December 16, 2003

The Wal-Mart Consumer Purchasing Index

The Financial Times's Amy Yee covers the Wal-Mart index: Home UK: Wal-Mart dampened hopes for strong holiday sales as it announced expectations that US December same-store sales growth would be at the low end of a 3-5 per cent growth forecast. In a weekly sales summary, the world's largest retailer said more consumers were delaying holiday shopping and buying gift cards, which are not recorded as revenue when purchased. Richard Hastings, analyst at Bernard Sands, said: "Wal-Mart shoppers are a huge aggregation of American society. The sales reflect that there are a lot of households insufficiently funded for the future," said Mr Hastings. "If you're an observer, you need to be very worried about this."

Wal-Mart said that a decline in traffic reflected a consumer trend to shop later in the month. Sales were strongest in the south-east and mid-Atlantic regions. Wal-Mart accounts for about 8 per cent of US retail sales, excluding cars, making it an important barometer of consumer behaviour...

Posted by DeLong at December 16, 2003 09:12 AM | TrackBack


Mal-Wart, the home of cheap plastic toys. CBS ran a long spot last week on WM cutting toy prices below wholesale and effects on the toy industry. I could not tell if it was a condemnation of WM or an extended ad about how much lower their prices are. Now we know why they have cut toy prices. (They don't want to be stuck with excess inventory).

Posted by: bakho on December 16, 2003 10:35 AM


insufficiently funded for the future,

I love this language. This is the new terminology I will use to tell my kids they why they can't have new toy this Christmas. (Or next year.) "Johnny, I must refuse your request to upgrade your recreational collection. We are insufficiently funded for the future."

So that's what education at the top schools get you. Flowery vocabulary to justify consultant pay.

Posted by: wondering on December 16, 2003 10:51 AM


What is the rationale of not considering the gift card to be revenue when it is purchased? Why wait?

I know some non-negligible percentage of my gift cards get lost or just never used every year. Seems like you should record the revenue when you get the revenue.

Posted by: Rv. Agnos on December 16, 2003 10:55 AM



Does anyone else notice that this web-page takes forever to load, and freezes everything else while it does? And it seems to be getting worse - I almost dread coming here because I know it will shut me down for a minute or more.

Posted by: Dave L on December 16, 2003 11:07 AM


Rv. Agnos, if you book the revenues now wouldn't you have to book them as a debt as well? Maybe that is why? Any accountants out there?

If you know what percent aren't redeemed you could probably book that percentage in the current period without fudging the books too much.

I guess we can always hope that Walmart is experiencing the wealth effect from our productivity increases because everybody is going upscale :).

Posted by: Stan on December 16, 2003 11:16 AM


Um, weather anyone? The Northeast has had two big snowstorms for the past two weekends.

Posted by: MattS on December 16, 2003 11:54 AM


Rev Agnos, I think that the reason why Wal-Mart or anyone else does not book gift cards as sales is that Wal-Mart is also incurring an equivilent liability at the moment of transaction. What they are doing is gaining some short term liquidity (cash) and giving the consumer a slightly more illiquid form of value (gift card) but Wal-mart still owes the consumer the value of the gift card. Now when the gift card is exchanged for merchandise Wal-Mart no longer has a liability outstanding and it can go put the purchase into its normal accounting system. I think this is much more an accounting issue than an economics issue.


Posted by: fester on December 16, 2003 12:17 PM


for Dave L, re slow loading -
It happens to me on my home PC too. Slow PC plus not much RAM plus some scripting stuff involving a gigantic blogroll, I'm assuming. The workaround (with IE at least) is to browse with Tools - Internet Options - security set to High, which is generally a good idea anyway
(typical quote: " the Internet Security Settings would have to be set as HIGH to prevent execution of this vulnerability").

And while we (some of us) are wildly off topic - one item on my Christmas wishlist is for an economist blogger or commenter to pontificate on the concept of "hollowing out" as a competitor-destruction strategy in the marketplace, and how/whether this 'design pattern' also translates to international trade, if you substitute "countries" for "companies", to put it obtusely.

Posted by: Anna on December 16, 2003 01:14 PM


well if the army hadn't caught insanity claus in iraq I'd be expecting some automatic weaponry and $750,000 worth of ammo this season, but I guess now I'm insufficiently funded.

Posted by: bryan on December 16, 2003 01:40 PM


China Test
Stephen Roach (New York)

The world has discovered China. And with good reason: I continue to believe that China is the greatest economic development story of the 21st century. But no economy is perfect. There are often bumps on the road to prosperity — some minor and some serious — that pose important challenges to any growth strategy. China is no exception, and in fact is facing just such a challenge today. Chinese authorities are now in the process of tempering some of the economy’s recent growth excesses. That suggests that the next China growth surprise is likely to be on the downside — a development which could have important implications for the global economy and world financial markets....

China’s import surge —year-to-date gains of 39% — has become an important source of external demand.

In the first nine months of 2003, China accounted for 66% of Japan’s total export growth; for Korea the figure was 40% and for Taiwan, an astonishing 97%; for the smaller and more diversified ASEAN economies, the China share of this year’s export growth is in the 20–30% range. Nor is Asia alone in drawing sustenance from Chinese demand. China accounted for fully 56% of Germany’s total export growth in the first eight months of 2003 and 21% in America....

Posted by: anne on December 16, 2003 01:52 PM


For Anna and ...

Posted by: anne on December 16, 2003 02:01 PM


bakho writes:
> Mal-Wart, the home of cheap plastic toys. CBS ran a long
> spot last week on WM cutting toy prices below wholesale
> and effects on the toy industry. I could not tell if it was a
> condemnation of WM or an extended ad about how much
> lower their prices are. Now we know why they have cut
> toy prices. (They don't want to be stuck with excess
> inventory).

Toys is just a horrible business to be in by itself. It's seasonal, prone to fads (e.g., beanie babies), and very low margin. This season alone, FAO Schwartz has gone chapter 11 *again* (although their management was awful, too) and ToysRUs announced a major reorganization. Trying to sell toys alone is possibly not a viable high volume strategy anymore.

Wal*Mart sells a lot of toys, and probably makes some profit on them. I'm guessing, however, that a substantial reason why they take the toy business seriously is that even if they made no money at all on the toys, they probably do better on other merchandise. Every trip somebody makes to a store other than Wal*Mart (or Sam's Club) opens up the possibility that they will buy things they could have gotten at Wal*Mart.

I haven't seen any actual numbers on this, but I know personally some families who seem to make over 90% of their retail purchases at Wal*Mart, ex-auto. Oh, but wait: Wal*Mart is angling to get into that business, too...

Posted by: Jonathan King on December 16, 2003 03:01 PM


I hear they are thinking of getting into the real estate brokerage and mortgage banking businesses, too.

Posted by: Masaccio on December 16, 2003 03:22 PM


I don't get it. If my household is "insufficiently funded", I don't spend money on gift cards.

Also, if the only thing holding Walmart's revenue down is that they can't recognize the gift cards for accounting reasons, it seems that they are actually having a better quarter than the revenue numbers will show.

What am I missing here?

Posted by: timshel on December 16, 2003 03:43 PM


I imagine the main reason they can't record the revenue is that they don't know the cost of fufulling their obligation.

If you buy a $100 card, and wait until the after Christmas sale, Wal-Mart gets less profit. They don't know how much less until the actual items get bought. Revenue recognition is a big issue in accounting, and in accounting fraud.

Posted by: Mobius Klein on December 16, 2003 04:08 PM


timshel's has a good point -some estimate of the profits from the gift cards should be included to get a better estimate of the actual revenues. Does anyone have the info and time to try that?

But it does seem to me that lots of gift cards does imply a less than prosperous Christmas, or "insufficient funds for the future" or, as plebs like me would say, "strapped and tapped out." I am sure that many of those cards will be redeemed during sales. And it does indicate people are trying to strictly limit expenditures. People set their total available pot of holiday expenditures, divide by the number of gifts, and that is that. And hope that it doesn't look too cheezy. It should be the thought that counts, but I do know some effort is still expected -as experience with my "oh, I don't need anything, don't worry about me"-type relatives who have responded that way to requests for hints

Posted by: jml on December 16, 2003 05:13 PM


Wal-Mart (and other national retailers) could help economists make better estimates of what is happening if they would report the dollar value of gift cards sold as a line item. The key question seems to be if the recipient of the gift card will use it to buy something they otherwise would not have bought (which means total revenue will be greater) or if gift cards are used as a substitute for cash that would otherwise come out of the consumer's pocket. I suspect that it's a mix of the two so that a gift card does not represent 100% additional revenue.

Posted by: fred on December 16, 2003 06:02 PM


If I were a retailer coming off of an extended recessionary period, I would not want to recognize the gift card revenues this year, given that I would have to recognize the cost of the goods purchased with those cards next year.

That would make this year look better for both sales and profitability, while depressing next year's figures. This year is a writeoff anyway. Next year they will want to show momentum and in any case, as noted above, this isn't really revenues tied to sales yet - it's just a pre-flow of cash.

Posted by: rkb on December 17, 2003 06:11 AM


I think some posters have made the assumption that ALL of the slackening in WalMart sales is due to gift cards. Reread, folks, that ain't what it says. I'd bet if all of the gift card sales were merchandise, instead, they'd still be down a significant amount.

Posted by: Chuck Nolan on December 17, 2003 06:28 AM


Given the double-digit rates of increase in college tuition, health insurance, gas heating bills, and large increases in local property taxes, I am surprised that WalMart can even see sales gains in the 3% range.

Posted by: BobNJ on December 17, 2003 07:02 AM


Not an extended recessionary period. An extended jobless/jobloss period. It isn't that the economy has not expanded, it is who has the money. Since our current policy is to transfer wealth from the poorest Americans to the wealthiest, it is not surprising that a high volume store, Wal-Mart, is not seeing sales boom.

Posted by: bakho on December 17, 2003 07:52 AM


BobNJ, I reckon that that 3% increase comes from a) the increase in population (native+immigrant) and shift from traditional shops that have higher prices or less variety of wares in one place.


Posted by: Antoni Jaume on December 17, 2003 10:36 AM



and b) shift from traditional shops that have higher prices or less variety of wares in one place.


Posted by: Antoni Jaume on December 17, 2003 12:07 PM


It would seem to me that Wal-Mart shoppers are not the demographic to be living off their home equity through refinancing. They are most likely the people who are experiencing the real "jobless growth" economy, pay cut, loss of health insurance right now.

Posted by: Dave Johnson on December 17, 2003 01:09 PM


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