Wal-Mart's Troubles Augur Ill for U.S. Economy

While investors rightly focus on Washington as politicians play Russian Roulette with the future of the U.S. economy, they should not overlook another important concern. Namely, there is a slowdown taking place at the world’s largest retailer. Bloomberg recently reported that Wal-Mart Stores, Inc. (WMT) was reducing orders placed with its suppliers. Why? Because the merchandise is not selling as well as the company’s management had planned.

Indeed, a quick look at WMT’s most recent Form 10-Q filed with the SEC makes the problem quite clear. Inventories, which are the company’s largest current asset by far, stood at $42.8 billion on July 31, up 5.5% over the past year. Yet, during the same time, total revenues (which include membership fees) were up only 2.3%. What’s a worse, same-store sale in the company’s U.S. stores actually fell 0.3%. Over the past six months, same-store sales in the U.S. have dropped 0.8%. The company is blaming at least part of the decline on higher payroll taxes, which are leaving core customers with less disposable income.

Of course, there are some firm-specific issues that also explain the slowdown at WMT. For example, the company has reduced headcount so much over the years that it is now having trouble keeping the shelves stocked with the things that customers want. This reminds me of an incident I experienced at Kmart in 1988. Read more.