Why Women-Oriented Stocks Look Doomed

 | Jan 14, 2014 | 3:00 PM EST
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A pattern of diverging performance appears to be developing between the stocks of companies that cater to the desires of women and stocks of those that cater to men. The female-oriented companies are underperforming the males. 

This is going to take three columns to address. In this column I'll address the macro issues and the "she-conomy" stocks. On Wednesday, I'll write about the "he-conomy" stocks, and on Thursday I'll discuss what this means for economic activity and the markets for each group of stocks.

The quick conclusion for this column is that the secular and demographic support for the products of companies whose consumers are predominantly female is going away, and investors should consider exiting them permanently.

I break these stocks into three groups. The first group includes companies for whose products there is a more immediate and less expensive substitution available or which cater to disposal income or impulse purchases or may simply be omitted. These stocks will be more sensitive to changes in the economy. They include lululemon athletica (LULU), Starbucks (SBUX) and Coach (COH).

The second group includes companies such as Bed Bath & Beyond (BBBY) and Williams-Sonoma (WSM). Typically, I would include these in the first group, but when consumers, especially women, are financially stressed, they exhibit an unconscious preference for purchasing small kitchen appliances.

This is because the kitchen is perceived as the personal security center of a home. This impulse is also been a reason why homebuilders, as houses have become larger, have removed the walls that have typically separated the kitchen from the rest of the house. The goal has been to extend the perception of security to the larger areas. Bed Bath & Beyond and Williams-Sonoma may attract consumer dollars that have shifted away from the other companies' products.

The third group consists of the larger name-brand retail outlets, such as Macy's (M) and Nordstrom (JWN).

I'll list more stocks in the comments section.

Since the end of World War II, women have increasingly been entering the labor force as long-term participants. Their predominant areas of employment in the private sector have been education and healthcare, where they represent about 80% of the labor. They have also experienced growth in their share of government employment.

Although this trend has given rise over the past three generations to increased family incomes, it has also increasingly shifted employment prospects away from men and toward women. In the process, two sociological events have developed. Women have increasingly become financially empowered and less reliant on men for support and as a result have become socialized to no longer need men. Men as a result have become unburdened of the social pressure to be providers to women who no longer need them.

This, along with the decreasing prospects for male employment and income potential over the past 40 years, has helped to drive down household formation, as I discussed last August.

This has also freed up male's increasingly limited incomes for the consumption of male-oriented products, which I will discuss tomorrow.

Two of the most prevalent memes propagated by the media are that the aging of the baby boomers will cause employment prospects in healthcare to increase for at least another generation and that formal education is still the easiest path to financial viability.

On the education issue, the exponential or greater-than-exponential growth rate in costs at the undergraduate and graduate level is overwhelmingly funded by debt. Given the financial prospects for graduates, many are choosing to not undertake that debt. As a result, the educational system and the prospects for employment within it, especially for women, have probably already exceeded their growth potential, and an outright contraction in the number of jobs and the income they provide appears to be both imminent and necessary.

The simultaneous and commensurate growth in the costs of healthcare over the past 20 years has priced many people out of the healthcare system for anything other than catastrophic purposes. The Affordable Care Act not only does not address this issue, it forces individuals to pay for healthcare insurance they can't afford to use because of the costs that are not borne by the coverage.

The likely result, as is the case with education, is that the growth prospects for number of jobs and the income they provide, especially for women, have probably already exceeded what the economy can support.

The issue for women and for the companies that cater to their consumption preferences is that the safety net of male financial support has been lost or at least radically altered.

Many women will have a hard time admitting this and may attempt to revert to the traditional family foundation of men creating income outside of the home and women using that income to create support inside the home. Men, having been conditioned to not be needed by women, will have a hard time accepting the reversion to the traditional family structure.

Coming back to the stocks of companies that have a largely female consumer base, women will be forced by necessity to forgo the purchase of many of the products to which they have become acclimated. 

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