18 KIPLINGER’S PERSONAL FINANCE^ 05/AHEADto cyberspace, and traditional stores
are f loundering. Nearly all are vulner-
able, even sellers of clothing. “Depart-
ment stores,” says a recent Value Line
report, “banked on the fact that apparel
needed to be tried on, a belief that’s
now fading.” Millennials, especially,
just don’t like shopping at the mall,
so internet-based companies such as
Bonobos (which is not publicly traded)
let consumers try on clothes in a show-
room, establish their sizes and then
order only online. Other online retail-
ers offer virtual dressing rooms, taking
measurements by webcam. Returns
are easy if the clothes don’t fit.
Few retailers have effectively adapted
to this new world. WAL-MART STORES (WMT,
$71), the world’s largest retailer, sells
only 3% of its goods online; Home Depot
(HD) sells 6%; Best Buy (BBY), 12%; and
Target (TGT), 4%. The Census Bureau
reports that last year, e-commerce sales
amounted to $395 billion, and just one
company, AMAZON.COM (AMZN, $845)—a long-
time recommendation of mine—ac-
counted for $95 billion of the total, or
nearly one-fourth. Amazon sells more
online than the next 20 largest internet
purveyors combined. It also has a rap-
idly growing cloud-computing business.Gadgets and e-commerce. Although
internet sales are growing swiftly, we
are still in the early days. E-commerce
accounts for only 8.1% of total retail
sales, a figure that could easily hit 20%
in the next 10 years. Which retailers are doing well on the
internet besides Amazon? WILLIAMS-SONOMA (WSM, $49), for
one. The company owns 241 stores that sell high-end
kitchen products, plus another 202 Pottery Barn shops
and about 200 outlets under other names. Still, Williams-
Sonoma gleans half of its $5 billion in sales online—a big
reason that annual revenues rose in each of the fiscal years
from 2009 through 2015, with more growth expected when
the final results are in for the fiscal year that ended in Jan-
uary 2017. The stock trades at a moderate price-earnings LISE METZGERJAMES K. GLASSMAN Opening ShotBuy Retail Stocks at Wholesale Prices
I
’m constantly looking for unloved sec-
tors, but in a bull market that just cel-
ebrated its eighth birthday, despised
industries aren’t easy to find. Over the
past five years, energy was down a bit
and real estate was f lat, but both have
bounced back lately. In the past 12
months, the overwhelming majority
of sectors tracked by Standard & Poor’s
registered gains. One notable excep-
tion: department-store stocks.
Shares of so-called multi-line retail-
ers have lost one-fifth of their value in
the past five years, according to research
firm Morningstar, while Standard &
Poor’s 500-stock index, the large-com-
pany benchmark, has nearly doubled.
Sears Holdings (symbol SHLD), once
the proudest name in retailing, has
fallen by more than half in the past 12
months. Specialty retailers have suf-
fered, too. Sports Authority, Limited
Stores and Wet Seal have all filed for
bankruptcy protection. Other retailers,
such as Barnes & Noble (BKS), with a
market value of $713 million, are shad-
ows of their former selves. Still others,
including Bon-Ton Stores (BONT), down
more than 90% since 2013, are on the
brink of collapse. (All share prices and
returns are as of February 28.)Bargain hunter’s dream. This devastation
is delightful for contrarian investors.
The misery of retailers has given the
sector such a bad name that perfectly
decent companies are now on sale. A
curious fact about human nature is that, as consumers,
people will rush to buy items marked down 40% by a
clothing shop or an airline, but, as investors, they will
shun stocks that have fallen in price.
Retailers were hurt by the recession of 2007–09 and
the sluggish economic growth that followed, with con-
sumers paying off debt and unwilling, or unable, to borrow
against the value of their homes. But the internet is the
main reason many retailers have run aground.
Consumers are moving from brick-and-mortar shopsDepartment-store
stocks have lost
one-fifth of their
value in the past
five years, while
the overall stock
market has
nearly doubled.