Retailing Shows A Recovery Built To Last

Includes: COST, GPS, LB
by: Dana Blankenhorn

Retailing trends for September show a recovery moving out of the bargain basement and into the mainstream, but not yet powering into the luxury segment.

While bargain stores like Fred's (NASDAQ:FRED) reported lower same-store sales, Costco (NASDAQ:COST) had a decent gain. So did Limited Brands (LTD) and Gap Stores (NYSE:GPS), both of which I see as strong representatives of the current middle market.

Warehouse stores like Costco and branded stores like The Limited and The Gap are filling a niche once occupied by stores like Sears (NASDAQ:SHLD) and Macy's (NYSE:M), the places where middle and upper-middle class shoppers go for what they need (in the first instance) and want (in the second). Their strength indicates that these shoppers are feeling pretty good, and the center of the market is the largest, most vital piece.

One interesting real estate trend I've witnessed in my home town of Atlanta is how former big box retailers like Costco are now evolving into mall anchors, as at Marietta's Cumberland Mall, with outfits like The Limited and The Gap filling the bellwether roles formerly held by the old mall anchors.

Even more promising is that some higher-end retailers, like action apparel maker Zumiez (NASDAQ:ZUMZ), are reporting stronger results. If people are stocking up on items for their leisure wardrobes, it means good things are coming this winter in the airline and ski resort areas. I'll wear a bike outfit until the threads come out. If I'm buying a new one, it means I'm feeling a little chipper.

Even the misses, like Nordstrom (JWN), are actually masking gains in same-store sales. Just because a gain isn't as big as some expected doesn't mean it's not a gain. More still means more.

Stronger purchasing across the center of the market bodes fairly well for general economic conditions down the road, and should put a bid under rising stock prices generally. Among the names listed above, I'm most positive on COST, and took a small position in it a few months ago that is coming up trumps. Shopping the successes of the middle market looks like a good strategy going forward -- it's not flashy, but has gains that can last.

Disclosure: I am long COST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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