Facebook Pinterest Search Icon SourcingJournal_horiz Tumbler Twitter Shape photo-camera graph-trend Shape latest-news icon / user

Will ObamaCare Add to Holiday Shopping Season Woes? Wal-Mart Expresses Concerns

Missed Sourcing Journal’s Virtual Sourcing Summit? It's not too late to view all keynotes and panels from the two days. Watch on demand now.

Almost across the board, industry analysts have been predicting a historically limp holiday shopping season for already struggling retailers. However, few have raised the question of how the new Affordable Care Act (ACA) might contribute to the the cheerless underperformance most expect lurks just around the corner. Wal-Mart has indicated the new health care regime might make matters considerably worse.

According to Carol Schumacher, vice president of investor relations, “While it is not coming through in our customer research, we do know that some of our customers are concerned about the impact of the Affordable Care Act. For many of our customers, having to afford health care and insurance may be another line item in their personal budget and that they may not have had to cover previously.”

Bill Simon, president of Wal-Mart US, has also raised the possibility that the new costs attendant upon the ACA might contribute to consumer restraint, especially given the recent expiration of the pay roll tax cut, deducting 2 percent from their paychecks. Simon said that shopping activity could be stymied by “the uncertainty in health care costs as people still figure out how to register and what their costs are going to be.”

It’s disconcertingly difficult for retail experts to calculate the precise impact of the ACA on the upcoming holiday shopping season. Effective January 1, most Americans will be legally required to carry health insurance, or risk incurring either a penalty of $95 or 1 percent of their taxable income. The new legislation already contains a schedule for future penalty increases, which is set to hit $695 per adult, or 2.5% of taxable income, by 2016.

One problem is that it remains unclear how many Americans will ultimately be effected, since some will simply keep the coverage they currently have, as provided by employers. Also, others will be able to shift their insurer to Medicaid if they lose their coverage and their income registers somewhere around the official poverty threshold.

However, the ACA has so far been so chaotically implemented, it’s not at all clear how efficiently people will be able to sign up, how many will lose their plans and how legislators will respond to the challenges. Recently, a group of Democrats in Congress who has supported the passage of the ACA reversed sentiment and expressed misgivings about its practical viability. Many Republicans continue to campaign vigorously for its rescission or substantial amendment. A growing chorus of detractors seems to be gathering popular influence.

And while the exact nature of the economic impact of the ACA remains foggy, many believe it will be significant. John Hartmann, chief executive of True Value, said, “This has been a massive concern for us. Discretionary spending will certainly be impacted by the changes in the contributions Americans will have to make for health care.”

Wal-Mart, in particular, has cause for concern after a disappointing third quarter. While  profit for the third quarter hit $3.64 billion, or $1.14 per share, up from last year’s $1.08 per share, this still fell below most forecasts. Expectations had pegged per share earnings as high as $1.16. Also, while revenue rose 1.7% to $115.69 billion, Thomson Reuters analysts had predicted it would reach $116.81 billion.

And even independent of the effects of the ACA, most retail analysts predict a grim holiday showing. The Morgan Stanley study, “Expect Coal: We Predict the Weakest Holiday Since 2008,” anticipates an anemic 1.6% rise in same-store apparel retailers. One big reason for the stagnant performance is the stubbornly frugal consumer, still slow to spend faced with an uncertain economy. The National Retail Federation expects that the average holiday shopper will spend about 2 percent less than they did last year, with 51 percent saying that economic worries are constraining their spending habits and 80 percent planning to spend less this year than they did last year.

The study confirms the result of another report recently issued by the CFI group, a search firm headquartered in Ann Arbor, Michigan, “Holiday Retail Spending Report 2013,” which paints a dour picture of the challenges this year’s shopping season promises. At least in part, the less than stellar forecast is attributable to consumer wariness in response to an intractably uncertain economy. A mere 21 percent of consumers plan to spend more on gifts than they did last year. The bulk of would-be shoppers reported they intend on spending less, guided by a spirit of frugality rather than holiday cheer.

Now, anxiety about the ramifications of the ACA can be added to the heap of concerns piling up for retailers regarding the holiday shopping season. The conclusion of 2013 is shaping up to be a sadly fitting end to a difficult retail year.

Related Articles

More from our brands

Access exclusive content Become a Member Today!