The Rich are Flocking to Walmart — Play this Trend for Profits

by Andrew Zatlin December 06, 2022 11:00 am ET

Forget about luxury cars and designer clothing.

These days, the rich are spending their money at Walmart.

Here’s why this signals a massive shift…

And why it creates a profit opportunity we don’t want to miss.

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

The Rich are Flocking to Walmart — Play this Trend for Profits

Walmart’s a budget-friendly retailer. It’s not where you typically find shoppers flush with cash.

But shockingly, seventy-five percent of its recent profit growth came from households earning more than $100,000.

This represents a huge shift. And for investors like us, it brings up a few important questions:

What other retailers are benefitting from this shift?
What suppliers are positioned to benefit?
And how can we take advantage of this?

Be advised, this shift is so intriguing, and so potentially profitable for investors like us, I can’t include all my thoughts in one video.

So here’s Part 1, where we’ll look at which retailers are set to win — and which are set to lose.

This is Where Consumers Spend Their Money

To start, let’s look at where consumers spend their money. This chart sums it up nicely:

As you can see, there are three categories:

Household goods, like electronics and furniture.
Personal goods, like makeup and clothing.
Essentials, like food and gas.

We’ll dive into each category in a minute. But a quick spoiler-alert:

Nowadays, consumers are moving away from expensive household goods. They’ve either bought ‘em already… or as a result of belt-tightening, now they can’t afford ‘em.

Let me show you…

These Retailers are Struggling

According to recent retail data, consumer spending on furniture is up less than two percent. And spending on electronics is down six percent.

Companies that sell household goods are struggling, and their hiring reflects it.

For example, here’s hiring for furniture company Restoration Hardware (NYSE: RH):

As you can see, hiring is dropping. I’d stay away from this one.

Then there’s Bed Bath & Beyond (Nasdaq: BBBY):

How is this company still in business?

Finally, look at Best Buy (NYSE: BBY), the electronics company:

I think you get the picture by now: companies selling household goods are struggling.

Now let’s get “personal”…

Growth for Personal Goods

Spending on personal items like beauty supplies is up four percent for the year.

And spending on clothing is up seven percent. That’s not electrifying, but it’s still notable.

That explains why hiring at Ulta Beauty (Nasdaq: ULTA) is up and to the right:

Makes sense. People aren’t working from home as much. They’re going to the office, so they need makeup and clothes.

Now let’s shift to the third category, where the data is most fascinating…

The Essentials

In the Essentials category, spending on food is up eight percent because inflation’s still running amuck. Spending on gas, meanwhile, is up thirty-four percent.

Here’s hiring for grocery-chain Whole Foods:

As you can see, hiring has fallen. But food spending is up. What gives?

Well, keep in mind, Whole Foods used to be known as “Whole Paycheck.” Shopping here is very expensive. And remember, wealthier consumers are going to Walmart now!

Hiring at more affordable grocery stores like Kroger (NYSE: KR) is up:

So we’ve analyzed companies in each of the three categories I mentioned…

But what about companies that sell items from two categories, or even all three?

Affordability is Key

Consider a company like TJ Maxx, for example. It’s struggling right now. So is Target, which is too dependent on sales of household goods.

Then there’s Costco (Nasdaq: COST), which straddles all three categories. Costco sells furniture, electronics, personal-care products, even food and gas.

But it’s struggling right now, mainly because it’s not selling as many couches or diamond rings. (Yes, you can buy a $30,000 engagement ring at Costco.)

That’s the difference between Costco and a store like Walmart, which is faring better simply because it sells lower-cost, more affordable brands.