“In case you haven’t seen a sales report these days, February MTD sales are a total disaster.”
Those aren’t the words from some luxury retailer trying to stay afloat as its high dollar customers take a hit. That’s an excerpt from a series of emails from Wal-Mart execs that were leaked to Bloomberg earlier this month. Specifically, that quote was taken from Wal-Mart VP of Finance Jerry Murray, in a Feb. 12 e-mail to other executives, suggesting that all was not well with the retail giant: Murray reported that Wal-Mart had the worst sales start in seven years.
So what gives? Are consumers unhappy with Wal-Mart or is it something more?
My vote is for the latter. Analysts believe that Wal-Mart won’t be the only retailer struggling this year despite a strong end to 2012. Competitors like Target and Costco are expected to report slow sales at the beginning of 2013.
Why the dip? You’d think that a slow start to the economy would benefit retailers who market on price. In fact, Wal-Mart’s average consumer is considered extremely sensitive to cost, a fact reflected in its slogan, “Save money. Live better.” In terms of spending power, according to Ad Age, most of Wal-Mart’s customers report a household income of between $25,000 and $75,000 (with most of its shoppers trending at the high end of that range), suggesting a demographic that would be responsive to swings in the economy.
The start to 2013 hasn’t been grim for the nation as a whole. Stocks are up, on average, 6%. And many companies have been reporting better-than-expected profits. So why is Wal-Mart struggling?
While some experts are blaming rising gasoline prices for cautious spending, I would suggest that it’s something else: tax season.
I know what you’re thinking: tax rates remain largely the same in 2013 as in 2012 (with the exception of the disappearing payroll tax cuts). So what gives?
Timing. Tax season was delayed this season by eight days, kicking off on January 30 instead of January 22. As a result of the delay, refunds won’t be in taxpayer’s hands as early as usual. Combined with the crackdown on identity theft, the first of tax refunds weren’t expected to be issued until mid-February. Taxpayers aren’t happy about the delay, seeking as much information as possible: the IRS has announced crippling traffic to its “Where’s My Refund?” tool on its website.
So how does the delay affect the economy? According to the IRS, by this time in the 2011 filing season, refunds totaling $141.054 billion had been issued (numbers are similar for 2010). That’s nearly half of all refunds issued that year (again, the trend was similar in 2010). The reasoning is simple: early filers tend to be seeking refunds. And why wouldn’t they? If you owe, there’s no incentive to file early in the year: most taxpayers who owe wait until the last minute to pay. In contrast, if you are owed a refund, you want it as soon as possible. And which taxpayers are getting refunds? Statistically, lower to middle-income taxpayers. In other words, Wal-Mart’s consumer base.
So despite Murray’s unfortunate private to public freak out about sales numbers, Wal-Mart isn’t panicking. And it doesn’t need to. Chances are, the retail giant will be just fine, so long as the IRS gets those refund checks out… eventually.
