Oct 07 2009
Investment Trends: Will Weak U.S. Dollar Mark the End of Wal-Mart?
Investment Trends
Will the folly of the practices of the Federal Reserve and U.S. government monetary policies do to Wal-Mart (NYSE:WAL) what none of their competitors could: end their retail dominance and low price advantage? Peter Schiff believes that to be true, and he could be right.
What Schiff is basing his assertion upon is the reality that Wal-Mart will not be able to buy cheap goods from China like they did in the past, which could essentially eliminate the entire competitive advantage the world’s largest retailer has: pricing. All of this because of the .
If you follow Wal-Mart at all, they’ve made some changes over the last several years that may confirm their own concerns in this area.
One, although it was more of an attempted change than a change that was able to be successfully made, was the strategy of offering a higher end clothing line in order to draw in customers with higher incomes. That failed miserably, but speaks to Wal-Mart possibly seeing a real future weakness they tried to address.
Second, Wal-Mart has changed their company byline, focusing now on better living while saving money, as in the past they marketed to the lowest prices alone. That also seems to have the company attempting to reposition itself to customers with more money to spend, possibly knowing Chinese goods would not be able to be bought at the price differentials they could in the past.
There are also other factors, such as who is going to replace the Chinese as the major manufacturers of low-priced products in the future? Vietnam probably would be one of them, among others, but they could never produce at the capacity China could, and so it could involve a number of countries as China starts to focus on business outside the manufacturing sector.
None of this will happen overnight of course, but we could see some major changes in a relatively few short years.
What also may be of concern to Wal-Mart is if their competitors already have a manufacturing base they buy from in countries outside of China which could help them bring price differential very close to Wal-Mart, eliminating their competitive advantage.
A weak U.S. dollar will be one of the main instigators of this trend, and continued misguided government and Federal Reserve practices ensure this will not change any time soon, if ever.
So Wal-Mart could be in a rough ride and the unthinkable happen, as they now face a world that didn’t exist as it does now, just a short time ago. I think the threat is real, and Wal-Mart is challenged and emotionally reeling from what may be ahead for them in the near future. Of course their many competitors could be salivating, depending on their own exposure to China and how they’re positioned in other emerging manufacturing markets.
Either way, Wal-Mart could be in for the fight of its life, not because of competitors, because of monetary policymakers who are clueless as to handling American monetary policy. This is why so many countries are looking for alternative reserve currencies to wean themselves off of their dependence on the U.S. dollar.
Investment Trends
