Contrarian Retail Plays

It’s no secret that retail firms and stocks have struggled of late. Consumer spending and weather (and its influence on seasonal shopping) are always discussed. But there’s a lot to be said about the way brick-and-mortar merchants are shooting themselves in the foot. How nice might it be for investors if they could get their acts together!

Rethinking the Retail-Stock Playbook

When to comes to covering and trading retail stocks, I’ve experienced good things over the years. Frankly, though, I didn’t play be the standard Wall Street rules. The last thing I ever wanted to do was chase a retail stock higher in response to good same-store sales reports.

I used a different playbook. I preferred to buy stocks that had been hammered by the impact of consumer-spending blips and/or merchandising miscues on same-store sales or margins. No matter how much computer power retailers have, along with the rest of us, retailing remains a very human endeavor based on discernment of where tastes and desires are, where tastes and desires are going to be, how many things you can sell, how much you can charge and how one can pull it all together in a way that appeals to customer sensibilities without irritating the always-watching bean-counters. Humans that do this for a living, being human, will inevitably screw up now and then. Rather than throwing hissy fits when this happens, my playbook says the time to buy is after stocks react to screw-ups under circumstances that support the notion that we’re dealing with good people who became human and slipped (as opposed to doctrinaire dummies). As one who often screens stocks in search of high company quality and low valuation, I found many occasions when retail stocks fitting that profile made it into my lists.

The world is changing. There are too many brick and mortar stores so no matter how much consumers love them, they don’t have the time or money to shop in all of them. So a lot of good stores managed by good people are going to increasingly find themselves reporting bad numbers. And then, there’s on-line shopping. Oh boy! Do I really have to recite chapter and verse what this is doing to retail? And it’s likely to get a lot worse as new younger age cohorts grow up with less and less mall habit and more ingrained-from-early-on click-and-buy tendencies. (We’re even finding solutions to the last remaining on-line bugaboo; taking delivery when you can’t sit home; pick up at store, pick up at something like an Amazon Locker, etc.)

I almost wonder if now is the time to edge away, as a matter of regular course, from good retailers who’ve shown themselves to be run by the best managers. That sounds odd, but it might make sense.

Think about great people. Great people tend to do what made them great (that should be obvious) and what made great retailers great in the past may be their downfall going forward. Think of it this way: Do you really want to invest in the most talented flip-phone designers? We need to look forward and when paradigms change, the people who were best at what was may not be so hot at what’s coming.

Maybe, we should be looking at retailers that have great really-ought-to-work concepts but have not succeeded in terms of execution.

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