High-income consumers may create a bubble situation Walmart.
While wealthy shoppers helped drive the retailer’s latest quarterly results, former Walmart U.S. CEO Bill Simon warned they will be difficult to retain.
“The Walmart experience is better than it used to be, but it’s still not a premium experience. Walmart is built on convenience, cost and variety, not service,” he told CNBC’s “Fast Money” on Thursday. “As economic challenges subside … service is going to become more important than convenience and price. And, we’re going to see some consumers come back. That’s the bubble.”
His warning came as Wal-Mart’s stock price hit its highest level since August 1972. Start trading Listed on the New York Stock Exchange. Shares of the discount retailer soared nearly 7% on Thursday after the discount retailer beat estimates for adjusted earnings and revenue in the fiscal first quarter. Walmart reported that higher-income consumers helped drive profit growth, especially in its grocery business.
“The challenge is that the tailwinds from food inflation that have driven Walmart forward will eventually reverse,” said Simon, a Walmart board member. Darden Restaurant and Hans Brand.
Last October, Simon warned on “Fast Money” that bargains were losing their mojo as consumers began to succumb for the first time in a decade. His appeal at the time applied to low-income consumers.
Now, Simon believes that higher-income consumers going to Walmart is not good news for the overall economy,
“When money is tight, people react, even high-end consumers react,” he added.
Despite bubble warnings, Simon believes Walmart is a “great investment” over the next 12 months.
“As long as there’s inflation and the push from food inflation in particular, there’s going to be more traffic in Walmart stores,” Simon said.
But he believes the stock could be in trouble within 24 months as inflation falls and high-end consumers stop shopping at discount retailers.
“When inflation subsides and services become more important than price, some of these tailwinds will turn into headwinds,” Simon said.
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