For the better part of 2017, investors avoided retail for fear that e-commerce, more particularly, online retail giant Amazon (AMZN, Financial), was going to make shopping in traditional stores obsolete. Given the continued resilience in a sector that was left for dead, investors' premature obituary is a classic example of the herd mentality, at times so prevalent among investors both retail and institutional.
In light of all the uncertainties attendant upon researching and assessing the future prospects of a business, one thing is certain: Myopia will never go out of style on Wall Street. The market has been far too quick in adopting a rather skewed and biased perspective on the inevitable demise of the retail sector at the hands of the Amazon Goliath.
Perhaps it is time for retail investors and security analysts alike to entertain a radical notion: Some shoppers actually enjoy both visiting the mall and making purchases online. The two forms of consumer behavior are not mutually exclusive.
Macy’s (M, Financial) is one example of a traditional retailer that so far has refused to follow the Street’s belief that it was horse-and-buggy time for department stores. Year to date, Macy’s has actually outperformed its nemesis Amazon.
Nordstrom is another example of a retailer that has largely been ignored despite significant changes to its strategic business model. Over the past five years, Nordstrom invested heavily in finding an appropriate mix of online and in-store shopping conveniences that it could offer to consumers. Like other retailers, Nordstrom’s expenses incurred in connection with the transition have been substantial, but the company is close to the inflection point where the success of its adaptations will start to show up in improving operating margins.
Another promising turnaround is mall staple Ralph Lauren (RL, Financial). On Tuesday, the company’s stock rose 3.6% on news of its first quarter earnings report. Ralph Lauren earned $1.54 per share on revenue of $1.39 billion, which exceeded analysts’ expectations of $1.36 per share on revenue of $1.36 billion.
Moody’s Investors Services is out with a report today that contends that after years of stagnation and underperformance relative to the online retail sector, department stores are in the process of a profound transformation. Many are utilizing new tools and business strategies, including online, to make shopping more convenient for consumers in order to ensure that they will find the new shopping experience enjoyable and convenient, hopefully converting them to loyal customers.
Indeed, those who believe that online shopping is the exclusive province of Amazon will be surprised to learn that according to Moody’s, department stores now conduct 22% of their total sales online, which exceeds the broader retail industry average of 13%.
Securities analysts who have maintained a gloomy outlook for the sector also seemed to forget one of the golden rules of business: If you can’t beat 'em, join 'em. And that is precisely what many traditional mall anchor retailers have done, with favorable results to show for their efforts at adopting their staid business operations and incorporating new shopping methods all seamlessly provided under the store umbrella.
This embracing of online tools indicates that department stores are amenable to diverse strategies and untraditional approaches to making shopping for their customers not only convenient, but also providing an array of choices between their online and in-store channels so that the total shopping experience is seamless, enjoyable and remains in-house.
The battle between department stores and online retail need not be a zero-sum game. Rather, peaceful coexistence has been the rule recently. Amazon’s gain does not necessarily entail brick-and-mortar's loss. To date, the numbers support that argument.
I have no position in any of the securities referenced in this article.
