(MintPress) – Late last week the online news site, Bloomberg, reported they obtained leaked emails from Wal-Mart executives calling early February sales a “total disaster.” Now some in the retail industry are panicking that the reason Wal-Mart saw the worst sales in seven years so far this February is because customers are broke. Brian Sozzi, chief […]
(MintPress) – Late last week the online news site, Bloomberg, reported they obtained leaked emails from Wal-Mart executives calling early February sales a “total disaster.” Now some in the retail industry are panicking that the reason Wal-Mart saw the worst sales in seven years so far this February is because customers are broke.
Brian Sozzi, chief equities analyst at NBG Productions, told Business Insider that “the fundamental health of Wal-Mart’s customer is concerning.”
“Wal-Mart shoppers are the barometer of the U.S. consumer, and these emails reflect common sense about customers,” Sozzi said. With a customer base that has an average income ranging from $30,000 to $60,000, Sozzi said “the [Wal-Mart] consumer isn’t mentally or physically ready to spend on discretionary inventory and there’s no reason to be optimistic.”
Last year, Wal-Mart CEO Mike Duke told Women’s Wear Daily that Wal-Mart shoppers were not confident spending money in the current economy.
“They are middle-class Americans and those aspiring to join the middle class,” Duke said. “Our customers are working hard to adapt to the ‘new normal,’ but their confidence is still very fragile.”
But it’s not just Wal-Mart that is struggling to get the customer in the door and buy something — despite reports that overall retail sales rose 0.1 percent in January.
Executives at Wal-Mart are blaming the hike in payroll taxes and a delay in tax returns for poor sales. According to Bloomberg, when the payroll-tax break expired at the end of last year, Americans started paying 2 percentage points more in Social Security taxes, meaning someone making the median income of about $50,000 saved $1,000 a year, or a little more than $19 a week.
Another contributing factor to Wal-Mart’s drop in sales could be tied to the increased exposure of the retailer’s unpopular labor practices. This past November, many shoppers and Wal-Mart employees protested outside of Wal-Mart stores across the country hoping to raise awareness about the low pay, lack of benefits and Wal-Mart’s history of punishing any workers who try to organize.
Striking employees called the Black Friday protest a success, but as the Huffington Post reported, most Wal-Mart shoppers didn’t seem to acknowledge or recognize that the retailer was able to offer discounts on items because they paid their employees a low, barely-livable wage. According to Workplace Fairness, about 5,000 lawsuits are filed against Wal-Mart each year, which amounts to about 17 per day.
When it comes back to the payroll tax though, economists say they expected consumers to shop less when the tax cut expired, but as Brian Yarbrough, an analyst at Edward Jones, told Business Insider, the tax cut may have been “a bigger deal than any of us thought.”
President Obama pushed for the payroll tax cut in late 2010 as a way to increase take-home pay in the hope it would help boost consumer spending and the economy. Economists were divided on the economic benefits, with some saying it probably helped increase consumer spending but there was no consensus on the extent it helped the economy.
In his 2013 budget proposal, Obama didn’t include the tax cut, and Treasury Secretary Timothy Geithner told Congress that he saw no reason to extend it again.
Though the working poor, who typically shop at retailers like Wal-Mart, are more affected by taxes since their discretionary spending is already low, affluent Americans are not as likely to be affected by the tax cut’s expiration. This is why economists like New York Times columnist Paul Krugman believe that the decision to let the payroll tax expire is a form of an austerity measure, especially when paired with the Bush-era tax cuts.
In a column, Krugman wrote that the looming combination of tax increases and spending cuts appeared large enough to push America back into recession.
And it appears David Strasser, an analyst for Janney Montgomery Scott LLC, agrees with Krugman that this tax cut is hitting less-affluent Americans the most. “Anyone with any low-end exposure is going to feel this. That customer runs out of money every day as it is. Now they’re really going to run out of money.”