I have recently read several articles in several different publications about the death of retail, namely in the apparel brick and mortar space. Recently several retailers such as Macy’s and Kohl’s have reported lackluster financial figures. I don’t have to look very far from home in this area to see that much of what my wife buys is online. I believe that much of this shift to online vs. a traditional store is convenience.
Companies make it rather easy to buy something online and then return it if it doesn’t fit or you simply do not like what you bought. You may have to pay a fee to ship it back but hey, look at all of the time and potential money that you saved by not having to go to a mall or individual store. A few weeks ago I went out looking for of all things a few specific styles of socks. After going to two major retail stores and striking out, I went to Amazon and found exactly what I wanted in minutes.
Personally, I hate shopping for clothes which is maybe one reason why I am never in tune with the latest styles and my wife is always harassing me about how outdated I may look. I have also been targeted recently by several of these new personal styling services such as Trunk Club which was acquired by Nordstrom a few years ago. My wife, bless her heart again, tried to sign me up for one of these services for my birthday which I politely passed on again.
Based upon some of my previous research in the retail area, I used to believe that a company such as Macy’s or Dick’s Sporting Goods could hang with Amazon within the online space by having their stores act as mini distributions centers which could save shipping costs and lead to a better customer experience by delivering goods faster and/or on time. Looking at results over the past year for these companies I am not as confident in this thesis as I once was. The only part of retail apparel that is growing is the online channel.
Another reason why this theory may not pan out is that companies are now trying to go directly to the consumer themselves. For example, Nike and Under Armour rather than selling their goods exclusively through Dick’s or even Kohl’s, are now trying to go directly to the consumer through their own retail channels.
While other living expenses such as healthcare, education, and housing have become a bigger share of a household’s expenses, consumers seem at this point to display an unwillingness to pay a premium simply to own a brand. If the product does not perform markedly better than the competition, consumers are looking for the lowest cost product which they can typically find online with greater convenience.
Although Amazon may not have the cheapest prices online any longer, there are several companies that offer the ability to price shop online for you to find the best price. Once again it boils down to time vs. convenience. If you have the time, price shop all you want. But if you are looking for convenience then going online to either a place like Amazon or a consumer product company directly may be a better option.
So where does this leave us from an investment perspective? As tempting as it may be to buy some of these retailers many of which are down 40% to 50% over the past year, I believe that it is best to sit on the sidelines with the retail apparel sector. Dick’s would be a stock that I would like to have within our portfolio but the uncertainty is simply something that I do not want to take on right now. I would say the same for the Buckle and Nordstrom’s who both carry very high and likely sustaining dividend yields and who also largely cater to a more affluent or luxury good buyer who has more discretionary income.
What I am Reading
What are the chances of a recession? Not what you’d think (WP)
The Secret Shame of Middle-Class Americans (The Atlantic)
The Paradox of Finding Motivation Through Fear (NYT)
10 demographic trends that are shaping the U.S. and the world (Pew Research Center)
Smartphones Are Boring: Here’s What Happens Next (WSJ)