Well, it finally happened. Retail stocks are feeling the wrath of Amazon.com, Inc. (NASDAQ:AMZN).
Sure, Amazon’s dominance over brick-and-mortar retail stocks is well known. But lately, the e-commerce giant’s wide reach is starting to truly affect the bottom lines at many of the nation’s largest and venerable retail chains.
Just look at Macy’s, Inc. (NYSE:M), where the past quarter read like a virtual who’s who of sales-slipping retailers thanks to Amazon’s two-day shipping and cheap prices. So, yeah, retailers have every right to shake in their still-boxed boots. That’s because over the past quarter, Amazon’s product sales grew more than 28% to $29.1 billion.
But not all retailers need to worry. Businesses with differentiated shopping experiences, emotional components or fanatically loyal shoppers have something of an “Amazon-proof” moat, because you simply can’t recreate these experiences online.
In short, they’re able to protect themselves from the ever-churning wheels of the Jeff Bezos machine. So listen up, investors! These are the retail stocks you want in your portfolio.
Amazon-Proof Retail Stocks to Buy: Williams-Sonoma, Inc. (WSM)
Premium product? Check. Fanatical fan base? Got it. Massively successful online marketplace? Triple check. All of those reasons make Williams-Sonoma, Inc. (NYSE:WSM) one of the best Amazon-proof retail stocks to buy.
WSM owns several well-known brands in the upper tier of home furnishings market. This includes its namesake store for cooking gear, West Elm for modern home goods and Pottery Barn for classic furniture and accessories. These higher-end stores offer a certain kind of product for a certain kind of client. It’s not just a mixer, but a KitchenAid copper stand-mixer. It’s not just a chair, it’s a hand-stitched leather posterior rest.
That’s a big difference versus rivals like Bed Bath & Beyond Inc. (NASDAQ:BBBY) — which “just” sells toasters. The real benefit is that WSM gets plenty of repeat customers for these kinds of goods. Customers who aren’t necessarily price sensitive.
But the real big differentiator for WSM stock is that it’s beating Amazon at its own game. Thanks to its history as a catalog-based retailer, Williams-Sonoma was a very early adopter in online retail. As a result, it already receives half of its sales from online shopping and has a very small store-base.
With its great balance and cash flows, WSM is one of the best retail stocks period — forget about the fact that it’s Amazon-proof.
Amazon-Proof Retail Stocks to Buy: Signet Jewelers Ltd. (SIG)
Signet Jewelers Ltd. (NYSE:SIG) itself may not be well known, but its brands are. These include Kay Jewelers, Jared and Zales.
SIG also owns a host of smaller regional jewelry stores and shopping mall-staple the Piercing Pagoda. All in all, SIG operates approximately 3,600 stores and in some instances — when combined with its regional assets — has a virtual monopoly on jewelry stores in certain shopping malls.
What makes it Amazon-proof is that buying jewelry, watches, engagement rings and the like is still a very personal experience for many customers. People like to physically hold the ring, try on a watch etc. before buying it. And given that sometimes these items are one of a kind that involves getting in the car and driving to the store.
And while you may think that Tiffany’s & Co. (NYSE:TIF) would be the jewelry stock of choice for investors, the truth is the luxury brand has suffered under the weight of the strong dollar. TIF is still an international symbol of luxury with plenty of foreign customers. Whereas SIG is strictly a U.S. play.
SIG stock is cheaper than TIF as well and can be had for a P/E of 13 and a 1.17% dividend yield.
Amazon-Proof Retail Stocks to Buy: Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA)
Equally as personal a sector as jewelry is cosmetics, skincare and salon needs. It’s almost impossible to match makeup colors via a computer monitor and it’s an area that many people still seek the advice of a beautician for tips. That’s where Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) comes in.
The retailer operates 886 different locations that feature a wide range of beauty products in the mid-range. The Lancôme’s and Clinique’s of the world. Stuff that’s better than your drug store, but not celebrity worthy. That position and its suburban targeting has served ULTA well since its launch.
Where it beats Amazon is in the personal experience. ULTA’s stores are staffed by a cadre of trained beauty experts. Need to know what lipstick goes with your skintone? They can tell you as well as apply it and offer plenty side products to go with it. That experience — along with actual hair styling/cutting at certain locations — can’t be replicated by Amazon or online.
This has helped ULTA post some impressive results among retail stocks. Overall sales increased by nearly 24% during the first quarter of this year. Exactly when everyone else was reporting terrible numbers.
When it comes to retail stocks, UTLA has t personal touch to keep beating Amazon.
Amazon-Proof Retail Stocks to Buy: The TJX Companies Inc (TJX)
Macy’s pain is TJX Companies Inc (NYSE:TJX) gain.
Through its portfolio of brands — TJ Maxx, Home Goods, Sierra Trading Post and Marshall’s — it offers brand name merchandise at big discounts. Those discounts can be as high as 60% off.
It’s able to offer such high discounts because it buys clothes, home goods and other merchandise from stores like Macy’s when they are cleaning out their inventory. Often TJX is able to get items for literally pennies on the dollar. It later marks up those items slightly and resells them.
Margins are low for the firm, but it makes up for it in volumes.
Aside from the Amazon-like discounts on its clothing and home goods, TJX beats AMZN in another way. Shifting through its racks. Dubbed “treasure hunting” by Maxxinista’s, there’s a huge social component to shopping at TJX’s store. Fans will often tweet, Instagram or call-out big finds. And since its product mix is always changing, shoppers keep coming back to find more hidden gems. This is something you can’t do online. In fact, TJX has very little in the way of online operations.
And even with the discounting, TJX is still very profitable.
Amazon-Proof Retail Stocks to Buy: Home Depot Inc (HD)
The power of the Home Depot Inc (NYSE:HD) is being very Amazon proof. The bastion of home improvement gets that from three factors — product mix, sales staff knowledge and hands on customers.
In terms of product mix, the kind of goods that it sells aren’t buyable online. After all, you can’t order a couple hundred cubic feet of mulch or bags of concrete from Amazon. If you’re building a deck, you have to go to HD to get your supplies.
Secondly, Home Depot’s staff is incredibly knowledgeable when it comes to their departments. When customers are searching for a product or have questions on how to do something, the staff there is able to answer those concerns and provide tips on how to succeed. Again, you can’t get that sort of information from Amazon. Linking to a YouTube video in someone’s review doesn’t count.
Finally, the shoppers at HD — professional contractors and weekend warriors — are hands on. They want to feel what they are buying. And often, Home Depot runs happen in the middle of a project. You need that extra bag of concrete. Even with prime, it’s a two-day wait with AMZN.
All of these factors create a unique play in Home Depot when it comes to other ritual stocks.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities. His wife, however, is eagerly awaiting the Pottery Barn Fall/Halloween catalog.