Barron\'s - April 6 2020

April 6, 2020 BARRON’S 9

STREETWISE

Even before the virus hit,malls and department

stores were suffering. Now, it’s time to consider

what postpandemic retail will look like.

What’s Left When

We Can Spend Again

A

fter the pandemic

passes, and the econ-

omy reopens, pent-up

demand will turn into

a torrent of growth,

people tell me. But

will it? I don’t feel a

mounting desire to spend. Granted,

it’s my first global quarantine.

What I’m feeling is hope that Italy

has turned the corner, and dread that

the worst is ahead for New York City,

and America. I’m feeling stressed

over trying to write, record a podcast,

and do television from a downstairs

playroom—toy overflow room, really—

where I’ve set up a desk and equipment

between a Hot Wheels Super Ultimate

Garage and a stuffed Dumbo. I’m feel-

ing concerned over my expanding

quarantummy, and guilty for caring

about a thing like that when many peo-

ple have it so much worse. But eager to

get back to the high life? Not so much.

“Every day that passes and we’re

subject to corona restrictions is an-

other day that consumers get used to a

couple things,” Jefferies retail analyst

Randal Konik tells me. “No. 1, they get

used to staying at home. No. 2, they

get used to buying online. And No. 3,

they get used to just buying less.”

Konik wasn’t working from home

when I spoke with him, and he wasn’t

checking foot traffic at a nearby mall—

those have been closed for weeks. He

was sitting in his car in a Dunkin’

Donuts parking lot, where he has

been shooting videos for clients. He

has kids at home, like me. I told him

he might see me soon, a couple of

parking spots over.

Last week, I recommended that

investors buy stocks for the long run,

while diversifying. Some readers liked

the optimism; others thought it fool-

hardy. Both have their points. Histori-

cally, the median bear-market decline

from peak to bottom has taken 17

months, according to Goldman Sachs.

If the recent bottom holds, it will mean

this bear market lasted 23 trading days.

That seems impossibly short, especially

considering the severity of the drop,

and the record rise in jobless claims.

But no one can say for sure where

the bottom is, only whether shares

look reasonably priced. They do.

Investors who wish to buy individual

shares rather than a mutual fund,

however, should consider whether

and how the economy will be left

changed after the virus is gone. Let’s

look for now at retail.

Many stores may never reopen. In a

cover story last summer, when stores

were closing at an elevated pace, even

though consumer spending looked

strong, I explained that the shift to

online shopping was only part of it.

America has by far the most square feet

of store space per person in the world—

four times as much as the United King-

dom at the end of 2018, and 10 times as

much as Germany. Even before the

virus, we were headed for another de-

cade of widespread closures. Now, that

reckoning will happen faster.

Konik is bearish on mall stores and

department stores, understandably.

One of his top pans is L Brands

(ticker: LB), which sold a majority stake

in its Victoria’s Secret chain in Febru-

ary, and still owns Bath & Body Works.

Be suspicious of high retail dividend

yields resulting from collapsed stock

prices, he says. Payment cuts are an

easy way to preserve cash. Watch out

for excessive debt, but don’t avoid all

debtors, he says. He likes Grocery

Outlet Holding (GO), because people

will still buy food, and Planet Fitness

(PLNT), because when gyms reopen, it

will generate free cash and win market

share with its low-cost memberships.

Konik doesn’t cover Dunkin’ Do-

nuts, by the way—he just parks there.

In the past, he has described himself

as a permabull on consumer spending.

Now he sounds more cautious.

Chuck Grom at Gordon Haskett

says he hasn’t seen anything like this in

20 years of covering retail. It could take

a couple of years for consumers to re-

cover, he says, especially if the virus

returns in the fall. He favors stores that

cater to frugality, including warehouse

club Costco Wholesale (COST) and

closeout discounters like TJX (TJX)

and Ross Stores (ROST), though they

aren’t known for online prowess,

which is important at the moment. He

also likes Home Depot (HD), but says

homeowners could stick to cheaper

projects for a while. And while he

doesn’t cover Amazon.com (AMZN),

he calls it a winner for convenience.

Among stocks that Grom covers, he

is most concerned for J.C. Penney

(JCP), then Macy’s (M), then Kohl’s

(KSS) and Nordstrom (JWN). “I don’t

want to predict this, because I don’t

want it to happen, but if J.C. Penney

and Macy’s were to go away, that would

be $35 billion in sales that would essen-

tially come up for grabs,” he says. Wal-

mart (WMT), Target (TGT), and dis-

count retailers could be beneficiaries.

Retail investors should consider a

barbell strategy, Grom says, with stores

that can prosper during a downturn on

one end, and ones that can bounce

back during a recovery on the other.

His bounceback favorites include

Williams-Sonoma (WSM), Wayfair

(W), and Tractor Supply (TSCO).

I wrote negatively about J.C. Pen-

ney here last summer, and Macy’s

around Christmastime. Of course, I

never expected anything like this. I

recommended Kroger (KR) in Febru-

ary. It’s up 4%, versus a 24% decline

for the S&P 500 index. Last August,

in a positive look at pricey Grocery

Outlet shares, I wrote, “Stick with a

snack-size position and wait for a

dip.” I couldn’t have caught a worse

price with a time machine and a finan-

cial masochism fetish. It’s down 26%.

Even the stuffed Dumbo is shaking its

head. I’m not doubling down yet.

M

y greedy kids. Can I have,

can I have, they ask, while

I’m trying to work.

Gummy worms, or iPad

games, or more Hot Wheels to add to

the pile. “Can I have a birthday party

with my friends?” my daughter asks,

though we’ve talked about this before.

I say, “Do you see what’s going on in

the news? They’re setting up a field

hospital in Central Park, right outside

where you were born. This is not

normal.”

Do your schoolwork, I tell the kids.

Walk the dog. Stop running—we can’t

risk an injury now. Think about some-

one other than yourselves! But they

don’t listen.

Then, bedtime. “Can I give my bed

away?” my daughter asks. It’s as good

as new, and far better than any I had

as a kid, and I’m not buying another,

especially now. “Why?” I ask. “The

hospital,” she says. And it takes me a

moment. “That’s not the kind they

need right now,” I tell her. “Oh,” she

says. And I think, maybe they’re

listening, after all.B

email: [email protected]

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