American retail giant Walmart has sharply lowered its forecasts, sending shock waves through the sector. The high energy and food prices are causing consumers to spend less on other things.
No budget left
Due to high food and fuel prices, consumers are spending their money differently, Walmart CEO Doug McMillon stated in a profit warning. They spend a larger part of their budget on groceries, leaving less for non-food products such as household goods or electronics.
Fashion in particular is struggling: to get rid of its stocks, Walmart is forced to do more markdowns and discounts, leading to lower margins. The chain therefore expects 13 to 14 % less gross profit in the second quarter and 11 to 13 % less for the whole year.
A new trend?
At the start of this financial year, the retailer was still expecting 3 % profit growth, but despite increasing market share in food, price increases and lower inventory costs, margins are falling sharply. Comparable sales will nevertheless be higher than expected this quarter. Walmart will announce its final quarterly results in mid-August.
The fact that the world’s largest (physical) retailer has to admit such a thing is also a shock for other retailers. The news immediately dragged down the share prices of other major retail players. Last week, German electronics group Ceconomy also had to admit that consumers in the German-speaking countries in particular are currently spending less on electronics.