Retail Stocks UP – For How Long?

With the recent news that retail sales (excluding food) through November are up +8.1% versus last year, retail stocks like LULU (+130% vs YAGO)  and ANN (+88% vs YAGO) are showing tremendous growth in a year when the general retail sector was up ~16% (excluding food.) Retailers are feeling good as evidenced by their interest in investing in new systems and the subsequent stock boosts in the last 2 months for companies like JDAS.

I’m a student of the industry and I am pleased to say that my personal retail stock picks more than quadrupled the industry sector’s performance.  But I am also savvy enough to look at the sector and ask how long can this last?  Retail sales are at the same levels in December 2010 with unemployment at 9.8% as they were in June 2008 when unemployment sat at 5.4%  I have to ask: can this last?

Certainly there are some retailers who will be hard hit.  Plenty of folks are already talking about the death of the middle-tier retailer (Kohls, Sears, JCPenney) as the market continues to bifurcate for the haves (Nordstrom, Lululemon, Tiffany, Coach) and the have-nots (Family Dollar, Dollar General.)  Still, for the investor in tune with customer demand and retail execution, it isn’t hard to find a few places to stash away some money.  For starters, read my recent post on “5 Retail Strengths You MUST Have” and ask yourself how the retail stock you may purchase measures up against those strengths.

In all honesty, I must disclose that I own LULU and am pleased to say that the stock was at 19 when I purchased it. But it illustrates my example. I bought it for one reason: Selection.  The product in that store is clearly better than anywhere else I could find at the time (recent offerings by Lucy and Title IX are serious contenders.)  I bought that stock because of one bra: the Ta Ta Tamer.  Honestly, the single best bra ever for a large busted woman.  Maybe that seems frivolous to you.  But I recognized that this product and then entire store’s Selection would make it a destination for active yoga-esque women.  I did more research on sales, new store openings and expenses and realized they were on to something.  Lately they have been trading around 70.

As I said in the last post “What Customers Want From In-Store Experiences” brick and mortar retail will be around for a very long time.  Retail as a business model is exceedingly straight forward. It’s  all about positioning. Look at customers.  Look at stores (physical and virtual.)  There is real immediacy in retail.  Stuff that ain’t selling today ain’t gonna sell tomorrow.  Smart investors will learn how to spot retail winners using the 5 Strengths model and still make money – even when the retail sector begins to crash.

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