David Evanson and Hardeep Walia
Forbes.com, Fall, 2012
If you want to see a retail CEO’s nostrils flare and face redden, bring up the subject of “showrooming.”. That’s when consumers shop at a retailer, take pictures of products, compare, then go home and buy them on line. I can empathize with these CEOs, even though with Motif Investing, we hope to make some of the same tectonic shifts in the retail investing arena that online companies are making with respect retail shopping.
But retailers like Best Buy (BBY), Wal-Mart (WMT) and Toys “R” Us (TRUS) are fighting back, with what I would call startling ferocity and astuteness against on-line retailers like Amazon (AMZN) and EBay (EBAY). The two sides are now locked in a pitched battle over holiday pricing that would make any free-market capitalist giddy with joy.
For instance, Best Buy has announced it will match the prices of on-line retailers this holiday season. And in what I would call a brilliant, table turning move, Walmart, Best Buy and Toys “R” Us are using their extensive store base as micro distribution centers, and offering consumers same day delivery who purchase products from their on-line stores.
While consumers can simply make the right choice by looking for the best price price, for investors, especially long-term investors, I feel the situation is a little trickier. Who will ultimately earn the most share and extract the most earnings: e-tailers or retailers?
If you believe ultimately that bricks and mortar retailers will win out, then watch the motif index called Hot Retail (a motif is an investible thematic index), that tracks companies growing their store base faster than the U.S. economy and offers access to diverse markets such as shoes, jewelry, fashion accessories or apparel. Companies in this motif index include Lululemon (LULU), Coach (COH) and Tiffany (TIF). The Hot Retail motif has earned a return of 14.9% over the last 12 months.
However if you believe ultimately e-tailers will assume primacy, the Couch Commerce motif index is the one to watch, containing giants like EBay and Amazon, but also, Priceline (PCLN), Apple (AAPL) and Netflix (NFLX), among others. The Couch Commerce motif index has earned a 6.8% return over the past 12 months.
Personally, I believe the future belongs to retailers who can sell with facility on any platform: online, mobile and in-store. While it’s easy to say this, the end game of such thinking would have Amazon building retail stores all over the country, something that is perhaps anathema to their thinking. That notwithstanding, Amazon could turn the tables once again by adding a retail component to their many distribution centers throughout the U.S.
If you believe what the consumer ultimately wants is the best price – end of story – the Discount Nation motif index contains companies that focus on low prices, regardless of the distribution channel. The Discount Nation motif index, is weighted at about 25% to online retailers Amazon and EBay and approximately 37% to retailers with a large web and physical presence like Walmart and Target. Discount Nation also contains bargain basement retailers like Dollar General (DG) and Big Lots (BIG). The Discount Nation motif has returned 21.6% over the past year.
While you are shopping this holiday season, keep an eye on the retail wars and keep watching the motif indexes to find out the latest developments from the battlefront.