Walmart bubble due to high-income grocery spending, warns Bill Simon

Walmart will have trouble keeping affluent consumers, fmr. Walmart U.S. CEO Bill Simon predicts

Higher-income consumers may be creating a frothy situation at Walmart.

Even though affluent shoppers helped drive the retailer’s latest beat on quarterly results, former Walmart U.S. CEO Bill Simon warns they’ll be hard to keep.

“The Walmart experience is better than it used to be, but it’s still not a premium experience. Walmart is built on convenience, cost and assortment. Not on service,” he told CNBC’s “Fast Money” on Thursday. “As the economic challenges abate… service will become more important than convenience and price. And, we’ll see a shift back of some of the consumers. That’s the bubble.”

His warning comes with Walmart stock hitting all-time highs going back to August 1972, when it began trading on the New York Stock Exchange. Shares surged almost 7% on Thursday after the discount retailer’s fiscal first-quarter adjusted earnings and revenue beat estimates. Walmart reported high-income consumers helped drive profits particularly in its grocery business.

“The challenge is that the tailwinds that have come from food inflation that have pushed Walmart along will reverse eventually,” said Simon, who sits on the boards of Darden Restaurants and Hanesbrands.

Last October on “Fast Money,” Simon warned bargains were losing their magic because consumers were starting to buckle for the first time in a decade. His call at the time applied to lower-income consumers.

Now, Simon contends higher-income consumers going to Walmart isn’t good news for the broader economy,

“When money is tight, people react — even high-end consumers react,” he added.

Despite his bubble warning, Simon thinks Walmart is a “great investment” over the next 12 months.

“As long as there’s inflation and those tailwinds that come from particularly from food inflation, more traffic will come to the Walmart store,” said Simon.

But he thinks the stock may hit a rough spot in 24 months as inflation comes down and higher-end consumers move away from shopping at discount retailers.

“When inflation abates and service becomes more important than price, some of those tailwinds will become headwinds,” Simon said.


View Original Source Here

You May Also Like

Electric vehicles need to be owned longer, driven further to offset ’embedded carbon,’ Jefferies says

Electric vehicle manufacturing currently faces an “embedded carbon” challenge, says Jefferies’ Simon…

FDA permits use of the Pfizer-BioNTech Covid vaccine in kids ages 12 to 15

In this article 22UA-DE PFE A group of teenagers serving as ‘Covid-19…
Ripple CEO says SEC has lost sight of mission to protect investors

Ripple CEO says SEC has lost sight of mission to protect investors

Brad Garlinghouse, chief executive officer of Ripple Labs Inc., speaks during the…

How rising UK Covid cases could be ‘a compelling argument for boosters’

Former Obama White House policy director Dr. Kavita Patel explained why the…