- In a CNBC interview, Walmart CEO Doug McMillon said consumer spending is tougher to predict next year because of rising credit card balances and dwindling household bank accounts.
- Deflation has brought down the prices of some general merchandise items, such as toys, he said.
- Lower prices will mean Walmart and other retailers will have to drive more volume.
Holiday shoppers are turning to Walmart for groceries and gifts, but CEO Doug McMillon said it’s hard to predict how sales will look in the months after the peak shopping season.
In an interview with Sara Eisen that aired Wednesday on CNBC’s “Squawk on the Street,” the leader of the world’s largest retailer said higher credit card balances and dwindling household bank accounts raise questions about how much consumers will spend — even after they showed more resilience than expected this year.
“If we had been talking last spring or at the beginning of last year, I expected more softness by this time of the year than we’re actually experiencing,” he said. But, McMillon added, “next year’s a different story.”
Deflation in some items is creating a new dynamic for Walmart, McMillon said. In general merchandise, the category that includes electronics, toys and other nonfood items, prices have dropped by about 5% compared with a year ago, he said.
For example, this holiday season Walmart has 25 toy items under $25, including a Hot Wheels car for $1.18, McMillon said.
Prices in food categories are about where they were a year ago, though fresh foods tend to fluctuate, he said.
McMillon said the company has seen the volume of its nonfood sales “start to come back.” Back-to-school helped drive some of that rebound.
“It’s going to be interesting to watch what happens in the general merchandise categories in the year ahead because prices are so much lower,” he said.
Walmart has stood apart from many other retailers over the past year, as its large grocery business and low-price reputation have propped up its revenue and stock price during a period when retail sales have weakened. As of Tuesday’s close, Walmart shares had climbed nearly 10% this year, and they hit an all-time high in mid-November.
The discounter gave a lower-than-expected full-year forecast in November, but unlike Target, Macy’s and other retailers, it projected sales growth. Walmart expects consolidated net sales will rise 5% to 5.5%, and adjusted earnings per share will be $6.40 to $6.48 for the fiscal year.
Deflation — or falling prices — will bring tough comparisons for Walmart and other retailers. If each item costs less, companies will have to work harder to sell more items.
McMillon said he’s confident Walmart can drive growth, even in that environment. And, he said, shoppers need pressure on their budgets to ease, too.
Despite the challenges deflation would create for Walmart, “we’d rather have lower prices than higher prices,” he said.
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Source: Business - cnbc.com
