The Walmart Economic Index (WEI)

Walmart's latest advetisement campaign preaches to low and middle-class consumers the obvious benefits of shopping at its stores as a way to offset rising gas prices. In cities and the suburbs surrounding them, shoppers are often unwilling to commute the extra few miles to get to the closest walmart stores but instead patronize their neighborhood chain grocer.

So Walmart is hoping these consumers would listen by pressing on the hot button issue of high gas prices, which is stretching the consuming power of these consumers in other aspects of their lives. A "one-stop shop" so the consumers do not have to make multiple trips to different stores is what Walmart is pushing.

So going with the whole theme of Walmart capitalizing on the poorer economic climate, can we use Walmart's sales numbers as a "downturn" indicator? Walmart reported that it evaluates the spending power of its consumers by comparing the sales numbers of its Great Value brand to brand name labels. Great Value brand targets the lowest price-tier, which typically cost 25-30% less than the brand names.

When households undergo cost-cuttings, you logically start by trimming out luxury items like trips to the restaurants, movies, and most high-end retail shopping including groceries. Instead of premium imported cheese, you buy GV brand cheese, which cost a large fraction cheaper and taste nastier by the same margin.

The individual cost-savings are for all to see. But who really benefits? Walmart's profit margin on its private-label sales are on the average 10-15% higher than sales on nationally branded goods. And Walmart would specifically create its own competing product to an existing brand where it thinks it can undercut in price but still generate a large enough profit margin for earnings growth.

Where does this leave us? Walmart's existence in this world has vast macro and micro economic implications. Its imports from its manufacturing outposts in China and other parts of the world contribute vastly to the deepening US trade deficit and its continual drive to lower cost on already low-margin products forces it to seek new sources of revenue stream.