Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

An In-depth Look at U.S. Retail Stocks

Stock-Markets / Sector Analysis Sep 14, 2010 - 08:59 AM GMT

By: Nilus_Mattive

Stock-Markets

Best Financial Markets Analysis ArticleWhile Americans haven’t completely abandoned their spendthrift ways, there’s no doubt that the typical shopper is thinking a lot more about their purchases … and in general, our nation is revisiting the idea of saving for a rainy day.

I’ll discuss the broad implications of this shift some other time. Today, I’d like to talk about the specific companies most affected by our nation’s newfound frugality — the retailers.


Let’s Start with a Basic Breakdown of the Industry …

The typical newspaper article or TV reporter tends to call any store that sells goods a retailer, and that’s a fine generalization.

But as investors, it’s important for us to make more detailed distinctions … especially if we want to understand where the real dangers and opportunities are.

First on the list would be traditional department stores — the ones you used to find around your local town square, and which now typically anchor malls. Names like Nordstrom and Saks occupy the top of the hierarchy here, catering predominantly to wealthier shoppers and so-called “aspirational” buyers — the regular folks overusing their credit cards to snap up Louis Vuitton bags and designer clothes.

In the middle are the moderate department stores like J.C. Penney and Sears.

And underneath them are the discount stores — everyone from Target to 99 Cents Only Stores.

What about Wal-Mart? Although it is a discount store, Wall Street analysts technically group the company with “consumer staples” because it is so large, and sells so many necessities like groceries and health products.

Wal-Mart's sales dwarf those of its competitors.
Wal-Mart’s sales dwarf those of its competitors.

To give you an idea of just how big Wal-Mart actually is, consider that its 2009 U.S. sales were $304 billion — 44 percent more than the next largest 14 mass merchandisers combined!

Beyond the various levels of department stores lie the specialty retailers who sell sporting goods, home and bath products, consumer electronics, apparel, auto parts, and everything in between.

Plus, there are plenty of other companies that rely on retail sales, but aren’t technically considered retailers — including fast-food restaurants, drug stores, etc.

So How Are the Different Retailers Faring in This Tricky Environment?

At the high end, Nordstrom and Saks have lost many of their aspirational buyers since lines of credit have now been all but shut off.

How are these luxury stores dealing? By catering to the truly wealthy in their flagship locations.

Meanwhile, they are also garnering more business from other shoppers through off-price stores. These can be found in outlet shopping complexes and sell clearance merchandise as well as goods bought directly from vendors. Bloomingdale’s has also decided to go this route by opening at least four outlet stores in the next year.

Other retailers farther down the food chain are finding unique ways to stay competitive, too.

Sears reintroduced layaway plans in November 2008 … and Kmart, which is now under the same corporate umbrella, also offers a layaway option in its locations.

J.C. Penney, meanwhile, has been trying to re-position itself as a more fashion-forward destination through initiatives like its in-store partnership with the Sephora cosmetics chain and a new line of clothing with Mango, a popular European fashion label.

Specialty retailers are somewhat at the whim of the specific items they carry. For example, during recessionary periods auto parts retailers often fare well as consumers choose to keep their existing cars on the road rather than trade up to new vehicles. In contrast, chains that sell home products are suffering because of the real estate bust.

And no matter what type of store you’re talking about, controlling inventory levels and other fixed costs are now critical for success in this tough environment.

Which begs the question …

Are Retailers Good Buys for Investors Now?

Let me start with a caveat: There are always companies that are doing everything right even when the big forces are going against them. And among those firms, you can usually find an undervalued stock or two.

But based on the challenges the group is facing, I don’t think most retail shares are attractive at the moment.

Take a look at the following chart …

chart Checking Out the Retailers

As you can see, the group is up sharply off their lows reached during 2009. So in my mind, they are not currently pricing in the potential for extended economic weakness ahead.

For income investors, it’s worth noting that many retailers have managed to maintain their dividend payments throughout all the fundamental weakness. Some have even continued to increase.

But because they tend to pay below-average dividend yields, I view the very best stocks from this group as a good way to diversify a portfolio … not as income anchors.

If we see a substantial pullback in the market, especially in the more economically-sensitive groups, that could provide a good time to get more aggressive. For now, most traditional retailers aren’t on my shopping list.

Best wishes,

Nilus

P.S. I did recently recommend one company with a strong retail presence to my Dividend Superstars subscribers. But I think there are a number of circumstances that make it a major exception to what I said above. If you want the full scoop, sign up for a risk-free subscription to Dividend Superstars today. A full year of issues is only $69!

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in