WWII 074: What is Happening in Retail is Dead or Not, Playing the Demographic Shift in the U.S., Cevian Influences $ERIC
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Main Topic: Is Retail Dead or Not?
There is no bigger creative destructive force in the world than Amazon.com. The slow, steady eating away at the brick and mortar stores has suddenly accelerated since the Great Recession pressured retailers of all kinds, leading to retailers filing for bankruptcy like Circuit City, Radio Shack, Payless ShoeSource, Anna’s Linens, and closing of department stores en mass like Macy’s, Sears, Kmart, and JC Penney. Clothing chains are closing stores like Bebe Stores, and The Limited.
The face of the shopping mall is changing.
“To draw in more customers and compete with online shopping options, mall operators and retailers are branching out from their usual offerings. With 15% of malls projected to close in the next decade, mall owners are packing as much as they can under one roof, as well as adding more natural lighting and comfortable seating, to encourage you to visit more often, stay longer and spend more money.”
“Mini golf, anyone? Or maybe you’ll hit the gym, followed by dinner at a high-end restaurant. You could even head to a doctor's appointment.”
So it seems that retail is changing along with consumption habits.
"Millennials are leading a change in purchase trends," said Rodney Mason, global vice president of marketing at Blackhawk Engagement Solutions. "As such, it's incredibly important for retailers and retail marketers to understand how to appeal to this demographic. Millennials are savvy shoppers and many have come of age in a post-recession era, and our our research shows that this group routinely comparison shops on mobile to get the best value and shopping experience. The market, however, has not yet capitalized on those habits."
1. Smartphones are a primary means to connect to the Internet.
2. Social media is number one for shopping information.
3. Millennials are sensitive to price.
4. Google and Amazon are favorites for comparing prices on smartphones.
5. Millennials prefer higher-value rebates over instant discounts across shopping categories.
6. Millennials will consider "Buy Online, Pickup In Store" as an incentive.
7. Gift cards are believed to be safest for online shopping.
8. Millennials embrace loyalty programs.
So if millennials are shopping mostly on-line and they are price motivated, where does that leave the physical retailers?
For retailers to survive, they need a strong online presence. That much is clear. If you were considering investing in this space, retailers with a strong online presence is one key to ensuring their survival.
I will suggest that you consider the following factors in your research:
· Differentiated service model, like Nordstrom
· Established, profitable online business.
· Brands with rabid followings like Lululemon
· High end brands with significant history like Coach and LVMH
· Discount retailers that everyone can afford like Ross Stores and TJX and Burlington
· Stay away from the middlin’ retailers that are levered up.
· Pick categories that are thriving today like cosmetics.
· Pick stocks that are priced reasonably or cheap.
Retail is not totally un-investible, but it is a bit of a minefield. So far, I have managed to side-step the destruction in retail. The average department store stock is down 50% from its historical high. I’ve been sniffing around the sector and have not liked what I’ve seen.
Incidentally, one way to check to see how a particular store is doing before earnings reports come out, is to visit the stores in your area. Walk into the store. Is it busy? Is it empty? Do you feel the urge to buy anything? Who is shopping there?
I’ve even gone as far as to start talking to the employees and asking them questions about their busiest days, if returns are light or heavy, what the most popular items have been, if they like working there and so on.
Phillip Fisher would call that “scuttlebutt” and Peter Lynch used that technique to great effect when he identified his “ten-baggers.”
Ask JB: Playing the Demographic Shift in the U.S.
From listener Yaokai: I am seeing a demographic shift in the U.S. as baby boomers (born between 1946 and 1964) are going to retire en masse now (some of them are 70+). As they start to consume their assets to pay for their retirement and the possibility of this coinciding with a potential market crash, it would make sense for them to massively cut back on spending, and we may end up with the mirror image of 70s' inflation (when boomers entered the highest spending periods of their life).
How much attention should one pay to macro trends as an individual investor? And how should one position their portfolio based this if at all?
JB Says: Buffett has made a pretty good living understanding demographic trends. Although you should not base your investment decisions solely on the macro, think of the macro as a wave, and the company you invest in as the surfboard. If you ride the right board on the right wave, you will have a great ride. Getting on board a demographic trend with a great company as your board is a powerful way to wealth generation.
As for the boomer generation causing a problem with the stock market, think of it this way. Many Boomers I know have pensions and social security. When they are forced to take the required minimum distributions out of their IRAs, they end up investing the money again through a cash account. We are also going through a period of full employment and rising wages, which should result in more people investing in the stock market.
I have no doubt that we will have normal corrections, but the crash that people like Robert Kiyosaki has been talking about (he said it would be in 2016), I don’t see happening soley due to Boomers retiring.
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