Could Wal-Mart actually go out of business?
Consider this, Wal-Mart operates one of the largest private fleets of trucks in the country (7,200+). When oil spiked in 2008, Wal-Mart paid a little less than $4/ gallon for diesel including a .50 cents/gallon volume discount and drove over 900 million miles. Assuming those stats, then Wal-Mart spent 22.36b for fuel costs, a whopping 8.5b more than estimates or 66% of their net income of 12.7b. If fuel prices only go up $1.85 more/gallon over what they were in 2008, then Wal-Mart breaks even. A 1.86/gallon, then they begin losing money. $2 more per gallon..well you get the idea. They don’t have enough cash on hand (7.9b) to sustain revenue loses of that size for extended periods of time. When you consider their suppliers, who are already forced to price below market in most cases and of course how they export most of their products via diesel fueled container ships, then there is nothing left for Wal-Mart to do but to raise prices or pass that off to consumers. That is a dicey proposition because when oil prices reach those levels, then most people will be cutting their driving habits much less going to Wal-Mart to shop. It is a vicious cycle that Wal-Mart is simply not ready to handle. They don’t have a sustainable revenue model when fuel costs start climbing and current forecasts have prices for crude going up 18% by the end of this year alone. It is not a pretty situation.