by Michael Shulman | November 23, 2011 7:49 am
This Friday — actually, midnight of Thanksgiving day — the nation’s most ridiculous shopping event begins, something now called Black Friday, something that used to be called “leftover turkey day.”
Analysts desperate to see if Maria Bartiromo is as smart in person as she is on the air — she is smarter, actually — are now popping up on CNBC, making a wide range of predictions about Black Friday 2011. The consensus is it will be a “decent” spending season — the consumer is going to continue to be “tight-fisted,” but things have “loosened up a bit.” I love the precision and science of these kinds of projections, don’t you?
Here is my one man consensus — keep it simple, keep it contrarian and go where Wall Street won’t go.
This leads me to something I call the New Frugal.
This is an investment thesis I proposed right after the crash, as the Great Recession took hold. Although I was mocked then, since I am writing about it today, as it turns out, I was actually right. In tough times, which will last for a few more years minimum, consumers don’t just pull back in their aggregate level of spending — they pull back and re-think how they spend. Especially during the holiday spending season that begins, sort of, on Black Friday.
This translates into not just, “how much will I spend?” but into “I am spending less, and I am going to spend on quality, on brand and on customer service. I want my money’s worth.” Consumers have moved from volume to quality, from 10 presents in shiny paper to one or two presents and maybe a better Christmas dinner or organic Chanukah latkes. This phenomenon has borne itself out the past three spending seasons.
Don’t believe me about the New Frugal? The marketing of diamonds to the masses — “Say it With a Diamond,” and so on began in the middle of the Depression. The very expensive refrigerator replaced the inexpensive ice box during the Depression.
For example, Apple‘s (NASDAQ:AAPL) sales doubled during our very own Great Recession thanks to the iPhone, which essentially was the sale of a $300 phone with a two-year contract — during a time when many competitive phones were free with a two-year contract. This flight to quality is going to accelerate this holiday spending season, beginning with Black Friday.
The following five companies embody this New Frugal. You will notice that they are selling goods that are supposedly too expensive to buy during a Great Recession, yet they have, on average, seen their stock price more than quadruple in the past three years.
That little man on the horse is one of world’s most recognizable brands — and for many, a symbol of status. For others, it is a symbol of quality. And for investors, it should represent superb management and a mixed product line that appeals to people in most income classes. The bottom line for Ralph Lauren (NYSE:RL) is that the brand is many years away from market saturation and RL will continue to be a growth stock.
To show you that a company can turn something weak into something great through marketing, even in tough times, consider this: Ralph Lauren was born Ralph Lipschitz. Think I am nuts? Check out the price for Lipschitz’s stock, which is up 472% since the market bottom in March of 2009. It truly is a great misunderstood name (pardon the pun) and trading vehicle at the same time.
Upscale apparel retailer Nordstrom, Inc. (NYSE:JWN) also has been very flexible in changing the product mix to cater to the New Frugal customer. People with less money to spend that still have some money to spend want quality and great service. They get that in Nordstrom stores.
And now Nordstrom is taking share from other department stores and will continue to do so for the foreseeable future — a growth story in a 2% growth industry. If we see the broader market stabilize soon, JWN shares will look like a big bargain here under $38 — especially if the holiday sales are robust.
Those little blue packages at Tiffany & Co. (NYSE:TIF) have been a favorite for years. Tiffany’s brand is unique in the retail marketplace as this high-end retailer has seen its business survive and even thrive through the recession and continue to show increasing sales performance.
Tiffany’s stock price has pleased investors, climbing 54% in the last year. It continues to be rated a “strong buy” by many analysts and research pros. You’ll never go wrong at the holidays with a “little blue box” from Tiffany’s.
The company rolled the dice and, just as the Great Recession rolled over the U.S., Coach (NYSE:COH) rolled out a new, less expensive product line that still was expensive. It worked — growth has been terrific and the company has been particularly successful in Asia, with double-digit growth from that part of the world.
The holiday season always has been kind to COH, and Coach’s sales and earnings will continue to beat expectations. Wall Street likes growth and is willing to pay for it.
Dollar Tree (NASDAQ:DLTR) doesn’t fit in with the other four upscale stores, but it does fit right into the New Frugal investment strategy. Dollar Tree is the best super discount store, and it is expanding fast and intelligently — adding groceries and other must-have items. DLTR caters to the poor and lower-income household consumers who shop day to day and week to week. Also, since it is small compared to Wal-Mart (NYSE:WMT), Dollar Tree’s discounts from suppliers are increasing as its volume increases, giving it solid margins that are not shrinking as fast as others.
The super-deep discounters have huge cost advantages over traditional discount stores — meaning Dollar Tree actually can under-price Wal-Mart on some items.
This article originally appeared on Traders Reserve.
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