Walmart (NYSE:WMT) has been a winner during the pandemic. There is no doubt that the retailer has done a good business. Many Americans simply had nowhere else to go for essential food and supplies. But despite the stock being at record levels, I think it may be a good time to pause on Walmart stock.
Walmart was as prepared as any retailer could have been to confront the challenges of a global pandemic. The company was successfully embracing the omnichannel model and was holding its own with the likes of Amazon (NASDAQ:AMZN).
And, Walmart is preparing to launch its own version of Amazon Prime called Walmart+. However, analysts have become frustrated by the delay in what looks to be a scaled-back rollout of the service. And that may be one reason, as InvestorPlace’s Vince Martin pointed out, that Walmart stock has been butting up against a level of resistance at around $130.
I see three reasons why Walmart may not have the growth that investors are hoping for as we look toward the fall.
The Urgency Is Easing
I’m not calling an end to the pandemic. It’s likely that we’ll be living with the novel coronavirus for far longer than we care to admit. However, I can’t help but notice that supply chains are catching up.
In late March and April, shopping was a competitive sport. I know items got added to my shopping cart on the off chance that we might need it for some recipe that I had never made. OK, it wasn’t that bad, but it’s safe to say that there was a shortage of staples, and not just toilet paper.
That situation has improved. And while I still find myself keeping tighter track of my household inventory, I’m not as concerned about the store not having the items I want and need.
Do I consider myself an outstanding shopper? No, but that’s my point. If I’m observing these things, than other shoppers are as well.
Back-to-School Shopping Looks Different
A typical catalyst for Walmart and other retailers such as Target (NYSE:TGT) is the back-to-school shopping season. But that looks a little different this year. Forbes posted the results of a survey by FinanceBuzz that said 1 in 3 consumers are expecting to spend less this year on back-to-school items.
Many parents have no need to shop for new school clothes since their child’s classroom will be virtual. And if your child plays a fall sport, particularly football, there may be no reason to put equipment and gear on your shopping list.
But back-to-school shopping for many parents has also involved “cleaning the lists” of teachers by buying facial tissues, paper towels, dry-erase markers — products that were community items in the classroom. Those won’t be needed in many cases as well.
What Will the Holidays Bring?
Speaking of living with the virus, it’s unlikely that Halloween will look the same this year. Nor would it seem that Thanksgiving and Christmas will look the same. Research firm Meredith suggests that holiday shopping will start earlier than normal with consumers spending less than normal.
According to Alysia Borsa, Meredith’s executive vice president and chief marketing and data officer, high unemployment will be an issue. “There’s going to be a more conservative approach to spending this holiday season,” said Borsa who adds, “We’ve seen that over 50% of Meredith families are concerned about their jobs. And over a third of them have already experienced some loss of income.”
And while it’s true that Walmart’s pricing structure makes it attractive to budget-minded shoppers, it still may affect the retailer if the price per customer is lower.
Be Realistic About Walmart Stock
Walmart stock is up just over 13% for the year. Last year, in one of the most robust economies in our nation’s history, the stock mustered a gain of just $2 in the fourth quarter. And with the exception of 2017, that pattern has held for the last five years. This isn’t necessarily surprising. Walmart’s size is its biggest strength, and also its biggest obstacle to growth.
This year, the economy does not look to be on nearly such a firm footing. And as you’re undoubtedly getting sick of hearing about, that’s not changing until the “new normal” looks closer to the old normal.
Will this translate to lower revenue for Walmart? It may be better to say that it’s likely that revenue will start to even out. This will be balanced somewhat by costs that are coming down as some incentive pay expires. Either way, Walmart stock does not look like the growth play that some investors may be envisioning for the rest of the year.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.