If you were asked what the biggest brick and mortar retailer in the United States was, what would your answer be? If you’re like most people, you’d say Walmart. This massive retail chain has 4,711 locations in the United States, and that number is always growing. However, no matter how big the company is, it is struggling! Unfortunately, there are two major issues that are weighing heavy on Walmart’s earnings, and therefore it’s stock. Today, we’ll talk about these issues as well as what we can expect to see moving forward.
Walmart Is Running Into A Brick Wall!
As mentioned above, Walmart is having an incredibly rough time in the market. That became evident by the more than 9% declines we saw in the stock earlier today. So, what’s causing the problems? Well, there are two big problems…
- Strong US Dollar – While the dollar is declining, it has been strong for quite some time and remains stronger than many other currencies around the world. As a result, United States products have become more expensive in other economic regions. With prices being higher, consumers abroad are less likely to purchase goods; and Walmart is realizing the full affect of this issue! In fact, the company came out earlier today and announced that the strong dollar is one of the factors that are killing the company’s earnings. While this issue is likely to work itself out over time, it is clearly going to be an issue for quite some time; at least for the three month outlook.
- Higher Employee Costs – Another major issue for this massive retail chain is the cost of employees. Earlier this year and last year, Walmart was the target of quite a bit of backlash from both employees and the media. The claims being made surrounded the idea that the retail chain was a poor employer to work for. So, throughout the year, Walmart has been working on ways to make their stores a more advantageous opportunity for job seekers and make their current employees feel more appreciated. One of the things they’ve done in their attempts to change the way they are looked at as an employer is raise the amount of money they pay to their employees. In fact, the company announced that it would be paying employees a minimum of $9 per hour; up from the $7.25 federal minimum wage they paid many of their employees. While $1.75 per hour may not seem like much, it is in the case of Walmart. Remember, we are talking about a massive company. In fact, this wage increase affected around 600,000 employees. So, in total across the 600,000 employees, the company raised wages a minimum of $1,050,000 per hour. That is a massive chunk when you consider that all of their stores are open for at least 12 hours per day and many of them are open 24 hours per day!
What This Means For Walmart Moving Forward
As I mentioned above, the strong dollar is slowly working itself out. While it may take months or even a year to work its way down far enough to drive exports, it is improving. However, the higher pay for employees is a problem for Walmart that won’t work itself out. The company will need to figure out a way to absorb the cost. This may mean layoffs, which would cause turmoil around the company’s name in the media. It could mean that Walmart may be forced to raise prices, which could take a toll on the amount of consumers that shop in their stores. There are two things that are certain. First, this is a big issue for Walmart and they can’t go back on their word to pay more. The second is the fact that they are going to have to find a solution. Until they do, we can expect to see more declines on the stock.
What Do You Think?
Where do you think Walmart is headed and why? Let us know in the comments below!