This is Wal-Mart time,” said the retailer’s outgoing CEO, Lee Scott, at an October analyst conference. And he’s right, in more ways than one.
Not only are wealthier shoppers trading down to Wal-Mart, but for the first time in decades, Wal-Mart’s lower- and middle-income shoppers, whose wages have risen far more slowly than others’ for decades, may be getting a slightly better break from the economy, so they’re able to spend more at the discount giant.
Plummeting gasoline prices since mid-September have disproportionately helped Wal-Mart shoppers, in part because the chain is concentrated most heavily in Midwestern and Southern states where prices have fallen the most—as much as 60% in Arkansas and Missouri, the heart of Wal-Mart country, versus about 45% in the New York metro area and California, where Wal-Mart has comparatively few stores.
The savings, which can easily top $100 a month for a two-car household, also makes a disproportionately bigger difference in the budgets of lower-income shoppers, since 57% of people in households making $50,000 or less say they live paycheque to paycheque, says Candace Corlett, principal of WSL Strategic Retail.
Of course, it’s unclear how long relief from gas prices can counteract the pain of job losses for lower-income Americans. For now, however, falling gas prices clearly are helping Wal-Mart and may explain why Black Friday (the unofficial launch of discounts for the holiday season) sales were up a surprising 3% broadly even as overall November retail sales tanked, says Corlett. Like Wal-Mart shoppers, Black Friday shoppers broadly appear to skew lower income and be more price focused, she says.
Only 10% of shoppers surveyed in October felt they had more cash in their pockets because of falling gas prices, she says. But that’s likely because “the low-income shopper is taking that cash from gas and putting things back on the table that they’d taken off [because of rising prices], like bacon or ice cream,” Corlett says. “I think when Black Friday came around they probably did have more cash in their pockets and stormed the doors at Wal-Mart and Best Buy to get the big-ticket items at terrific bargains.”
She doubts, however, that will be enough to save the holiday season for retailers. Explaining its strong 3.4% gain in comparable-store sales last month, Wal-Mart credited lower gas prices along with “investments in price [that] extended Wal-Mart’s value proposition.”
Falling gas prices actually play a disproportionate role for Wal-Mart both on the demand and pricing sides, says Michael J. Mazzeo, professor of management and strategy at Northwestern’s Kellogg School of Management.
Falling gas prices act like an economic-stimulus package, with each penny decrease akin to $1 billion in annual savings for consumers, or a total of around $200 billion based on a nationwide average $2 decline in prices at the pump since mid-September.
But that stimulus doesn’t fall evenly. Not only have gas prices not dropped as quickly in major metro areas, but even if they had, people there who earn a lower income are far less likely to benefit immediately because they use mass transit more than people in the rest of the country.
—Advertising Age
