If you’re looking for economic trouble, a good place to look is your local Walmart (NYSE:WMT). The company’s 2018 U.S. sales of $331 billion represented over 6% of the nation’s total retail trade, which was $5.3 trillion.
During the Great Recession of 2009-2010, Walmart’s quarterly sales growth went negative, after growing over 10% year-over-year in 2008.
With its broad selection of middle-class goods, and locations in small cities and suburbs, Walmart can’t help being a proxy for the broader economy. For the quarter ending in April its sales were up 3.4%, year-over-year, while international sales volumes fell. That’s in line with general economic trends.
Walmart is next due to report earnings Aug. 15, with $130.49 billion in total revenue expected, which would justify its June 25 opening stock price of $111 per share.
What are the chances of a miss?
Walmart vs. Amazon
The headlines Walmart is making today mostly involve its rivalry with Amazon (NASDAQ:AMZN), in which Walmart is an elephant and Amazon a fly.
Walmart already has 26% of the grocery market against 2% for Amazon and Whole Foods. It is using this advantage to swat down Amazon’s efforts in online groceries. Analysts believe it overtook Amazon in online groceries last year.
But online sales represented just 5.5% of the grocery market last year. While it’s growing twice as fast as in-store sales, people still want to smell the cantaloupes they’re buying.
Look in the Store
Walmart is so big that its biggest competitor turns out to be Walmart.
The company has closed 17 stores over the last year mainly because they were taking traffic from other Walmart locations.
Walmart sees the U.S. market as mostly built-out. That is why it is pushing its supply chain to emphasize fresh food and take the e-commerce niche before rivals can get it. It is backing away from smaller units, like on-campus stores, and its efforts in convenience stores remain experiments.
The risk in online is the same as with its stores — cannibalization. When shoppers buy their groceries at Walmart.com and pick up their packages at the store, it may just mean they’re not going in, not that Walmart is taking share from someone else. If they’re not going in, shoppers aren’t visiting other Walmart departments, like clothing, where many retailers are being crushed.
Walmart is making some moves to prepare for economic trouble ahead, installing cameras to reduce shoplifting and taking welfare payments. So far these have been overshadowed by its efforts in e-commerce.
Walmart has warned the administration against raising tariffs but prepared its suppliers for the resulting higher prices. Those looking for an impact from tariffs might want to visit Walmarts in Tennessee, where imports represent 7.3% of GDP, for their first clue.
Walmart could be highly vulnerable to a downturn. Its stock has been a star in 2019, up almost 20% in the first half of the year. This has taken the yield on its 53-cent-per-share dividend below 2%. It is no longer a dividend aristocrat, but a stock people are buying for capital gains. The stock, by most accounts, has gotten ahead of itself.
The first sign of economic trouble ahead may not be found in Walmart’s stores, or in its e-commerce operations, but in its stock price. If Walmart doesn’t beat revenue estimates for the current quarter, despite all its recent investment, and the stock falls hard as a result, it could be the whole U.S. economy that’s in for a hard landing.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.