We knew the recession was bad when well-known retailers such as Starbucks (Nasdaq: SBUX ) started closing some of their weaker outlets. But now even mighty Wal-Mart Stores (NYSE: WMT ) is following suit, yielding to the growing pressure of shrinking consumer spending.
Wal-Mart will shutter 10 underperforming Sam’s Club locations, costing 1,500 employees their jobs, although the company said it’s trying to place those workers in other stores. The news is surprising, since Wal-Mart’s ability to command steep discounts and appeal to budget-conscious consumers should give it a strong defensive position against even the worst economic headwinds. However, even the Bentonville Behemoth surely has areas where it might have overexpanded, or possibly isn’t competing well with warehouse rivals, such as Costco (Nasdaq: COST ) .
Wal-Mart's cutbacks don't exactly bode well for investors hoping for any near-term improvement in unemployment rates. Early this week, AOL (NYSE: AOL ) , newly liberated from Time Warner (NYSE: TWX ) , announced that it will laying off as many as 1,200 workers, in addition to the 1,100 who recently accepted a buyout. Last week, UPS (NYSE: UPS ) said it’s cutting 1,800 jobs. You get the drift. Jobs are still bleeding out of the economy, which makes for a tougher retail environment overall.
I’m not worried about Wal-Mart’s ability to thrive. The company said it doesn’t expect the closings to have an adverse effect on its fourth-quarter financial results, which will be released on Feb. 18. Still, the news is a bit daunting, and it makes all that “green shoots” talk from last year seem premature (if not slightly delusional).
Given the weak consumer spending environment, many retailers could be forced into similar cuts as they go into survival mode in 2010. Strong retailers like Wal-Mart will survive, emerging leaner and more successful over the long haul. Don't forget that investing savant Warren Buffett recently used Berkshire Hathaway (NYSE: BRK-B ) to acquire more shares of Wal-Mart, a testament to the redoubtable strength of the retailer’s moat in good times and bad.
But Wal-Mart's retail rivals don't all enjoy that kind of strength -- and some of them may face far less fortunate fates.