In this episode of "Lending Made Easy," we explore into an intriguing topic: Walmart, one of the largest retailers in the country, and its role as an economic indicator for banks. As inflation affects the economy, more and more people, including wealthier customers, are turning to Walmart for their shopping needs. What makes Walmart a go-to destination for budget-conscious consumers? Is it their competitive prices or something else? Join us as we look at the impact of inflation on Walmart shopping and its implications for financial institutions. Tune in for some valuable insights!
Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. As inflation rises, the value of money decreases and consumers might change their spending habits, often reducing their purchases or seeking cheaper alternatives.
When inflation rates rise, the purchasing power of the consumers decreases. This means that with the same amount of money, consumers can buy less than they could before. This can lead to a reduction in discretionary spending and an increased emphasis on essential purchases.
During a period of sustained inflation, consumers might try to buy goods and services before prices go up, leading to increased spending in the short term. However, if inflation continues over a longer period, consumers may cut back on spending due to decreased purchasing power.
Anticipated inflation can lead consumers to make purchases earlier than planned to avoid future price increases, inflating demand in the short-term. Unanticipated inflation, however, can lead to haphazard changes in spending and saving behavior, as consumers react to unexpected price increases.
Mitch Woods: Well, welcome to a brand new episode of Lending Made Easy. Today we're diving into an interesting topic, all about one of the largest retailers in the country, Walmart. And, and I'm excited to be joined by Bryan, the Bargain Hunter, Peckinpaugh and David, the discount Dynamo Catalano, for this discussion today.
With inflation impacting the economy and, and more and more people, including wealthier customers, turning to Walmart for their shopping needs, is it the reputation of their competitive prices, or is, is it another reason that that that Walmart's become a go-to destination for budget conscious consumers?
So here's the big question. Should, should banks and credit unions consider this trend as a significant economic factor? So, as we dive into the impact of inflation on and Walmart shopping and explore what it can mean for financial institutions. I'd like to start off with a question just to kind of get some context.
So, Bryan, what's your take on why more well off customers are turning to Walmart for their shopping? Is it mainly because of the competitive prices or is there something else at play here?
Bryan Peckinpaugh: So, so first and foremost Mitch I think my wife would argue that I'm not much of a bargain hunter. I tend to have expensive tastes, but, that's neither here nor there. Yeah. I think the Walmart thing is, is likely very nuanced on, on the backend. It may be that those more affluent customers are going there to be budget conscious, you know, maybe an indication, you know, I could also see it being convenience in the broader, you know, economic market that we're operating in. You know, so it could be representative of things like supply chain issues where, you know, the size and scale of Walmart tends to have them have available things that, that I need in one place, as opposed to maybe smaller shops or, or boutique shops that, that aren't getting the products that, that I need for, you know, day-to-day activities or something.
Think, you know, when we were hitting toilet paper shortages during Covid, right? The, the big box retailers were gonna get it first over the smaller stores. So I think all of it can point towards more, you know, broad concerns about the economy and, and indications of where we're going. I, I'd be hesitant to, you know, put it in the same category as like the Waffle House Index as an example, as the, predictor of the, the, the health of a a local area after, or storms or, or natural disasters. You know, we don't have anybody like the head of FEMA coming out and saying, if you show up to a Waffle House and it's closed, that's really bad. I don't think we're gonna see that from, you know, the lead economist from the big banks, you know, pointing to the Walmart index.
But, you know, I think there, there definitely is some, some value in thinking about it and looking at, looking at it. I don't know, David, Any, any thoughts on where you think that could be predictive of, of what's coming?
David Catalano: I think it's another variable in a mosaic that tells a pretty negative story for the consumer, and I think that when you take a look at what's going on with Walmart and affluent or more affluent people shopping there. Then you combine that with, new credit card originations, which are at the highest levels in a decade, and you look at, credit card balances, which are the highest in a decade, and when you look at, interest rates on credit cards are a highest at a decade. There's only so much room on the cards, right? So if you, if you gotta buy food, or staples to, to survive, right? You, you don't wanna go without those and you're using a credit card to do it. You can get more on that card at Walmart.
Now it, it is also an interesting healthcare conversation because you know, if you go to Walmart, you're not exactly buying good food or the best food. There's no question about that. So, people are compromising. That, that behavior shows me a compromise in what would normally be normal behavior.
And when you take a look at what's going on in retail, or consumer spending, and they're using, many, many, many people now are using credit to do that. And the credit, the interest rate on those credit cards is, is phenomenally high. And the percentage of people that are paying 'em off every month is dropping. You know, you get problems. What's also interesting is that Nordstrom's, Dick's Sporting Goods and Ulta Beauty both reported in their recent earnings material increases in theft in both on the Dick's and the Ulta missed earnings because of increases in the thefts, from their stores. So I just see this as additional data indicating that the consumer is under pressure.
Bryan Peckinpaugh: I, I, I think you're spot on with, you know, a lot of what you, you point out there, David. And, you know, I, I think there's, there's no, no doubt and it would bear out over the last uou know, 50 plus years that Walmart has been in business that they, they tend to do better during challenging economic times.
You know, it, it would, it would be a fantastically interesting data set to have access to, to really try to tease out some indicators, you know, as, as big as Walmart has gotten. You know, can you separate you know, like you were saying, David, groceries those staples from electronics as an example, that, you know, make up the broad spending that's done at Walmart, to really tease out what's happening.
They clearly are doing very well right now so I'd love to get access to that dataset, mine it a little bit and see, is that, is that from, you know, grocery sales? Are we seeing upticks or downtticks in electronics purchases that might be more in indicators of a healthier economy, or maybe not healthier, but a influx of capital into the consumer segment.
You know, think back to when people got Covid relief checks and we saw a run on TVs as an example, right? I mean, that's not necessarily an in indicator of financial health or economic health, but rather of, you know, the general, lack of fiscal understanding that, that I think has developed in the United States as a whole. You know, we don't, we don't have those long-term views on things anymore. You know, we're talking about the, the use of credit, David. A lot of people get way out over their skis with credit cards and get impacted by those rising interest rates that, that we're seeing now.
David Catalano: Yeah, so I, I agree, but in, in, in the Walmart, earnings release, it was all around grocery. So general merchandise spending fell. Yet overall sales grew 6%. So people are going there for the most consumable thing they need which is food, which is interesting.
Bryan Peckinpaugh: It, it is, right? And, and that, so again, that tells us. I think a lot, but I'd, I'd again would love the access to the data. I think it probably is indicative of, of where we are and where we're going. But I would love to tease out things like, is, is there, you know, business change at Walmart, have they started to broaden their quality of goods that they sell from a grocery perspective? Are they starting to see, more and better quality in their great value brand as an example. Is that driving people there? Can they get the products that they get at their local grocery store or at a Whole Foods or something else that Walmart has gotten access to at a lower price point that, you know, could, could be driving the, the more affluent customer's there. I mean, end of the day, if I can get the same thing cheaper, I'm gonna try to get it cheaper. And, again, just would love to tease it all, tease it all out if, if I had the data.
David Catalano: I mean, cheapness is part of Walmart's DNA. They don't even clean the stores. So the idea of having quality, a Costco level quality, there is just, I, I can't imagine that occurs, at least in our life. It would be a material cha material change in their business model.
Bryan Peckinpaugh: Yeah, they certainly aren't gonna see that level of quality, but just an increase in quality, can drive more people there. May not be the high level affluent, but maybe the, you know, legacy middle class that, that want the brands that they're used to at a lower price point.
Mitch Woods: You know, I think, David, what you're saying is, is true, right? Credit card rates are going up. The, the number of people paying 'em off every month is, is going down. It can kind of paint a little bit of a, a doom and gloom picture, right? That, you know, we're, we're heading towards a lot of financial trouble, but I guess take a step back a little bit, like how could a bank, knowing some of this information, react to, to help their customers? So, knowing that these things are going on, what are some things that, that, a, a banker, a community bank or a credit union, could be doing just to, to help support their customers, to support their members? Just in this, this economic era that we're in.
Bryan Peckinpaugh: Yeah, I think this is an area that credit unions have continued to do very well in, and unfortunately a lot of banks have drifted away from and, and it's the devaluation of the branch in today's world where that that general financial literacy used to happen in the branch. That's where I would go in and have conversations with my bankers as, as trusted members of my community. And, and have those conversations about my budget and my finances and what a bank could help me with, as I operate in my daily life. So kind of getting back to those roots of, of being parts of the community, you know, the community banks continuing to push themselves into the markets that they serve to help drive that financial literacy.
Shifting away from the bottom line, if you will, you know, pushing those products that make the bank or the credit union margin and money and focusing rather on, you know, how do I help my constituents weather the storm and use that to drive long-term value of the, the clients or members that I serve. Setting them up to have the, the money in the future to put into savings type products, CDs, and others to consume loan products in a healthy way. You know, buying houses, getting mortgages, using equity to, to do, you know, projects that enhance the value of the homes that they buy. You know, using credit cards in an appropriate manner.
Again, positioning yourself to move into those wealth segments of the community banks, you know, providing those, those level of services. Again, I think it's all about trying to reengage at, at that human level with those communities to make sure that the financialliteracy is there.
Mitch Woods: David, any final thoughts from you on that?
David Catalano: I agree with the financial literacy, approach. We absolutely need that. And i think people rely on credit cards far too much for, things that they're really not supposed to be used for. So, I, I just don't, don't believe everyone has a full understanding of, proper personal financial, health
Bryan Peckinpaugh: We would all fail the, marshmallow test these days, right? We, we want the, we want the marshmallow now, not two in the future.
David Catalano: Bird in the hand. Got it.
Mitch Woods: True, true. Well, Bryan, David, thank you guys for, for entertaining me at least a little bit today, talking about some, some trends in today's, economic environment. I think some good insights there and some, some good takeaways even for, for a bank or credit union that's listening in. Just to, to take a step back and think about how we can help our customers, you know, through, through things like financial education and literacy, and really supporting them and, and building long-term business. So thanks, Bryan and David and thanks everyone for listening to today's episode of Lending Made Easy.