Driving around this weekend, the retail economic impact of the novel coronavirus pandemic was clear. Personally, the small business owners I know here in Northern California are sucking wind at best. Several have already shut their doors forever.
Strip malls look something like a piano keyboard. Takeout joints and drugstores are as bright and busy as ever … but shoe stores, nail salons and barbershops are shuttered.
Malls are closed … and I bet more than a few won’t ever reopen.
Grocery stores, on the other hand … well, there’s a reason I’m having mine delivered instead of heading into that mess.
Highways and major roads are eerily uncongested, but delivery trucks are clogging side streets.
Covid-19, clearly, is causing tectonic shifts for businesses.
Not so clear yet is which of those shifts will last after the coronavirus threat passes.
Here’s one safe bet: Corporations will further their use of robotics, artificial intelligence and other technologies to automate as much as they can in order to mitigate the risks from the next pandemic.
That’s the Technochasm we’ve been talking about here in action — and it’s going to keep increasing the wealth gap for years to come.
Therefore, we need to shift the way we invest.
So today I’ll tell you about three retail stocks that will see their fortunes rise thanks to both the coronavirus present — and the technology-focused future.
Rapid Growth Now … and in the Future
Long before the coronavirus hit, e-commerce was growing rapidly worldwide. That’s hardly a secret.
According to Statista, retail e-commerce sales worldwide totaled $3.46 trillion in 2019 — nearly double the 2016 tally. And e-commerce volumes are on track to soar another 8.5% over the next three years, according to eMarketer.com.
As online retailing gains momentum, it is taking a very visible bite out of traditional brick-and-mortar retailing. That’s no secret either.
Still, e-commerce represents less than 15% of total U.S. retail sales. The percentages are similar worldwide.
But e-commerce isn’t just about destroying the old ways of retailing and taking market share. It is about establishing an entirely new mode of commerce.
That’s a big reason why “big box” retailers have been struggling for many years. Sears, Blockbuster, RadioShack, Circuit City, Borders, Sports Authority and Toys “R” Us have all gone to retailing heaven (or are almost there).
Even before the coronavirus, many “best of breed” retail stocks were struggling to compete. During the last three years, revenues at Walmart (NYSE:WMT) have grown a meager 7%, while Amazon’s (NASDAQ:AMZN) have doubled.
The coronavirus is supercharging this trend.
Simon Property Group (NYSE:SPG), the biggest owner of U.S. malls, has furloughed 30% of its workforce. Mall tenants like Cheesecake Factory (NASDAQ:CAKE), Macy’s (NYSE:M), J.C. Penney (NYSE:JCP), Neiman Marcus, Sephora and H&M are furloughing or laying off hundreds of thousands of workers.
It pains me to say it — I managed the Hard Rock Cafe in Hollywood years ago — but a lot of those folks are never getting rehired.
Meanwhile, the grocery industry is a massive $750 billion opportunity with extremely low online penetration (less than 2%).
With all that in mind, here are three retail stocks I like both during the coronavirus … and beyond.
The Fittest of the Retail Stocks
A crisis is a Darwinian event. It creates hardships for everyone, but the strongest survive. In fact, in the financial world, the strongest don’t merely survive … they capitalize on the crisis by taking market share from their weaker competitors.
Lululemon Athletica (NASDAQ:LULU) is in the “survivor” category. Yes, the current situation in retail is brutal. But Lululemon is a best-of-breed retailer with three key strengths that are especially valuable right now.
- It has a net-cash balance sheet. So it can withstand adversity for a long while.
- It has a vibrant international operation that is bouncing back already in places like China and Malaysia.
- It has a robust direct-to-consumer sales channel that it has been developing for several years. So, in-store sales are not as essential as they are for many other retailers.
On a Hiring Spree
Never bet against Amazon. Although the company has faced a series of serious labor complaints recently — from employees who are upset with unsafe working conditions and the company’s miserly initial response — now Amazon is trying to resolve the disputes quickly.
Meanwhile, you have a company that just hired 80,000 new workers during a period when 10 million Americans filed for unemployment! Clearly, Amazon is a net winner from the crisis, just as it always seems to be.
And on the other side of the pandemic, a large percentage of folks who have boosted their online shopping activity will maintain a level of online activity that was higher than before the epidemic.
The World’s Top Grocer
Kroger (NYSE:KR) is demonstrating an impressive level of flexibility and innovation that is reviving its fortunes. The company’s forward-looking deal with Ocado Group (OTCMKTS:OCDGF) to build robotic grocery warehouses around the country demonstrates its ambitious efforts to get out in front of changing consumer buying habits.
That same thinking led the company to think quickly on its feet to test a pickup-only store in greater Cincinnati in response to higher demand for click-and-collect service.
In-store shopping isn’t available at the location. Instead, customers order groceries online via the Kroger mobile app and then pick up their order at the store.
Like Amazon, Kroger is hiring thousands of people quickly — roughly 40,000 new employees so far this year. Unlike Amazon, Kroger is drawing raves for treating its employees very well amid the crisis — awarding them extra pay called “hero bonuses,” for example.
Triumphant Retail Stocks Are Tech Heavy
Of the three, Wall Street considers only Amazon a “technology company.”
But all three of these companies are using technology and people together to build the success and growth they’re seeing now — and they’ll keep on doing that once the pandemic threat passes.
That’s why there’s space growing between tech-heavy companies like these … and the rest of the stock market.
That’s the Technochasm.
You and I can’t stop the Technochasm … even if we wanted to. But we can make sure our portfolios are set up to profit off of it.
I recently brought along a film crew to produce a special video presentation so I could show you exactly what’s going on … and why this is so important.
Take a minute or two to check out my on-camera segment, which we’ve posted on our website, here.
I’ll see you back here soon.
P.S. The stock that could be my next 1,000% stock market winner recently went public. It’s a company I can almost guarantee you’ve never heard of, but it’s already one of the most profitable businesses on Earth. It’s a remarkable story … which is why I just put together a detailed analysis that explains the entire situation and reveals the company’s name and stock market ticker symbol, totally free of charge.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.