{"id":3438,"date":"2016-08-18T17:08:57","date_gmt":"2016-08-18T21:08:57","guid":{"rendered":"http:\/\/162.223.13.186\/~zacksim\/where-should-you-invest-from-big-box-stores-to-online-shopping-carts\/"},"modified":"2022-02-27T17:58:29","modified_gmt":"2022-02-27T17:58:29","slug":"where-should-you-invest-from-big-box-stores-to-online-shopping-carts","status":"publish","type":"post","link":"https:\/\/zacksim.com\/financial-professionals-insights\/where-should-you-invest-from-big-box-stores-to-online-shopping-carts\/","title":{"rendered":"Where Should You Invest? From Big Box Stores to Online Shopping Carts"},"content":{"rendered":"<p>It\u2019s no secret that the retail sector is evolving rapidly. It feels as though with every day that passes there is a day where the economy is drifting away from the \u201cbig box store\u201d and towards the online shopping cart. Consumer spending still makes up more than two-thirds of the U.S. economy, but consumers\u2019 spending habits (where and how we shop) are changing quickly. For investors, it makes sense to have retail\/consumer discretionary exposure in portfolios. The question is: <em>where to invest?<\/em><\/p>\n<p>&nbsp;<\/p>\n<p>In today\u2019s economy, investors need to examine how retailers are working to reshape the technology driving their businesses. In other words, how much is the company spending to create and\/or update technology infrastructure, so they can reach consumers online and maintain market share in an increasingly competitive environment?<\/p>\n<p>E-commerce (online shopping) in the U.S. accounted for 10.4% of retail sales last year, up from 9.3% in 2014 (according to Morgan Stanley). And that number is almost certainly set to continue rising. Who are the main drivers of this online shopping spree? You may have guessed it: Amazon.com. Amazon\u2019s North America sales rose by nearly 30% in 2015, and sales have been brisk so far in 2016 (According to the Wall Street Journal).<\/p>\n<p>Meanwhile, the classic brick and mortar \u201cbig box\u201d retailers are struggling to keep up. Kohl\u2019s, Macy\u2019s and Nordstrom have all pared back earnings expectations for the year while announcing store closures in droves. In Q2, Nordstrom reported that sales at existing stores fell for the first time since 2009. In many cases, these retailers cited closing weaker locations so they can divert their spending to upgrading websites and enhance their delivery options. It\u2019s a sensible strategy, but can they make the transition fast enough?<\/p>\n<p>As of this writing, the picture looks bleak for the brick and mortars versus the online king (Amazon):<\/p>\n<ul>\n<li><strong>Macy\u2019s Inc. &#8211;\u00a0<\/strong>announced 100 store closures, stock is down over 35% in the last year<\/li>\n<li><strong>Gap Inc.<\/strong> \u2013 set to close 75 stores (mostly internationally), with the stock down over 26% over the last year<\/li>\n<li><strong>Kohl\u2019s<\/strong>\u2013 announced 18 store closures earlier in the year, with the stock down over 17% in the last year<\/li>\n<li><strong>Nordstrom <\/strong>\u2013 announced 350-400 job cuts in 2016, with the stock down over 32% in the last year<\/li>\n<li><strong>Amazon.com Inc <\/strong>\u2013 digital sales of $99 billion in 2015, estimated to account for 19% of the U.S. apparel market by 2020. Shares are up over 43% over the last year. (According to Google Finance)<\/li>\n<\/ul>\n<p><strong>How to Stay Competitive: The Wal-Mart Approach<\/strong><\/p>\n<p>\u201cIf you can\u2019t beat \u2018em, buy \u2018em.\u201d This appears to be Wal-Mart\u2019s response to the rapid shift to E-commerce. Last year, Wal-Mart\u2019s digital sales totaled around $14 billion, a paltry comparison to Amazon\u2019s $99 billion in sales (According to the Economist). What\u2019s more, Wal-Mart\u2019s quarterly online sales\u2019 year-on-year growth has been decelerating over more than a year, even as it invested billions on expanding its digital operations. That is, until now.<\/p>\n<p>Earlier this month, Wal-Mart announced a $3.3 billion acquisition of Jet.com, a 1-year old online retailer whose growth strategy puts emphasis on \u201csavings.\u201d Through Jet.com\u2019s pricing schemes, customers are incentivized into bulk buying and purchasing products from the same distribution center, or the one nearer to the buyer\u2019s location, thereby lowering logistical costs for Jet.com. Shoppers are also encouraged to pay using debit versus credit cards to economize on transaction fees, and customers are given the choice between free returns and a price discount at the checkout. It\u2019s essentially Wal-Mart\u2019s \u201ceveryday low prices\u201d approach, online.<\/p>\n<p>Wal-Mart acted with conviction (if not brashly), but it just may have bought them a ticket to the future of retail sales. The question is, can other retailers do the same?<\/p>\n<p><strong>Bottom Line for Investors<\/strong><\/p>\n<p>To expand sales online and survive in the 21<sup>st<\/sup>-century economy, retailers have to spend big on technology. The problem is that doing so can mean squeezing margins, and if a retailer finds themselves with squeezed margins and closing underperforming stores (which can send customers to online alternatives), its share price could suffer considerably. Many \u201cbig box\u201d retailers have already seen this first hand.<\/p>\n<p>For investors, this does not necessarily mean avoiding the brick and mortar retailers altogether\u2014a turnaround is always possible, and a Wal-Mart-like savvy approach could work well for the company. The key is to examine the retailers\u2019 technology and e-commerce strategy and assess whether it is enough to keep it competitive.<\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: center;\">\n","protected":false},"excerpt":{"rendered":"<p>It\u2019s no secret that the retail sector is evolving rapidly. It feels as though with every day that passes there [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":4122,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-3438","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/3438","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=3438"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/3438\/revisions"}],"predecessor-version":[{"id":9018,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/3438\/revisions\/9018"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=3438"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=3438"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=3438"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}