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Walmart bubble due to high earners’ grocery spending, Bill Simon warns

Walmart will have a hard time keeping affluent consumers, in fact.  Walmart US CEO Bill Simon predicts

Higher income consumers could create a frothy situation at Walmart.

Although affluent shoppers contributed to the retailer’s latest quarterly results, former Walmart U.S. CEO Bill Simon warns they will be difficult to retain.

“The Walmart experience is better than it was, but it’s still not a premium experience. Walmart is built on convenience, cost and assortment. Not service,” a- he told CNBC’s “Fast Money” on Thursday. “As economic challenges ease…service will become more important than convenience and price. And we will see a pushback from some consumers. That’s the bubble.”

His warning comes as Walmart shares have reached all-time highs dating back to August 1972, when they began trading on the New York Stock Exchange. Shares jumped nearly 7% Thursday after the discount retailer’s adjusted earnings and revenue for the first quarter beat estimates. Walmart said higher-income consumers helped drive profits, particularly in its grocery business.

“The challenge is that the tailwinds from food inflation that have pushed Walmart forward will eventually reverse,” said Simon, who sits on Walmart’s board of directors. Darden Restaurants And Hanesbrands.

Last October, on “Fast Money,” Simon warned that bargains were losing their magic because consumers were starting to give in for the first time in a decade. His appeal at the time applied to low-income consumers.

Today, Simon says higher-income consumers going to Walmart isn’t good news for the economy as a whole.

“When money is tight, people react – even high-end consumers react,” he added.

Despite his bubble warning, Simon thinks Walmart is a “great investment” over the next 12 months.

“As long as there’s inflation and these tailwinds that come from food inflation in particular, there’s going to be more traffic to the Walmart store,” Simon said.

But he thinks the stock could face a tough time in 24 months, as inflation eases and high-end consumers abandon their purchases at discount retailers.

“When inflation falls and service becomes more important than price, some of these tailwinds will become headwinds,” Simon said.

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