Go Upmarket in Any Market
By John Jagerson and Wade Hansen
Editors, SlingShot Trader
When it comes to retailers this holiday season, keep your eye on the higher-end competitors.
U.S. consumers are sick and tired of cheap. They want to splurge a little bit. Consider Walmart (NYSE:WMT) and Target (NYSE:TGT), both of which reported earnings this morning. Walmart is the bargain-basement discounter whose stores offer a depressing shopping experience, while Target is the well-groomed provider of inexpensive items displayed in clean, wide aisles and served by helpful staff. See the difference?
Consumers can’t stand the sterile, low-cost alternative any more. Sure, they may just be buying toilet paper and groceries, but they want to feel respected and cared for while they’re doing it. That’s why Walmart’s earnings only rose by 9% last quarter and revenue fell short of expectations, while Target’s EPS rose by 15% and the company raised expectations for the current quarter.
Taking a step up the retail ladder, consider JCPenney (NYSE:JCP) vs. Macy’s (NYSE:M). JCPenney is still trying to rebrand itself as the “hip” alternative to boring department stores, but many consumers haven’t gotten the memo yet. Macy’s, on the other hand, continues to shine as a high-end department store focusing on service and providing name-brand items you can’t find anywhere else. That’s why JCP stock is down 26.50% this quarter and M stock is up 2.23%.
Bottom line? If you’re looking for higher-end returns in the retail sector, focus on the higher-end retailers this holiday season.