Things haven’t been going well for brick-and-mortar retailers, with excess stores and a rise in property valuations eating into their revenues.
Dispiriting retail sales growth in February did little to cheer such companies.
Amid all these, online competition from the likes of Amazon.com, Inc. (NASDAQ:AMZN) is marring the prospects of these stores.
Does this mean that you have to steer clear of brick-and-mortar companies? Absolutely not. Many of these companies have made a smart move by refocusing their efforts on online sales, which helped them gain lost ground.
Thus, if you’re considering buying brick-and-mortar retailers, make sure you invest in the companies with a strong online presence. Lest we forget, retail stocks should gain in the U.S. market over the next week and month after March’s consumer confidence reading steered past Wall Street consensus.
Have Brick-and-Mortar Retailers Lost Their Charm?
Brick-and-Mortars, recently, are battling some serious bottlenecks. The market is oversaturated with too much square footage capacity being added since the early 2000s. Thousands of doors have opened, with U.S. having six times more retail space than Europe and Japan. The average rent per square foot of retail space has also scaled as high as four times the average residential rent per square foot in some metropolitan cities.
Increased construction coupled with an uptick in land value has become a major concern for retailers, especially at a time when sales are on the decline. U.S. retail sales posted the smallest gain in February in the last six months. Purchases rose a meagre 0.1%, with just four of the 13 major retail categories seeing gains. Receipts nosedived from electronic and appliances stores to apparel outlets as well as car dealers.
Brick-and-Mortar might further take a beating, if we go by United Parcel Service, Inc.’s (NYSE:UPS) survey. The package delivery company said that 2016 was the first year when the average American consumer bought more items online than in stores. Such a development is giving nightmares to brick-and-mortar stores as they fail to offer the endless selection that online players can. Furthermore, their reliance on foot traffic and word-of-mouth to stimulate business may put them at a disadvantage.
Retailers Can Move Forward
So does this mean retail chains will soon face extinction? Not really. All of us know that more number of consumers shop at stores than on the Internet. But, the best way to solve the issue is to take some hints from big box stores. A few years ago, Best Buy Co Inc (NYSE:BBY) was rapidly losing market value to its online rival Amazon.
However, Best Buy ended last year as one of the biggest gainers mostly due to a pragmatic approach to online competition: if you can’t beat them, join them. Consumer confidence, in the meantime,leaped in March to the highest level since Dec 2000 in the view of growing labor market optimism. Prospects of lower taxes and uptick in infrastructure outlays since the election of President Donald Trump also propelled consumer sentiment to fresh highs.
As per the Conference Board, the consumer confidence index jumped to 125.6 in March from 116.1 in February, surpassing the consensus expectation of 113. Consumer confidence touched the highest level in more than 16 years, indicating that the economy is regaining momentum. Lynn Franco, director of economic indicators, of the Conference Board said that “consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months” (read more: 5 Stocks to Buy as Consumer Confidence Hits 16-Year High).
Such a record consumer confidence number is a significant reading since it has been, historically, good at predicting future consumer spending for the next three to six months. More the confidence household generates, more will they spend and in the process benefit brick-and-mortars.
Online Presence is the Need of the Hour: 4 Enticing Picks
We have, thus, selected four brick-and-mortar retailers that are venturing into the online space to reap its benefits, while strength in consumer confidence also bode well for them. Consumer confidence studies the spending inclination of customers.
These stocks also boast a Zacks Rank #1 (Strong Buy) and 2 (Buy) and a Growth Style Score of ‘A’ or ‘B’.
Best Buy is a provider of technology products, services and solutions. The company has a Zacks Rank #1 and a Growth Style Score of ‘A’. The Zacks Consensus Estimate for its current year earnings increased 5.7% over the last 60 days. The company is projected to give a return of 3.30% this year, in contrast to the Retail – Consumer Electronics industry’s projected decline of 3.6%.
Foot Locker, Inc. (NYSE:FL) is a retailer of shoes and apparel. Beyond its bricks-and-mortar business, Foot Locker markets sports gear and sells directly to customers through its Internet and mobile sites and catalogs. The company has a Zacks Rank #2 and a Growth Style Score of ‘A’. The Zacks Consensus Estimate for its current year earnings increased 2.5% over the last 60 days. The company is likely to yield a return of 11.9% this year, in contrast to the Retail – Apparel and Shoes industry’s estimated decline of 3.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Childrens Place Inc (NASDAQ:PLCE) is a pure-play children’s specialty apparel retailer in North America. It also sells apparel online. Internet sales represent an important part of its revenue. Children’s Place has a Zacks Rank #1 and a Growth Style Score of ‘A’. The Zacks Consensus Estimate for its current year earnings rose 11.4% over the last 60 days. The company is projected to give a return of 22.1% this year, in contrast tp the Retail – Apparel and Shoes industry’s projected decline.
Burlington Stores Inc (NYSE:BURL) is a retailer of branded apparel. The company is also looking forward to growth of its online business. It launched its first e-commerce website in 1999, which made it the first off-price retailer to have online presence. Burlington Stores has a Zacks Rank #2 and a Growth Style Score of ‘A’. The Zacks Consensus Estimate for its current year earnings improved 3.5% over the last 60 days. The company is projected to give a return of 20.30% this year, higher than the Retail – Discount Stores industry’s increase of 8.2%.
Where Do Zacks’ Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 “”Strong Buy”” stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 “”Strong Sells”” and other private research.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report