Will Walmart and Retail Stocks Ever Rollback Up?

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All this talk of fiscal cliff diving has temporarily perched at least one major retailer.

But will it be on that perch for long?

After decades of impressive growth, WalMart’s (NYSE: WMT) stock flatlined as it faced new challenges from other retailers, especially Target, during the 1990s and early 2000s. Then, in 2008, its stock regained traction and grew steadily, reaching an all-time high in October of 2012.

Since then, the stock has dipped into a rut. The rest of the retail world is a little sluggish, too.

Most blame the stock’s stagnation over apprehension about pending tax increases from the fiscal cliff deal. One of the deal’s provisions will boost the payroll tax back up to 6.2 percent from 4.2 percent. That will hit most Americans right where it hurts -- in the paycheck.

The logic goes, then, that if Americans find that their paychecks are a little on the short side, they’ll start skipping that extra shopping run and when they do go shopping, they'll spend less during those trips. The retail sector may be hardest hit and, indeed, strains are starting to show even among discount retailers. Although WalMart is up about 15 percent for the year, it’s down 3 percent over the last six months. Meanwhile, competitor Target (NYSE: TGT) is doing better, climbing nearly 4 percent percent over the past six months, but that's after a hefty 20 percent run over the last year or so.

But there may be some silver lining behind the retail red alert for discount retailer stocks.

Walmart, for example, is a discount retailer where price is king and the people of Walmart are cheap. Well, maybe that’s not the right way to put it. Walmart customers are cost conscious. That sounded much better. And the worse the economy becomes, the more likely cost-conscious consumers will shop at discount retailers.

It’s a situation that is not unlike the post-crash era fof 2008. Facing unemployment, higher interest rates, and tighter budgets people went on a bargain hunt. One way they did this is by avoiding higher-end retailers and focusing their purchases at discount and big box retailers, like Walmart.

If the higher taxes start to stifle demand for more expensive luxury goods and pricey brand-name items, they may start to wander back in Walmart.

That should restore the bottom line at the big box.

mlswayne has a long position in Walmart and is considering a long position in Target.

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