For those of you in retail, I genuinely feel for you. With this New American Consumer, there's really no place to hide and you can't possibly have business as usual, because there is no business as usual anymore.
That's because the American Consumer has drawn the line: You are either online or you are off-price and everything else just very well could be doomed to a slow decline at best, and a quick one, as you can see from the stock of Macy's (M) or JC Penney (JCP) , much worse than that.
What's so attractive about online? I think the consumer is now addicted to convenience. We didn't really care much about convenience until Amazon (AMZN) came along an invented it. What we are seeing now is generational. The Baby Boomers like online, but they are somewhat set in their ways.
The millennials and Gen-Xers don't just dislike brick and mortar, I think they don't understand it. And who can blame them? Why would you pay more for something that you have to leave your house to get when you can have it delivered for free if you are a member of Prime? That's what's so painful about that Macy's quarter last week. The fact that they missed in fashion in the key women's sportswear category and that was integral in their messy quarter is positively antediluvian.
Can you imagine Amazon missing in anything? I mean, who cares? Or how about JC Penney hoping for the best by bringing in the same "market-share-leading brands" that all brick & mortar stores have and to quote earnest CEO Jill Soltau, "better utilization of fixtures and mannequins." Surprised she didn't' talk about new Titanic deckchairs.
I have spent a lot of time talking about WATCH, although I still don't think people realize what's so important about it. WATCH, which represents Walmart (WMT) , Amazon, Target (TGT) , Costco (COST) and Home Depot (HD) , isn't just about the notion of convenience and value, online and offline.
It's about balance sheets. It costs a fortune to have a true, powerful, working, thriving online business -- and Walmart, Amazon and Target are all able to spend what's needed to deliver goods as fast as possible or have them run to your car to be picked up after being typed in. The real differential between these three and everyone else save Costco and Home Depot is their ability to spend like mad. Target doesn't have the wherewithal to compete directly with Amazon or Home Depot, but it has, in many ways, been more clever with its acquisition of Shipt last year, which is the ultimate in same day delivery service. Target, which reports this week, has been spotty, but every time it misses it's a serious buy.
Walmart totally gets the zeitgeist of the non-millennial American consumer, but is starting to encroach on Amazon's territory because of its everyday low price strategy coupled with using its 4177 stores as distribution centers. If that's not convenient enough, Walmart right now is rolling out the most aggressive delivery service of all, delivery right into your house with what the company hopes will capitalize on the trust you may have with your store. It's a way to beat Amazon at its own game.
We know that Amazon has more than 100 million prime members, but did you know that Costco has more than 90 million card holders and is the most lucrative retailer of all, with just 527 stores in the U.S.? It's now cliched, but Costco basically started the treasure hunt idea that makes shoppers want to get off their duffs and shop. Again, like Amazon and Walmart, Costco is presumed to have the lowest prices, so no one feels that they even have to price check and the sizes that Costco offers are hard to beat. That's the value portion of the spectrum.
I include Home Deport for two reasons: lowest prices and customer convenience. Consumers love Home Depot -- but more importantly, contractors do, and Lowe's (LOW) , under the incredibly good Marvin Ellison, has not been able to crack the hold that Home Depot has on the pros.
That's why WATCH makes so much sense.
But how about off-price? Here, the choices are limited, but much better than they used to be.
Consider first, the two dollar stores. They are doing incredibly well and have changed their stripes dramatically. First, Dollar Tree (DLTR) now carries a ton of national brand names for more than a dollar but lower price than you can get them almost anywhere else. Dollar General (DG) is relying on dirt cheap consumables. Both represent terrific values that lure in the under $45,000 shopper. They are just plain bargains.
The other off-price stores are booming, too, with TJX (TJX) , Ross Stores (ROST) and Burlington Stores (BURL) doing the best. I like these stores the best right now for all of the reason I hate brick and mortar -- they are just the beneficiaries of all of the excess inventory out there. If you go listen to Macy's conference call, you will be salivating to own Burlington Stores, one of the chief reasons we bought it for my charitable trust, which you can follow along by joining the Action Alerts Plus club.
While Amazon has certainly had the run of the all on-line joint, I think that Etsy (ETSY) , Shopify (SHOP) and Wix (WIX) are changing the way we shop, too. The move toward crafts represents a revulsion toward the national brands that JC Penney mentions. Millennials and Gen-Xers have no brand loyalty to speak of. They would rather find something that is one of a kind on Etsy than something that 's in every brick and mortar store and mall.
Etsy and Shopify have reduced the friction that has been the bane of the crafts person. The big boxes destroyed the merchants who, at one time, sold goods from local purveyors that were known and loved. They were all destroyed. Etsy, Shopify and Wix, which helps you design a website cheaply, have changed all that. They are reversing a trend that had you shopping at stores like Penney and Sears (SHLD) -- or Gap (GPS) or L Brands (LB) for that matter.
Is there hope for traditional brick and mortar? We keep hearing about experiential shopping, but I think these days the term has become a sham, as everyone claims to have experiential. For the record, experiential means that it looks good on Instagram (IG) -- and that rules out pretty much everything that's touted to be experiential.
Some stores are fighting for their lives. On a recent Tanger Factory outlet store conference call, I was shocked to hear that there were a very high number of normal lease expirations happening this year. Steve Tanger, who is a very good merchant, says "most of the bankruptcies in the last three-to-four years can be attributed to leveraged buyouts of specialty retailers by private equity firms that did not invest in merchandise or their stores because of a flaw in the outlet distribution channel."
While I agree with that to some degree, I believe the millennials no longer believe that outlet stores actually represent bargains anymore.
In the old days, there were many stores that could be full price offline and make it. Bed Bath & Beyond (BBBY) was one. Not anymore. I think it's hand to mouth. Nordstrom (JWN) is struggling no different from Macy's as I am sure we will hear this week. Same with Dillard's (DDS) .
These days, though, I will limit the winners to Columba Sportswear (COLM) , Lululemon (LULU) and, especially, Boot Barn (BOOT) . Otherwise stick with WATCH and always ask does it have a killer online or a bruising offline.
Otherwise, take a pass.
