Based on Q2 results, when it comes to picking a winner in retail, selling price matters. Not the price of the stock – the prices of products. The retail landscape is bleak – except for companies offering low prices.
Sales growth in Q2 came from: Wal-Mart Stores (NYSE:WMTC), Target (NYSE:TJXC), Ross Stores (NASDAQ:ROSTC) and, naturally, Amazon.com (NASDAQ:AMZNC). Each of these retailers shared the fact that they concentrate on low prices.
Related: RISK AND INVESTING
The E-Commerce Stop-Gap
For everyone else, investing in e-commerce has helped, but not enough. The investment, it seems, need to be in lowering costs and prices. Stores like TJX and Ross have an edge thanks to their low operating costs, which allow them to see items at big discounts.
To that end, Ross said its operating margin was 14.9% in Q2 versus 14.4% a year earlier. Better prices drove stronger-than-expected sales. For companies like Gap Inc. (NYSE:GPSC), it was the low-end brands (in this case, Old Navy) driving sales. Gap CEO, Art Peck referred to Old Navy as “the fastest-growing apparel brand in the U.S. among major retailers.”
Also-Rans In Trouble
Retailers where sales declined, Macy’s Inc. (NYSE:MC), Kohl’s Corp. (NYSE:KSSC) and J.C. Penney (NYSE:JCPC), to name 3, are going to have to change their business model, according to analysts, or they may not be able to turn things around.
One area, sporting goods, made the point in clear fashion. Dick’s Sporting Goods (NYSE:DKSC) and Foot Locker Inc. (NYSE:FLC) saw shares slammed. Dick’s blamed lower-priced competition and Foot Locker laid blame on the absence of new styles. Dick’s may be more correct, given overall results.
What’s Hot Despite Amazon
For a variety of reasons, Amazon gets the blame for putting pressure on retailers, especially the bricks and mortar variety. Despite that pressure, a few retailers are surviving the “Amazon effect.”
They include Five Below (NASDAQ:FIVEB), Party City (NYSE: PRTY) and Ulta Salon (NASDAQ:ULTAB). Five Below specializes in selling merchandise for $5 or less. The company’s success is said to be its ability to find “trend right” products that customers want and keep coming back to buy. Party City is making money selling, of all things, balloons. It also has started moving more sales online. Finally, Ulta Salon, which sells makeup and beauty accessories has an edge over Amazon because customers like to see and touch makeup before buying.