Do Wal-Mart Customers Represent the U.S. Consumer?

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July 15 (Bloomberg) -- Howard Davidowitz, chairman at Davidowitz & Associates, discusses how the financial troubles of Wal-Mart's target customers are hurting the retailer, how its foray into the lending business may help it to grow and the health of the retail consumer in America. He speaks on Bloomberg Television's "Bloomberg Surveillance."

No, i think they have major problems.

Here is the key -- we have a bifurcated economy, and no one knows that better than you guys.

The equity, the whole growth in capital markets has driven this whole thing.

10% of the people doing 45% of the spending.

Walmart is screwed because they are selling to that autumn 50% -- bottom 15%. that is a bad place to be.

Those americans are really hurting.

They do not have any disposable income.

That is what is hurting walmart.

Is there a challenge at the top line of the income statement, revenues, units, or is the problem they cannot make money?

I think the problem is the top line.

That is costing them.

I think they have been screwing around with their margins and everything.

It is about the top line.

Look at costco -- probably the best retailer in america.

Their margins are lower than walmart, but they know how to get that top and customer.

They've got a lot of food, but it is done in a better way.

It is absolutely brilliant.

They sell it at lower margins, yet they get -- they have a mercedes in the parking lot.

Scarlet?

Perhaps walmart customer has to do why walmart is trying to increasingly get into the credit business and the banking business.

They have been trying to do this for a long time.

Now they have a strategy.

They do not have a bank charter so they cannot own a bank.

What they do is through the walton family invest in a lender , progress financial.

They target the hispanic customer, the same guys who cannot take credit cards because they do not have the history.

What they do is make loans to these guys for up to 30 $500. the loans come in the form of prepaid debit cards.

They allow customers use the debit cards at walmart.

About 4/5 of the 80 progress financial branches are within five miles of a walmart.

Sometimes even in the same shopping center.

Will this work for them?

I think it is.

Here is a real margin opportunity.

Walmart knows how to pounce on things that it sees as opportunities.

Hundreds of millions of people are being ripped off by these community banks.

Walmart sees a chance.

This is how sam walton built the business.

He saw an opportunity where the consumer was getting ripped off, food was one of them.

Why have they failed at banking?

They have been trying to do it for years.

The government will not let them.

I totally agree.

Jefferey hayzlett with us as well.

This is a different way for them to get into it.

They are having a tough time at the lower level.

These guys do not go to low -- normal banks, cannot get credit.

This is a great way to do it.

It is a most like the company store.

Does united states of america want the company store?

There were some negatives to that.

I think what they want us to get what they want.

They want to go into the store and buy.

These guys going to walmart, 11% of the retail market, and they are bigger then the second to fifth next competitor.

They are huge.

You live in the dakotas -- do you observe them being dominant?

I know in new york city you cannot go to a walmart, but i live within five miles of one in south dakota.

I live within five miles three of them.

They are dominant.

They are moving more into the smaller communities really sucking up all the trade.

Having said that, progress financial still has not made a profit.

It is operating at a loss despite this synergy that we see.

Look at the other things -- they have gotten into tires, pharmacy, vision, photo.

This is a natural extension for them without having the bank.

I like how you mentioned food.

That is big business for them.

We were sticking with grocery analysts about how walmart changed again.

The prices for all of groceries.

55% of walmart's u.s. sales are food.

Are you kidding?

I had no idea.

It really?

That is why the traditional food industry is in the because there is a huge change -- in the crapper because there is a huge change.

I love when you get wound up.

The walton family is worth more than double what warren buffett is worth.

More than double.

When i travel to stores with sam walton, he borrowed money from me to buy a "usa today," which he negotiated with the guy to buy.

I hope it -- you got some stock from that.

It was unbelievable.

Where is the middle?

We will have the data for you at 8:30. where is cole's -- kohl 's, where is the middle, not our perception but the real middle of america?

I think they are still coming out of it but they are feeling good.

They are buying these houses as we talked about.

They are starting to make those expansion plans.

Retailers are looking at that at that level.

Still you've got to get jcpenney back in the game, sears, some of these middle american groups.

Most of these customers are not going to nordstrom's. i agree, but the aspirational america , sub-2% gdp, six months in a row, where is the aspiration, and where will they spend that money?

I think there is a tremendous opportunity in the off-price business.

That is where the real growth is.

Premium goods off-price?

Online, in stores, the opportunity there is really tremendous.

Those businesses are absolutely booming and are booming like crazy.

Is the barney's shoe store, the square footage, is that like the most lucrative square footage known to mankind?

Yes, thousands of dollars a foot.

Jewelry is a little more productive.

It is a smaller space.

The shoe business is huge.

I saw sarah looking at the chinese silk, the platform shoes.

Really?

Their cincinnati red.

They look like you.

Take a look at it.

See it.

Then you go online and buy it.

Howard davidowitz and jefferey hayzlett on retail america.

This text has been automatically generated. It may not be 100% accurate.

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