How to Invest for the Retail Apocalypse
Those who invest for the Retail Apocalypse will make a lot of money because the great die off of retailers is real and getting worse.
As of 21 June 2019 Americans retailers announced 6,986 store closings for 2019, Coresight Research estimates. In contrast, US retailers closed 5,864 stores in all of 2018.
Meanwhile, U.S. retailers plan to open 2,985 stores in 2019, Coresight calculates. Consequently, over two stores close for every new retail location that opens in America.
Over 12,000 stores could close in the United States in 2019
Astoundingly, things could get far worse real soon. Coresight’s analysts think there could be 12,000 store closings in 2019. Consequently, the rate of store closings in the United States could more than double in 2019.
Given these realities, all investors need to pay close attention to the Retail Apocalypse and invest accordingly. Fortunately, investing for the Retail apocalypse is easy.
To help you I’ll make a few tips on investment for the Retail Apocalypse as a long-time observer of this phenomenon. My tips for Retail Apocalypse investing include:
Invest in Infrastructure not Stores
Instead of trying to pick the winners and losers, look for the companies that supply goods, services, and technologies to retailers. Remember, people will still need to eat, do the laundry, and do things like smoke no matter where they shop.
Thus, smart investors will follow Warren Buffett and Jeff Bezos’ example of investing in infrastructure for retail. Amazon (NASDAQ: AMZN) owns the retail robotics company Kiva Robotics, fulfillment centers, and Amazon Web Services (AWS) which provides cloud services to retailers. Meanwhile, Berkshire Hathaway (NYSE: BRK.B) owns McLane which supplies logistics services and a wide variety of merchandise to many retailers.
Interesting, retail infrastructure providers to invest in include the British grocer and software supplier Ocado Group PLC (LON: OCDO). Ocado builds platforms that operate swarms of hundreds of robots that pick and pull merchandise for delivery at vast fulfillment centers.
Ocado operates several fulfillment centers in the United Kingdom and has agreements to build similar facilities in several countries. For example, Ocado and America’s largest standalone grocer Kroger (NYSE: KR) want to build 20 robotic fulfillment centers in the United States.
Another interesting infrastructure provider to examine is Prologis (NYSE: PLD) which leases fulfillment centers. Like Ocado, and McLane, Prologis provides logistics and supply services for retailers.
Why You Need to Invest in Retail Infrastructure
Investing in companies that provide or invest or invest in infrastructure for retailers is one way to avoid the retail apocalypse. All online retailers will need fulfillment centers to support delivery, robots to pick and pull orders, and cloud services to host their websites.
Thus investing in retailers like Amazon, Kroger; which owns 6% of Ocado, Ocado, and Walmart (NYSE: WMT) that invest heavily in infrastructure is a smart move. Walmart, for example, currently operates over 150 distribution centers worldwide.
Such infrastructure has value because; it can supply both online and brick and mortar retailers. For instance, Kroger’s future business could be to ship food from a manufacturing facility straight to your home. Notably, Kroger now owns The Home Chef meal delivery service.
Invest in Retail Survivors
Survivors are those brands that are growing and making money amidst the Retail Apocalypse. Fortunately, there are more of these brands around than most people think.
Strangely even some iconic retail brands do not achieve survivor status. Target (NYSE: TGT); for instance, reported a revenue growth rate of 3.63% on 4 May 2019. However, Target reported a negative free cash flow of -$327 million on the same day.
On the other hand some big names are thriving in the Retail Apocalypse. Notably, Costco Wholesale (NASDAQ: COST) had a year-to-year revenue growth rate of 7.35% for the quarter ending on 31 May 2019, Macroctrends estimates. In addition, Macrotrends gives Costco a 7.28% revenue growth rate for the 12 months ending on 31 May 2019.
How to Find the Retail Survivors
More importantly, Costco is making money in the Retail Apocalypse. Specifically, Costco reported a gross profit of $4.507 billion, an operating income of $1.122 billion, and a net income of $906 million on 12 May 2019. Plus, Costco had an operating cash flow of $2.105 billion a free cash flow of $1.433 billion on the same day.
Finally, Costco had $8.167 billion in cash and short-term investments on 12 May 2019. Thus, Costco had no problem paying its 65₵ a share dividend on 24 May 2019.
Finding retail survivors like Costco and Target is easy. Just read the financial numbers they post for retailers at websites like stockrow.com and ycharts. Simply checking numbers like cash flow, gross profit, revenues, and income to see which retailers are making a lot of money.
Take nothing at face value and believe nothing you read in the financial press. Instead, read the financial numbers several times before touching a share. Only the numbers can tell you if a company is making money.
Growth is the Secret to Retail Survival
“Growth and value investing are joined at the hip.” – Warren Buffett.
Another number to look at is the revenue growth rate. That figure can show you how much a retailer sales are growing.
Under present circumstances, my advice for long-term investors is to buy fast-growing retailers. Amazon shows that large-scale online retail growth is lucrative and sustainable.
In particular, Amazon reported revenues of $59.7 billion, a gross profit of $25.78 billion, an operating income of $4.42 billion, and a net income of $3.561 billion for the quarter ending on 31 March 2019. More importantly, Amazon had cash and short-term investments of $37.02 billion on 31 March 2019.
Amazon achieved those numbers on a quarterly retail growth rate of 16.69%. Therefore, growth will lead to cash in retail, if it is sustainable.
You Can Make Money from the Retail Apocalypse
The most important lesson investors can learn from the Retail Apocalypse is that you can make money from it. However, you will need to study the brick and mortar apocalypse and its effects carefully to learn how to make that money.