The most important thing in retail today is being able to withstand relentless competition from Amazon (NASDAQ:AMZN). Thus, when picking retail stocks to invest in, you want to make sure those retailers are Amazon-proof.
How can you tell if a retailer is Amazon-proof? The criteria is actually pretty straightforward. You want to see that the retailer has grown sales and margins at a healthy clip over the past several years — while the Amazon threat has only increased. You also want to see the retailer have a strong brand that creates customer loyalty. Value prop is a big thing, and the retailer’s value prop must be distinct from Amazon’s value prop. Product assortment and quality are huge, too.
Overall, it isn’t hard to know when a retailer is Amazon-proof. But, it is hard to find a retailer that is Amazon-proof. Amazon is so big and so good at what they do, that picking Amazon-proof retail stocks is like finding a needle in a haystack.
Nonetheless, they are out there. Without further ado, then, let’s take a look at four Amazon-proof retail stocks to buy as potential long-term investments.
Amazon-Proof Retail Stocks: Walmart (WMT)
The biggest retailer in the world, Walmart (NYSE:WMT), also happens to be Amazon-proof.
Over the past several quarters — as the Amazon threat has increased — Walmart has consistently reported positive sales growth. That positive sales growth has been driven by a mix of both higher average price and higher traffic. Indeed, last quarter, Walmart reported its best comparable sales growth numbers in over a decade.
Clearly, Walmart is doing something right. That ‘something right’ is they are becoming an Amazon equivalent with a bigger offline presence, which is a huge benefit. Walmart has built out a robust e-commerce business which is growing at a 40%-plus rate. To complement that red-hot e-commerce business, Walmart is also building out omni-channel commerce capabilities like pick-up and delivery. The company is also expanding into new product categories, with the biggest of those new categories being grocery pickup and delivery. All the while, Walmart continues to emphasize price and convenience, the two staples of the Walmart value prop which has built immense customer stickiness.
In other words, Walmart has shown an ability to effectively compete with Amazon at scale by simply becoming more Amazon-like. The big difference here is that Walmart has nearly 12,000 physical stores across the world. Amazon has only a fraction of that. Thus, when it comes to convenience for things like pick-up, delivery and in-store purchases, Walmart still has a huge convenience advantage.
Due to its ability to compete with Amazon at scale, WMT stock looks attractive for the long term. In the near to medium term, WMT stock also looks attractive because of what promises to be a huge holiday season. Over the next several months, huge holiday numbers will converge on what has become a discounted valuation due to tariff concerns. Thus, you could get a big end-of-year pop in WMT stock.
Amazon-Proof Retail Stocks: Lululemon (LULU)
Over the past few quarters, Amazon has been hot. But, Lululemon (NASDAQ:LULU) has been hotter.
In fact, one could argue that Lululemon has been way hotter. Last quarter, Amazon grew online stores sales by 12%. Lululemon reported 19% comparable sales growth in the same quarter. The quarter before that, Amazon online stores sales rose by 13%, while Lululemon’s comparable sales rose by 20%. On the margin front, Amazon’s overall profit margins have fluctuated wildly. Lululemon’s margins, meanwhile, have been consistently increasing by several hundred basis points year-over-year.
In other words, by all major operating metrics, Lululemon’s retail business has outperformed Amazon’s retail business over the past several quarters. Why? Because Lululemon checks off all the boxes for being Amazon-proof.
Lululemon has a strong brand and an exceptionally loyal customer base. Lululemon also has a unique value prop through its direct business model wherein you can only buy Lululemon apparel at a Lululemon store or through certain websites. Plus, Lululemon’s assortment of athletic apparel isn’t exactly Amazon’s forte, and the quality of Lululemon apparel is also higher than most of the non-Lululemon stuff you will find on Amazon.
Overall, because of its Amazon-proof attributes, LULU stock is an attractive long-term investment. But, in the near to medium term, valuation will ultimately weigh on share price performance. Because of recent operational strength, LULU stock is presently priced for perfection. But, perfection almost never happens in retail, and when imperfection inevitably hits, LULU stock will drop like a rock.
That is a dip worth buying. Until then, the sidelines are the safest place to hangout when it comes to LULU stock.
Amazon-Proof Retail Stocks: Tiffany (TIF)
One of the more obvious retail stocks on this list is Tiffany (NYSE:TIF) for one simple reason: Amazon doesn’t sell a whole bunch of diamonds and high-end jewelry, nor will it ever.
The numbers check out here. Last quarter, comparable sales rose 7% and net sales rose 11%. The quarter before that was more of the same, with comparable sales growth of 7% and net sales growth of 11%. Both quarters were characterized by healthy gross margin expansion and robust profit growth.
Why has Tiffany managed to succeed while the Amazon threat has grown? Because Tiffany operates in a segment of retail which Amazon simply hasn’t penetrated, nor will it even try to penetrate given the big moat inherent to selling high-end jewelry. When it comes high-end jewelry, consumers will only buy from a trusted name. In this space, Tiffany is a trusted name. Amazon is not, and it would take forever for Amazon to build Tiffany-like consumer trust. Also, consumers will want to buy such big-ticket and important items in-store, so Amazon penetrating this market would require a sizable offline expansion.
Overall, it won’t be easy for Amazon to get into this space, and even if they do, getting customers to trust them will be an uphill battle. As such, Tiffany has multiple barriers of defense which protect it from Amazon encroachment.
Because of this, TIF stock is a promising long-term investment opportunity. It is also a promising near- to medium-term investment opportunity. The red-hot TIF stock has cooled off lately due to valuation concerns, but the latest fundamental update we got from the company was robust second-quarter numbers. Macro numbers imply that the global retail backdrop has only strengthened since then, so TIF should be on the verge of reporting equally robust Q3 numbers.
Those strong numbers could spark a big reversal in TIF stock which should last into the end of the year.
Amazon-Proof Retail Stocks: Five Below (FIVE)
Over the past few years, Walmart and Tiffany have done well, and Lululemon has done very well. But, none have done as well as Five Below (NASDAQ:FIVE). Over the past three years, WMT stock is up 40%. TIF stock is up 50%. LULU stock is up 180%. FIVE stock outpaces all of them with a 240% gain.
Why the huge out-performance? Five Below’s numbers have been nothing short of stellar. The company has morphed into a consistent “20/20” story characterized by 20%-plus revenue growth and 20%-plus profit growth. Comparable sales growth has been red hot. Unit expansion has been robust. Margins have consistently moved higher. Everything has gone right.
The driver behind this massive success is Five Below’s ability to differentiate itself from all of retail, Amazon included. First, Five Below is a discount retailer that sells items at $5 or less. That puts Five Below into the high-flying off-price category which has managed to succeed in the Amazon era by winning on price. Second, Five Below is a trend-oriented retailer that has a quick moving product assortment which constantly emphasizes the latest and greatest retail trend, like selfie sticks or spinners. In so doing, Five Below differentiates itself dramatically on product assortment.
Because of the company’s unique value prop of selling trend-oriented items at a big discount, Five Below promises to be a winner in the retail category for the foreseeable future. FIVE stock is richly valued at this point in time. But, that valuation is justified by huge unit growth potential. Thus, in a long-term window, FIVE stock should be able to head significantly higher.
As of this writing, Luke Lango was long AMZN, WMT, and TIF.