Walmart Loses Money on Rising Food Costs; Five Consecutive Quarters With Falling Sales

In an effort to attract customers to their stores, Walmart “rolled back” prices on food several months ago. Walmart’s hope was that shoppers, anxious to save money in a failing economy, would visit the store, purchase heavily discounted goods, and then continue through the store adding other products to their shopping carts, from which Walmart would then eek out a profit.

In a sign of the times, however, the strategy seems to have back fired. Consumers are willingly coming to Walmart stores to save money on the heavily discounted goods, but rather than continuing to shop, they purchase the discounted goods and leave.

The company is now having to roll back their roll backs, because they weren’t making any profits on the discounted goods:

Instead, cutting prices depressed sales, as shoppers took the bargains and ran. For the quarter ending July 31, Walmart’s U.S. same-store sales fell 1.8%. The company’s same-store sales have now fallen for five straight quarters. Of the rollback strategy, Bill Simon, the president and CEO of Walmart U.S., told investors at a September conference, “It did not do what we had hoped it would do. It did, however, drive price perception. It did not drive sales or traffic.” As a result, Walmart rolled back the deeper discounts, and prices started inching upward this summer. According to a new report from J.P. Morgan, the price of a 31-item basket from a Walmart store in Virginia rose 2.7% in September alone. Walmart prices have jumped 5% since the start of the year and have been at their highest levels in the 21 months J.P. Morgan has tracked pricing data.

source: Time

The darling of financial analysts across the globe is hurting. For the retail chain with the lowest prices on consumer goods and grocery items to have five consecutive quarters of profit declines should be a wake up call. If consumers are broke, and shopping at the cheapest stores in the country, why are those stores not growing profits? Is it possible that the U.S. consumer is finally maxed out, and purchasing only what they need instead of the trend for the last 30 years, which was to purchase whatever you want with high interest financing?

This is a warning sign that all is not well with our economy and that consumers are hurting much more than they are perceived to be.