January’s retail sales report evoked mixed reactions from economists, despite the fact that it exceeded expectations. A drastic downward revision to December’s figure sparked off fresh concerns of an impending economic slowdown. The innards of the report revealed declines for several categories, notable ones being auto deals and gasoline stations.
But it isn’t as bad as it looks at first glance. Sales are up 1.2% excluding autos and gasoline. Notably, sales at general merchandise stores, a proxy for brick and mortar stores, increased 0.8% and 2.2% year over year. This underlines the resilience of a category, which was largely written off in the age of online sales.
The successful adoption of several new strategies, particularly click and collect, and major improvements to in-store experience have revived the brick-and-mortar business. Investing in brands that have benefited from the brick-and-mortar approach looks smart at this point.
Online Buying, Store Pickups Rule the Roost
According to a study by parcel store network Doddle, most American shoppers prefer to make their purchases online and then pick up the items from a physical store. A study of 2,000 American adults also revealed that half of all shoppers make their purchases online only to avoid shipping charges.
This makes it more than clear that BOPIS, buy online and pick up in store, is brick-and-mortar retail’s new mantra. An oversupply of such stores may still populate malls and big-box stores with online retail posing a stiff challenge. But fears of a retail apocalypse may be somewhat overstated.
As customers grow accustomed to buying online, local and physical stores may actually gain importance. Doddle’s study reveals that nearly 68% of buyers opt to click and collect. And of them, 85% make additional purchases when they arrive to pick up such online purchases.
Technology, In-Store Experiences to Power Category
The click-and-collect trend illustrates how brick and mortar can harness technology not just to survive but thrive. Ultimately, online and offline formats could develop a symbiotic relationship, feeding off each other in a productive manner.
Technology and new strategies to get customers to visit the store hold the key to brick and mortar’s survival. Apart from online-offline strategies like click and collect, retailers are also looking to improve the in-store experience.
Marks and Spencer’s Fit & Style Studio and Amazon’s AMZN Amazon Go are good examples of such strategies. Naysayers may point to Amazon’s decision to close its pop-up stores by April as another sign of a retail apocalypse.
But the online sales behemoth is already evaluating new delivery formats like Amazon locker. This will ultimately take shape as enormous centrally located mailboxes for packages.
January’s retail figures indicate that brick-and-mortar sales are thriving despite an online onslaught. The adoption of online-offline models such as click and collect has breathed new life into this category. The increasing use of technology and efforts to improve the in-store experience are also playing rich dividends.
Picking up retail stocks that have successfully adopted a click-and-collect strategy looks prudent. However, picking winning stocks may prove to be difficult.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.
Abercrombie & Fitch Co. ANF operates as a specialty retailer of premium, high-quality casual apparel for men, women and kids. It has a network of 663 stores in the United States and 198 stores across Canada, Europe, Asia, Australia and the Middle East.
Abercrombie & Fitch has a VGM Score of A. The company’s expected earnings growth for the current year is 20.9%. The Zacks Consensus Estimate for the current year has improved by 4.4% over the past 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Target Corporation TGT operates as a general merchandise retailer in the United States. Target operates more than 1,800 stores.
Target has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 6.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.9% over the past 30 days.
Best Buy Co., Inc. BBY is a multinational specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services. Best Buy has around 1,500 stores.
Best Buy has a Zacks Rank #2 and VGM Score of A. The company has expected earnings growth of 5.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.8% over the past 30 days.
Kohl's Corporation KSS is a U.S. based department store chain that operates specialty department stores and an e-commerce site in the United States. Kohl’s operates more than 1,100 stores.
Kohl's has a Zacks Rank #2 and VGM Score of A. The company’s expected earnings growth for the current year is 5.5%. The Zacks Consensus Estimate for the current year has improved by 4.9% over the past 30 days.
Walmart Inc. WMT operates retail stores as well as the websites walmart.com and samsclub.com. The company operates more than 11,600 retail units under 59 different banners in 28 countries and e-commerce websites in 11 countries.
Walmart has a Zacks Rank #2 and VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 1.1% over the past 30 days.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
Kohl's Corporation (KSS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research