Breakout

Investing 101: Three Things to Look For When Shopping for Retail Stocks

Breakout

There's no substitute for hands-on experience, particularly when it comes to investing. During the holiday season that means every one of the seemingly endless visits to stores and malls is another opportunity to come up with investment ideas to help pay for whatever it is you're buying.

This practice of shopping a company is just the first step in a stock picking process. Commonly referred to as "The Peter Lynch technique" in reference to Lynch's seminal "One Up on Wall Street" book, investing in what you know is one of the building blocks to successful money management.

Of course, you have to know what it is you're looking for when you shop. In the attached clip Brian Sozzi of NBG Productions runs through three specific qualities you probably want to see before rushing out to buy stock of the company from which you buy that sweater or toy.

1. Customer Service Slightly Better Than Expectations

The important point here is expectations. The way Walmart (WMT) treats its customer is different than the standard of care to be expected at Saks (SKS). A well-run company gives the customer what he or she should anticipate when they pull into the lot. At a discounter that means a clean store and a clerk at every register when the store is packed. At a high-end store exemplary service means "anything you want."

What a shopper should never feel is ignored, even if they're suspected of Showrooming. "Just because I have a smart phone doesn't mean I don't need attention," says Sozzi.

2. A lure to come back to the store

Just being good isn't enough. Sozzi says stores need to be actively courting shoppers to get them to come back and shop more. At discounters he likes to see layaway programs. While many consider layaway a sign of a lousy economy or customers that can't afford to pay full price, Sozzi sees a company bringing in repeat business.

One of Sozzi's favorite ploys is at the Gap (GPS) where the company gives out coupons and discount cards for future dates at the time of check-out.

3. A good match between the stores and the website

In a modern twist on Lynch, retailers today have to worry about the consistency between their online and offline experiences. A company firing on all cylinders will have the same prices, offerings and general "feel" on their website as they do at their stores.

A nice connection between the two is the aforementioned Gap, which connects shoppers to not just the Gap stores but also the corporation's Banana Republic and Old Navy divisions on their website.

As a caveat, don't make too much of your visit. A good in-store experience isn't a cue to run out and gobble up all the stock you can, but rater, is a starting point to the investment process.

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