Higher-income consumers could create a difficult situation Walmart.
Even though wealthy shoppers helped the retailer beat its quarterly results recently, Bill Simon, former CEO of Walmart US, warns it will be difficult to sustain them.
“The Walmart experience is better than it used to be, but it’s still not a premium experience. Walmart is based on convenience, cost and assortment. Not on service,” he told CNBC’s “Fast Money” on Thursday. “As economic challenges ease… service will become more important than convenience and price. And we will see some consumers turn away. This is the bubble.”
His warning comes as Walmart stock has hit an all-time high since August 1972, when it began trading on the New York Stock Exchange. Shares rose nearly 7% on Thursday after the discount retailer’s adjusted earnings and sales beat estimates in the fiscal first quarter. Walmart reported that high-income consumers helped drive profits, particularly at the grocery store.
“The challenge is that the tailwinds created by food inflation that have propelled Walmart forward will eventually reverse,” said Simon, who sits on the board of directors Darden Restaurants And Hanesbrands.
Last October, Simon warned on Fast Money that bargains were losing their magic as consumers began to give in for the first time in a decade. His appeal at the time was aimed at lower-income consumers.
Now Simon claims that higher-income consumers going to Walmart isn’t good news for the overall economy.
“When money is tight, people react — even high-end consumers react,” he said.
Despite his bubble warning, Simon thinks Walmart is a “great investment” over the next 12 months.
“As long as there is inflation and the tailwinds that come from food inflation in particular, there will be more traffic coming to the Walmart store,” Simon said.
But he thinks the stock could be in trouble in 24 months as inflation falls and upscale consumers stop shopping at discounters.
“As inflation eases and service becomes more important than price, some of these tailwinds will become headwinds,” Simon said.
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2024-05-17 19:56:59
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