The Working Class Is Sinking and Dragging Walmart Down With It

Moneybox
A blog about business and economics.
Aug. 14 2014 4:09 PM

The Working Class Is Sinking and Dragging Walmart Down With It

Walmart.
Another quarter, another disappointment.

Photo by Robyn Beck/AFP/Getty Images

Business continues to disappoint at Walmart's U.S. locations. The big-box retailer reported on Thursday that sales at existing stores were flat in the latest quarter after declining for the previous five. It said traffic dipped 1.1 percent (though customers who made it in chose to spend slightly more) and cut its full-year earnings outlook on higher-than-expected health care costs and company spending on e-commerce.

Walmart has now spent months explaining away the poor performance of its U.S. division. In the first quarter it blamed the weather; in Q4 2013 it cited cuts to government benefits and increased taxes; and in Q3 2014 it gave perhaps the vaguest excuse of all, a "challenging global economy and negative currency exchange rate fluctuations." In a sign that it might be finally shouldering some responsibility for its results, Walmart a few weeks ago ousted U.S. chief Bill Simon and appointed former Walmart Asia head Greg Foran to replace him.

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In fairness to Walmart, those excuses aren't crazy. Dollar stores, which typically cater to the lowest income bracket, have struggled to reclaim shoppers amid the slow economic recovery. Family Dollar, which is being bought by Dollar Tree, has said that government cuts to food-stamp spending were "not a positive" for its customers. Middle-class consumers are spending less as well—a fact that's hurting casual-dining chains like Red Lobster and Olive Garden and retailers like Macy's, which lowered its full-year sales outlook after missing estimates on Wednesday.

Setting U.S. results aside, Walmart's earnings didn't look that bad. Its revenue beat expectations and e-commerce sales—an area it has focused on improving—gained 24 percent (discounting currency fluctuations). "I’m encouraged by the performance of our International business, our Neighborhood Market sales in the U.S. and by our e-commerce growth," Doug McMillon, Walmart's president and CEO, said in a statement. "Stronger sales in the U.S. businesses would've also helped."

Alison Griswold is a Slate staff writer covering business and economics.

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