Wall Street doesn't understand where the consumer is, says Fmr. Walmart U.S. CEO Bill Simon
University of Michigan out with a new survey this morning showing a sharp decline in June consumer sentiment, falling to the weakest level since November of last year as higher prices continue to hit customer wallets across the country. Now, this also comes a day after luxury retailer RH posted a bigger than expected loss per share. That stock closing lower by 17% today. Joining us now with his read on the consumer is former Walmart USCEO Bill Simon. Bill, happy Friday. So it's it's a weird week where investor excitement peaked with the CPI and PPI prints showing consumer prices in May were up less than expected. Producer prices actually dropped and yet consumer sentiment doesn't reflect that. What does that tell you? Yeah, I, I think there's this huge disconnect between Wall Street and Main Street, right? Like, everybody's exuberant, the S&P's hitting all time highs. And we saw the wholesale price index start to start to even, you know, peak or moderate even a little bit. And yet, you know, people are going into the grocery store and buying a box of Cheerios and passing out because the price is so high. And so they don't understand why there's this exuberance on Wall Street. And Wall Street clearly doesn't understand where the consumer is. They're hurting, they're struggling. They've got food prices that are up 30 plus percent since the pandemic. You got housing prices that are up in the 30s, and you got transportation costs in the 20s. And that's 70 or 75% of middle America's budget right there. And it's just chewed right up. And yet the consumer is still spending and spending on experiences normally. If the consumer felt this bad, shouldn't we expect to see other indications in areas like that? Well, I think you do. I think what you find is that people go, you know, go to, they're going to needs and then they're, they're shying away from, from wants and into experiences. I think they're trying to find a way to ease the pain. And you, you seek certain categories in retail that are really struggling. They're, they're discretionary and, and, and people are just not going there because there's so much of their so much of their income that's being tied up with, with wants. And then what little they do have. I think there's a true, there's been a trend over the last four or five years towards towards experiences and they're spending their money there. So who wins in a situation like this where perhaps the overall market hasn't factored in the amount of pain that a consumer is under? Is it the dollar stores? Is the discounters or somebody else? Well, in retail? I, I, you know, I think it's the food stores right now. And I think Walmart's had been, has done well recently because they have such a high proportion of food. They get the, they get the, the food shopping trip that comes with the weekly grocery, you know, purchase and then whatever discretionary non food items. Well, I might as well buy it. I'm already in Walmart and their prices are good. So I think Walmart's benefiting from that. You're seeing, I think you're seeing Costco do pretty well in the same, you know, in the same vein. And so for me, it's anybody who's got a large proportion of food, it will probably do pretty well. Now it's dangerous to extrapolate too much from micro stories, but we're just talking about the cruise lines getting hit today on concerns about their pricing power RH, which is not appeal to the Walmart customer taking a hit here too as it tries to engineer a turn around. Might we be seeing the beginnings of consumer fatigue in a, well, healthier set? And is that something that we should watch? You know, it's it, it's a really good indicator when people who don't have to watch prices are shocked by the price. You know, the prices are too high, right? Like, like I, I'm not typically a guy who looks at the price of stuff, but I just, I bought a cut container of watermelon yesterday in the grocery store and it was $16.00. And you're like, that shouldn't be $16.00, should it? Like I didn't bought it anyway, but you know I mean when you notice prices are high, then prices are hot. Show me with your hands how big a container of watermelon did you get for 16 bucks? Like, no, not, it wasn't like a truckload, right? Yeah, okay. Like maybe you just get a couple of the fruits themselves. I don't know. OK, so maybe I should be at night. Yeah, I just had to ask, like if I were just watching, how big a container do you get for 16 bucks? So what does this say about Q4 perhaps at a time where we've seen a lot of retailers trying to or, or at least suppliers to retailers trying to get goods into the supply chain early because of problems out there in logistics? Yeah, I think you're going to see the products coming early because of supply chain issues, which means that I think the the discounting is going to start early, which means I think we're going to have a very, very aggressive price battle over the Christmas holiday because if the goods arrive early, retailers can't sit on them. By and large, they need to turn them into cash. And so we'll start to see the contest start for who's going to who's going to pull the the trigger fastest here on on on price action discounting on holiday merchandise.