Tuesday, April 29, 2008

Wal-Mart and the Credit Crunch

How will Wal-Mart shoppers be affected by the credit crisis? The answer to this question holds significant implications for whether our nation's economy continues to grow or contracts, and whether Americans are equipped to deal with these hard times.

With its massive consumer sales, the performance of Wal-Mart is a good place to look for data giving a clue about the depth and the pain of the recession. This article reports that company executives are feeling the credit pinch:

"This is not only that people have decided that they can't spend more ...," said Eduardo Castro-Wright of the rapid decline in recent quarters of consumers using credit as a form of payment in its discount stores. "They have gone beyond their ability to actually get any more credit. They topped out." . . . .

"People don't have as much access to credit as they used to," said Eduardo Castro-Wright, speaking at a Lehman Bros. retail conference broadcast over the Internet. "Clearly that is having an impact on how consumers behave." . . . .

But credit is becoming harder to come by as banks clamp down to protect battered balance sheets. That means consumers are going back to doing things the old-fashioned way -- setting budgets based on income, not credit.

Wal-Mart is moving quickly to deal with the tough credit environment. The retailer will allow tax rebate checks to be cashed for free in their stores. On top of that, CNBC reports:

The world's biggest retailer also said it had cut prices in its stores on key grocery and consumable items, like shampoo, lunch meats and cereal, to coincide with the distribution of the rebates.

The stock ended the day up 2.2%.

No comments: