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Smart Money: How to Place a Bet on the Retail Apocalypse
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How to Place a Bet on the Retail Apocalypse
Eric Fry
The stock market’s big bounce keeps on bouncing, which has been great for the stocks I’ve shown you since mid-March.
I continue to expect great results from these investments over the coming months. But at the same time, I expect the road ahead to be a bumpy one, full of periodic setbacks.
As this zigzag action plays out over time, the best stocks will progress higher. But many others will not.
We are seeing divergences like this take place already, as investments like the so-called “shelter in place” stocks are rising or even hitting new all-time highs, while stocks that are heavily exposed to brick-and-mortar retail are struggling to gain any ground whatsoever.
I expect divergences like these to persist for a long time.
Many retailers have suffered life-threatening financial trauma that will send them into bankruptcy. Meanwhile, a workforce with 20% unemployment is unlikely to rush back to shopping malls, even if the virus posed zero threat to their health.
In other words, brick-and-mortar retail is now facing even greater challenges than what it has been facing for the last few years.
In today’s report, I’ll go over why brick-and-mortar retail will continue to fail, even if the coronavirus epidemic ends tomorrow.
I’ll show you three retail stocks that are beating the odds.
And I’ll show you how to find out about a way to place a bet on the ongoing “retail apocalypse”…
One Malibu investing legend has uncovered the secret about how some folks are growing wealth… while others fall further and further behind. Find out more here.
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“Going the Way of the Woolly Mammoth”
Over the last 10 years, U.S. online retail sales growth has outpaced non-online retail sales growth by 7 to 1 and has more than doubled as a percentage of total retail sales.
The “Amazon-ation of commerce” has crushed the brick-and-mortar retailing industry from coast to coast.
Amazon.com Inc. (AMZN) just hired 80,000 new workers during a period when 10 million Americans filed for unemployment! And on the other side of the epidemic, a large percentage of folks who have boosted their online shopping activity will maintain a level of online activity than was higher than before the epidemic.
Clearly, Amazon is a net winner from the crisis – just as it always seems to be.
But Amazon and COVID-19 aren’t the only destroyers of conventional retailing.
Some retailers like Lululemon Athletica Inc. (LULU) have developed robust online sales channels to complement their select brick-and-mortar locations. This “omnichannel” approach is producing great success for a few savvy retailers.
And Kroger Co. (KR) is demonstrating an impressive level of flexibility and innovation that is reviving its fortunes. The company’s forward-looking tie-up with Ocado Group PLC (OCDGF) to build robotic grocery warehouses around the country demonstrates its ambitious efforts to get out in front of changing consumer buying habits.
But most brick-and-mortar retailers are failing to innovate. As a result, they are sinking slowly into a tar pit of irrelevance and obsolescence. They are going the way of the woolly mammoth.
In 2019 alone, an estimated 12,000 retail stores closed. And the tally of store closures continues growing by the day. Investment bank UBS estimates that U.S. retailers will shutter another 75,000 physical stores by 2026.
Many leading retailers are showing a drop in revenues, while the very best companies are producing negligible revenue growth. Meanwhile, debt loads are soaring. These negative trends are weighing on stock prices throughout the retail sector.
Although this downtrend is well established, it is showing no sign of stabilizing or reversing. To the contrary, the sector continues to exhibit market-lagging performance.
He’s found 40 1,000% or higher stock market winners. He beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.
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A Way to “Short Sell” Dead Malls
Long before the coronavirus hit, e-commerce was growing rapidly worldwide. That’s hardly a secret.
According to Statista, retail e-commerce sales worldwide totaled $3.46 trillion in 2019 – nearly double the 2016 tally. And e-commerce volumes are on track to soar another 8.5% over the next three years, according to eMarketer.com.
As online retailing gains momentum, it is taking a very visible bite out of traditional brick-and-mortar retailing. That’s no secret either.
Still, e-commerce represents less than 15% of total U.S. retail sales. The percentages are similar worldwide.
But e-commerce isn’t just about destroying the old ways of retailing and taking market share. It is about establishing an entirely new mode of commerce.
That’s a big reason why “big box” retailers have been struggling for many years. Sears, Blockbuster, RadioShack, Circuit City, Borders, Sports Authority, and Toys “R” Us have all gone to retailing heaven (or are almost there).
Even before the coronavirus, many “best of breed” retailers were struggling to compete. During the last three years, revenues at Walmart Inc. (WMT) have grown a meager 7%, while Amazon’s have doubled.
The coronavirus is supercharging this trend.
That’s why I recently recommended that members of Fry’s Investment Report reestablish a position in an investment that allows them to bet against brick-and-mortar retail… and on the retail apocalypse.
I first recommended this hedge trade on February 6. Less than two months later, as the stock market was cratering, we closed out that position for a gain of 43.8%.
But I think this investment has further to go. After all, a rallying stock market does not change the fact that brick-and-mortar retail is facing a world of hurt.
If my analysis is correct, this investment will be a solid winner in a falling market, or a worthwhile hedge in a rising one.
Regards,
Eric Fry
P.S. Opportunities for extraordinary gains exist in any market, bullish or bearish. Some of the best stock traders in U.S. history made fortunes because of big moves they made while others sat on the sidelines during turbulent times. And I believe there are four companies you must buy right away to capture the biggest gains in the market going forward.
You probably haven’t heard of a single one of these firms… but I hope you’ll listen. To date, I’ve found 40 investment opportunities in which folks could have made 1,000% gains or more following my recommendations. Check out my new presentation on what to buy now here.
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