Major retailers have laid the groundwork that will be good for shoppers and investors.
Back when Black Friday meant people were lining up outside stores to fight for the best cheap toys and electronics, sometimes the holiday season would produce a surprise winner. Maybe JC Penney had a good quarter because traffic driven by more successful stores fueled customers or maybe a particularly hot item resulted in an unexpected winner for a good season.
Now, for a variety of reasons, holiday retail has changed and in this (sort of) post-pandemic reality, you will be offered the best deals and largest selection of items ordered by the biggest retail players. Amazon (AMZN) – Get a free reportWalmart (wmt) – Get a free reporttargeting (TGT) – Get a free reportand Costco (cost) – Get a free report They’ve all had struggles over recent quarters, but they’re still the top retailers for the holiday season.
This is not to say that niche players like Five Below (five) – Get a free report There won’t be a strong holiday season, as some will have, but 2022 will be a year where the strong get stronger, and that’s something shoppers and investors should be aware of.
The supply chain benefits large retailers
Target and Walmart have both had to acknowledge some major supply chain and inventory issues this year. Both companies ended up with many blockbuster items like televisions that sold well during the height of the pandemic. When demand slowed, both chains made the decision to sell items that didn’t fit into their holiday plans.
This was a painful decision in the short term, but customers certainly saw it as a positive, so goodwill was added to both series. Most importantly, Walmart and Target have the money so they don’t have to keep bad inventory in order to make room for what will sell.
Costco has a limited selection of inventory, which gives it the buying power to cut to the front of the line when supply is limited. The Warehouse Club gets what it wants simply because its orders are so big.
Amazon has struggled with wildly uneven demand due to the pandemic. However, it has also used Prime Day as a way to clear out its warehouses and patch up its inventory for the holiday season.
All four of these companies have simply spent more on supply chain and inventory management than their competitors. That’s always an advantage, but this year it’s a massive one.
Investors are looking at large retail
Analysts often use quarterly numbers to justify buying or selling stocks. Long-term investors ask questions like, “No matter how the share price moves, do I think this company will be a class leader for years to come?” It’s hard to look at Target or Walmart or Amazon or Costco and not think this would be the case.
This creates some interesting buying opportunities when you look at these stocks year-to-date:
- Amazon: -44.76%
- Target: -29.55%
- Costco: -5.69%
- Wal-Mart: 5.37%
The market has punished all of these companies for macroeconomic problems that they have no control over. In most cases, margins have decreased because these retailers have selectively chosen not to pass the entire higher prices on to their customers.
This balance sheet may be a negative for a quarter or even a few of them, but it’s a massive advantage in the market over the long haul. As an investor, it’s hard to imagine a world where these four companies don’t continue to dominate their sales, driven by the ability to do customer-friendly things like maintain value relative to the competition.
There might be a surprise winner this holiday season, but we’re not likely to see any surprise losers from this group.