Macroeconomics Effect on Walmart

Macroeconomics effect on Walmart

Tracy Williams

Southern New Hampshire University

Introduction

Walmart acquired Jet.com for approximately $3 billion in cash (Reuters, 2016). The acquisition built on Walmart’s strong e-commerce foundation and intended to help accelerate growth and deliver a hassle-free shopping experience for consumers. Walmart.com and Jet.com continued to operate separately while influencing technology and talent across both companies. For many years Amazon.com has dominated the e-commerce space recently Walmart expanded its ecommerce space gaining on Amazon. In this paper we will explore how businesses like Walmart are affected by micro and macroeconomics.

Macroeconomics Factors Affecting Businesses

Walmart is affected by macroeconomic factors such as GDP, inflation, and unemployment rates. ‘Walmart is the nation's largest company, representing 2.3 percent of the gross domestic product and employing 1.5 million workers which is equivalent to roughly 1 percent of the U.S. workforce” (Madrick, 2004).  The overall economic growth or decline greatly affects how and where people spend their money.  For instance, if we have a low average in GDP for 2018 and the market is flooded with products exceeding the purchasing power of the population than we will expect to see shelves with a larger amount of expiring food or a sale on consumer goods to get things moving prior to their expiration. While unemployment is almost historically low, consumer confidence is high and inflation is slowly rising, however, many companies are finding that they’re losing their power to hike prices. Walmart has been particularly aggressive in enacting price cuts to fend off competitors. Amazon and Walmart’s e-commerce battle has also pressured prices and forced competitors to invest in costly technology improvements and delivery services. When prices rise for energy, food, commodities, and other goods and services, the entire economy is affected.  Sometimes inflation is good for the economy. When people are expecting higher prices, they tend to spend more now rather than later when prices will be higher. Unemployment rates play a large role in the economy as well. When a large amount of people lose their jobs, eventually the whole nation is affected. Workers will lose income, and the nation will lose production and consumer spending.

Supply and Demand

Consumer tastes and preferences change consistently which plays a large part in determining the level of demand for a goods and services. As trends change, consumer preference changes as well. For example, when hairstyle fads change, preferences change. If Kylie Jenner posts an Instagram picture with a new makeup look then preferences among women will also change the demand for related products, such as metallic lipsticks, synthetic lashes, brush sets, makeup bags, and in demand styles and colors.

The response to changes in the GDP has an indirect influence on the local supply and demand for goods and services in a nation. Large increases in the overall demand for a nation’s goods and services, can lead to long-term inflation. High interest rates force consumers to reconsider large purchases, such as homes or cars, while decreasing consumer reliance on debt. A decrease in the GDP over time represents a reduction in the overall demand for a nation’s goods and services. Lowered interest rates make large purchases, such as a new home or car more appealing to consumers, while allowing banks to transfer more money into the economy in the form of loans.

“A stable GDP represents a growth in the nation’s economy that is slow enough to avoid inflation. The Federal Reserve will tend to leave interest rates alone during times of stable GDP growth, allowing for the current levels of supply and demand to continue as they are. Consumer demand will tend to remain stable during these periods, while market supply will grow at a reasonable rate. A stable GDP growth rate is the economic goal for a nation’s government” (Hammond, 2017).  The law of supply and demand states that when demand is high, prices will rise, and when supply is high, prices will drop. If a very popular toy just hit the market and 10,000 people want to buy it for their children, stores could raise prices so that only a fraction of the 10,000 could afford to buy it. On the other hand, if Walmart had an abundance of the new toy they could offer lower prices to sell more of the product.

Even if you don't shop at Walmart, they are dictating your product choices and what you pay as their relentless price cutting helps keep inflation low. Walmart is also challenging its suppliers by developing more of its own products called private labels. Their Great Value grocery line has almost 1500 items.

Monetary and Fiscal Policies

“The U.S. federal budget deficit for fiscal year 2019 is $985 billion. FY 2019 covers October 1, 2018 through September 30, 2019. The deficit occurs because the U.S. government spending of $4.407 trillion is higher than its revenue of $3.422 trillion” (Amadeo, 2018). In moderation, a budget deficit increases economic growth by putting money in the pockets of businesses and families influencing their spending and creating a stronger economy. It is a concerning when the debt-to-GDP ratio approaches or exceeds 100 percent. When the economy is doing well the government should be reducing the deficit to lower the debt. Deficit spending in a healthy economy will make it overheat which normally leads to a recession.

The goals of monetary policy are to promote maximum employment, stable prices and moderate long-term interest rates. By implementing effective monetary policy, the Government can maintain stable prices supporting conditions for long-term economic growth and maximum employment. In fiscal year 2019, Walmart expects to add 1,000 online grocery locations and anticipates their ecommerce sales growth to be about 40%.  Walmart maintained its global leadership in the retail segment by leading on price and assortment. The business is being led by the following four strategic pillars: lead on price; invest to differentiate on access; be competitive on assortment; and deliver a great experience.

Macroeconomic Decisions and Company Performance

Walmart is continually affected by macroeconomic factors such as GDP, inflation, and unemployment rates. The overall economic growth or decline greatly affects how and where people spend their money. In the race to dominate the e-commerce world, Walmart is compared to a sleeping giant. They are No. 3 behind Apple (No. 2) and Amazon (No. 1) in e-commerce sales. Many factors affect the sales growth in Walmart’s ecommerce space. Some factors of production related to Walmart’s ecommerce sector are labor, capitol and entrepreneurship. Labor is a flexible resource in which workers can be assigned to different sectors of the economy for the most productive output. In the ecommerce sector, retailers such as Walmart can sell more products with fewer workers than traditional stores. Capital is created by humans and designed for use by humans. Capital goods become the foundations for buildings, equipment, machinery and processes.