Are Retail Stocks Still a Good Investment?
Posted on April 17, 2017 by Miranda Marquit

One of the sectors taking a beating in recent years has been retail.

If you think about it, it’s not really that surprising.

With the rise of the online shopping experience, it’s hard to imagine why going into a brick and mortar store would be preferable to shopping in the comfort of your own home.

I know I like to shop online as much as possible.

The rise of online shopping might kill off the retailers that can’t keep up, but that doesn’t mean that retail stocks are a bad long-term investment.

Traditional Retailers Struggle

In the last few years, we’ve watched as major retailers announce they are closing stores.

Bankrate recently released a list of 16 retailers closing stores in 2017. Some of the chains include Payless ShoeSource, The Limited, Sears, JC Penney, and Macy’s.

Some brands, like Sears and Kmart, have been shuttering stores for consecutive years.

Even Walmart has been struggling in recent years, and it’s telling that Warren Buffett’s Berkshire Hathaway divested itself of almost all its Walmart holdings.

Retail appears on the ropes as companies announce bankruptcy filings and close down locations.

But does that mean that retail is a poor investment sector moving forward? Do you have to abandon all retail in the face of current poor returns?

Not necessarily.

Bargain Hunting in Retail Stocks

As always, the key is to look for value. Even though retail is going through a bit of an upheaval right now, it’s not the end. If you look at Nordstrom, Inc. (JWN), you can see that even though it’s going through a rough patch it’s been around for a while.

There’s a chance that JWN can weather this storm, as long as Nordstrom continues to adapt to the climate with Trunk Club and Rack offerings.

In fact, the Trunk Club was an online offering, and now there are brick and mortar locations for consumers to come and enjoy an experience. JWN has a Safety Score of 92, meaning it’s considered a fairly good bet for the future.

Retail stocks don’t have to be hopeless.

It’s more about bargain hunting. Look for the retail stocks that might be undervalued right now — and that are adapting to the current trends in retail in new and interesting ways.

The Brick and Mortar Store Isn’t Dead

While retail stocks that pay attention to the Internet and have adapted well are likely to have an edge, you don’t want to write off the brick and mortar experience.

Investor’s Business Daily points out that it’s more about the experience you provide with your offline store. It’s also about changing things up so that you are trimming the fat.

Think about it: many retailers just have too many stores.

These stores take a lot of overhead to run. We’re talking about the costs of real estate, utilities, and people. It makes sense to close some stores, tighten the operation, and make sure you provide an online experience.

But retailers can still keep some stores open. Amazon is even making use of physical storefront space. Pop-up stores and a plan for a grocery store are part of Amazon’s plan now. It says a lot that the premier online retailer is looking for a greater presence in the “real” world.

When you read the Investor’s Business Daily article, you notice that many of the retail stocks listed have been around for decades. If they can stop hemorrhaging cash, they might be able to last longer — especially if they can adapt to serve the needs of consumers look for experiences.

Retail Stocks Serve a Consumer Need

During the Great Recession, retail stocks dropped along with the rest of the market. But some recovered. And, while retail as a whole is in a state of transition and shakeup, there’s a light at the end of the tunnel.

People like to buy things. They want to buy clothing, and furniture, and more. And they need stores to provide access.

The retailers that offer the experience consumers want, whether it’s feeling like they are being catered to in a physical store, or whether it’s just finding something quick and cheap online, are going to survive.

Already, some retailers are trying new ideas for the concept of the “store.” In the future, there are likely to be fewer retail stores, but the locations available will provide experiences, rather than just a place to shop.

And as long as retailers embrace the Internet, they have a better chance to succeed.

You just have to dig into the retail stocks to see which are likely to survive the storm.

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Written by Miranda Marquit

Miranda is a financial journalist. She specializes in writing about beginning investing, long-term financial planning, and how to get your money to work for you -- allowing you to enjoy your preferred lifestyle.

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