Anybody else looking at bombed out retail sector?

[rb]

You know, this idea of Amazon of the be all and end all of retail is ridiculous. I hardly buy anything from Amazon. The reason? The stuff is usually cheaper elsewhere. So why should I go to Amazon?

 

I usually shop amazon for 2 things: weird things that stores don't carry and holiday gifts cause I don't want to stand in lime. There's also the odd time when I need hard drives for RAID arrays and amazon is on the list because I need drives from different batches and I split it between retailers. But that's about it tech is cheaper from other retailers.

 

I actually don't see a problem with retail in general. There's a huge problem with department stores. But that's because they made their living selling you mid market apparel and perfume at huge markups and that ship has sailed.

[Jurgis]

tech is cheaper from other retailers.

 

Maybe that's the case in Canada. In US, Amazon is lowest price for ~50% of tech. Especially if you avoid buying from dodgy (online) stores. Yes, I price compare with BestBuy, Newegg, etc. I haven't seen Newegg to be cheapest. BestBuy sometimes is. (I haven't looked at Fry's online prices recently though, maybe they are cheaper/cheapest)

 

I actually don't see a problem with retail in general. There's a huge problem with department stores. But that's because they made their living selling you mid market apparel and perfume at huge markups and that ship has sailed.

 

Just for fun: where does one supposed to buy clothes according to your worldview?

No, I'm not saying it's Amazon. I don't buy clothes online. I'm still interested in your answer.

 

Also, since you don't see a problem with retail in general, I'd assume you would be heavily invested in it at current low prices. What are the names that you buy/hold?

[rb]

tech is cheaper from other retailers.

 

Maybe that's the case in Canada. In US, Amazon is lowest price for ~50% of tech. Especially if you avoid buying from dodgy (online) stores. Yes, I price compare with BestBuy, Newegg, etc. I haven't seen Newegg to be cheapest. BestBuy sometimes is. (I haven't looked at Fry's online prices recently though, maybe they are cheaper/cheapest)

 

I actually don't see a problem with retail in general. There's a huge problem with department stores. But that's because they made their living selling you mid market apparel and perfume at huge markups and that ship has sailed.

 

Just for fun: where does one supposed to buy clothes according to your worldview?

No, I'm not saying it's Amazon. I don't buy clothes online. I'm still interested in your answer.

 

Also, since you don't see a problem with retail in general, I'd assume you would be heavily invested in it at current low prices. What are the names that you buy/hold?

Maybe it's a difference between Canada and the US, but I never find tech appealing on Amazon and I buy a lot of the stuff. Newegg is really good. Maybe the regular list price is not that compelling all of the time but they basically have sales all the time so with a bit of planning and patience you can get really good deals.

 

With clothes is a different matter. My point is that the department stores are getting squeezed out of business because they're selling mid level stuff for lots of money. I actually think the mid level segment is actually shrinking all together. If you're asking where you can buy the stuff at good prices I'd say TJX stores. This is at least from my experience in Canada where we don't have a million department stores. You'll get that mid level stuff at least half price at TJX as supposed to Sears or HBC.

 

I actually don't hold any retail because the prices seemed high to me. A couple of years ago I was ready to buy some TJX but I wanted it to drop another 5% before I pulled the trigger - stupid greed! What I am looking at is general retail that has an edge - TJX, Costco, WalMart. I'm also looking at specialty retail - things that are classified as retail but really aren't. My favorite is L Brands.

 

L-Brands is classified as retail but it really isn't. Saying LB is a retailer is a bit like saying that Sees Candy is a retailer. It's a manufacturer and a brand that sells through its own stores. It provides a reliable and quality product the people are willing to pay a premium for. At angels and aura around it don't hurt either. At 90-100 a share this was an easy pass. In the low 40s it's really interesting. The only concern that I have is their high debt load.

 

I hope this answers your questions.

[Jurgis]

Yes, thanks.

 

Not sure if Newegg/Amazon prices is Canada/USA thing or just perception or looking for sales/etc. I maybe bought once from Newegg. Any time I look there, it's more expensive than others. But I don't wait for sales there, so... I know people like their reputation... or at least they did in the past. I've bought stuff on Amazon on Black Friday/Cyber Monday. Other than that I don't try to chase sales (if they happen at all) on Amazon either.

 

I agree on TJX.

It's a bit difficult for me to compare retail in Canada and US. I would not compare TJX with Sears in US. Years ago (early 2Ks) Sears was viable for clothes/shoes and maybe comparable to TJX. Now it's a mess. Currently TJX comparison in "regular" retail world would be something like Kohl's I think (yeah, I know not direct comparison, but quality/prices perhaps).

 

I have no comment on L Brands. I assume you like Victoria's Secret part, cause the rest of the brands don't seem very good or known.

 

Best

[DTEJD1997]

tech is cheaper from other retailers.

 

Maybe that's the case in Canada. In US, Amazon is lowest price for ~50% of tech. Especially if you avoid buying from dodgy (online) stores. Yes, I price compare with BestBuy, Newegg, etc. I haven't seen Newegg to be cheapest. BestBuy sometimes is. (I haven't looked at Fry's online prices recently though, maybe they are cheaper/cheapest)

 

I actually don't see a problem with retail in general. There's a huge problem with department stores. But that's because they made their living selling you mid market apparel and perfume at huge markups and that ship has sailed.

 

Just for fun: where does one supposed to buy clothes according to your worldview?

No, I'm not saying it's Amazon. I don't buy clothes online. I'm still interested in your answer.

 

Also, since you don't see a problem with retail in general, I'd assume you would be heavily invested in it at current low prices. What are the names that you buy/hold?

 

Sorry to horn in, but I buy a LOT of tech stuff...tens of thousands every year...Amazon frequently will have "silly" prices for a lot of the stuff I'm looking for.  I buy at Fry's and Micro-center for a good amount of stuff.

 

As to clothing...I rarely buy at the mall.  I used to, but have cut back by maybe 90%?  I will buy at Wal-Mart (underwear, jeans, basic stuff), Costco (they sometimes have some fairly good stuff & excellent prices/quality on basics), sometimes I will buy from Paul Frederick for work shirts, slacks, ties, etc.  Then finally I'll buy high end designer stuff off Ebay or from a local boutique that sells used stuff.  Overall, I just don't buy much clothing, not like I used to.

 

Finally, I don't like buying from Amazon, as they do not treat their warehouse workers well.  There are numerous stories about this...There are also rumors that they do not treat their "white collar" workers well either.  Why patronize a business like that?  Costco somehow manages to sell decent stuff and have an EXCELLENT work environment.  Same thing with Aldi.

[Ballinvarosig Investors]

You know, this idea of Amazon of the be all and end all of retail is ridiculous. I hardly buy anything from Amazon. The reason? The stuff is usually cheaper elsewhere. So why should I go to Amazon?

+1

 

For a supposed retailing genius, I find that the Amazon website is pretty awful. Try to buy a 64gb memory card for example at the cheapest price - it's a mess, you get all sorts of trash cluttering your search results. Try to buy a laptop with a certain specification - the website isn't specced to handle fine grained searching. The interesting thing is that there has been very little development by Amazon on their front-end for as long as I can remember. Therefore, I find it kind of cute that people talk about Amazon as a retailing genius that is unassailable. Sure, customer service is outstanding, but on the merchandising side, they could be a hell of a lot better.

[DooDiligence]

You know, this idea of Amazon of the be all and end all of retail is ridiculous. I hardly buy anything from Amazon. The reason? The stuff is usually cheaper elsewhere. So why should I go to Amazon?

+1

 

For a supposed retailing genius, I find that the Amazon website is pretty awful. Try to buy a 64gb memory card for example at the cheapest price - it's a mess, you get all sorts of trash cluttering your search results. Try to buy a laptop with a certain specification - the website isn't specced to handle fine grained searching. The interesting thing is that there has been very little development by Amazon on their front-end for as long as I can remember. Therefore, I find it kind of cute that people talk about Amazon as a retailing genius that is unassailable. Sure, customer service is outstanding, but on the merchandising side, they could be a hell of a lot better.

 

Maybe the lack of fine grain search capability is just a ploy to steer us towards what they're trying to move?

 

Either way, it seems that no matter whether you shop Amazon, NewEgg, BestBuy or whatever, putting items in a watchlist/wishlist & being willing to wait for value is the way to go (kind of like Mr. Market except the walk is a little less random...)

[KCLarkin]

Maverick Capital has an interesting essay on "Retail Shorts" in their 2016 letter. Skip to page 9:

http://www.superinvestorbulletin.com/2017/03/20/maverick-capital-q4-2016/

[DooDiligence]

Maverick Capital has an interesting essay on "Retail Shorts" in their 2016 letter. Skip to page 9:

http://www.superinvestorbulletin.com/2017/03/20/maverick-capital-q4-2016/

 

Earnings could very well take a dive (kinda like when miner PE's were super low & then the E caught up with the P.)

 

What did they mean by the Omni Channel short?

 

---

 

Sure is nice to have some assets left if all else fails.

 

LB has a lot of stores but what are they worth?

 

OTOH lingerie is perfect for online & omni channel.

 

I'm betting baby clothes will work well too...

[DCG]

There is only one winner in this space. That's AMZN. Retailers need to change their business model. To give people reason why they need to come to the stores. To try out stuff in the store then buy on AMZN is not a reason. The only reason why you would investigate this space is for cigarbut types, if they own their real estates.

 

 

Retailers that create/design their own products and have built up a brand will be fine. Amazon has hardly made a dent in supermarkets as well, and won't.

[chrispy]

Bed Bath has a big presence in the wedding & baby registries.  They make this an experience for the couple.  The couple shows up and the staff member walks them through all of the silverware and table setting options.  Then they give the couple a scanner gun to walk around and scan anything and everything onto their registry.  After their wedding, they give the couple 30% off any of the remaining items on the registry, and keep the registry open for 1.5 years in case the couple has kids and needs to do a baby registry!  I have seen newlyweds moving to amazon with a secondary registry for more unique items but all middle class couples I have seen still have a bed bath and beyond registry due to the in person experience and types of items like kitchen and bedroom sets that most newlyweds need.  Whether or not this is enough to keep a business afloat is a completely different topic...

 

It seems like grocery stores have a much greater moat than other brick and mortar stores.

[pau_]

My only substantial retail holding is Kroger. They're not "bombed out" in the way some retail is, but I think for good reason. I live in Kroger's home town of Cincinnati, so discount that how you will.

 

I know a number of people who use their online ordering system (ClickList - $5/order, a Kroger employee shops for you and brings it out to your car), and I know from industry contacts that they have a very high quality software development org supporting this and other efforts. I see this as defensive against Amazon, and it isn't at the moment sacrificing margins (I assume $5 covers wage for order filler).

 

I see it as a long-term holding at a reasonable price with trustworthy, rational management.

 

As to Amazon eating the world: Fulfilled by Amazon (3rd party suppliers shipping to Amazon), which is a big reason for the breadth of their offering, will eventually be a brand perception/quality problem. There are already items I don't buy on Amazon (chargers), and cases where I have had to return expired or bad quality items. Think protein bar stored at wrong temp for too long in FBA supply chain, or a Seiko watch that shouldn't have passed QC (maybe it didn't!). I think retailers with more traditional supply chains may have an unrecognized quality/brand advantage.

[matthylland]

Am just staring my research into Dillard's this week. It popped up on Ben Graham's enterprising investor screen this quarter (which really just means current ratio > 1.5, price/tangible book of < 1.2, paying a Dividend and history of positive earnings).

 

Not that I blindly buy stocks that make the screen, but I like using it as a way to weed out 90% of what's out there and then deep dive into a few that seem interesting. Like you, the contrarian in me is attracted to the sector since it "seems" all but certain the whole industry will be replaced by AMZN!

 

 

[GregS]

I'm personally not a fan of using asset-based ratios for retailers because so much of the assets are inventories and you don't know how much they are really worth.  The bulk of the other assets are buildings and improvements which also may not be worth much in the current environment if they are tied to dying malls (land is a different story). Graham's ratios are used to identify a quantifiable margin of safety but I don't think they work for retail at all.

 

For me, the threshold question is merely one of durability - will this business exist in more or less its current form in 10 years? Sounds simple, but the difficultly in answering this question is why many avoid retail altogether.  This necessarily gets right into the Amazon question.  Most of the names being mentioned in this thread are arguably in the category of companies that can persist, although personally I wouldn't put DDS on the list.

 

The next question is valuation which is tied up in earning power, not assets.  There's tons that go in this question like SSS, store growth, margins, etc., but right now I think the biggest question is footprint - do they need to shrink?

 

I'm treading carefully, but many of those waiting for the market to drop 20%+ seem to be ignoring the bear markets we've had in individual sectors like retail.

 

[writser]

DDS also seems very cheap on a FCF basis but I'm no expert in this space.

[CorpRaider]

I missed RH.  Look at WSM from time to time before reminding myself no retail.  Was toying with hypothesis that WSM and BBBY are a little different, since many of the purchases are paid for by third parties (via registries).  Seems like a moral hazard/health insurance like recipe for guaranteed annual 12%+ price growth, but hasn't really played out like that. 

 

Missed Adidas when it was obviously cheap.  Would like to do UA, but can't abide that class structure.  That is a checklist item, alignment of interests, including keeping your economic and voting interests aligned; if you want to maintain voting control, maintain your investment capital in sufficient ratio to others.  I watch LULU and have missed it in the past.  Their pants make butts and thighs look much better than the imitators do.  Gap Athletica will make a great butt look bad/worse.  There's a long short play there somewhere.

 

 

[GregS]

DDS also seems very cheap on a FCF basis but I'm no expert in this space.

 

Pretty sure Sears traded at a single digit FCF multiple before FCF went negative.

[Guest MarkS]

https://www.reit.com/news/videos/green-streets-sullivan-questions-pricing-declines-retail-real-estate

For me the mall reits are attractive.  Occupancy is very high with few projects in the pipeline.

Mark

[gurpaul88]

https://www.reit.com/news/videos/green-streets-sullivan-questions-pricing-declines-retail-real-estate

For me the mall reits are attractive.  Occupancy is very high with few projects in the pipeline.

Mark

 

Agreed. Have some WPG and CBL

[DTEJD1997]

https://www.reit.com/news/videos/green-streets-sullivan-questions-pricing-declines-retail-real-estate

For me the mall reits are attractive.  Occupancy is very high with few projects in the pipeline.

Mark

 

I took a very brief look at the mall reits and found CBL yielding over 10%  Maybe they have severe problems coming up?

 

Moving further down, yields were in the 4% to 5% range....not exactly what I find enticing.

 

Perhaps I am missing something?

 

Could you give a couple of mall REITs that you find interesting?

[Guest MarkS]

Hi DTEJD1997,

 

I've been making a conscious effort to add more "quality" to my holdings. So I've been looking at GGP, KIM and SGP. These reits tend to have more A rated shopping centers/malls. I recently sold some SGP puts. About a week ago I purchased shares of KIM, it yields a little less than 5% but it's actually doing quite well in this environment.

 

In addition to WPG and CBL, you could also look at PEI and TCO, both recent Michael Price purchases.  But you are moving down in overall mall quality. 

 

Thanks

Mark

[Spekulatius]

I own some KRG and some SKT. SKT is a high quality Reits that owns outlets and KRG is a mall Reit on the mend with grocery anchored properties.p, with a Cap rate in the mid to high 7% range.

I have looked at WPG and CBL but I am not confident in the quality of their properties.

 

I think it will pay to look at quality first, and valuation second, when looking at Mall Reits. I don't think the valuation for better quality assets is at a point that warrants a large bet yet.

[solobz]

Bought WMT recently..would like to pick up TGT a little lower. For total crap, looking at SPWH now that no longer in the running for Gander Mtn stores. Not sure where the bottom is in SPWH but it looks cheap.

[JayGatsby]

This interview with Barry Sternlicht of Starwood capital group is worth watching (the video in the article, which is totally unrelated to the video but also interesting if you're interested in grocery): https://www.bloomberg.com/news/articles/2017-05-04/why-the-retail-crisis-could-be-coming-to-american-groceries

 

Basically that the strong will survive (and come out stronger), while the weak will disappear.

[DooDiligence]

http://www.denverpost.com/2017/05/05/gymboree-stores-closing/

 

Good news for CRI & PLCE