Shopping for Profits: Try the Retail Aisle

The Summer is flying by and excitement is building as we diligently work on setting up the fall 2008 portfolio and ETF design contest. Of course, I’m not the only one excited for the upcoming school year - retailers are reading their cash registers. Bath & Beyond (BBBY)’s most recent 10-Q notes “sales levels are generally higher in August, November, and December.” August was primetime in the $65.7 billion (2007) back-to-school shopping market. However, given the economy and the drop of household wealth between the stock market pull back and the decrease in home values, how much will parents open their wallets this year?

According to a survey conducted for the National Retail Foundation [NRF], the average American family with children will open their wallets wider this year and spend $594.44 on back-to-school shopping—a 5.4% increase compared to last year! Amidst a slowing economy and $4 per gallon gasoline, is such a gain feasible or is it wishful thinking on the part of an organization that encourages rising spending? A contrasting survey by Deloitte & Touche found that 71% of parents plan to spend less on back-to-school shopping than last year. With imprecise forecasts such as these, it is important to apply common sense. Yes, spiraling energy costs and household net worth will change shopping habits. However, school supplies, basic clothing, and certain electronics remain necessities.

It’s more likely that consumers will change where they buy than what. The retailers and producers that are most affordable should benefit the most from the changing distribution landscape of consumer spending. Discount retailers like Staples, Inc. (SPLS) and Wal-Mart (WMT) should fare well as shopper seek the basics at a discount. While there, a wondering eye make create additional purchase opportunities, adding to the “must haves list.” This is where Wal-Mart has an advantage.

Investors have embraced the stock - it is trading near a 52-week high. In Q1 of 2008, international sales increased by 22%. It has ridden the globalization wave from 1991, when the company opened its first international outpost in Mexico City, to Wal-Mart International making up 25.4% of its most recent posted revenue. The division has been able to profit from inroads made in Brazil, China, and India - and a presence in Russia could be imminent. It is in the unique position of being able to capitalize on growing wealth - and consumption in emerging markets, while at the same time becoming increasingly attractive to American shoppers looking for a bargain.

 Disclosure: Mr. Corn is CEO of Clear Indexes LLC. He holds no positions in the stocks mentioned.

Comments

[truthinvesting:]

Last year I recommended this stock whih is listed on my free website.This yea I think there are many other consumer goods companies to buy instead.

2008 Aug 03 09:22 AM

[Ulysses Ben...:]

More great picks from Mr. Corn. What a joker.

2008 Nov 11 01:16 PM