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VIDEOTrendspotting: Investing in a Retail Rebound
By
Carol Kopp
Apr 06, 2010 9:20 am
As the economy crawls toward recovery, people are looking for a little luxury. Here's how to play it in your portfolio.
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Just last week, the US Shopping Center Executive Business Barometer, a survey of mall owners and developers, indicated that business conditions improved in March, for the first time since July 2007.
These executives are among many who are seeing what they hopefully term “pent-up demand” for goods and services that people have done without lately -- that is, just about anything that isn’t an absolute necessity.
No doubt they’re right. But it may be a different kind of post-recession era that we’re now entering, one that doesn’t lift all retailers equally.
For one thing, most economists see a slow and steady recovery from a very deep recession that even now has nearly 10% of Americans jobless. For another, the collapse of the housing bubble has at last cured many of us of our addiction to credit, and we’re likely to stay clean now that the big banks have jacked up interest rates to an average above 14%.
But most of all, the mood of the country seems changed in a way that may last much longer. Many of us just don’t want to get back on that roller coaster to nowhere.
In practical terms, this could mean that different kinds of businesses and services will benefit from the revival of spending.
Minyanville’s Josh Lipton has a funny video piece on how Walmart (WMT), along with Costco (COST) and BJ Wholesale Club (BJ), did great during the recession, but now seem to be losing their massive hold on American shoppers.
Makes sense, doesn’t it? When you feel that "pent-up demand" for a splurge, no matter how modest, you’re not going to roam the linoleum aisles looking for a deal on jumbo-size detergent. But you’re not likely to lose your head and buy a $5,000 Birkin bag from Hermes, either.
It’s a good guess that retailers who entice shoppers with stylish goods at modest prices are going to get the bulk of those dollars.
The stocks of all of the following retailers have climbed in the past year to 52-week highs along with the rest of the market. That is mostly a tribute to their ability to cut costs and stay alive during the downturn. You might look into them now for their ability to catch the next wave of shoppers looking for something other than the Walmart shopping experience.
Bed, Bath & Beyond (BBBY) keeps its prices competitive on a wide range of home goods, and keeps shoppers coming back with a steady flow of coupons. Last week, Bank of America Merrill Lynch raised its target price to $50 from $44 in anticipation of its fourth-quarter earnings release later this week.
Urban Outfitters (URBN) operates stores geared toward younger consumers under names including Anthropologie and Free People. A Stifel Nicolaus analyst believes sales could be up as much as 20% in existing stores, and has raised his target price to $45 from $40.
Williams-Sonoma (WSM) sells pricey gadgets and home goods under its own name, and more moderate merchandise under names including Pottery Barn and West Elm. It just reported fourth-quarter profits above forecasts, and an outlook above expectations.
Pier 1 (PIR) came back from a near-death experience with a new strategy for selling its funky, moderately priced home goods. Its latest earnings report was mildly disappointing, but it forecast better profits for the current quarter.
And then there’s Target (TGT), which has managed to squarely position itself as Walmart for people with taste. Its stock has more than doubled in the last year, too, but it has the goods to keep people shopping for more than the basics.
Even Saks (SKS), which is no bargain-bin retailer, looks good now, with sales up for the past three months. Some see that as a sign that luxury shoppers are back, and so they are, but Saks management has had the smarts to stock up at the lower end of designer price ranges for now.
There are other names that analysts seem to love right now. But analysts might not get out of their offices much. You might ask yourself if you know anybody who actually shops there, and if not, why not. This list could include Kohl’s (KSS), Sears, and Kmart (SHLD).
All are discounters, and that’s a good thing during the worst of a recession. But when you’re ready for a little splurge, heading for one of these stores is about as thrilling a prospect as going to McDonald's (MCD) for dessert.
No positions in stocks mentioned.
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