For years, rising home prices and home equity loans helped people with stagnant incomes to keep up with record food and energy prices. With the collapse of the real estate market, it was beginning to look like there was nothing to take up the slack. But this morning, CNNMoney reports, Wal-Mart Stores Inc. (NYSE: WMT) customers who received gift cards over the holidays are using them for "food and consumables rather than discretionary purchases."
If that's really true, rather than a convenient excuse for a less-than-perfectly managed retail store experience, then it tells us that the U.S. economy is in a heap of trouble. That's because a consumer who uses gift cards to buy food instead of gifts is one that is running low on options. Compared to getting money from a pawn shop, a gift card is a compelling way to pay. But once that gift card runs out -- and it probably can't buy more than a month or two of groceries, then what?
The market seems quite disappointed with Wal-Mart this morning -- it said its sales at stores open at least a year grew only 0.5% in January, excluding fuel sales. That was well below the forecast of 2% growth. In pre-market trading, its stock is down 3.9%. Investors are realizing that once those gift cards run out, Wal-Mart's monthly comparisons this year -- and maybe next -- will have negative signs in front of them.
For the last seven years, unsustainable borrowing has created the illusion of growth. But now Toto has pulled away the curtain and revealed the Wizard of Oz to be a familiar figure -- the banker expecting his loan to get paid back.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Wal-Mart securities.
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Reader Comments (Page 1 of 1)
2-07-2008 @ 4:22PM
Michael Schneider said...
Retail analysts Howard Davidowitz (Spelling?) and Dana Telsey both had gloomy things to say about retail on CNBC today. Howard thinks the consumer is in deep dudu. Dana Telsey expects the retail environment to be tougher than most people expect in the 1st quarter. Many analysts do expect things to get better later in the year. Comments by Dana Telsey are posted in the Spotlight section at http://www.Barrelomoney.com.
In any case the Wal-Mart statements weren't echoed by specialty retailers - many of whom reported better than expected results (Gap, Aeropostal etc) but department stores likes Dillard's and Macy's had poor sales. .
2-07-2008 @ 6:26PM
wanderer said...
Yes, a lot of people are in pain because they did not keep their "wits about them". Just because money got easy, a certain segment of our population felt it was never going to change and they could ride the wave. Now many of these good people got caught. They did what everybody else was doing spending beyond their means, using equity in homes, paying off credit cards, then going right back into debt.
Now the pain of slowly working off the debt, getting the mind set they can't" live like the jone's"
because they do not have their kind of money!
One day soon for some and months and years for others will finally work their way out.
The burning question? Should we bail them out?
That is what the sentiment is from them!
I have gone through this, was lucky enough to have a rental property that had enought equity to
resolve most of my problems. I now pay all my credit cards every month on time. My rental house
is breaking even but the money coming in is taking
care of that bill. I did not ask Uncle Sugar for anything! Why should I now be asked to help pay
for someone that does not want to sacrifice ?
2-08-2008 @ 12:34AM
Walter said...
Do not pay off your dept with your cash/savings
unless you are in a position that you can afford to do so and still have free cash available.
Consolidate your bills in to lower interest rates or a home equity loan with a low fixed rate no arms .
Remember if you have depts and can not pay them just send one dollar to each one till you get on your feet again.Pay your mortgage if you can and make the rest wait.They do not want the shit you bought with the money they want the money.
2-08-2008 @ 5:05PM
Jennifer Mathe said...
Gift card sales saw monumental growth this past Holiday season, so I think it is no surprise that the cards are now being repurposed in practical ways in the face of the recession. At the same time, it is amazing how many people allow their cards to go to waste. Our website, LeveargeCard.com (full disclosure, I am a co-founder) allows consumers – at no cost - to register their gift cards, keep track of balances, see terms and conditions so that you KNOW if there are expiration dates you need to be worried about, and swap those gift cards that you don’t want and won’t spend with other members of the community.
2-15-2008 @ 7:43PM
NickP said...
The walmart PR machine has feeding less knowledgeable a bunch of BS. Their sales reflect nothing more than the rise in food and gas prices they are selling. One wonders how they will cook the books to salvage profits after they keep telling us they are rolling back prices and giving their employees more benefits. Will it be a miracle or the result of cutting employees and mooching more taxpayer subsidies?