Business

Walmart shoppers pinched more than others

As the crucial holidays draw near, Walmart is girding for one of its bloodiest fights ever.

The world’s biggest retailer slashed its full-year financial forecast Thursday, citing worries about brutal competition and warning that results for the fourth quarter will miss Wall Street’s expectations.

“It’s going to be about as competitive a market as we’ve ever seen,” said Bill Simon, head of Walmart’s US business.

On top of stiff unemployment and stagnant wages for its cash-strapped shoppers, Walmart blamed this year’s payroll tax increase, uncertainty around health-care costs and this month’s federal cutbacks on food-stamps benefits.

It was the second time since the summer that Walmart trimmed its annual profit forecast.

The Bentonville, Ark., chain’s lower-income customers are hurting despite a soaring stock market that continues to line the pockets of well-heeled shoppers.

Higher-end stores are poised to deliver relatively solid results this Christmas, analysts said.

“Obviously, [the Walmart] consumer is more sensitive to economic pressures than the Macy’s customer,” said Jefferies analyst Dan Binder, noting surprisingly strong earnings that were delivered by Macy’s earlier this week.

Macy’s, however, admitted Wednesday that its margins dropped in the most recent quarter as it chased business in the middle market with aggressive discounting.

A key concern, retail insiders said, is the plight of flailing mall anchor JCPenney, whose CEO, Mike Ullman, is scrambling to repair damage done in a botched turnaround bid by its former Chief Executive Ron Johnson.

Steep markdowns at Penney already are pressuring margins for apparel retailers industrywide, analysts note.

Walmart isn’t immune to the contagion, according to Jamie Gorman, president of Only Nine, a New York women’s apparel maker.

“Walmart’s biggest problem [in apparel] is that JCPenney is coming in and giving stuff away for $3.99 and $2.99,” Gorman said. “Penney’s is trying to steal [Walmart’s] customer.”

Indeed, Walmart’s Simon appeared Thursday to hint at Penney’s threat. If the department-store chain doesn’t recapture wayward customers this Christmas, some analysts fret the Plano, Texas, chain could be forced to file for bankruptcy as soon as next spring.

“You have retailers who need to do well … so they’ll be very aggressive,” Simon said.

Labor groups said some of Walmart’s pain is self-inflected. The chain, they said, has been cutting back hours for workers, leaving shelves poorly stocked and cash registers unmanned.

Still, Jefferies analyst Binder sees reasons for upside at Walmart, noting that the big discounter said business in the third quarter improved with each passing month.

Likewise, Only Nine’s Gorman forecasts that heavy markdowns at Penney will ease in the coming weeks as the struggling chain clears excess inventory.

“When [Walmart’s] figures come the end of Q4, they will back on track,” Gorman predicts.