Surviving the Dual Economy
By Doug Stephens
From the Wall Street Journal, February 22nd, 2011: “Wal-Mart’s fiscal fourth-quarter earnings rose 27% as the retailer capitalized on strength in its international business. But on a same-store basis excluding fuel, U.S. sales fell 1.8%.”
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Headlines like this one will become commonplace as retailers increasingly pack up their tents and set up shop in the robust retail climates of the world’s emerging nations. Profits will soar while domestic unemployment rises or at least remains persistent; setting up an unusual economic dynamic as the economies of Wall Street and Main Street becoming increasingly disparate. Nodes of corporate America will thrive while Americans struggle.
In the case of Wal-Mart, a closer look at the numbers reveals that international sales rose by 8.9% with profit increasing by 7.1%. In the U.S., however, sales fell by 0.5% as profit rose by 4.8 on the back of tightened operations. While that’s a good news story for those fortunate enough to hold stock, it will ring hollow for Wal-Mart’s domestic workforce, suppliers and service providers. Here, the agenda for the future clearly includes smaller stores, tighter assortments and a focus on efficiency over scale. With Wal-Mart directly employing over 1.4 million U.S. citizens and indirectly employing millions more, cutbacks could send significant ripples through an already fragile economy.
Wal-Mart is only one example of a trend that will be mirrored in hundreds of corporations rushing to capitalize in foreign markets. And when you consider that 40% of all consumption is currently being driven by the top 20% of earners, the situation I’m describing can only broaden that gap.