Is Walmart in Trouble?

Is Walmart in Trouble?

Freedom Financial Archive | Originally posted April 24, 2023
  • With retail spending on the downside, how are “superstores” like Walmart and Target affected?
  • Is this good news for Wonder Bread?
  • Tender rejections in trucking are at an all time low. Discover what this means for you getting your deliveries on time.

Dear Reader,

We’ve been talking about trucking quite a bit over the past few weeks. And one of the reasons why is because I find it truly fascinating. In trucking, there’s a term called tender rejections. Tender rejection occurs when the primary carrier rejects the shippers’ tender to carry a specific load.

When this happens, the shipper has to find alternative carriers. And most of the time, the truckload price for the load increases. If shippers aren’t finding any carriers to take a load based on the current price, they usually have to increase the price, or risk not getting the load shipped on time (or at all).

During the pandemic, when companies were paying a premium to get products to their stores as soon as possible, tender rejections were high. This forced companies to pay the truckers a higher premium, because the demand for these goods was so high (i.e. toilet paper, paper towels, household cleaning supplies, and various others).

However, tender rejections are currently at an all time low. The truckers don’t have any leverage, because there isn’t a rush to get the goods into stores. There isn’t a pandemic or anything close that’s forcing their hand. Essentially, truckers are just taking any rate they can get, and it’s why the industry as a whole is struggling.

Most Trucks Are Running at a Loss

Most of these trucks are running at a loss, just to keep people employed and cover their variable and fixed costs. And that’s putting more pressure on the whole flow component and how goods are distributed around the country.

According to an article published in Supply Chain Quarterly, “April freight stats show “substantial recovery” from post-covid delays,” However, on-time deliveries of full truckload cargo remain far below pre-pandemic levels.

As you can see from the chart below, according to data from supply chain visibility provider project44, the April trend is increasing, yet still far below the on-time performance pre-pandemic, going back to February 2019.

You can read the entire article from Supply Chain Quarterly here if you’re interested. After the pandemic, labor has been tight with trucking because of the real estate boom. Think about it, you can make more money working on a construction site than you do driving a truck. Plus, there’s no travel. You can drive five miles to the construction site, or jump in your big rig and drive 3,000 miles in one direction and not see your family for 10 days.

Are Macy’s, Nordstrom & Disney Going To Feel the Pinch?

You’re starting to see a decrease in wages, along with layoffs in many sectors, not just trucking. McDonald’s, Twitter, Facebook, and Google have all recently gone through rounds of layoffs. With decreasing wages and more lay offs, while inflation remains sticky (i.e. prices don’t adjust quickly to changes in supply and demand), retail sales start to decline as well.

That’s when the Macy’s, Nordstroms, even Disney’s of the world start to feel the pinch. The discretionary spending simply isn’t there as wages decrease and prices remain high. It’s hard to justify spending a couple thousand dollars to go to Disney World, or even buying “non-necessities” at Macy’s, when jobs are being cut and prices for food, gas, and rent stay high.

What we call “super discretionary” spending, like amusement parks, movies, and indoor water parks, are really starting to feel it as well. Travel has probably been hit the hardest, because people simply can’t justify spending the money.

Is Walmart In Trouble?

That’s the thing that goes first, the “super discretionary” spending. Then you have consumer discretionary spending, which gets hit next. It’s hard to say that places like Target and Walmart are going to get hit the same way. But typically, people will go from Coach to shopping at a place like TJ Maxx, because they’re now unwilling to pay the higher Coach prices.

It’s the same with food. There will be a section of people who stop shopping at Whole Foods, and now they’re buying their food at Walmart. Or a local grocery store with lower prices. Or maybe they’re shopping based solely on price over a few different grocery stores in town. They get their meat, fish and eggs and one grocer, based on their price. And they get their bread, milk and produce at another. That’s becoming more common as people try to stretch their dollars further.

Drilling down even deeper, you have replacement costs. For example, if you’re out of bread, you can buy the organic loaf, the artisan loaf, or you can go with Wonder Bread. Maybe you usually just grab the organic one without thinking about it. But now you’re more likely to try one of the others to save money.

Now, when you start seeing sales slow down at Walmart and other stores that are known for low prices, that’s when people are simply buying less, or only buying necessities. We’re not there yet, but with so many indicators forecasting a recession and wages decreasing and more people losing their jobs, we may not be far off.

Thanks for reading,

Freedom Financial News