We all know that Amazon.com, Inc. (NASDAQ:AMZN) is actually a cover for an alien invasion that is bent on taking over the entire global retail sector. All jokes aside, Amazon seems pretty unbeatable, and we’ve seen tons of retail stocks get hammered in the past few years because competing against it is pretty difficult.
While Amazon does have growing infrastructure in terms of distribution and fulfillment facilities, that’s nothing compared to having to deal with thousands of brick-and-mortar locations and their associated headaches for most retail stocks
Amazon, however, will not completely destroy retail stocks. There are actually several major retail companies out there that will survive and, in fact, have thrived during the rise of Amazon. These stocks may be expensive, but all that shows is how upbeat the market is on those companies’ prospects.
With that in mind, here are three retail stocks that I believe will be insulated from an Amazon assault, and it’s because they each offer something unique that Amazon cannot provide.
Retail Stocks to Buy: Home Depot (HD)
Home Depot Inc (NYSE:HD) told us a positive story in its last earnings report.
Comparable store sales rose a staggering 7.7% year-over-year … and that was on top of already incredible Q1 and Q2 gains of 6.0% and 6.6%, respectively. Online sales in the past few years have almost tripled.
The key to HD stock having the success it has is because of consumer specificity and convenience. One cannot just buy any old piece of hardware at Amazon and have it work. One often needs a very specific item that fits a very specific project. Moreover, you can’t get a piece of wood or piping custom cut at Amazon, much less have it shipped. If one is looking for, say, a hammer, one wants to feel that hammer — its weight, the size of the head, etc.
Convenience is the other factor. Whether involved in a small home improvement project or a massive one, you often need several items. If you are missing one, you want it now. The same goes for repairs. If my plumber doesn’t have the part he needs, he goes down the street to HD.
Retail Stocks to Buy: Costco (COST)
Costco Wholesale Corporation (NASDAQ:COST) does not have to worry. The items consumers buy up at Costco are sold in bulk and for the most part, they are consumables. Sure, Amazon can ship large packages, but there’s a limit because bulky packages cost a lot more money than the average box Amazon ships.
Yes, Amazon sells consumables, but not frozen or refrigerated foods, like Costco has. The other advantage is that Costco is able to make big profits by offering prices that are heavily discounted because of the bulk purchases. As it is, Amazon’s margins are razor thin, and trying to compete on already discounted bulk items is too much.
So it is no surprise to see U.S. comparable sales thriving at COST, up 10.3% in the last quarter, and 8.7% after subtracting gasoline and forex effects.
Retail Stocks to Buy: Childrens Place (PLCE)
Childrens Place Inc (NASDAQ:PLCE) is one of those companies I have experienced first-hand, being a parent, and as a friend to new parents. I know that kids are constantly going to need new clothes in their early years, and that’s the reason Amazon cannot compete here.
Because babies grow. And grow. And grow some more. Thus, kids clothing becomes a repeat purchase. Not only that, they become a required repeat purchase. Like coffee, but maybe not quite as addictive. The thing about children’s clothes is that the sizing has to be exactly right. You can’t get away with too big or too small when it comes to babies and toddlers. A 5% miss on sizing doesn’t matter with us gigantic adults, but it’s huge on a baby.
PLCE is the largest pure-play children’s apparel retailer in the country, and it has been aggressively going after the 0-4 market. Amazon cannot compete.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
