Walmart Sounds Alarm as Consumers Feel the Pinch of Inflation
Walmart posted impressive sales and profits for the last quarter, exceeding analysts’ expectations. However, the retail giant warned that the current year will be challenging due to the persistent increase in prices of everyday goods, prompting consumers to become more cautious in their spending.
Walmart saw an increase in revenue of 7.3 percent compared to the same period last year, as customers visited their stores more often and spent more per visit. The U.S. stores of Walmart had record-breaking sales in December. Nevertheless, the company projected lower earnings for the current fiscal year than expected, causing concern among investors and a 2 percent drop in Walmart’s shares during early trading.
During a conference call, Doug McMillon, the CEO of Walmart, expressed his confidence that more affluent families will continue to shop at their stores. Home Depot, on the other hand, reported a decrease in profits due to its close association with the unstable housing market, which has been affected by the increase in mortgage rates. As a result, Home Depot’s stock prices dropped by over 3%.
The aforementioned events indicate that consumers’ tenacity may be waning as inflation and the rise of interest rates constrain household budgets. These less optimistic forecasts from the retailers suggest that the recent robust economic data may undergo a reversal. Although January saw a growth in job opportunities, increased consumer spending, and escalated prices, it prompted investors to reconsider the probability of a decrease in interest rates. This has led many to assume that the Federal Reserve will instead augment interest rates to decelerate the economy and regulate the persistently high inflation.
Certain major suppliers, such as Procter & Gamble and Unilever, have declared that they plan to further escalate prices in the upcoming year, creating a predicament for retailers such as Walmart who must decide between raising their own prices or watching profit margins dwindle. Meanwhile, others, like Kraft Heinz and PepsiCo, have declared they will discontinue the practice of raising prices following substantial increases last year, which caused customers to cut back and opt for more affordable brands.
Demonstrating increased cost pressure, Home Depot has recently announced it will spend an additional $1 billion this year to increase the wages of its frontline workers. Home Depot, with more than 2,300 stores across the United States, Canada, and Mexico, employs approximately 475,000 individuals.