The coming Christmas season has already created some casualties.
One simple way is to just go shopping. Would you go into a Big Lots? Not again. Have you ever responded to a Groupon offer? I haven't. Been to a J.C. Penney lately? Me, neither.
All these dogs are going down. Retailers are never guaranteed tomorrow. I own shares in Costco (COST) and in the past I've owned Wal-Mart (WMT) and Amazon.Com (AMZN). I buy stocks in stores I use regularly, and tend to avoid the rest. This strategy has served me well.
The lesson with Big Lots is to look at the repeat business, and look at the regular customers. Look at the shelves. This place is a continuing "going out of business" store, the back end of most units is a wreck, most of the cars in the lot are at least 10 years old. These are poor people pawing over failed products, and the merchandise doesn't turn over until it's gone. Which means the store ends up looking like a bomb hit it in the afternoon. There aren't enough people working there for it to be any different. Full disclosure. I bought a coffee maker at a Big Lots once, and kept it for several years. It was a "bargain" at under $20, but it never poured right.
The lesson with Groupon is its moat. There isn't one. Anyone can write emails offering bargains, and there are bigger channels for such emails, like Amazon and Google. Emails without close targeting are called spam. Like Big Lots, Groupon is going after ultra-bargain hunters, and as incomes improve the numbers of such people go down. Worse, they're going after hipster bargain hunters, and they either graduate or run out of money fast. The only real advantage they ever had was creativity, and you can buy that.
The lesson with J.C. Penney is hubris. The idea that someone who could sell stuff everyone wanted could also sell stuff few people wanted was always a little daft. Ron Johnson took Apple's (AAPL) reality distortion field and got a year of grace from investors out of it. But at some point you have to deliver, and he didn't. Fact is that what Johnson tried to do all at once is a 10-year evolution that every retailer is going to go through - the use of iPads as cash registers, the collection of brands around a central core, buying based on a standard mark-up. We already have this at the local ice cream shop and on the Internet. Why do I have to drive for it?
When it comes to retailing stocks, follow the crowd. Don't try to lead the crowd. Demand results before you invest a dime. Keep your retailing investments diversified. And never, never buy a story.
Disclosure: I am long COST.