Posted on Nov 14 2017

STORE TOURS THROUGH A 360 LENS ~ Why shopping will make you a smarter investor ~

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Retail bankruptcies are soaring, store closings are becoming commonplace, and profits at a variety of retail chains are in decline. There is no question the retail industry is in an upheaval. Retailers are on pace to close some 8,000 stores by year-end – exceeding the 2008 retail crash. This is obviously a terrible predicament for retail owners and operators, but the precipitous decline could create an opportunity for investors – if they know where to look.

Although consumer products are relatively easy to understand and relate to, investors often misread retail companies. Performance metrics and balance sheets do not tell the whole story. Investors need to balance their desktop analysis with time spent in the physical stores in order to fully assess risks and opportunities, and develop a 360-degree view of a business. Investors typically avoid this exercise at their peril.

So, what can a store tour tell you about the recent performance and future outlook? How can you tell which retailers are likely to survive? Who is braced for the future?

The answers begin at the door and continue to reveal themselves throughout the four walls. The store’s layout, the availability and appearance of the merchandise (regular price and clearance), and the prices being charged will inform top-line and bottom-line. Other indicators are foot traffic in store, digital integration, and experiential components.

The two most critical indicators of profitability are promotional activity and inventory levels. Is the company promoting its merchandise to drive foot traffic or revenue? Is the store overloaded with merchandise? Are tables stacked high? Racks and walls crammed with product? If the answers to these questions are yes, then inventories are growing at a faster rate than sales, and deep discounts are required to move the inventory; ultimately eroding margins and earnings, and any hope for a strong future. To survive and compete in the changing retail environment, all of the store components need to be addressed, most especially inventory management and pricing, requiring significant capital investment and leadership.

We are clearly in a retail apocalypse, and current stock prices / valuations are indicative of the lack of confidence in the industry. The question remains whether if retail stocks have hit the bottom yet, and what are the prospects for future performance? Though there is no crystal ball, the wisest strategy is to combine the desktop analysis with a comprehensive store tour to develop a thorough 360-degree perspective. This is the only chance at understanding the upheaval and investing wisely.


For more on 360 ™ Store Tours, please contact me @ lorettasoffe@live.com

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Loretta Soffe - Principal