Water Cooler Finance: My iPad Beats Your Toyota
Some of the world's biggest brands made headlines this week which, as you'll soon find out, isn't always a positive thing. Toyota's (NYSE:TM) legal problems have taken a turn for the worse, and Wal-Mart's (NYSE:WMT) sales are in a slight rut. On the bright side, Apple's (Nasdaq:AAPL) iPad exists – although it's still unclear what it actually does. But fear not – many other retailers also seem to be doing quite well. (What people buy and where they shop can provide valuable information about the economy. Find out more in Using Consumer Spending As A Market Indicator.) In Pictures: Top 5 Reasons Why People Go Bankrupt
Toyota: Moving Forward (Insert Joke Here)
Toyota's troubles aren't over just yet. Last week, the National Highway Traffic Safety Administration revealed its plans to fine the Japanese automaker $16.4 million… yes, $16.4 million to a company that sold almost 2.5 million cars last year alone. But this lawsuit may just be the first in a long string, as emails and internal documents were released last week that stated Toyota executives delayed and debated the release of information pertaining to defaults in many of its models, which included sticking gas pedals and faulty floor mats. (To learn more, read Recall Recoil: Will Toyota Recover?)
This situation practically mimics the hardships faced by Ford Motors in the 1970s and '80s. The Ford Pinto's safety tests were highly suspect, as the bumpers of the cars were known to puncture the cars' fuel tanks, if hit at speeds over 30 mph. Ford's secret safety testing facility was supposedly aware of this issue but gave the car the green light anyway. The reasoning? The company believed it was more fiscally reasonable to pay off lawsuit monies than it was to recall and repair the 1.5 million Pintos and 300,000 Mercury Bobcats.
Unfortunately, the defects resulted in multiple deaths caused by fires, numerous lawsuits and eventual recalls. (Henry Ford made his dream of bringing the automobile to the masses a reality. Find out more in Industry Mogul And Industrial Innovator.)
Always Low Prices … Sometimes
Despite being known as the premier discount retailer, Wal-Mart's sales have slowed in recent months. The chain believes this is due to an overall decrease in electronics and food prices, and in return will be lowering prices on over 10,000 popular items. This action is being made in the hope of bringing middle-class shoppers back through its doors, as its competitors have been able to match (if not beat) Wal-Mart's prices on many items lately.
The price cuts will affect 3,700 U.S. stores, and Wal-Mart says this may just be the first wave of reductions. (We look at a retailer's inventory turnaround times, its receivables as well as its collection period, in Measuring Company Efficiency.)
The other side of that coin is that the retail industry in general has jumped for March, 2010. Many retailers saw a double-digit increase in sales compared to last year's numbers, which could predict that consumers are ready to return to the aisles. Retail sales jumped ahead of analyst expectations, climbing by more than 9% while the street expected a move of only 6.3%. This trend in consumer spending has been ruling the retail environment over the past months, yet such a massive year-over-year jump was hard to anticipate. Department stores were among the best performers, with an average revenue jump of 12.3%.
Although this marks the fourth consecutive month of growth for the retail industry, investors are still weary and consumers are still gun shy when it comes to high-end and high-priced items, which could contribute to the summer lows we experience year after year.
Getting the Jobs Done
Apple's latest product, the iPad, was released on April 3, and its reception was more than warm. Over 300,000 iPad units were sold on launch day – a tremendous success, considering that the tablet/ebook reader/application magnet was verbally berated in the mainstream media based on its pun-friendly name and ambiguous functionality. In addition to the number of physical units sold, Apple says that 250,000 ebooks and over 1 million apps were also downloaded on launch day.
In comparison, Apple's previous major release, the iPhone, came out almost three years ago. At launch, it sold 270,000 units. (For related reading, see The Best Time To Buy An iPad.)
The issues Toyota and other car manufacturers are facing are not easing consumers' minds about high-end purchases. But this may be one of the contributing factors to the recent bump in low- and middle-cost retail purchases. In short, people still have a certain amount of disposable income, and if they're not going to buy $20,000 runaway cars, they have all the more freedom to purchase smaller personal items.
(If you're still feeling uninformed, check out last week's business highlights in Water Cooler Finance: Auto Hope, Bubbling Oil and Obamanomics.)