As Amazon.com Inc. (AMZN) continues to drive the e-commerce revolution and flex its muscles with the expansion its brick-and-mortar businesses, investors have been more hesitant to hold onto traditional leaders across grocery, apparel, electronics, pharmacy and other disrupted industries. (See also: 4 Stocks to Outperform in an Anti-FAANG Portfolio.)
While this year, retailers, on average, have made a comeback from an awful 2017, there are handful of players that analysts have highlighted as best positioned to co-exist with the Seattle-based tech giant, as outlined in a Barron's story posted Tuesday.
Natalie Kotlyar, leader of BDO's Retail and Consumer Products practice, expects the physical retail space to normalize and even post positive same-store sales growth as companies find ways to survive and differentiate themselves against Amazon. Amazon's deep pockets have allowed it to roll out competitive prices and services such as top-notch delivery capabilities and selection. While firms likely won't be able to mimic this, they are leveraging a variety of other strategies to revamp foot traffic and boost online sales, such as teaming up with Amazon, boosting customer service and influencer partnerships, launching successful private-label brands and carving out niche segments like off-price, luxury shopping and warehouse clubs, as noted by Barron's.
Loop Capital recommends buying home-furnishing retailer RH (RH)—formerly Restoration Hardware Holdings Inc.—which saw its shares jump on Tuesday following a beat-and-raise quarter. "We continue to believe RH is uniquely positioned given its focus on higher income consumers, solely private-label merchandise, omnichannel expertise, and distinctive design galleries," wrote analyst Anthony Chukumba.
Jefferies analyst Randal Konik was out with a note in which he downplayed the Street's Amazon fears, recommending that investors go long on shares of Foot Locker Inc. (FL), Gap Inc. (GPS), Michael Kors Holdings Ltd. (KORS) and Kohl's Corp. (KSS). He is upbeat on the retail segment due to foreseen price inflation following a decade of deflation, and more pricing power for companies as consumers become less price sensitive. Konik also sees retailers benefiting from lower capital expenditure as they seize expanding their physical presence, and from better deals with mall owners.
He noted that Amazon's hold over the apparel segment is limited to basics, and that other retailers have successfully pushed forward to catch up with the tech titan's delivery speed. Ultimately, while retailers have posted better performance this year, Konik argues that they are still cheap and out of favor in many circles, making the current environment an ideal time to place a contrarian bet. (See also: How Goldman's Hedge Fund Picks Beat The Market.)