It was a hailstorm that caused Sandra Bullock and Ben Affleck to take shelter in a Wal-Mart store on their way to Savannah for his wedding in the 1999 movie, "Forces of Nature." Now, new forces of nature are causing consumers to take their own refuge in Wal-Marts around the nation: the fear of recession combined with the lure of lower-than-ever prices.
According to CNN Money today, the store known for its "lower prices" has just announced that it's lowering them even more before the Super Bowl. In other words, while most retailers are reeling from the effects of consumers cutting back on their shopping, Wal-Mart has decided to go for broke and induce them to spend their last dollars on electronics, groceries and other items now marked down 10%-30%.
Some analysts point out that during recessions, people often trade down from the stores they normally shop at. By that token, as Target loses sales, Wal-Mart and wholesalers like Costco gain sales.
But the question may become, where will cash-strapped consumers go to buy their goods when they can't even afford Wal-Mart's usual low prices? The executives at the Arkansas-based retailer seem to have figured out that they've got to keep them coming somehow – and the only way they can see to do that is to chop their prices.
CNN Money quotes John Fleming, Wal-Mart's chief merchandising officer, as saying, "We all know economic times are tough, so our plan is to help with added savings throughout the year, focusing especially on what people want, when they need it."
Falling prices at the low-price leader indicate that retailers recognize that consumers are indeed strapped for cash – particularly now that they can't keep re-financing their homes, and credit card companies are raising the rates on their cards and cutting back on their credit lines.
Put together falling prices and strapped consumers, and you can see another force of nature – namely deflation – beginning to form its own hurricane. In our latest Elliott Wave Financial Forecast (January 2008), our analysts explain that the best way to stay ahead of the economy's retrenchment is to watch the housing sector. History shows what happens when house prices fall – and this month's financial forecast includes charts to show that housing's collapse isn't over. It also reminds us of two important points:
1) This economic contraction is a deflationary, not an inflationary, event.
2) As deflation catches investors, consumers and businesses by surprise, various measures of economic output will drop through the floors established by the recessions of 1973-1975 and 1980-1982.
You can read the whole section on the "Economy and Deflation" to get the full picture by following the easy and quick steps below.