As if we needed another confirmation that the US consumer is running on empty, here comes Bloomberg with valuable disclosure from an internal, and supposedly confidential, Wal-Mart memo on store traffic patterns which indicate that in US store locations open for at least a year have seen a 2.6% drop in traffic in the February to June period compared to a year earlier. While this may not sound huge, keep in mind the company is massively leveraged to even the smallest marginal moves in traffic, courtesy of already razor thin margins. Specificall, the Wal-Mart stores in question had "82.8 million fewer visits through the first five months of the company’s fiscal year." More than anything this is an indication of just how exhausted the US consumer is becoming if even the most beloved, widespread and cheapest option for purchases is now being shunned outright. Bloomberg continues: "Wal-Mart’s plan to recapture customers by returning thousands of products to U.S. store shelves has failed to reverse a decline in foot traffic at the world’s largest retailer, said Jeff Stinson, an analyst at Cleveland Research Co. That’s primarily because Wal-Mart’s core low-income customers are shopping less and going to other retailers more often, according to two recent shopper surveys." This should not come as a surprise to anyone, since frequent Zero Hedge readers will recall the post in which the CEO of Wal Mart America said that "shoppers are running out of money"; and there is no sign of a recovery." When it comes to marginal traffic, it appears shoppers have just run out of money. And that includes those who no longer pay their mortgage and pay for everything with their now well maxed out credit cards.
Wal-Mart, led by Chief Executive Officer Mike Duke, is restoring an average of 8,500 products to its stores to lure back shoppers still pinched by persistent unemployment and gas prices that have risen 36 percent in the past year. Sales in U.S. Wal-Mart stores open at least 12 months have declined for eight straight quarters.
Wal-Mart’s traffic decline comes as some of its direct competitors are getting more visits.
Wal-Mart’s decline is close to the 2.5 percent drop in shopper traffic at all retailers from February through June, according to retail industry data provider ShopperTrak in Chicago.
The two shopper surveys, from Morgan Stanley and retail consultancy WSL Strategic Retail, found that the removal of items from stores in 2009 to reduce clutter wasn’t among the top reasons why shoppers are visiting Wal-Mart less frequently.
“Consumers are not very concerned about removed items or breadth of assortment,” Mark Wiltamuth, an analyst at Morgan Stanley, said in a July 11 report that included the survey. In the WSL survey, 7 percent of Wal-Mart shoppers said they were going there less because it stopped carrying products they buy.
The scariest news for Wal-Mart: it no longer has the deep discount retailer halo it has held for decades:
Many shoppers don’t believe Wal-Mart’s prices are the lowest anymore, the surveys found. These consumers are shifting more of their spending to dollar stores, Target, and supermarkets such as Kroger’s, WSL said. Both surveys polled about 1,500 shoppers.
“The biggest surprise from our survey is that Wal-Mart appears to have lost some of its low-price reputation,” Wiltamuth said in the report. “Wal-Mart now has a price perception problem.” The New York-based analyst rates the shares “equal-weight.”
“They are taking incremental mini-steps at a time when they need to knock shoppers’ socks off,” Liebmann said.
The possible culprits for the drop are many, but none of them change the fact that there is less shopping happening:
Traffic declined by an undisclosed amount at U.S. Wal-Mart stores in the fiscal year ended Jan. 31 after increasing 1.3 percent in the previous year. Shopper visits continued to drop in the first quarter of the current fiscal year. Duke has said customers are making fewer shopping trips and spending less when they do shop because of higher gas prices.
“Our priority right now is trying to provide that opportunity for customers to go to one place and have everyday low prices on the full assortment that they purchase,” Duke said at an April investor conference.
Wal-Mart has forecast that the change in second-quarter fiscal 2012 comparable-store sales in the U.S. would be negative 1 percent to positive 1 percent. Cleveland Research estimates same-store sales to be down as much as 2 percent.
“The data points don’t look great,” Dan Binder, an analyst at Jefferies & Co., said in an Aug. 2 note to clients. “There is downside risk to sales in the second quarter and potentially over the balance of the year.” The New York-based analyst cut his recommendation to “hold” from “buy” in the note.
In a May study from Deloitte Research, almost three out of four respondents said they are making fewer trips to the grocery store to save money and two-fifths said they are purchasing fewer items overall.
The worst news is that despite 3 years of failed attempts, US consumers appear happy to redirect funding from other sources of cash use, such as paying for mortgage (which will end up being the reason for a TARP 2 bailout of the banks soon enough), but far more averse to actually levering up, or, if they wish to do so, appear to no longer have the capacity. Which is easily the worst possible news for the Fed which is now actively preparing to launch QE3.