Article Highlights:
- Last week, Walmart said its e-commerce sales jumped 37%.
- I’m expecting similar results from Target when it reports second-quarter numbers.
- Meanwhile, some investors think Amazon is putting every retailer out of business.
If the recent results trickling in from the world of retail say anything, it’s that a smart, well-run retailer can compete against Amazon — and win.
Walmart is a good example. Last week, the company said its e-commerce sales jumped 37%.
I’m expecting similar results from Target when it reports second-quarter numbers this week, after posting a 42% gain in digital sales in the first quarter.
The chain’s transformation into an e-commerce powerhouse is all the more extraordinary when you consider that for many years, it paid Amazon to manage its website before realizing it was literally giving away the store.
It’s not just the major box stores either. Williams-Sonoma still gets a rep as a mall-based retailer. Yet more than 50% of its sales regularly come in through its internet channels.
The chain perfected the science of “showrooming,” where customers are encouraged to try out products in store and then go home to order them off the company’s website. That’s why Williams-Sonoma has posted annual same-store sales growth averaging better than 4% for the past decade.
It also points to the opportunities investors miss when they substitute memes such as “retail Armageddon” for actual research into individual companies.
The “Black Widow” Strategy
I say all this because it’s easy to look at clickworthy photos of a dead mall or storefront and think Amazon’s putting them all out of business.
But as researchers at Retail Dive and elsewhere have pointed out, many of the largest, high-profile retail bankruptcies of recent years — Toys R Us, Sports Authority, Payless ShoeSource and others — happened because of the financial shenanigans of the chains’ private equity owners.
The firms’ “black widow” strategy is to buy chains with strong cash flow. Afterward, they load up their retailers’ balance sheets with extreme amounts of debt.
From there, the private equity owner can use various financial techniques, such as declaring special dividends, to siphon as much value as possible.
Burdened by an unsustainable level of debt, it’s only a matter of time before the chain is thrown into bankruptcy.
Best of good buys,
Jeff L. Yastine
Editor, Total Wealth Insider