The mall had one job this week: prove to Wall Street that the world hasn’t ended for conventional brick-and-mortar retail. That’s all it took to push store stocks like Macy’s Inc (NYSE:M), Nordstrom, Inc. (NYSE:JWN) and Dillard’s, Inc. (NYSE:DDS) up 13%-21% since the doors opened on Black Friday.
Amazon.com, Inc. (NASDAQ:AMZN), meanwhile, has at best drifted down about 2% over the same timeframe. On that level, at least, the mall is “winning” the season … but the real question is what happens when the holidays are over.
One reason brick and mortar is rebounding so fast is that sentiment around retail was already so dismal that it didn’t take a lot of good news to bend the bear trend.
Think of it as the reverse of a stock with a sky-high valuation dropping like a rock when earnings miss by a fraction of a penny — the math to support the stock price has gotten so precarious that a tiny readjustment blows the entire house of cards down.
AMZN currently trades at a lofty 146X next year’s earnings estimate and is vulnerable to that kind of blowback. The mall stocks, on the other hand, were priced for the apocalypse, where those dynamics work the other way. When you’re a company like Macy’s priced at 9X forward earnings, even a little confidence in the status quo is all the vultures need.
The ray of light this season is as simple as it gets. People actually got in the car and went to the mall this weekend. Not everyone stayed home and bought all their holiday gifts online.
According to National Retail Federation surveys, brick and mortar played a role in 70% of all retail activity over the long weekend, which sounds healthy — until you consider that a decade ago that number would be close enough to 100% to squelch any controversy.
That’s not really a winning trend for anyone but AMZN and its spawn, although it’s clear that the chain stores are going to delay the day of reckoning at least one more year.
An Opportunistic Swing Trade?
Still, I’m not convinced these stocks are anything but an opportunistic swing trade right now. There’s no mall retailer lighting up my screens, and I don’t expect that to change until I see truly compelling pricing combined with a clear strategic route to compete with online retail in the long haul. Rearranging the deck chairs on the display floor to bring in the crowds is good for a bounce, but that’s about it.
Black Friday shopping is a once-a-year tradition at this point. We’ll need those crowds to stick around for the other 51 weekends of the New Year to see the real recovery here — and we’ll need proof those people are buying the merchandise they drive out to see.
Buried in those National Retail Federation numbers is the ominous note that 64 million people are shopping “both online and in stores,” which means they’re in the showroom grabbing the in-store deals and then lining up electronic shopping carts to match everything else. Until the malls transform their business models to get into the showrooming business, that’s not really a long-term future.
At best, I believe the inevitable is only being delayed.
Retail stocks traditionally surge this time of year, and we should rejoice in their good seasonal fortune. But when January rolls around, remember that while Macy’s is up big here around $24, it’s going to take a lot more to get a cheer out of long-term shareholders who were in it two years ago at $66.
It’s not winning the holiday that makes these charts. That’s what AMZN does the other 51 weeks of the year.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
