The Retail Apocalypse is a Lie

Posted by Greg Guenthner - The Rude Awakening

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BrickMortarBottoms

 

  • Dead malls spring back to life
  • The start of a huge rally?
  • Plus: The best names in cheap retail

The retail apocalypse is a lie.

Don’t get me wrong — the stock losses racked up by the big mall anchors are very real. We’ve spent most of 2017 digging into troubling numbers posted by the prominent brick and mortar retailers. They aren’t pretty. Everyone knows that the first half of the year was a disaster for the mall anchors, with no relief is in sight for some of these troubled companies.

But there’s more to the “death of retail” story than these struggling stores. Watching iconic brands close locations across the country has warped our brains. We see pictures of vacant malls on the news and assume the American shopper has taken his business online for everything from big screen TVs to socks and underwear.

Will we ever leave our homes for the local shopping center again?

Absolutely. 

If you dig into the numbers, you’ll find that aside from the high-profile closings, brick and mortar retail is expanding this year. According to IHL Group, U.S. retailers will open 1,326 more locations than they will close in 2017.

Despite popular belief, every single retailer in the country isn’t about to declare bankruptcy. As we’ve said from the start, the best businesses will adapt and survive, whether we’re talking online start-ups or brick and mortar retailers.

The market’s finally starting to catch onto this idea…

For starters, the retail sector halted its nasty year-to-date plunge last month. It’s now quietly on the cusp of breaking out of the downtrend that has held the sector hostage all year.

BrickMortarBottoms

The failed breakdown in late August appears to have sealed the downtrend’s fate. The bears have overplayed their hand and are now susceptible to a face-ripping rally if these poor little retail names can catch a little momentum…

In fact, we’ve already seen select retail stocks rise from the rubble.

Just check out the extreme discounters and dollar stores. We’ve been bulled up on the “cheap junk” sector for a while now. Our theory is that these lean dollar store operations have what it takes to survive alongside Amazon. They fill an important retail niche and don’t have to worry about price-matching gimmicks the big box retailers use to compete.

As you can probably guess, extreme discounters and dollar stores are anything but fancy. But they’re growing. That’s a big deal in the Age of Amazon.

Take Dollar General Corp. (NYSE:DG) New locations are popping up all over rural America. The company is planning to open 1,000 stores before the year is finished. That’s an aggressive expansion plan—especially when you have Amazon breathing down your neck.

Investors are rewarding the effort. DG stock is posting new 2017 highs this week. The same goes for one of its main competitors: Dollar Tree Inc. (NASDAQ:DLTR). Shares are up more than 25% off its summer lows as they push to new year-to-date highs.

The formula is simple. Good deals in small stores make it easy for shoppers to get in and out. That’s why dollar stores are bucking the trend and expanding in this dismal retail environment.

Sincerely,

Greg Guenthner