Monday, May 9, 2011

Walmart customers have too much month left over at the end of their money...This may be the most revealing comment on the state of the economy yet...

Opportunity Costs are impacting Walmart.  The effects or rising gas and food prices are hitting other sales departments within Walmart.  People have to make choices about spending their money.  Some goods, like food and gasoline are a relatively inelastic part of people budget, meaning when the price rises it does not severely impact the decrease in quantity demanded for those items. They are "must haves" in the short term.  More money going for one good, means less for others that are not "necessities" or can be done without in the short term. This is what Walmart is experiencing according to this executive:
""Wal-Mart (WMT) CEO Mike Davis has been quoted as saying that the firm’s core customers are “running out of money,” that the end-of-month sales fall-off is becoming more noticeable as high gas prices and increasing food inflation take their toll. But it’s not just a cyclical story.""--SOURCE HERE
Walmart for a long time has benefited from "down-trading" when the economy turns bad. In economic terms, Walmart is an "Inferior Good"--as Income DECREASES the demand for Walmart INCREASES. Walmart is a substitute for higher priced retail stores like J.C. Penny, Sears, Target, Tom Thumb, Albertsons, etc. However, they may have hit a wall and there is no place else for people to down trade to--except perhaps -99 Cent stores or....Goodwill's...
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