Strangely, a modest brick and mortar retail recovery could be underway. Four physical retailers; the TJX Companies (NYSE: TJX), Lowe’s (NYSE: LOW), Nordstrom (NYSE: JWN), and Target (NYSE: TGT) are doing surprisingly well.
Discount department store operator TJX’s share price grew by 0.37%; or 22₵, to $59.39 by midday on 25 November 2019. Discount legend Target’s stock went from $110.47 on 19 November 2019 to $125.29 on 25 November 2019. Thus Target shares grew by $14.82 in less than a week.
Likewise, home-improvement giant Lowe’s shares rose by $1.18; (1.01%), on 22 November 2019. Moreover, Lowe’s rose from $115.74 on 18 November 2019 to $116.83 on 25 November 2019.
Notably, Mr. Market desires Nordstrom. Nordstrom shares rose by $3.65 (10.64%) on 22 November 2019. However, Nordstrom’s share price grew by $2.08 over the past week. Nordstrom shares were trading at $35.98 on 19 November 2019 and $38.06 on 25 November 2019.
TJX stock; however, dropped slightly last week falling from $59.70 on 18 November to $59.43 on 25 November. Thus, Mr. Market still had faith in some brick and mortar retailers in the week before Black Friday.
Are Brick and Mortar Retailers making money?
Importantly, TJX is making a little more money. TJX’s quarterly revenues rose from $9.781 billion on 3 August 2019 to $10.451 billion on 2 November 2019, Ycharts estimates.
However, TJX’s gross profit fell from $3.477 billion to $3.011 billion in the same period. Thus, TJX’s business is growing but it is making less money. To clarify, owns the discount department store brands Home Goods, TJ Maxx, and Marshalls.
In contrast, Lowe’s quarterly revenues fell from $20.992 billion on 2 August 2019 to $17.388 billion on 1 November 2019, Yahoo! Finance estimates. Moreover, Lowe’s gross profit dropped from $6.74 billion to $5.64 billion in the same period.
Meanwhile, Target’s revenues fell from $44.957 billion on 30 June 2019 to $44.588 billion on 30 September 2019. Target is making less money because its gross profit fell from $24.445 billion to $24.434 billion in the same period. Thus Target’s business is shrinking and the discount big box is making less money.
Mr. Market Loves Nordstrom as it makes less money
Finally, luxury department store Nordstrom’s revenues fell from $3.872 billion on 3 August 2019 to $3.627 billion on 2 November 2019. Consequently, Nordstrom is making less money. Nordstrom’s gross profit fell from $1.396 billion on 3 August 2019 to $1.328 billion 2 November 2019.
Thus, I see signs of retail recovery at only one brick and mortar retailer; TJX Companies. Importantly, the recovering brick and mortar retailer is the one, Mr. Market does not desire; TJX.
My guess is that traders find Nordstrom, Target, and Lowe’s more appealing than TJX. In detail, TJX operates bottom-feeding department stores known for their sloppy interiors and bargain basement atmosphere. In contrast, Nordstrom, Lowe’s, and Target operate clean, slick, and high-tech stores.
Yes Amazon is Killing Brick and Mortar
Unfortunately, Lowe’s, Target, and Nordstrom’s main market is middle and upper-middle class Americans. Those people are more apt to shop online at Amazon (NASDAQ: AMZN).
Probable TJX customers; on the other hand, are less-educated, unsophisticated, and lower-income. Consequently, TJX appeals to the people who are less prone to shop online.
A TJX shopper; for example, could be an immigrant cleaner who speaks little English and has no good internet access. However, a Nordstrom shopper could be a professional woman who has free internet access at her desk all day.
Thus, Amazon is stealing the shoppers with the most money. As a result Amazon’s quarterly revenues rose from $63.404 billion on 30 June 2019 to $69.981 billion on 30 September 2019. In addition, Amazon’s gross profit grew from $27.067 billion to $28.679 billion in the same period.
So yes folks, the brick and mortar retail apocalypse is underway. Moreover, recent financial numbers show only brands that serve less connected segments of the population are growing offline.
The Retail Apocalypse Gets Worse
I think retail brands such as Lowe’s, Target, and Nordstrom will need to transform into e-tailers or better discounters to survive. Under these circumstances, I predict Black Friday 2019 and the 2019 Christmas shopping season could lead to share price collapses at Nordstrom, Lowe’s, Target, and other retailers.
Furthermore, I think all it will take to trigger a general sell off of retail stocks in 2020 is a few bad earnings reports from retail giants. A bad earnings report from Target in particular could lead to a retail collapse.
In the final analysis, I think investors need to avoid brick and mortar retail now. This sector is heading for a major collapse and reorganization. Smart investors will stay away from brick and mortar until the bloodshed ends. Unfortunately, I think recent earnings reports show that shrinkage and collapse are brick and mortar retail’s future.
Originally published at https://marketmadhouse.com on November 25, 2019.