In the coming years we are going to see major changes in retail. What has happened so far is just the beginning.
We are already seeing Toys R Us going under. Sears Holdings (SHLD) has been picked over like a dead carcass. All that is good is now gone, so expect SHLD's dead body to get dumped into Chapter 7 in the first quarter. J.C. Penny (JCP) is probably the next to go.
However, there will be winners in this space. They will be few but they will be clear and the holders of those names will be rewarded.
As a review the retail landscape, between mid-tier and high-end, I think the smart play is high-end. The brands pitched by the Macy's (M) and the Kohl's (KSS) of the world can all are bought online on Amazon (AMZN) .
On Amazon, I can buy Ralph Lauren (RL) , Nike (NKE) , Coach (COH) , and Kors (KORS) . These are supposed to be the differentiating brands at a place like Macy's. they no longer are. There is almost nothing at Macy's and Kohl's that I can't buy on Amazon -- and probably a better price.
Looking at high-end though, go on Amazon and try to buy something from Chanel. I'll tell you what you will find: some purses that look like Chanel at dubious prices offered by secondary retailers, and maybe the perfume. Needless to say, there are reasons not to buy high-end merchandise on Amazon. The fear of a "knock-off" is Amazon's weak point and an area where a high-end retailer can carve out a nice space in the online and bricks-and-mortar world.
Having done shopping at all of the big high-end retailers, I can tell you that from a customer perspective Nordstrom (JWN) is light years ahead of Saks and Neiman's (despite being the "least" high-end of the three). They have done an excellent job of building an online audience, have the best relationships with bloggers (disclosure: I have inside knowledge of how well they work with bloggers as my alter ego is "Mr. Bigblondehair.com"), the online to store experience is borderline seamless, and they have managed to do all this while not harming the reputation for exceptional instore customer service.
In addition to the fundamental reasons to own the stock, there is also the Nordstrom family. They came within an inch of taking the stock private for about 55 bucks a share earlier in 2017. The stock is a perfect name for a strategic investor to step in and buy up a bunch of stock. This probably sets the current floor at $40.
JWN stock took a dive when the family pulled out of a deal and selling bricks-and-mortar to buy Amazon became The trade in the fall. However, I think that trade is over, and a lot of growth is priced into Amazon. I believe we could see money move into the perceived survivors and JWN could have a nice run through the first quarter while AMZN probably churns.
I'd be a buyer of JWN, probably by selling puts in the name at either the 45 or 47.50 strike in an attempt to take delivery on what I think could be a touch of softness in the first week or two of January as "the memo" money that drove JWN to $50 comes out and the stock settles to $45-46 a share -- before it goes on a serious run.
I think the next time Nordstrom reports the company raises guidance and the stock might make a run at $60.
This column originally appeared on Jan. 5 on Real Money Pro, our premium site for active traders and Wall Street professionals. Click here to get great columns like this even earlier in the trading day.