“One in every 80 U.S. households has someone working for Walmart, and it has a store in one out of eight zip-codes in the country.” -Deutsche Bank
Walmart sent shockwaves through the business world when management warned profits would tumble next year.
Among other things, the world’s largest retailer faces higher employee costs as it’s forced to pay higher wages for a shrinking pool of labour.
In some ways, this is actually good news as the tighter labour market is a reflection of an improving economy. Indeed, if the economy is doing better, consumers are likely to trade up to more expensive goods that might not be part of Walmart’s low-priced offerings.
“There was no shortage of commentary following WMT news release how this was a company-specific development,” Deutsche Bank’s Oleg Melentyev observed. “Of course it was.”
However, Melentyev thinks it might actually be a mistake to say that this is a “company-specific” problem, or a problem that’s isolated from the industry or the economy as a whole.
“It is just that Walmart happens to be the largest private employer in the United States by a very wide margin, and it employs more people than the next five largest companies on that ranking,” he noted. “One in every 80 U.S. households has someone working for Walmart, and it has a store in one out of eight zip-codes in the country.”
That’s mindboggling as there are over 42,000 zip-codes in the US.
“So whatever “company- specific” developments are causing its stock to decline by an extent similar to what it experienced in previous recessionary environments, they must be viewed through the lens of wider implications for the US economy and risk assets, in our opinion,” Melentyev said.
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