There's no way to sugarcoat Thursday's retail sales data: The numbers were weak and shockingly so to some.
Howard Davidowitz, CEO of Davidowitz and Associates has been bearish on the consumer for some time, citing lackluster wage growth and low-quality of jobs being created, leading to a shrinking middle class.
Somewhat surprisingly, though, Davidowitz isn't wildly bearish on retail stocks and says there are "great areas" to invest, even outside the high-end merchants that have flourished. The wealthiest 10% of Americans now account for 44% of retail spending, up from 30% prior to the Great Recession, according to Davidowitz. (On Thursday, the Fed reported U.S. household net worth hit a record $82.9 trillion at the end of 2014, driven largely by gains in financial assets, which benefit the wealthy far more than the middle class.)
Beyond luxury, Davidowitz is bullish on retailers focused on housing -- "the consumer is clearly spending money in homes again" -- as well as off-price apparel.
In the former category, he recommends Restoration Hardware, Tuesday Morning and Kirkland's, even as he lauds the "top guys" in the industry, namely Home Depot and Lowe's.
Investors should "look one step down from what everyone else is seeing," Davidowitz says, offering similar advice for the latter category where T.J. Maxx parent TJX is "the most powerful, most successful apparel retailer in the U.S."
Beyond TJX, he likes Ross Stores and Burlington Resources.
(Davidowitz has no position or investment banking relationships to the retailers mentioned in this story.)
One area Davidowitz would avoid -- and shows his trademark flair for the dramatics -- is the mall, where Simon Property Group is making a bid for Macerich.
"I would never invest in anything to do with malls," he says, even while praising SPG for being a great developer. "It's not a great place to be with online sales, the shift to urban from suburban and department stores with no growth. You can't have a mall without an anchor."
As for recent reports that malls with Apple stores are producing higher sales, Davidowitz concedes Apple is a "dream" but doesn't consider it an anchor tenant.
Apple "doesn't do promotions to get customers in the mall and to the speciality stores that pay the rent," he explains in the accompanying video. "Bad malls, everyone closing stores like crazy" -- even top-tier operators like Macy's and Coach -- "that's what killed the chain store businesses" like Abercrombie that "were adding stores like crazy" before the credit crisis.