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Wal-Mart Sees Weak Consumer

The financial crisis on Wall Street is creating major behavioral changes on Main Street that are evident in the way consumers are shopping at Wal-Mart, Eduardo Castro-Wright, president and chief executive officer of Wal-Mart U.S., said last week. We speak with a half million to 1 million customers every month, and what they're telling us is that they are really feeling the pain of

LOS ANGELES — The financial crisis on Wall Street is creating major behavioral changes on Main Street that are evident in the way consumers are shopping at Wal-Mart, Eduardo Castro-Wright, president and chief executive officer of Wal-Mart U.S., said here last week.

“We speak with a half million to 1 million customers every month, and what they're telling us is that they are really feeling the pain of the financial crisis, which is trickling down to affect all of their lives,” he told Town Hall Los Angeles.

In September, 80% of Wal-Mart customers cited personal financial security as their No. 1 concern, he noted, compared with 65% a few months ago.

“People are wondering if they will have enough money to put food on the table so their families can eat,” he said.

Another reflection of the economy is the dramatic drop in credit-card payments at Wal-Mart, he added.

“Credit payments were at double-digit rates in the first half of 2007, so clearly access to credit was not an issue then,” he said. “But we began seeing credit payments drop in the third quarter, and then they dropped to negative numbers in the fourth quarter of last year and they have continued to drop to double-digit negative numbers this year.

“People's credit cards are maxed out and they can't use credit for discretionary purchases, so they have to make choices about how to spend what they have, and that's causing a lot of suffering among many merchants.”

Castro-Wright also noted that private brands at Wal-Mart have grown at 2.5 times the pace of national brands, a trend he expects to continue for “quite some time.”

Higher gas prices are driving less customer frequency and larger baskets at the chain's rural stores, but greater frequency and larger baskets at urban stores, he said.

Wal-Mart is also seeing bigger sales spurts around the first and 15th of each month as people get paid. The percentage of sales at the beginning and middle of each month has increased more than 250 basis points in the last three or four months, Castro-Wright said.

“In fact, we're starting to see some very disturbing trends in terms of sales on items that have no ‘seasonality,’” he said. “Sales of baby formula, for example, are now spiking at the beginning and the middle of each month.”

The financial crisis is giving Wal-Mart an opportunity to acquire talent from other companies whose businesses are failing, Castro-Wright added.

A businesswoman in the audience, who said she had been selling her dessert items to Wal-Mart for 12 years, asked what Wal-Mart is doing to help small businesses like hers survive.

On the one hand, he replied, Wal-Mart is trying to become more efficient in addressing the assortments it carries to facilitate the flow of products through the stores, “while at the same time we have programs that encourage diversity among small suppliers, by trying to help them develop the ability to serve critical mass and achieve economies of scale.”

TAGS: Walmart