Former U.S. CEO of Walmart, Bill Simon, cautions that affluent shoppers are forming a distinct consumer segment within the retail giant, creating what he describes as a 'bubble'.

Bill Simon, Walmart's former U.S. CEO, alerts that affluent shoppers are forming a distinct market segment within the retail giant, which he terms a 'bubble'.

Affluent customers might be causing a buoyant situation at Walmart. Despite their contribution to the retailer's recent positive quarterly results, former Walmart U.S. CEO Bill Simon cautions that retaining these high-income shoppers could pose a challenge.

"The Walmart experience has improved over time, but it still lacks the premium quality. Walmart's foundation lies in convenience, affordability, and variety, not in customer service," he explained on CNBC's "Fast Money." "As economic conditions improve, service will outweigh convenience and price. This may prompt a shift among consumers, constituting what I call the 'bubble'."

Despite Bill Simon's cautionary remarks, Walmart's stock has reached record highs, dating back to its inception on the New York Stock Exchange in August 1972. On Thursday, shares soared nearly 7% following the retailer's fiscal first-quarter results, surpassing analyst expectations in adjusted earnings and revenue. Walmart attributed its strong performance, especially in the grocery sector, to the contribution of high-income consumers.

"The challenge lies in the fact that the favorable conditions driven by food inflation, which have propelled Walmart's performance, will eventually subside," stated Simon, a board member of Darden Restaurants and Hanesbrands. Last October on "Fast Money," he cautioned that the allure of bargains was fading as consumers, particularly lower-income ones, began to feel financial strain for the first time in a decade.

Simon argues that higher-income consumers patronizing Walmart isn't necessarily positive for the broader economy. "When finances are tight, even affluent consumers adjust their spending habits," he explained. Despite his caution regarding a potential bubble, Simon believes Walmart remains a solid investment in the coming year, especially with ongoing inflation driving increased foot traffic. 

However, he anticipates challenges for the stock in 24 months as inflation recedes and affluent shoppers shift away from discount retailers. "As inflation diminishes and service surpasses price in importance, the current tailwinds may become headwinds," Simon concluded.

Source: CNBC