TheStreet's Laurie Kulikowski sums up analyst feelings on the move as "mixed." Walmart stock, trading around $76, is down nearly 4% for the year to date.
Foran faces a problem of empty shelves, grumpy customers and sales that have flat-lined. The company's strategy against that until now has been to build smaller stores, but they are not delivering the pop to revenue Walmart needs. They are also not drawing in the high-end customers who will shop beyond the grocery aisles and add some pop to sales.
Brian Sozzi says Walmart needs more "Target (TGT) and Nordstrom (JWN) customers," people "pulling in $60,000 to $100,000 per year." He adds, "Walmart is investing heavily in online and mobile apps. It is also creating smaller neighborhood stores. To get its money back, it will need richer customers who shop the entire store."
In short, Walmart has lost the upper-middle class.
This is obvious when you compare the company with Costco (COST). Costco sales are rising at under 10% per year, with net income under 2% of sales, but investors are willing to pay 26 times earnings for the stock because those customers are upper-middle class suburban families.
Walmart grew by bringing big city pricing to the exurbs and beyond, but now it's left with customers who are lower middle-class or worse. These people are not buying as much groceries and are not going other departments such as home goods. Walmart's earnings report for the quarter ending in January blamed "reductions in government benefits" for some of its problems. In other words, it's depending on customers who get government benefits for sales. That's not a growth strategy.
As a result investors will only pay 15 times Walmart's earnings for the stock. When even its Sam's Club warehouses, which compete directly with those of Costco, aren't growing, you know the company is still misfiring demographically.
What upper-income consumers want is a clean store, a quick trip, well-stocked shelves and friendly people. They also want better merchandise. They don't want to feel a sense of shame walking into the store.