With thinning household budgets, deteriorating retirement and home prices taking a nosedive, Wal-Mart (WMT) is a leading recession retailer. But can it clean up the other casualties in its sector? Christian Hill of Investors Daily Edge offers us his advice.

Anyone can look in my closet and tell that I am not much of a shopper. I generally only replace things when they are beyond repair. As my girlfriend likes to point out, I have a pair of jeans from a store that went out of business years ago. Perhaps it’s my Midwest nature, but if they still fit, I’m wearing them. Holes be damned.

Obviously, this means I don’t set foot in malls very often. Usually it is only to redeem the gift cards I get at Christmas.

So, over the past few weekends, armed with my Christmas bounty, I was off to the mall. I could see it in my mind: empty parking lots, and everything 90% off.

We are in a recession after all. And it was far enough after the holidays that the malls would be deserted. I could park right by the door, get in and out without any long lines and not return for another 11 months.

You know what they say about assumptions.

The place was absolutely packed. The parking lot was nearly full, and while it wasn’t a last weekend before Christmas throng of shoppers, there were a startling amount of people with apparently nothing else to do on a beautiful 70 degree Sunday afternoon in Florida.

But we are in a recession. How can this be? Just window shoppers?

Unfortunately, that is very likely. According to the January Business Wire’s Monthly Retail Report, same store sales still fell 1.6 percent in January, but with a very large asterisk.

That large asterisk being Wal-Mart (WMT).

While Wal-Mart saw same-store sales increase 2.1 percent in January, it’s weighting in the Index (53 percent) heavily skewed the final reading.

Take out Wal-Mart, and the rest of the retail landscape isn’t pretty at all.

• Gap – 23 percent drop
• Saks – 23.7 percent drop
• JC Penney – 16.7 percent drop

Unfortunately for retailers, it doesn’t look like they will be turning the corner anytime soon. Faced with a continued slowdown in the economy and shrinking disposable income, it may take 90 percent off sales to get shoppers in the door.

And that’s the flipside of generating foot traffic with such heavy markdowns. With such heavy markdowns, margins must be razor-thin, or just not there. My guess is to move older inventory to make way for the new spring merchandise, many items are being let go at or below cost. This is going to have a serious impact on first quarter earnings figures.

Go long WMT, short just about everything else in the retail sector. You can see the full monthly retail report here.

Source: Can Wal-Mart Lead Other Retailers Out Of The Muck?