Consumer spending trends remain a focus for economists, Wal-Mart execs

by The City Wire staff ([email protected]) 248 views 

Consumer spending, which accounts for two-thirds of the nation’s gross domestic product, remains fickle as signs still point to timid behavior despite heavy promotional activity from retailers. And consumer activity is a widely watched metric among Wall Street and economic forecasters, particularly now that the second quarter earnings season is underway.

A Commerce Department report issued Tuesday (July 15) depicts a mixed bag with the slowest retail sales growth in more than two years rising just 0.2% last month. The results were well below the 0.6% Wall Street economists had expected. Set aside auto sales and the gain was 0.4% — just below economists’ expectations of 0.5% growth.

Retail and food services receipts overall were hindered by a slump in auto, home building and garden supply stores, and restaurant sales also dipped lower. On a positive note, grocery sales rose 0.1%, drug store sales increased 0.9%, while clothing and accessory store sales grew 0.8% from the prior month. Online sales rose 0.9% from May.

On a year-over-year basis all the category sales increased with the exception of music and books, down 2% and general merchandise store sales, down 0.1%.

Analysts agreed that while the headline number for June was disappointing, there were some underlying pockets of strength.

“Consumers are spending, selectively,” noted Jim Baird with Plante Moran Financial Advisors. 

The June sales headline was disappointing but overall the number reflects a solid ending for the second quarter, and much improved over a dismal first quarter, according to Chris Christopher Jr., economist and director with IHS Global Insight.

Several retailers have reported disappointing sales in the past month. Family Dollar and the Gap have all blamed falling sales on consumer caution. However, Costco and Kroger  have reported solid sales growth.

Wal-Mart does not report monthly sales but the retailer continues to speak on behalf of consumer behaviors it witnesses, tracks and studies on a regular basis.

The retail giant said almost 80% of its store sales are generated by just 30% of its customer base which it classifies as loyalists. Stephen Quinn, chief marketing officer for Walmart U.S., told prospective suppliers at the July 8 Open Call event that the super loyalists spend on average $6,877 a year with the discount retailer and they make nearly twice as many trips (90) as other loyal consumers shopping across all categories. This important demographic comprises 43% of Wal-Mart’s store sales annually.

Quinn said two other groups of loyalist shoppers spend between $2,127 and $3,341 per year with Wal-Mart and make up a combined 34% of total store sales. Quinn said the socio-economic make-up of this loyalist group is diverse with respect to ethnicity, income and age.

Wal-Mart research shows that while Gen X is the largest group among its loyalist shopper base, Baby Boomers, Millennials and Seniors are all within a few percentage points. In terms of income, just as many households earning more than $100,000 a year shop at Wal-Mart as those earning less than $29,000. The biggest demographic income range is $40,000 to $49,000, with just a 1% difference in demographic size earning between $50,000 to $69,000, and another 1% difference below that earning between $70,000 to $99,000.

Quinn said the figures debunk the notion that Wal-Mart only appeals to lower income households.

He also said the prolonged economic recovery has favored those households with more income. Quinn said customer’s spending power among the top 1% has risen by nearly 12% since the recession ended. The bottom 90% has seen declines of 2% among in the household spending power since the recession ended.

For those households earning less than $50,000 the recovery and wage growth over the past year has been flat. Middle income to $100,000 has seen a slight uptick, while households earning more than $100,000 have seen positive improvements over the past year, according to Quinn.

He said the Wal-Mart customer is diverse, and in many ways resembles a slice of America, but the one thing all Wal-Mart customers have in common is their appreciation for value and low prices.

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