Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Inflation steers budget shoppers away from Walmart. Bringing them back may not be easy

Stock Markets Aug 11, 2022 21:45
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: Shoppers are seen wearing masks while shopping at a Walmart store, in North Brunswick, New Jersey, U.S. July 20, 2020. REUTERS/Eduardo Munoz/File Photo 2/2

By Arriana McLymore and Siddharth Cavale

(Reuters) - Walmart (NYSE:WMT) Inc could face an uphill battle to reclaim U.S. shoppers who opted for the neighborhood dollar store or Aldi rather than driving farther to a Walmart Supercenter when gasoline was $5 a gallon.

While gasoline prices have dropped nearly 20% over the past month, there are no signs shoppers are returning to the nation's biggest retailer, according to foot traffic data reviewed by Reuters and analysts.

Inflation remains at a 40-year high, devouring a large chunk of the grocery budgets of many Americans, especially Walmart's legions of cost-conscious shoppers.

Foot traffic at Walmart's 3,573 U.S. Supercenters and its 370 discount stores (as of Jan. 31, 2022) fell 2.7% on average from June 1 through July 25 versus a year earlier, according to data from Placer.ai, a location analytics firm.

Meanwhile, traffic rose 11.5% at Aldi, owned by German discount grocer Aldi Süd, and the number of shopper visits climbed 4.1% at Dollar General (NYSE:DG).

The question of how to reverse the loss in foot traffic will likely be a focus for analysts when Walmart reports second-quarter earnings on Aug. 16.

It may not be easy - or cheap.

Graphic: Shopper visits to Walmart Supercenters fell weekly since early June, https://fingfx.thomsonreuters.com/gfx/mkt/byvrjymjqve/Shopper-visits-to-walmart-supercenters-fell-weekly-since-early-june.png

Burt Flickinger, managing director of Strategic Resource Group, said Walmart needs to invest more in local advertisements to lure people back into stores.

Cutting back on local newspaper ads has become Walmart's "Achilles heel," Flickinger said. If the company wants customers to return, Walmart must spend more money on "high-value ads" that highlight promotions and rollbacks.

Walmart shoppers have a median household income of $73,000, according to data from Numerator, a consumer insights firm.

In June, inflation reached 9.1%, a four-decade record, while gasoline prices soared to $5.006 a gallon on average (June 13), up from $3.161 a year earlier, according to the U.S. Energy Information Administration. Higher gas prices shaved hundreds of dollars off the monthly spending budgets of the typical low-income American, according to several economists.

Walmart CEO Doug McMillon has previously characterized the retailer as an "inflation-fighter" and a top destination for shoppers in recessionary periods. But Walmart's share as the first choice for grocery purchases dropped to 25.5% in July, from 27.4% in June, according to a Prosper Insights & Analytics monthly consumer survey cited in a Cowen & Co note.

McMillon recently told investors that shoppers - especially from lower-income households - bought fewer items in the three months through April 30, even they also consolidated their trips to the store in response to higher fuel prices.

Monthly spending on gas in July rose to 5.57% of the income of a typical American household - which earns $5,412 per month post-tax - up from 2.79% of income in December 2019, according to GlobalData. Poorer households generally spend a bigger portion of their incomes on gas and essentials.

Walmart Supercenters, which average about 190,000 square feet (17,651.6 square meters) and sell groceries and deli items, alongside clothing, home products, and electronics, tend to be located outside of major metropolitan areas, requiring many shoppers to drive at least several miles. Supercenters do not sell gas.

SAVE MONEY, SHOP CLOSER

Both Walmart and Target Corp (NYSE:TGT) issued profit warnings over the past two months, noting that U.S. shoppers responded to the rising cost of living by buying primarily lower-margin food and other essentials, while skipping aisles filled with clothes and sporting goods.

Walmart's warning in late July was “a diagnostic look at the average American household," Jefferies analyst Stephanie Wissink said. It showed the squeeze on shoppers’ monthly budgets that also led many to cut back on their trips to grocery stores, she said.

At Target's 1,937 stores, traffic declined from mid-June through the week of July 25, Placer.ai data shows.

While Walmart has an advantage of offering a larger selection, dollar stores' more convenient locations offer an advantage when fuel prices are high, Jason Benowitz, senior portfolio manager at the Roosevelt Investment Group, said.

Shopper visits to Dollar General stores rose in all weeks of June and for most of July, versus the same period last year, the data shows. Dollar General operates more than 18,400 stores in the United States compared with Walmart's 5,342 U.S stores, according to its latest annual filing.

Placer.ai did not provide data on other dollar store chains, such as Family Dollar and Dollar Tree (NASDAQ:DLTR). However, its quarterly index for dollar stores shows that foot traffic to discount stores in the second quarter increased 8% year-over-year and jumped 13.2% compared with the last quarter.

"The driving distance for a typical shopper across much of the U.S. may be twice as far to reach the nearest Walmart as compared to a dollar store," Benowitz said.

Graphic: Gas prices have surged since the beginning of 2022, https://fingfx.thomsonreuters.com/gfx/mkt/jnvwenxlovw/Prices-have-spiked-at-gas-stations-since-the-start-of-2022%20(1).png

Inflation steers budget shoppers away from Walmart. Bringing them back may not be easy
 

Related Articles

2 Defense Stocks Downgraded at Wells Fargo Today
2 Defense Stocks Downgraded at Wells Fargo Today By Investing.com - Sep 28, 2022

By Senad Karaahmetovic A Wells Fargo analyst downgraded shares of Lockheed Martin (NYSE:LMT) and L3Harris (NYSE:LHX) after turning more cautious on the defense stocks. The...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email