Traditional retail is not dead yet, despite inroads made by online merchandising juggernaut Amazon.com Inc. (AMZN). In fact, several big retailers are thriving, and their stock prices recently reached 52-week highs, among them discounters Costco Wholesale Corp. (COST), Five Below Inc. (FIVE), Ross Stores Inc. (ROST) and TJX Companies Inc. (TJX), as well as department store Nordstrom Inc. (JWN) and the SPDR S&P Retail ETF (XRT). "It looks like the recovery [for retail] is in motion," as Todd Gordon, founder of TradingAnalysis.com, told CNBC.
On the same CNBC program, David Seaburg, head of sales and trading at Cowen & Co., said: "Things get totally overblown, people get completely negative...[worries about the threat from Amazon] pushed these names to a totally oversold and de-risked scenario." Among the positive signs for brick-and-mortar retailers, he added that "inventories are much cleaner." It should be noted that both Gordon and Seaburg are bullish on Amazon for the long term.
|S&P 500 Index (SPX)||14%|
Source: CNBC, through the close on July 24.
Still Room for Old-Style Retailing
While Amazon is massive and growing rapidly, there still is ample space for traditional retailers. According to projections by eMarketer, as cited by TechCrunch.com, Amazon is on track to capture 49% of all e-commerce revenue in the U.S. for 2018, or 5% of total U.S. retail sales. Stated differently, this means that about 90% of sales are still going through traditional retailers. (For more, see also: 5 Retailers to Beat Out Amazon in 2018.)
Auto parts, hardware and home improvement supplies are oft-cited as markets in which brick-and-mortar retailers continue to have competitive advantages versus online sellers, as noted by The New York Times. Lean inventory systems combined with fast shipment for in-store pickup are among the measures taken by leading players in these retail sectors to keep ahead of Amazon, the Times indicates.
Meanwhile, discount retailers such as those listed above continue to have appeal for bargain hunters who prefer a hands-on shopping experience. In the case of TJX, the parent of TJ Maxx and Marshalls, moving its ever-changing array of limited quantity closeouts and factory seconds is most suited to physical retail locations.
A report from JPMorgan says that "the company's online efforts are driving increased share of a very loyal customers' wallet spend and expanding its branch reach (vs. limiting store visits," as quoted by Barron's, which adds that this also is in line with the bulk retailer's strategy to reduce the average age of its shoppers. Despite fears that Amazon's acquisition of Whole Foods might present a significant competitive threat, "Costco has rattled off a string of quarters with big comparable sales growth, healthy margins, and robust profit growth," Seeking Alpha says. (For more, see also: Costco Stock Shines While Consumer Staples Underperform.)
Like TJX, Ross features bargain-priced clothing. Seeking Alpha indicates, "Ross has a long history of growing same-store sales, opening new stores, and expanding to new states." Both Ross and TJX offer a "treasure hunt" based on "rapidly turning low-priced inventory," Seeking Alpha observes, noting that this hands-on shopping experience appeals to many consumers. The company currently has 1,651 stores and is seeking to grow to 2,500, a number that Seeking Alpha finds reasonable. Returns on equity (ROE) in the range of 30% to 40% are cited by Seeking Alpha as evidence of the soundness of Ross' business model.