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Foot Locker (XNYS:FL)
Foot Locker Inc operates thousands of retail stores throughout the United States, Canada, Europe, Australia, and New Zealand. It also has one franchisee in the Middle East and one in South Korea, each of which operates multiple stores in those regions. The company mainly sells athletically inspired shoes and apparel. Foot Locker’s merchandise comes from only a few suppliers, with Nike providing the majority. Store names include Foot Locker, Champs, and Runners Point. The company also has an e-commerce business selling through Footlocker.com, Eastbay, and Final-Score.
TJX Companies (XNYS:TJX)
Discount shopping is here to stay and few retailers have more affordable, trustworthy brands than TJX. Operating under the TJX umbrella are the popular retailers TJ Maxx, Marshalls and HomeGoods. TJX companies sell apparel, home fashions, pet supplies, kids merchandise and more.
The first quarter of 2020 marked the 1st time TJX reported gross margins under 26% since its 1st earnings report back in 2010 — nearly 10 full years. With margins steady, TJX companies are in a good spot as consumers search for discount brands with name appeal.
Home Depot (XNYS:HD)
Being stuck home in quarantine sure makes you notice every little thing wrong with your house or apartment, doesn’t it? One of the few in-person stores seemingly unaffected by the pandemic shutdowns has been Home Depot, whose stock has nearly recovered all of its March losses. Home Depot’s online order pickup system has always been a smooth process and it’s become increasingly critical in the last few months. The company has nearly 2,300 locations in the U.S. and employs over 400,000 people.
Home Depot has kept gross margins above 34% since 2014, which has helped profits grow despite meandering revenue. (Competitor Lowe’s has struggled with gross margins in the same time frame.) With temporary work from home becoming permanent for so many Americans, home improvement projects are sure to be popular stimulus check expenditures. Nobody benefits from that more than Home Depot.
Big Lots (XNYS:BIG)
Big Lots Inc is principally engaged in operating discount retail stores. The company provides a broad range of merchandise, including food, consumables, soft home products, hard home products, furniture, electronics and accessories, and seasonal products. The company sources the merchandise from traditional and close-out channels. In addition to merchandise, the company sells gift cards, issues merchandise credits, and more. The company operates stores throughout the United States, with around one-third of its stores in California, Texas, Ohio, and Florida.
Founded in 1999, Overstock.com Inc. is a tech-driven online retailer. Located in Salt Lake City, Utah, Overstock.com offers products such as furniture, rugs, décor, bed & bath fittings, home improvement equipment, kitchen fittings, outdoor equipment, jewelry and apparel.
The retail stock has a market cap of $2.7 billion and has an EPS of $0.35. It has a 52-week low of $2.53 and a 52-week high of $128.50. Overstock.com has high liquidity and trades more than 3.6 million shares per day. It generated revenue of $1.4 billion in 2019.
Not a day goes by without some type of Retail Armageddon story from the financial media and to a certain extent it’s justified. The coronavirus sped up the demise of several big department stores like Neiman Marcus, J. Crew, and Modell’s Sporting Goods, but calling for the demise of retail might be a bit premature. Neiman Marcus and J. Crew emerged from bankruptcy, and it’s possible that other retail establishments can do the same.
Changing the way we do business doesn’t mean the end of the business as we know it. Retailers with strong online footprints, recognized brands and the ability to adapt to new consumer trends will still thrive, even if the pandemic brings on an era of increased savings. This is America, we’re always going to feel the urge to get new stuff every now and then, right? Today we’ll look at 5 retail stocks who could emerge as big winners.
Overview: Retail Stocks
Retail is one of the oldest businesses in America. Macy’s, a brand retailer recognized across the nation, has roots going back as far as 1852. Retailers are different from other types of consumer goods companies because they supply products to the end users themselves. They don’t manufacture or distribute products; retailers are a direct-to-consumer business.
Some examples of retail companies include department stores, discount stores, food and grocery, home improvement stores, auto parts suppliers, clothing stores and drug stores. There’s often a lot of sector overlap between consumer discretionary and consumer staples among retail firms.
Retail stocks are also some of the oldest shares occupying our favorite indices. JCPenney has exited bankruptcy, but they’ve been trading on the New York Stock Exchange since 1927. Amazon dominates this space today as both a consumer discretionary and consumer staples provider, but who needs to be told to buy Amazon stock?
Despite its dominance, Amazon doesn’t have a stranglehold on consumer spending and plenty of other companies in the retail space have room to grow. Some of these companies are newcomers who have adapted to a rapidly changing environment, but others are institutions thanks to successful business models dating back decades.
Best Online Brokers for Retail Stock
Retail stocks have been choppy during the COVID-19 pandemic with juggernauts like Amazon reaching new highs while department stores Macy’s and JCPenney struggle to survive. Fortunately, finding retail shares doesn’t require much of a search. Stocks of popular retailers are readily available as most major brokers, so choosing one depends more on your investment style than the type of stock you’re looking for. Most brokers offer commission-free stock trading now, so it’s never been cheaper to start trading or investing.
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Features to Look for in Retail Stock
When looking for retail stocks with strong future prospects, consider the following features. Companies boasting these characteristics will have higher chances of success compared to their peers.
- Strong online footprint: Online shopping is here to stay. It was probably coming even without the coronavirus, but a global pandemic has certainly increased the amount of consumers ordering their goods online. Certain types of shopping will always have strong demand for in-person sales, like clothing and furniture. But a strong online presence is a must to navigate the current environment.
- Popular brand names: Selling is all about trust and consumers trust brand names they know and recognize. Retailers with a wide variety of trusted brands will do well in an economy where consumers hold their dollars a little tighter.
- Steady or expanding gross margins: In an uncertain economic environment, keeping costs down is crucial. Gross margin refers to the profits kept after the cost of goods sold is subtracted from revenue. Companies with declining gross margins are either losing sales or seeing increases in costs. Neither is a good scenario for business.
The Demise of Retail Might be Exaggerated
The media reports on the retail apocalypse might be a bit overdone. Sure, the malls and department stores are in trouble as consumer trends change and online shopping bleeds formerly reliable foot traffic. But retail isn’t going anywhere. Companies in the space might look and operate differently, but getting products directly into the hands of consumers will always be big business.
As long as the consumer has money to spend and needs to fill, certain retailers will thrive. The ones who fail to adapt will cease to exist, but that’s the way of life in any industry. The companies on this list not only have the ability to adapt to new trends but they have the trust factor to keep those customers coming back.