We are being way too cavalier about the return of retail, including mall retail, and what it means. We are dismissive of it, and we can't believe that anyone can really pull out of the Death Star Tailspin that Amazon (AMZN) inflicts.
But we have to ask ourselves: if the plain-vanilla Kohl's (KSS) , the reliable old strip mall department store, can put up comparable store sales greater than 5% for the first time since 2001, isn't something bigger going on? If mall-based Children's Place (PLCE) just delivered a stunning 8.5% increase in holiday same store sales, can we write that off as a fluke?
When Target (TGT) and Nordstrom (JWN) guide up for the holiday and start to show genuine earnings power as opposed to fatigue and misery -- which has been the case for the last few holiday seasons -- can't we step back and say, wait a second, something big has changed here?
I spent a day talking to top executives from many major retailers this week at the ICR conference in Orlando, and I can tell you that something much bigger is afoot than people realize, and it can still make you a lot of money, despite the runs that some of these stocks have made.
Here are some conclusions coming out of ICR that I am merging with work I have done away from the conference.
First, the consumer is much, much stronger than anyone at any of these companies would have thought possible even a few short months ago. We know that, for example, the consumer has been shopping aggressively at Costco (COST) , Home Depot (HD) and Lowe's (LOW) , but until this week we have pretty much decided that any strong number from any other retailer save the dollar stores, Burlington (BURL) , Ross (ROST) , Ollie's (OLLI) and Walmart (WMT) , is simply a fluke, an aberration.
After this week, that's no longer the case. The numbers are simply too big to possibly think that there hasn't been a step function up in shopping, not just back to where we were in 2014, but in many cases where we were in the early to mid-2000s.
Does that mean we can just go buy the stocks of Children's Place and Kohl's and Target and many others that are doing better?
I have huddled together with the Action Alerts PLUS club research team and definitively feel you cannot do that. You have to wait for an ETF-related pullback, because the VanEck Vectors Retail ETF (RTH) is in control and can manipulate any of these stocks up or down. The RTH, of late, has been so straight up, that if you don't wait for even a minuscule break, I think you will overpay.
The simple truth is, though, that the execs in the industry feel that job creation and stability, coupled with genuine booms, often related to cheap energy in the south, particularly the southeast, are combining to elevate every company's game.
The level of confidence is surprising these execs. Many of these people are not political, but they repeatedly do cite that the country, under Trump, has a different, more positive feel, even if individual observers are reluctant to acknowledge this because of differing political and ideological views.
Second, many of these execs talk about how household formation is back in the upswing, and that millennials are having children and spending on them, often spending more than people thought they had, given student debt and health care concerns. I heard often that these are now overblown worries.
Third, the companies themselves have finally been able to cobble together online strategies that the consumer likes. While they may have to partner with Amazon Web Services, they are also using the correct customer relationship software to maintain and enhance loyalty.
They have much better and quicker control of inventory and have actually been able to figure out the positives of bricks and mortar, including buy online pick-up at store -- something that works best in the non-mall retailers, but is beginning to work best in the mall, too.
Fourth, the survivors are getting the spoils. There have already been so many failures in retail, that the winners are beginning to coalesce their gains, whether it be in children's apparel, footwear, apparel, or household goods.
Fifth, the valuations may be very wrong for some of the companies. Given how strong the numbers are for Nordstrom, it almost seems ridiculous that the company isn't going private, given that it was contemplating doing so when it wasn't doing as well as it is now, and it failed. That's got to get restarted.
I feel the same way about Macy's (M) . I do not think people understand the magnitude of optionality that Macy's has if it gets it right, and I think Jeff Gennette is getting it very right. Neither Rome nor Macy's was built in a day, but the fact that Macy's preserved its balance sheet and is now improving it allows the company to do a lot more with a lot less. Plus, let's not forget that its flagship store was being whipped around by a strong dollar. That's over.
Finally, you have to start thinking that it isn't just that the death star has been kept in abeyance by stealing its tricks, but also, that it isn't just the weather, or the deals, or the survivor bias that's working. It's a recognition that this rebound, unlike the one after the great recession, has staying power because of the tax cuts that were just put through.
Once again, reverting to ideology, the rich hedge fund managers don't think much of the bonuses workers are receiving, but there is more of a sense of empowerment on the part of households than any of these executives can recall.
In other words, next time the RTH brings this group down, perhaps because we are now in a retail dry spell -- January's the doldrums -- you need to buy this group including Macy's, which is still cheap, Nordstrom, Children's Place, Kohl's and Target.
They aren't falling apart any more. They are, in a word that I haven't associated with the group in ages, investable again.