It’s been a tough week to be a big box retailer.
Earnings reports from four of the biggest retailing companies in the country – Walmart, Target, Home Depot and Lowe’s – all showed a disturbing change in the shopping psyche of the American retailer and an even more upsetting tally of operating costs.
While sales at three of the four – Lowe’s was the exception – all increased at least modestly, the bottom-line earnings for all of them missed both expectations and results from not only a year ago but also from the riding-high past few quarters.
Clearly, the cumulative effect of inflation, rising supply chain costs, higher labor rates and increases in just about everything it takes to run a retailing business have finally caught up with America.
Needless to say, Wall Street has not been happy about all of this. Stock prices for these retailers, as well as others caught in the crossfire, have been hit hard this week. Walmart and Target had huge drops in their share prices, each losing more than 20% of their values by mid-week. The Walton family, which still controls Walmart, lost $19 billion in what Fortune called “Its biggest one-day wipeout since 1987.” Target’s stock sank $55, or 25%, by mid-day Wednesday. Depot and Lowe’s weren’t much better.
All four giant retailers told similar stories:
• Fuel costs, which are approaching historic high levels (for the first time in history all 50 states averaged $4 or more for a gallon of gas), were a big villain for most of retailing on two levels. On a pragmatic basis, it simply cost them more to not only transport goods but also to keep the lights on in their stores. There was also the psychological impact of consumers suddenly seeing gasoline prices as much as double a year ago and deciding it was time to cut back their discretionary spending.
• Higher transportation costs, mainly ocean shipping rates, simply wearing down overhead structures as containers continue to be in short supply and ports in China restrict their activities due to Covid shutdowns. It appears that the costs to lease shipping containers have peaked and are no longer rising but they are also not receding to any great degree either.
• Year-over-year comparisons up against government stimulus checks in 2021 took big hits as consumers simply had less money to spend and when they did spend it, it was on services and activities like travel, entertainment and vacations rather than household goods purchases.
Brian Cornell, CEO of Target, said this change happened much faster than expected. “While we anticipated a post-stimulus slowdown in these categories, and we expect the consumer to continue refocusing their spending away from goods and services, we didn’t anticipate the magnitude of that shift.”
All of these factors came into play but it appears inflation is the real culprit. It had its positive side – the increases in revenues seemed to have been largely driven by higher prices not necessarily more individual purchases – but also its negative impact as retailers said shoppers were going for lower price goods in some merchandise classifications.
Home Depot said it had 8.2% fewer transactions during the past quarter but those shoppers who did buy bought more…or at least products that cost more.
None of the executives at the four retailers was saying much about what would happen next although curiously Home Depot took up its forecast, going from essentially flat to predicting a 3% increase in its business for the balance of its fiscal year.
It once again showed that the aftershocks of the pandemic continue to create uncertainty – bordering on havoc – for most retailers.