Home furnishing retailer Pier 1 (NYSE:PIR) shocked the world in January when management announced intentions to close about half of the company’s store-base, or around 450 stores nationwide.
That’s a lot of stores. And they represent a huge opportunity for peer home furnishing retailers to win new sales. My numbers indicate that each Pier 1 store, on average, does about $1.5 million in sales per year. Across 450 stores, that’s about $675 million in sales. The U.S. home furniture retail market did about $120 billion in sales in 2019. So, the Pier 1 store closings mean that about 0.6% of the U.S. home furniture retail market is now “up for grabs”.
Which retailers are going to grab the most of these sales? To answer that question, let’s turn to data from Placer.ai, the world’s leading foot traffic analytics platform.
Placer.ai recently analyzed daily Pier 1 store cross-shopping patterns across four different states (California, Florida, New York, and Pennsylvania), which basically means that they used smartphone location data to see how many customers visited both Pier 1 and another retail store in the same day.
From an investment perspective, the results are meaningful. The retailers which have the most cross-shopping overlap with Pier 1, per Placer.ai data, will likely win the lion’s share of the $675 million Pier 1 store closure sales pie. Their revenue and profit trends will improve in 2020 as Pier 1 shutters stores. Those improvements lay the groundwork for their stock prices to move higher, too.
Without further ado, then, let’s take a look at six retail stocks to buy as Pier 1 rapidly closes stores over the next several months.
Retail Stocks to Buy as Pier 1 Closes Stores: Target (TGT)
Placer.ai cross-shopping overlap with Pier 1, average across California and Florida: 10.3%
Placer.ai identified Target (NYSE:TGT) as the retailer with the most cross-shopping overlap with Pier 1. In California, Placer.ai found that 9.9% of customers who visited a Pier 1 store, also went to a Target store that same day. In Florida, the daily cross-shopping overlap rate was a whopping 10.6%. Target also had the highest cross-shopping overlap with Pier 1 in New York and Pennsylvania.
That’s a huge overlap. And it’s consistently huge across multiple states. Naturally, the implication is that in areas where stores will close, those overlap customers will simply do their home furniture shopping at Target, since Target sells various furniture pieces.
About $675 million in sales are up for grabs. Let’s say Target nabs 10% of those, or about $70 million. In it of itself, that won’t provide a meaningful lift to Target’s revenues, which project at nearly $80 billion this year.
But, it’s yet another tailwind for a company which is already firing on all cylinders thanks to its omni-channel growth initiatives, and yet another reason why Target’s revenues, margins, profits, and stock price will all continue to rise in 2020.
Retail Stocks to Buy: TJX (TJX)
Placer.ai cross-shopping overlap with Pier 1 (CA & FL average): 8.5%
Off-price retail giant TJX (NYSE:TJX) appears well positioned to win big as Pier 1 shutters stores, thanks to the company’s off-price home furniture retail chain, HomeGoods.
According to Placer.ai, about 9% of Pier 1 in-store visitors in Florida, also visited a HomeGoods store the same day. In California, the cross-shopping overlap rate was about 8%.
Such a high overlap rate makes sense. HomeGoods is the discount king in the home furniture retail market, and price is always something consumers are thinking about when buying furniture. Thus, I’d presume that for most consumers looking to buy new furniture, a trip to HomeGoods is in the cards.
This speaks to the broader underlying strength of the entire TJX machine. Regardless of various changes across the retail environment, consumers always have been and always will be attracted to low prices. TJX’s various stores offer some of the lowest prices across multiple different retail verticals. Consequently, so long as consumers remain attracted to low prices (they always will be), TJX will be supported by healthy and stable demand trends.
Those healthy and stable demand trends will power steady and consistent gains in TJX stock.
Placer.ai cross-shopping overlap with Pier 1 (CA & FL average): 7.3%
No surprise here. Placer.ai found that mega-retailer Walmart (NYSE:WMT) had a high cross-shopping overlap with Pier 1. In Florida, just over 8% of Pier 1 store visitors also visited a Walmart store on the same day. In California, that number was just above 6%.
This shouldn’t be any surprise for two big reasons. First, Walmart sells everything, and this all-in-one convenience makes it a very natural place to stop by if you are out on a shopping run. Second, Walmart stores are everywhere, with about 90% of Americans living within 10 miles of a Walmart store. So, if you’re out shopping at a Pier 1 store, chances are fairly high that there’s a Walmart close by.
As is the case with TJX, Walmart’s high cross-shopping overlap with Pier 1 speaks to the underlying strength of the Walmart machine. Walmart is all about minimizing prices and maximizing convenience. That’s an enduring value prop. So long as consumers shop, they will care about keeping costs down and doing their shopping in the shortest amount of time possible.
By offering everything in one place, having stores everywhere, and featuring the market’s lowest prices, Walmart checks off the convenience and price boxes for consumers. So long as they keep doing that, consumers will keep shopping at Walmart. Revenues will keep inching higher. So will profits. And WMT stock.
Bed Bath & Beyond (BBBY)
Placer.ai cross-shopping overlap with Pier 1 (CA & FL average): Bed Bath & Beyond (3.9%), World Market (5.1%), Total (9%)
One of the more interesting finds from Placer.ai was the high cross-shopping overlap that the entire Bed Bath & Beyond (NASDAQ:BBBY) store network has with Pier 1. Specifically, Bed Bath & Beyond stores had a 3.9% average cross-shopping overlap with Pier 1 in California and Florida, while World Market (owned by BBBY) had a 5.1% average cross-shopping overlap.
The grand total for Bed Bath & Beyond? About 9%, on average, across California and Florida. That’s the second highest reading on this entire list. It also means that, assuming a 9% take rate on the $675 million “up for grabs” Pier 1 sales pie, Bed Bath & Beyond could see a near $70 million sales boost from home furniture sales in 2020.
That’s meaningful for this company. Sales are projected around $11 billion this year. A $70 million boost to that would equate to a 0.6% sales boost. That is far more meaningful than the sub-0.1% sales lifts at Walmart and Target.
Also, this sales lift couldn’t come at a more perfect time. There’s a new management team at Bed Bath & Beyond, and the company is rapidly trying to redefine itself as a more relevant retailer with more tech-savvy stores. Pier 1 store closures will push more customers into Bed Bath & Beyond stores. Those new customers will see these more tech-savvy stores. They’ll be impressed. Some may even start shopping at Bed Bath & Beyond stores more regularly.
The company’s revenue and profit trends will start to improve. As they do, BBBY stock will bounce back from its presently depressed levels.
Home Depot (HD)
Placer.ai cross-shopping overlap with Pier 1 (CA & FL average): 3.6%
There’s a steep drop off from the first four retailers on this list, to the last two, in terms of Pier 1 sales impact. But, the overlap is nonetheless meaningful enough to include these last two retailers on a list of retail stocks to buy as Pier 1 closes stores in 2020.
First up in the bottom two, we have home improvement mega-retailer Home Depot (NYSE:HD). According to Placer.ai, in Florida and California, about 3.6% of Pier 1 store visitors also visited a Home Depot store on the same day. The implication is that when consumers are buying furniture, they are also often in the process of broader home improvements, for which they need supplies which can be found at Home Depot.
From this perspective, it’s tough to see how Home Depot actually wins any home furniture retail sales as Pier 1 closes stores. Consumers won’t start buying their furniture at Home Depot (they don’t even sell furniture).
Still, Home Depot stock may be positioned for a strong 2020 thanks to improving housing market conditions. That is, as goes the housing market, so goes the number of consumers who need home improvement goods and services, and so goes Home Depot’s sales and profit trends. The housing market is rebounding in a big way, thanks to easing trade tensions, low rates, and improving economic sentiment. The more the housing market rebounds in 2020, the more Home Depot’s growth trends will improve.
And, the more those growth trends improve, the more support HD stock will have to sustain its current rally.
Placer.ai cross-shopping overlap with Pier 1 (CA & FL average): 3.1%
Last, and maybe least, on this list of retail stocks to buy as Pier 1 closes stores in 2020 is home improvement retailer Lowe’s (NYSE:LOW).
Placer.ai found that, on average, about 3.1% of Pier 1 store visitors in California and Florida, also visited a Lowe’s store on the same day. That’s not terribly high. It’s also not all that meaningful, because Lowe’s doesn’t sell the same stuff that Pier 1 sells, so Pier 1 store closures won’t lead to a direct sales boost at Lowe’s.
Having said that, Lowe’s could be due for a strong 2020 for the same reasons that Home Depot is due for a strong 2020, and that is improving housing market conditions.
In 2020, you will have a U.S. economy defined by strong labor conditions, low rates, increasing home supply, and low home ownership rates. That’s a perfect environment for the housing market. Consequently, new home sales will likely go up again in 2020. So will money spent on improvements for those new homes. That means higher spend at home improvement retailers like Home Depot and Lowe’s.
Net net, while Pier 1 store closures won’t have a meaningful impact on LOW stock in 2020, there are many other catalysts here which will have a meaningful impact, and should collectively keep LOW stock on a strong uptrend.
As of this writing, Luke Lango was long BBBY.