One of the biggest themes of the 2010’s was the secular consumption pivot from physical commerce to digital commerce. As that pivot played out, two things happened. First, many physical retailers were slow to adapt, and as such, got left in the dust. Second, many new e-commerce players came into the scene, and stole share from traditional physical retailers.
The result? Retailers have broadly seen their revenues and profits decline over the past several years, and retail stocks have consequently been in sell-off mode. The SPDR S&P Retail ETF (NYSEARCA:XRT) is down more than 10% over the past five years, versus a 40%-plus gain for the S&P 500.
But, there is a light at the end of the tunnel. Specifically, over the past five years, certain physical retailers have not been slow to adapt to the digital shift. Instead, they adapted quickly, and have created formidable and highly defensible omni-channel retail businesses. As opposed to dropping, revenues and profits at these retailers have consequently risen over the past five years. So have their stocks.
I call this group of outstanding retail stocks, “Retail Survivors.”
These Retail Survivors are long-term winning investments. Each and every one of them has shown an impressive ability to navigate around the retail world’s biggest disruption over the past 50-plus years, and in so doing, has proven that they offer consumers a secular value prop which should endure for the foreseeable future.
As such, these retailers project to keep growing revenues and profits at a steady pace over the next several years. As they do, their stocks should head higher, too.
Without further ado, let’s take a look at a list of 15 Retail Survivors to buy for the long run.
Retail Stocks to Buy for the Long Run: Target (TGT)
% Gain Over Past 5 Years: 77%
One of the headline Retail Survivors is big box retailer Target (NYSE:TGT). The bull thesis here is very simple. There are Target stores everywhere, and they sell everything from groceries to cosmetics to clothes. They also sell those goods at very reasonable prices. Consumers have always loved this value prop of all-in-one convenience, close proximity, and low prices.
Target has significantly improved that value prop over the past several years by: 1) improving the in-store shopping experience by refreshing physical stores, and 2) building out an omni-channel business which morphs the best of digital and physical channels to optimize consumer convenience. As Target has done this, the company fired off decade-best sales and traffic growth metrics over the past several quarters.
This robust out-performance will continue because Target has found a winning omni-channel strategy which optimizes the customer shopping experience. As this robust performance persists, Target’s revenues and profits will march higher, and so will TGT stock.
% Gain Over Past 5 Years: 50%
The other headline Retail Survivor on this list is the world’s largest retailer, Walmart (NYSE:WMT). The secular bull thesis for WMT stock is almost identical to the one for TGT stock.
Walmart has always been loved for its low prices and high convenience. That love was challenged by e-commerce threats, but only temporarily. In response to the e-commerce threat, Walmart improved its physical shopping experience, expanded its digital business, and built out numerous omni-channel capabilities.
All of those actions dramatically improved Walmart’s value prop by bringing prices even lower (think free shipping) and pushing convenience even higher (think buy-online, pick-up-in-store). As Walmart’s value prop has improved, sales and profits have run higher, as has WMT stock. This dynamic will persist for the foreseeable future, mostly because Walmart’s current strategy of building out omni-channel capabilities is a winning one — and one that will keep Walmart atop the retail food chain for a lot longer.
Five Below (FIVE)
% Gain Over Past 5 Years: 183%
One of the smaller retailers on this list, Five Below (NASDAQ:FIVE) is nonetheless a Retail Survivor with a ton of long term growth firepower.
Five Below is a discount retailer which focuses on selling trendy items — like selfie-sticks and spinners — for $5 or less. This off-price, on-trend strategy has been a winning one, since it has ensured that consumers keep coming back to the stores to find the latest and greatest gadgets or toys at bargain prices. Consequently, Five Below has fired off consistently positive comparable sales growth for the past several years.
At the same time, Five Below is rapidly expanding its relatively small real estate footprint, and the store base has grown at a 20%-plus rate for the past several years. That has powered 20%-plus revenue growth, which on top of stable margins, has powered 20%-plus profit growth. That magnitude of profit growth is unheard of in the retail world, and as such, FIVE stock is up a whopping 183% over the past five years.
Over the next several years, Five Below will continue to grow profits at a 20%-plus pace, mostly because the company is still in the early stages of huge national expansion and because the company’s off-price, on-trend strategy should support positive comps for the foreseeable future. This 20%-plus profit growth trajectory should push FIVE stock materially higher in the long run.
TJX Companies (TJX)
% Gain Over Past 5 Years: 80%
One of the winning retailing strategies in the 2010s has been off-price retailing, since consumers always love low prices. Another winning retailing strategy has been off-mall retailing, since consumers simply aren’t going to the mall that much anymore.
In the intersection of these two winning retailing strategies is TJX Companies (NYSE:TJX). TJX owns a portfolio of off-price, off-mall department stores across the apparel retail and home furnishings spaces which have, for the most part, reported consistently positive comparable sales growth for the past several years. Alongside those positive comps, revenues and profits have marched higher, as has TJX stock (up about 80% over the past five years).
This dynamic will persist because TJX’s big drivers (off-price and off-mall) are secular drivers which should endure for the foreseeable future. As they do, positive comps, healthy revenue growth, and healthy profit growth will all remain the norm. So long as those remain the norm, TJX stock will grind higher.
Ross Stores (ROST)
% Gain Over Past 5 Years: 172%
In the same way that the bull thesis on Walmart runs parallel to the bull thesis on Target, the bull thesis on Ross Stores (NASDAQ:ROST) runs parallel to the bull thesis on TJX.
That’s because — much like TJX — Ross Stores owns a portfolio of off-price, off-mall department stores across the apparel retail and home furnishings spaces, the sum of which have largely comped positive over the past several years and shrugged off e-commerce competition. Those stores will continue to do very well for the foreseeable future, mostly because the growth drivers here (off-price and off-mall) are secular in nature and will survive most competitive threats.
As those stores continue to do well over the next several years, Ross Stores’ revenues, profits, and stock will all march higher.
% Gain Over Past 5 Years: 144%
Warehouse retailer Costco (NASDAQ:COST) checks off every box you’d want checked off for a Retail Survivor.
Loyal shopper base? Check. You have to a be a member of Costco to shop at Costco, and Costco memberships cost $60 to $120 a year, so members are naturally inclined to shop at and be loyal to Costco. Unique value prop? Check. Costco is the bulk shopping king, and no one else in the industry really challenges them in the discount bulk game.
Low prices? Check. Costco is up there with Walmart in terms of having the lowest prices in the retail game. Second-to-none convenience? Check. You can find essentially anything and everything at a Costco warehouse.
Because Costco checks off all those boxes, Costco has both: 1) reported positive sales and profit growth over the past several years, and 2) will continue to do so for the foreseeable future. That consistent growth has powered a 144% gain in COST stock over the past five years. It will power a similarly large gain over the next five years, too.
Dollar General (DG)
% Gain Over Past 5 Years: 118%
Pretty much all of the dollar stores are Retail Survivors because of their focus on low price, and one of the two public dollar store companies is Dollar General (NYSE:DG).
As mentioned earlier, consumers are always drawn to low prices, regardless of the retail or economic backdrop. Dollar General’s value prop is centered entirely on low prices. Thus, logic says that consumers will forever be attracted to Dollar General’s low prices, and therefore, forever attracted to Dollar General.
It also helps that Dollar General’s core demographic is way different than the demographics at other low-cost retailers, like Costco. Costco dominates the six-figure salary crowd. Dollar General dominates the under $50,000 salary crowd. As such, Dollar General is the low price king at the lower-end of the income spectrum.
Zooming out, there will forever be shoppers at the lower-end of the income spectrum. Those shoppers will also forever be attracted to Dollar General’s low prices. Therefore, for the foreseeable future, Dollar General stores will be crowded, sales and profits will move higher, and DG stock will shoot higher, too.
Dollar Tree (DLTR)
% Gain Over Past 5 Years: 82%
The other dollar store stock that is a Retail Survivor is Dollar Tree (NASDAQ:DLTR).
I might as well just copy and paste the Dollar General section here, and replace “Dollar General” with “Dollar Tree.” The bull theses on the two are that similar.
Dollar Tree dominates the under $50,000 salary crowd. There will forever be consumers on that end of the income spectrum. Those consumers will forever be attracted to Dollar Tree’s low prices. As such, Dollar Tree projects to continue to grow sales and profits at a steady pace over the next several years.
Over the past several years, that growth has powered an 82% gain in DG stock. It should produce a similarly large gain over the next few years, too.
Home Depot (HD)
% Gain Over Past 5 Years: 134%
One industry that hasn’t been disrupted by e-commerce and which has instead proceeded to fire on all cylinders over the past few years is the home improvement retail segment. At the top of that segment is Home Depot (NYSE:HD).
The bull thesis is pretty simple. The e-commerce world cannot replicate the home improvement retail model. Home improvement shopping is a see-and-feel process — most consumers need to see the exact replacement valve they are buying, or feel the carpet they are installing. It isn’t as easy as going online, clicking two buttons, and having a product arrive on your doorstep. Nor will it ever be that simple.
Because of this, no one has been able to step on Home Depot’s turf yet, and they won’t anytime soon. The steady positive comps, revenue growth, and profit growth that Home Depot has reported over the past few years will persist over the next few years. That means HD stock — which is up 134% over the past five years — will stay in rally mode for the foreseeable future.
% Gain Over Past 5 Years: 104%
If general retail, you have Walmart and Target as the one-two punch of Retail Survivors. In discount apparel retail, you have TJX and Ross Stores. On the dollar store front, you have Dollar General and Dollar Tree. And, on the home improvement front, you have Home Depot and Lowe’s (NYSE:LOW).
Copy and paste the Home Depot thesis for Lowe’s. Home improvement shopping is not easily replicated online, nor will it ever be easily replicated online. Thus, the e-commerce disruption which has spread throughout retail, has yet to really impact the home improvement space. Consequently, both Home Depot and Lowe’s have reported strong numbers over the past several years.
Home Depot has been always one step ahead of Lowe’s, and their numbers have consistently been slightly better — hence HD stock’s 134% gain over the past five years, to LOW stock’s 104% gain. But, for the first time in a long time, Lowe’s is actually out-comping Home Depot — a sign that Lowe’s may finally be ready to “catch up” to Home Depot.
Thus, LOW stock looks good both near- and long-term.
Best Buy (BBY)
% Gain Over Past 5 Years: 115%
The turnaround retail story of the decade belongs to consumer electronics retailer Best Buy (NYSE:BBY).
At the beginning of the decade, it didn’t look like Best Buy was going to make it. And, by “going to make it,” I mean that it looked like Best Buy was headed for the retail graveyard, pushed out of the consumer electronics retail space it dominated by fresh e-commerce platforms which offered lower prices and higher convenience.
But, Best Buy has since adapted to the e-commerce trend in a big way. They lowered prices. They upped convenience. They’ve doubled down on in-store offerings, such as having employees help you understand various different products — something which online retailers cannot replicate. They’ve also rapidly built out their online and omni-channel retail businesses to be as big as everyone else’s in this space.
Best Buy has navigated through the turbulent retail times of the past decade, and now once again sits firmly atop the consumer electronics space. Comps are positive. Margins are stable. Profits are moving higher. So is the stock — and all of this will persist for the next several years, given Best Buy’s offline advantages relative to its online competition (namely, in-store help).
Restoration Hardware (RH)
% Gain Over Past 5 Years: 70%
One retail segment which has been slow to the e-commerce trend is the furniture market, and that has been to the advantage of high-end furniture retailer Restoration Hardware (NYSE:RH).
E-retail sales account for about 10% of all retail sales. But, across different verticals, the e-penetration rate varies dramatically. In verticals such as consumer electronics and apparel, the e-penetration rate hovers around 30%. In the home goods market, however, the e-penetration rate is below 15%.
To be sure, that low penetration represents an opportunity for up-and-coming furniture e-retailers, like Wayfair (NYSE:W) — I actually pulled those stats from a Wayfair investor deck. It’s also representative of the fact that consumers like to do their home goods shopping in-store, where they can touch, feel, and test out products that often can cost thousands of dollars. Sure, Wayfair might eat alive the lower-end of this market — touching and feeling aren’t that important for a $300 mirror — but RH will continue to dominate the high-end of this market. Touching and feeling are super important for a $3,000 couch.
Because of this, RH has and will continue to report largely favorable results, defined by positive revenue and profit growth. That growth has led to a 70% gain in RH stock over the past five years. I wouldn’t be surprised to see RH stock rise another 50%-plus over the next five years, too.
Tractor Supply (TSCO)
% Gain Over Past 5 Years: 51%
One the under-the-radar Retail Survivor which has rallied big over the past five years and which looks ready to run higher over the next five years is Tractor Supply (NASDAQ:TSCO).
Tractor Supply is the rural America’s go-to retailer for farm life products. Importantly, they sell the sort of stuff which Walmart and Target either don’t sell, or aren’t very good at selling. Tractor Supply’s stores are also all located in rural areas — where, sometimes, the nearest Walmart or Target may be a 30 minute (or more) drive away.
Because of this, Tractor Supply has sustained dominance in rural America for a long time. They will sustain that dominance for a lot longer, too. So long as they do, TSCO stock should continue to grind higher with the U.S. rural economy.
Floor & Decor (FND)
% Gain Over Past 5 Years: 120% (from the 2017 IPO price)
Need to re-do your floors? Bathroom remodel coming soon? Looking to re-tile the kitchen? Install a new back splash?
If you’ve done any of those things over the past few years, you know that turning to an e-commerce platform to “get the job done” is inconvenient, and arguably impossible. Instead, you turn to a home improvement retailer to find the product, and then find someone to do the job (or you do it yourself … depending on the size of the project).
Home Depot wins a lot of these home project building material and labor sales. So does Lowe’s. But, Floor & Decor (NYSE:FND) is a solid third player in this market that is more than holding its own (mid single digit comps) and rapidly expanding reach (nearly 20% sales growth last quarter), mostly because the company often offers a wider selection than Home Depot and Lowe’s, and also often features lower prices.
This market should continue to grow with the housing market over the next several years. Floor & Decor should grows its share of this market. Thus, this company projects as a share gainer in a healthy growth market — a combination which ultimately paves the path for FND stock to rise over the next few years.
% Gain Over Past 5 Years: 432%
Last, but not least, on this list of Retail Survivors is e-retail giant Amazon (NASDAQ:AMZN).
It may seem weird to include Amazon on this list. After all, Amazon is the face of the e-commerce disruption which has killed parts of the physical retail segment over the past several years. But, I’m including Amazon not because of its e-commerce business; rather, because of its still young but rapidly-expanding offline retail business.
Amazon is making a big offline retail push. They acquired Whole Foods, are partnering up with other retailers to turn them into Amazon fulfillment centers, and are looking to rapidly expand their convenience store business. In so doing, Amazon is not just looking to sustain dominance in the online retail world — they are simultaneously looking to replicate that dominance in the offline retail world.
No one knows whether or not these offline retail efforts will be successful. But, they tremendously expand the company’s addressable market and long term opportunity — and if successful, offline retail could turn into a multi-billion dollar business for Amazon.
Overall, then, Amazon stock is unequivocally a high-quality retail stock you want to own for the long run. Contrary to popular belief, this growth story may just be getting started.
As of this writing, Luke Lango was long TGT, FIVE, TJX, ROST, DG, LOW, BBY, W, and AMZN.