-Sonoma , Lululemon, and Michael  Kors, among others.

Foreign failures don’t help the problem
Here’s where Wal-Mart’s story gets really interesting. Sales in the U.S. are beginning to struggle, but overseas the company’s profitability is in downright freefall. I highlighted this in an article a couple of weeks ago and the table below shows just how fast margins are falling internationally.

via Walmart Is Falling Apart Before Our Eyes.

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