Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
Gold Short-term Pull Back in Progress - 20th Mar 18
Stocks Appear to be Under Pressure - 20th Mar 18
Time To Eliminate Your Wall Street Tax? - 20th Mar 18
The Beast from the East Snow, UK Roads Driving Car Accidents - 20th Mar 18
Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - 19th Mar 18
2018 Reversal Dates for Gold, Silver and Gold Stocks - 19th Mar 18
This Tech Breakthrough Could Save The Electric Car Market - 19th Mar 18
Stocks Set to Open Lower, Should You Buy? - 19th Mar 18
The Wealth Machine That Rising Interest Rates Create Conflict With The National Debt - 19th Mar 18
Affiliate Marketing Tips and Network Recommendations - 19th Mar 18
Do Stocks Bull Market Tops Need Breadth Divergences? - 19th Mar 18
Doritos Instant £500 Win! Why Super Market Shelves are Empty - 19th Mar 18
Bonds, Inflation & the Market Amigos - 19th Mar 18
US Housing Real Estate Market and Banking Pressures Are Building - 19th Mar 18
Stock Market Bulls Last Stand? - 18th Mar 18
Putin Flip-Flops Like A Drunken Whore On Bitcoin Cryptocurrency Legalization - 18th Mar 18
How to Legally Manipulate Interest Rates - 18th Mar 18
Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - 18th Mar 18
Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - 17th Mar 18
Strong Earnings Growth is Bullish for Stocks - 17th Mar 18
The War on the Post Office - 17th Mar 18
GDX Gold Mining Stocks Fundamentals - 16th Mar 18
Nationalism, Not the Russians, got Trump Elected - 16th Mar 18
Has Bitcoin Bought It? - 16th Mar 18
Crude Oil Price – Who Wants the Triangle? - 16th Mar 18
PayPal Cease Trading Crypto Currency Bitcoin Warning Email Sophisticated Fake Scam? - 16th Mar 18
EUR/USD – Something Old, Something New and… Something Blue - 16th Mar 18
DasCoin: A 5-Minute Guide to How It Works - 15th Mar 18
Stock Market Downward Pressure Mounting - 15th Mar 18
The Stock Market Trend is Your Friend ’til the Very End - 15th Mar 18
6 Easy Ways to Get What Women Want, for Less! - 15th Mar 18
This Isn’t Your Grandfather’s (1960s) Inflation Scare - 15th Mar 18
Eye Opening Stock Market Index, Volatility, Charts and Predictions - 15th Mar 18
Gold Cup At Cheltenham – Gold Is For Winners, Not For Gamblers - 15th Mar 18
Upcoming Turnaround in Gold - 14th Mar 18
Will the Stock Market Make Another Correction this Year? - 14th Mar 18
4 Ways To Writing An Interesting Education Research Paper - 14th Mar 18
China Toward Sustainable Economic Growth - 14th Mar 18
Stock Market Direction Is No Longer Important - 14th Mar 18
Trade Tariffs Defeat Globalists and Return Prosperity - 14th Mar 18
Stock Market Crash is Underway and Cannot be Stopped! - 14th Mar 18
Are Energy Sector Stocks Bottoming? - 14th Mar 18
Nasdaq Stocks Soars to New Record High After Strong Job Reports - 14th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

Don’t Short Retail Stocks - the Trade Is Already Half Over

Companies / Retail Sector Apr 07, 2017 - 02:11 PM GMT

By: John_Mauldin


BY JARED DILLIAN : A lot of electrons have been spilled in the last couple of weeks about the demise of retail. Particularly malls and mall retailers. Nobody goes to the store anymore. They all have Amazon Prime.

If you are an amateur trader (or even an experienced trader), you might think that this is a good time to short retailers.

Take it from an even more experienced trader: By the time you hear about the trade, it's at least half over, and maybe more.

That’s not to say that there isn’t money to be made shorting retail—the JCPenneys and Sears of this world are probably not going to make it. But trading this sort of thing is a dangerous game. At some point, some of these stocks look like a tasty treat to private equity.

I’m more interested in talking about this from a philosophical standpoint.

Mall Culture

We’re on the precipice of seeing a big slice of American culture get wiped out. Someday, people will find a VHS tape of the movie Mallrats and look at it like an archaeological treasure.

There was a mall near where I grew up. It opened to much fanfare on March 17, 1983. I used to save my allowances and go to Record Town (or Record World, or Tape World, all in the same mall) and buy a Depeche Mode cassette tape or something like that.

Read that sentence over again and marvel at how foreign it seems.

  • There are no record stores
  • There are no cassette tapes (or CDs)
  • There are no malls

But Depeche Mode is still around!

Have you ever wondered how Planet Fitness can be so disruptive in the gym space?

A lot of it has to do with the fact that they’ve been able to move into these giant spaces in malls, once held by anchor tenants that have since moved out, paying a fraction of the rent that was previously being paid.

Their strategy actually doesn’t work at all unless they have cheap real estate. And with shopping centers struggling mightily, it’s been a boon for Planet Fitness.

So you have to wonder what this world is going to look like. I think about my drive along Highway 17 on the way to work. There is already one defunct mall. Will there be more? Will I drive past a half-dozen vacant shopping centers on the way to my office? Will everyone just sit at home and order stuff?

Will all retail go out of business?

That is what people fear.

But probably not.

Why Ulta Is an Exception

Recently, I did a write-up on Ulta Beauty Inc. (ULTA), a beauty products store/salon chain.

Technically, Ulta is a retailer, but have you seen a chart of the stock?

I thought all retailers were going out of business?

Ulta is an exception, because they have made themselves un-Amazonable. Yes, it is a store. But there is a salon, and a brow bar, and makeup counters, and Ulta has gotten to where it is today almost entirely by being helpful and friendly.

Ulta is a community. People go there to hang out and put on makeup. The staff will try to upsell you occasionally (and succeed!).

You can’t do Ulta in your home.

When I think about successful businesses in an world, I think about businesses that are successful in building a community.

If you are starting any sort of retail business, it has to be the sort of place that builds a community and gives people a reason for going there, even if they have nothing to buy. They might end up buying something anyway.

The Trade

There’s an old saying on Wall Street that with any disruptive technology, it’s a lot easier to pick the losers than the winners. I can confirm that this is true. For an obvious example, BlackBerry (RIMM) should have been an easy short when the iPhone came out.

Finding the ULTAs of the world is hard. If I ran a retail long/short hedge fund, I wouldn’t be confident in my ability to do it. Picking losers = easy. Hard to imagine a scenario where JCPenney (JCP) and Sears (SHLD) are still around in a couple of years.

The irony, of course, is that 100-odd years ago, Sears was Amazon! Catalogue retailing—what an innovation.

That is the nature of capitalism: the disrupter gets disrupted. Sometimes it takes 100 years (which is why short selling is the hardest thing you can ever do).

Grab the Exclusive Special Report, The Return of Inflation: How to Play the Bond Bear Market, from a Former Lehman Brothers Trader

Don’t miss out on this opportunity to cash in on the coming inflation.

Jared Dillian, the former head of Lehman Brothers’ ETF trading desk, reveals why inflationary price increases could be much higher than 1% or 2% and how you can position yourself for big profits as the bond market falls.

Download the special report now. 

John Mauldin Archive

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules