We all know the old saying, "Never bet against the U.S. consumer." But today, after comfortably beating the market since the trough two years ago, retailers are looking tired just as the S&P appears ready to go a few more rounds.
There are any number of reasons why retailers would retreat, but chief among them is the fact that we have nervous and stretched consumers who want value, squaring off against squeezed merchants who can't raise prices. Add in high unemployment, slumping confidence, and soaring food, fuel, and commodity costs and you've got yourself the ingredients for a solid bear case against the retailers. So when we got word that upstart analyst Brian Sozzi of Wall Street Strategies issued the lone "sell" rating on Wal-Mart, we invited this brave buck in for a chat.
Not only is he worried about the Bentonville Behemoth, but Sozzi also thinks it's time to barbell the industry by avoiding the middle end and tapping better prospects at the high- and low-end instead.
And of the 95 chain stores he tracks, he discovered the worst near-term performance was closely linked to exposure to cotton, a fact that will raise the stakes —- and rewards/punishment —- for those who can or cannot exercise pricing power.
Is big box retailing as hopelessly out of date as bell bottoms are?
Sozzi says, with online retailers crushing the bricks and mortar stores, "the model of big box is changing. It's not like you can just plant a store...and the consumer will come. It's just not going to happen at this point."
So who is getting it right as the market changes? Sozzi touts high-end retailer True Religion (TRLG): "Good valuation, they are known for premium denim, they will continue to get that higher-income customer in the store because their product is so much quality." He also likes Macy's (M), saying he doesn't understand their low valuation. Additionally, he thinks Abercrombie (ANF) is on its way back, although he is very cautious on teen apparel overall.
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