The losers see a promotional environment where they have to cut prices to keep business. The winners see a strong consumer and aren't feeling the promotional pain. The losers are trying to figure out how to get more traffic and how to get the consumer to come to their stores by cutting prices. The winners just see customers who want to come in and spend, or even better, just spend and pick up when they get there.
Yes, this seems to be a seminal moment with retail because we are getting haves and have nots galore.
Now, the temperament of the commentators is a little ridiculous. When a loser like Kohl's (KSS) reports, or a Home Depot (HD) stumbles, we hear about how the consumer might be weaker or that the tariffs are starting to really impact the store prices.
The winners, like Lowe's (LOW) and Target (TGT) and Walmart (WMT) don't share the same worldview and if you listen to them you will know what I think is the truth, which is that the consumer is flush and is buying everything from gadgets and housewares to cosmetics, food, drug and the disputed apparel. I say disputed because while we see apparel weak at Kohl's, and at Urban Outfitters (URBN) , we question the health of the shopper. Apparel's discretionary; you can wait. They aren't waiting, they are shopping at Target, not the other guys.
Now there are some tricks to the trade. Target has figured out how to manage the dot.com by actually making money using a brick and mortar warehouse with an arm of the operation that brings it to you. Meanwhile the inner city stores use Shipt for delivery. The continually strong dot com sales show the power of this joint buy online pick up or deliver strategy.
What you are seeing is the great dichotomy: Marvin Ellison at Lowe's is getting its systems to reflect the modern day omnichannel world. If he could just get a little more in online sales he would have watched his operation surpass Home Depot. In the meantime we just learned that not only does Home Depot have a hurting legacy system business but it can't be improved overnight. Thanks for filling us in.
Kohl's doesn't have anything special to compete with Target, or Walmart or Amazon (AMZN) for that matter. You can't get away with a second rate omnichannel unless you are the lowest price offering, something that TJX (TJX) knows. They thrive on not being online as does Burlington (BURL) - they don't even need it their prices are so low.
I think the media and some commentators live in a false dichotomy world: they see some retailers as weak and think that Washington's policies are failing. If they hate Trump they blame him for the numbers and the tariffs. Those retailers control the storyline. It's almost as if Target and Walmart are lucky.
Others see companies that have spent a ton on technology, and are using it to keep prices down and ease higher. Those are the winners. Jobs are plentiful, the consumer has money to spend and knows how to get it in a convenient and frictionless way: they go to Amazon, Target and Walmart, and despite protestation by Home Depot which is crowing about share gains, Lowe's too.
Is the policy toward China hurting the consumer? Clearly not, or you would not see such gains in the stocks of the winners. The better question to ask is can you stay alive without a big spend in the technology of a Zendesk (ZEN) or a PagerDuty (PD) or an Okta (OKTA) or a Salesforce.com (CRM) ? No, you can't. Stop handwringing about the economy and, instead, wait for the next round of tariffs to knock all of these winners down, and buy them. Each day this tussle goes on is another day when supply chains ship and manufacturing moves out of China.
Just remember the words of another winner, Gary Friedman of RH (RH) : we need the tariffs, we need to wean our way from China, and that's exactly what's happening for the winners. The losers? Who cares.
(Kohl's, Home Depot, Amazon, Burlington Stores and Salesforce are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL? Learn more now.)
