Holiday Price War Dooms Most U.S. Retailers

Includes: RTH, RTL, WMT
by: Jeff Nielson

Wal-Mart Stores Inc. (NYSE:WMT), the U.S. retailing behemoth which under-cuts all of its competitors with its made-in-China merchandise, has declared “war” on other U.S. retailers – a “price war”, to be exact.

For the second time in a month, Wal-Mart announced large price-cuts on many of its leading, brand-name toys. Wal-Mart has openly vowed to be the “price leader” during the upcoming holiday shopping season. Naturally, with Wal-Mart announcing a second round of cuts before the U.S. holiday shopping season officially begins (after Thanksgiving), this has forced other retailers into price-slashing of their own.

With U.S. consumer-spending flat to lower (in real dollars), Wal-Mart's decision to hold up its own sales – at any cost – means a very lean Christmas for other large retailers. However, for smaller U.S. retailers, it is nothing less than another nail in the coffin.

Because small retailers cannot come close to matching Wal-Mart's sales volume, this means that they can't purchase nearly the same volume of goods for their inventories – and, thus, don't get to buy those goods at prices nearly as low as what Wal-Mart extorts from its suppliers. This means that if small retailers even try to remain remotely competitive with Wal-Mart's “low, low prices” that their own profit-margins totally evaporate.

Zero profit-margins are literally only half the problem for U.S. small retailers. At the same time that their revenues are being severely squeezed, so is their access to credit. The credit situation for U.S. small businesses is much more dire than even the bleak sales statistics.

To begin with, overall credit available to U.S. businesses continues to plummet. PayNet's Small Business Lending Index plunged 22% in September (year-over-year). A Reuters article reported that despite the fact that U.S. banks have cut-off credit to businesses deemed less credit-worthy that delinquency rates remain near record-highs, while default rates inched higher.

However, what is even worse for U.S. small businesses is that they are increasingly being forced to rely upon credit cards for the limited amount of cash made available for them. Follow the 'logic' of U.S. banks here. These small businesses are judged to be “too risky” to be provided with any conventional financing. However, when the same banks are looking for new victims – to take out small business credit-cards with interest rates as high as 30%, suddenly these businesses can obtain credit.

As expected, Wall Street oligarchs lead the way in this new form of bank-gouging. Last month JP Morgan (NYSE:JPM) introduced four, new credit cards expressly for small businesses – with interest rates of up to 30%. This is the same JP Morgan which is allowed to borrow as many billions as it wants for 0% interest – thanks to continuing subsidies of U.S. taxpayers, who ultimately bear the cost of this subsidized “lending” (i.e. free money) for U.S. banks.

The fact that it is even legal for banks who borrow subsidized money for 0% to charge 30% interest rates for small businesses is yet another example of how the entire U.S. government has been enslaved by Wall Street. With Wall Street banks boasting that they are now so profitable that they plan on breaking their previous, obscene records for their annual bonus-orgy, they see nothing wrong with 30% profit-margins on their loans to small businesses.

Clearly, what is occurring here (and is fully sanctioned by the Obama regime) is the entire U.S. economy is being used to subsidize Wall Street banks. While flogging its new, usurous credit cards, JP Morgan's lending to small business through the Small Business Administration has fallen by 80% this year. This is the same JP Morgan that vowed to “increase lending” to U.S. small businesses – when it took its TARP hand-out last year.

Much like Wall Street destroyed its own securitization market through peddling trillions of dollars worth of fraudulent “securities”, now it appears to be intent on destroying U.S. small businesses – and eliminating another core-component of its own business. As I pointed out in a previous commentary, even most animals know enough not to defecate in their own beds.

U.S. small businesses, however, have much more to worry about than the short-sighted greed of Wall Street banksters. Over the weekend, the long, drawn-out bankruptcy of business lender CIT Group Inc. (NYSE:CIT) finally occurred. This is the 5th-largest bankruptcy in U.S. history, but of greater importance, it was the source of lending for over one million small- and medium-sized U.S. businesses.

A CIT spokesman claims that this “pre-packaged bankruptcy” will have no effect on its lending. However, even before this bankruptcy occurred, CIT's lending to U.S. businesses has fallen off significantly. In 2008, CIT accounted for 6% of all SBA (Small Business Administration) lending in the U.S.. This year, despite big-banks like JP Morgan reducing its own SBA lending by 80%, CIT's share of this market has plummeted to just 1% in the first half of this year. Clearly, bankruptcy must result in even further erosion of its lending.

The cut-throat business strategies of Wal-Mart and U.S. big-banks will ultimately hurt more than help these corporate bullies over the long run. The millions of U.S. employees of these small businesses – who are destined to lose that employment as their employers go bankrupt, are buyers of Wal-Mart's products, and purchase much of those goods with credit obtained from the Wall Street oligarchs.

When these millions of retail-sector employees become unemployed, it means buying much fewer goods from Wal-Mart. It also means that many more of these people will now be forced to default on their mortgages, or car loans, or credit cards – financed by banksters like JP Morgan.

The abandonment of a “law of the jungle”, kill-or-be-killed mentality was supposedly one of the ways that humanity distinguished itself from animals. However, in the Land of the Oligarchs, those rules have been re-written: “bigger is better, and biggest is best”. Everyone, and everything else is expendable.

Disclosure: I hold no position in Wal-Mart, CIT Group, or JP Morgan