Cramer: The Market Is Becoming More Discerning

 | Aug 08, 2017 | 3:48 PM EDT
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Is the market becoming more discerning about the competition? Is it coming to its senses about the online threat to every single business? I'm beginning to see some sense being made here and it is informing the entire stock market in a very rational way.

Take retail and Amazon (AMZN) . Just a few weeks ago we accepted the "fact" that Amazon was going to destroy everything retail. I mean everything. Every brick-and-mortar store and every supplier. We stopped discerning among any part of the food chain and decided it's over. Amazon was like a heavyweight champ that could destroy anybody by simply issuing a press release.

No one is denying that Amazon is all-powerful. But we are beginning to see many blindsided CEOs starting to come to terms with the new reality and fighting back.

Today you saw some glaring results of these efforts when Ralph Lauren (RL) and Michael Kors (KORS) reported nice upside surprises and when you listen to their execs talk it's real clear that they are no longer deer in the headlights of Amazon.

Now neither of these companies reported the positive comparable sales numbers of old. But let's understand each other. The arresting of the decline is the first step and that's what I think both of these companies have done which is why their stocks are flying.

Kors and Ralph Lauren have tried to re-position their brands as more upscale, which is important because I thought both were debasing their brands with endless promotional activity.

Kors spent a lot of time talking about its digital flagship stores plus customization and fashion engagement that rang true. Plus they are using their balance sheet to buy Jimmy Choo (CHO:LON), the highest end women's footwear company. As I said before I believe they paid too much given where it traded before, when mall retail was much more powerful. They admitted that the acquisition would be dilutive for a couple of years, which buttresses my judgment, but they did offer a longer term accretive view a couple of years out.

Perhaps most important Kors is getting savvy itself about what it can do online. The conference call is littered with references to digital initiatives. I thought this tidbit was representative and exciting: "We have an incredible partnership with Google that we will be talking to you more about in our upcoming call but we are partnering with them on some very significant programs for the fall season that I think will create a lot of consumer engagement, desire and ultimately sales for us." I practically cheered when I heard that. These kinds of companies need to do this kind of smart partnering if they have any hope to keep up with Amazon.

I loved the Ralph Lauren call because they too are getting religion. They are cutting back underperforming stores and doors -- meaning other retailers that buy Lauren's stuff wholesale and then often discount it to move, hurting the brand. The new CEO Patrice Jean Louis Louvet, said at the end of her chunk of the call "We are focused on exploring our opportunities in becoming more digital and more global," both of which could try to blunt the brute force trauma that Amazon inflicts so well. Jane Hamilton Nielson, the CFO later in the call said "to improve the consumer experience online and move beyond promotion-led sales, one of our key digital initiatives is the transition of our platform to a cloud-based solution." I say that's terrific, it will save a lot of money. She goes on to say "With our new consumer interface we will continue to directly operate and fulfill our e-commerce business with reduced transaction friction for our consumers, improve the ability to execute dynamic changes and enhance omnichannel capabailities."

Amen! Those are all things Amazon does so well that it's often an unfair fight.

While these kinds of initiatives are meaningful to the companies' bottom lines, the stock market itself is indeed, becoming more discerning.

Not everyone in retail will be destroyed by Amazon. These two companies are big suppliers to retailers and while they have suffered in the era of mall stagnancy they aren't on the mall hook like so many that have been destroyed.

They join PVH (PVH) , VF Corp (VFC) and  Coach (COH)  as companies that are not standing still, but embracing the channel while making changes in the business, as Coach has with its brilliant purchase of Kate Spade.

It's important to point out that of all of these companies, PVH, led by Manny Chirico, saw much of this coming and made Amazon a huge channel well ahead of others.

I have been adamant that some retailers are more likely for Amazon to kill than others and that, too, is starting to gain resonance.

Home Depot (HD) , which reported a terrific quarter last, with no Amazon pressure to speak of, has seen its stock climb of late. So has Children's Place (PLCE) , with a stock that is up huge, including today, in anticipation of its quarter tomorrow morning, although I wish it wasn't running so hard into the quarter. That's probably because people know that close mall competitor Gymboree (GYMB) is on the ropes. Recently JP Morgan's Matthew Boss, my go-to retail guru, has been saying that TJX (TJX) and Burlington (BURL) have seen their stocks unduly hurt given how much clearance merchandise is available.

I believe Lululemon Athletica (LULU) is still one more good quarter short of having solved some of its fashion and digital initiatives.

And we know that some consumer packaged goods companies, like the best performing Clorox (CLX) have totally embraced digital. Benno Dorer, the CEO of Clorox has almost 50% of his ad spend online because that's where the customers are.

Now we know Amazon's still out there, lurking. CVS (CVS) today reported a good number, but not a great one and it is very clear that Amazon is cutting into the front-of-store business. I don't really want to be in the stock of any company that sells a lot of food, except Walmart (WMT) , given Amazon's purchase of Whole Foods. I think Walmart has the balance sheet and the family backing to withstand the onslaught.

I am glad to see that Costco's stock (COST) is beginning to get some credit for its two-month skein of terrific numbers, but I regard that as a membership club and I do believe that it could be under pressure once Amazon cranks up Whole Foods. I also like the way Ulta Beauty (ULTA) is coming back, although there's price competition there from both digital and brick and mortar discounters.

Plus, it's not just the retail business that's showing strength versus digital. Anyone who listened to the excellent CBS (CBS) call yesterday knows that CBS is repositioning itself away from pure advertising and more toward making all sorts of money showing its wares in many venues, including over the top. When I listened to the call I did take notice that CBS's market cap is now only $26 billion versus $77 billion for Netflix (NFLX) . I have to wonder if CBS's positive story caused some in the market to believe that Netflix, with a stock that declined almost two dollars today, might be overvalued versus this once plain vanilla entertainment company that has re-purposed itself as a watch-anywhere subscription and cable content company with long-term sports contracts locked up that could prevent one of the cash-rich internet juggernauts from coming in. How smart and prescient of CEO Les Moonves to lock up the Final Four until 2032?

Do I think that Amazon's in the rearview mirror at last? Hardly. I just think that this one company is hurting some companies' stocks more than their businesses and that's what, at last, the stock market has begun to figure out.

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