Walmart is a popular destination for holiday shoppers looking for groceries and gifts, but CEO Doug McMillon said that it’s difficult to forecast sales in the months after the busiest shopping season.
- Important Points
- Walmart CEO Doug McMillon stated in a CNBC interview that rising credit card balances and shrinking household bank accounts make it harder to forecast consumer spending in the upcoming year.
- According to him, several general commerce items, including toys, have become less expensive due to deflation.
- Walmart and other retailers will need to increase volume in order to maintain lower prices.
Sara Eisen, the head of the biggest retailer in the world, said in an interview that aired on CNBC’s “Squawk on the Street” on Wednesday that despite consumers’ surprising resilience this year, concerns about how much they will spend are raised by rising credit card balances and shrinking household bank accounts.
“I expected more softness by this time of year than we’re actually experiencing, if we had been talking last spring or at the beginning of last year,” he said. Next year, though, McMillon continued, “is a different story.”
Deflation in some items, according to McMillon, is generating a new dynamic for Walmart. Prices in general merchandise, which includes electronics, toys, and other nonfood items, have declined by around 5% year on year, he said. This holiday season, for example, Walmart has 25 toy goods under $25, including a Hot Wheels car for $1.18, according to McMillon.
Prices in food categories are roughly where they were a year ago, he added, though fresh goods tend to fluctuate. According to McMillon, the company’s nonfood revenues are “starting to come back.” The back-to-school season contributed to part of the 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 added.
Over the last year, Walmart has separated from many other retailers, as its massive grocery business and low-price image have supported its revenue and stock price during a period when retail sales have declined. Walmart shares had risen about 10% this year as of Tuesday’s close, and they had reached an all-time high in mid-November.
In November, the discounter issued a lower-than-expected full-year prediction, but unlike Target, Macy’s, and other shops, it predicted sales growth. Walmart anticipates a 5% to 5.5% increase in consolidated net sales, with adjusted earnings per share ranging from $6.40 to $6.48.
Deflation, or dropping prices, will make Walmart and other businesses face difficult comparisons. Companies will have to work harder to sell more products if each item costs less. McMillon believes Walmart can drive growth even in this environment. And, he added, shoppers’ budget pressures must be relieved as well. Despite the difficulties that deflation would provide for Walmart, he stated, “we’d rather have lower prices than higher prices.”
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