Monday, October 22, 2007

Retail Ramblings

A couple weeks ago while my car was in the shop being serviced, I had the opportunity to walk around an upscale shopping area nearby while waiting for my vehicle. I noticed that Macy's, Inc. (M) took up three separate buildings and was very busy, and Nordstrom Inc. (JWN) had a lot of activity, with the hustle and bustle of the valet auto parkers. However, Coldwater Creek Inc. (CWTR) was empty, in spite of the fact that they were offering a 50% Off on Everything Sale.

Macy's has a price to earnings ratio of 18, a price earnings to growth ratio of 1.08, and a yield of 1.7%; Nordstrom has a P/E of 14, a PEG of 1.16, and a yield of 1.4%. Yet Coldwater Creek has a higher PEG of 2.40, a P/E of 13.9, and no dividend.

Then this weekend, I had the opportunity to go to a shopping mall for the first time in a couple years. My son needed more clothes for college. In case you haven't guessed, I hate to shop, unless I do my shopping online. It looked like the week before Christmas. This was an eye opening experience, and not just seeing the enormous crowds of people. I had never seen so many kiosks before, down the center of the mall aisles: eye glasses, make-up, jewelry, cell phones, hand cream, you name it, being sold from a very small square footage of space. Dozens of kiosks.

I also saw a botox outlet, where they give botox and skin treatments to women [and men] right out in the open. The operating tables are right in the front windows, and the operations are performed in public!!! What's next, drop in tooth extractions and heart transplants?

The mall recently had a grand opening of the Rocky Mountain Chocolate Factory (RMCF), which had people lined up. Rocky Mountain is a very low cap stock, and should therefore be considered very speculative, with a P/E of 21, and a yield of 2.4%. Macy's at this mall also took up three areas, with the men's and boy's department in a completely separate section of the mall. Every cashier there had at least four or five people lined up to buy, with handfuls of clothes in one hand and their credit cards in the other hand.

I happened to notice that there were several shoppers in Victoria's Secret, which is owned by Limited Brands Inc. (LTD), with a P/E of 11, a PEG of 1, and a PEG of 2.7%. The smaller shops with the branded shirts, pants, and clothes were packed, not just with clothing, not just with shoppers, but by employees. When I say branded, I mean brands such as Quiksilver Inc. (ZQK), P/E of 29 and PEG of 1.39,

Brands are everything! Shoppers were ignoring the quality T-shirts with no logos on sale for $5 or $10, yet were paying $25 to $35 for a shirt with a logo. I saw only a couple places that had no shoppers, a toy shop and a Zale (ZLC) jewelry store. Zale has a P/E of 18 and a PEG of 2.

There is a Sears store right next to the mall but fortunately we didn't need to go in there, because as we were driving by, the parking lot was packed. We also went to a K-Mart, had to park about a dozen spaces from the front [see my previous analysis of K-Mart as measured by parking distance], and actually had to wait in line to make a purchase.

Things have changed since the last time I was in K-Mart; a couple months ago, I would see more employees than shoppers. Both Sears and K-mart are owned by Sears Holdings Corporation (SHLD), with a P/E of 14 and a PEG of 1.61.

Just based on my naturalistic observation research, now is the time to start loading up on bargains in retail stocks. The buyers are back!

Author does not own any of the above.

By Fred Fuld at

1 comment:

Sara said...

That's an insightful observation. I've always said I could tell which stores were doing well and which weren't, simply because I spend so much time shopping!

While I'd like to pretend that makes me a star retail stock picker, unfortunately the busiest stores aren't always the most profitable. High operating costs can undo even the most popular store.

On the flip side, some stores with no customers consistently post high sales figures. Maybe they have lots of customers at different times or in different stores... or maybe someone fiddles the books!