Those who benefited from the phenomenal money-printing binges by central banks in the US, Europe, China, Japan, the UK, and other countries over the last five years have coagulated into a very thin, richly textured layer at the top of the heap. With ballooning incomes and new-found confidence that central banks will forever take care of them and bail them out, they’re spending money on luxury goods, and they’re buying opulent digs in London, New York, San Francisco, and other trophy cities, and they’re acquiring works of art, farmland, and stocks, and they’re driving up asset prices along the way. These data points have made it into GDP and have perked it up a tiny bit.
But how are the people doing who’ve suffered the consequences of these policies, the workers and retirees, the middle class, the lower 75% of society? On January 31, Walmart shed some light on their plight. It warned that fourth quarter profits would take a hit, amid slower-than-expected sales in the US. It blamed reductions in food-stamp benefits and the marauding polar vortices – there not being any corporation that can pass up an opportunity to blame lackadaisical government spending and the lousy weather.
But apparently food stamps have been cut in other parts of the world too, and polar vortices have messed things up even in Latin America and Asia, or something. Because that seems to be what Walmart International, with over 6,400 stores in 26 countries outside the US, has smacked into.
The occasion was a presentation to investors of Walmart de Mexico. The unit had a 32% share of Mexico’s brick-and-mortar retails sales in 2013 and a 19% share of grocery sales, including those at convenience stores, generating $27 billion in revenues – 6% of Walmart’s total revenues. But Mexico’s economy stagnated last year at a measly 1.1%.
“We were not satisfied with our 2013 results” is how Walmart de Mexico CEO Scot Rank explained the phenomenon. The problem? Lousy transfers from Mexicans living abroad and slow government spending, he said. The Mexican version of the American excuses.
So Walmart de Mexico would “return” money to shareholders via 22 billion pesos ($1.7 billion) in dividends and stock-buybacks, explained CFO Rafael Matute. That would be more than the 15 billion pesos it would invest in improvement and expansion projects. It would be in line with current trends in the US where blowing money on share buybacks is the most effective way to manipulate up the shares, though it would do exactly nothing for long-term revenue growth – just when it’s needed the most. But what the heck, realities no longer matter.
Given that the ubiquitous and colorful street vendors account for 45% of retails sales in Mexico, Walmart would go after them, taking business away from the men and women hawking freshly prepared taquitos and made-in-Bangladesh infant shoes. Because things are tough in Mexico. And even the street vendors are fair game.
But it wasn’t just Mexico and the US where consumers have been struggling. David Cheesewright, CEO of Walmart International was speaking at the same presentation, and he pointed out that Walmart would try to protect its market share in the US – where the company had just issued an earnings warning. But most of the growth would have to come from its units outside the US. I mean, via these share buybacks?
Alas, outside the US too, economies were limping along at best, and consumers were struggling and the operating environment was tough. “We’re seeing economies under stress pretty much everywhere we operate,” Cheesewright admitted.
That sums up the blazing recovery, not only in the US but in the 26 countries outside the US where Walmart has dug in its mega-claws. In these countries, as in the US, the very thin, richly textured layer that has coagulated at the top is doing fine. But Walmart’s customers, the people in the vast middle and lower classes, they’re struggling to make ends meet on a weekly or monthly basis, and they’re tightening their belts, faced with crummy job prospects, declining real wages, and an economy that, for them, simply has refused to recover.
The other side of the coin? Glorious asset bubbles. But every bubble has its ultimate, craziest, mostest, farthest-outest deal whose craziness can no longer be exceeded. After that, buyers simply vanish. Sellers get desperate. Newfangled theories and metrics sink into a morass of ridicule. And lots of money goes up in smoke. Read….. “Serious Dysfunctionality” On Wall Street: Facebook-WhatsApp And The Deals That “Marked The Top” Of The Last Two Bubbles