If the plight of brick-and-mortar retail was an apocalypse before the pandemic, it’s hard to say what to call it now.
Much of the retail sector faces an unprecedented threat from COVID-19 and bankruptcies continue to grow. The Ascena Retail Group, the parent company of Ann Taylor and Lane Bryant, filed Chapter 11 last week. The company will close up to 1,600 stores as part of a restructuring plan.
Other companies that have applied for bankruptcy protection are J.C. Penney, Neiman Marcus, J.Crew Group, Tuesday Morning and GNC Holdingswhile others – Zara, the parent company of Men’s Wearhouse (Tailored Brands), and H&M – have announced that they will close hundreds of stores.
Of course, this crisis is a disaster for clothing retailers as a whole. But, according to Coresight Research, store closings this year could total 25,000. The store closures will result in billions in market share. This represents a great opportunity for the companies that survive the crisis. There are three stocks that appear to be well positioned in this environment Stitch Fix (WKN: A2H52J), Target (WKN: 856243) and TJX Companies (WKN: 854854), the parent company of TJ Maxx, Marshall’s and Home Goods.
Stitch Fix: An e-commerce winner
Shopping for clothes in stores is already expensive in normal times, but it has become particularly unpleasant during the COVID-19 pandemic. Consumer spending in all categories has shifted to e-commerce. Stitch Fix, a personalized online styling service, seems to benefit from this shift. The company saw sales decline in its last quarter, which ended in early May. But Stitch Fix returned to growth this month and should continue to recover as the economy normalizes.
During the crisis, one of the biggest advantages of Stitch Fix is its autoship customers. They regularly receive “fixes” – boxes of five items of clothing that they can keep or return – mostly every month. This gives the company a reliable customer base that is happy to continue spending money in good and bad times. CEO Katrina Lake highlighted the importance of these autoship groups at the recent conference call:
First, the vast majority of our autoship customers choose to receive fixes regularly, be it every two to three weeks or on a monthly or quarterly basis. This gives us tremendous transparency when it comes to forecasting demand trends, buying into inventory and aligning our styling and warehouse staff to meet this demand.
Lower advertising costs during the recession also give the company the opportunity to address new customers. The company has introduced a new direct purchase option that gives buyers the option to skip the traditional fix process and shop directly on the platform. It’s easy to see why CEO Katrina Lake described the disruption to the industry as “a huge opportunity to gain market share”.
Target: Always indispensable
Target sells everything from food and clothing to household goods, electronics, health and beauty products, and may be the most diversified retailer. With an active digital business that includes same-day delivery and pickup options, Target is in a prime position. It can gain market share from retailers struggling. Among them are the above candidates and others like Bed Bath & Beyondwho recently announced that they will close 200 stores.
Although Target’s clothing sales declined during the lockdown, the big box chain gained momentum in the pre-pandemic category. Comparable apparel sales increased 10% in the third quarter of last year. This growth was mainly driven by brands such as A New Day and Cat and Jack. Similarly, Target has gained market share in toys after redesigning its toy division in a number of stores. It is also a partnership with Walt disney received. This should give Target a boost as toy sales increased during the pandemic because so many children spend more time at home.
After all, its locations, which are often on shopping or back streets, give the company an edge over malls that are currently struggling. Combined with its digital capabilities, which enable services such as car pickup (curbside pickup), Target is well positioned. In April, the number of comparable digital sales at Target almost quadrupled.
TJX: The return of the off-price
TJX struggled with the lockdown: The company closed its stores (as well as its websites) and fired over 100,000 people. Revenue fell more than 50% year over year in the first quarter, resulting in a loss of nearly $ 900 million. Management even put the dividend for the first half of the year on hold.
However, since the reopening of its stores, the TJX appears to be on the mend. The company had very positive news to report in its first quarter earnings report. In the initial phase of the reopening in May, sales increased compared to the previous year, with “very strong” first results. TJX isn’t particularly strong in e-commerce, but it does have a number of advantages that are well suited to the current crisis. For one thing, its reputation for low prices in a recessive climate is a clear advantage. In addition, his approach to inventory inventory leverages closings and order cancellations. Accordingly, it flourishes at a time when there are so many disruptions in the industry. Bankruptcies, store closings and other inventory problems with shopping center chains and department stores all favor TJX. These could help increase the company’s profit margins.
In addition, the company’s locations, such as Target’s, are usually located in shopping streets and separate business fronts. This gives the company an edge over many of its competitors because its businesses make it easier for customers to enter and exit. With its large selection of clothing and household goods and its bargain prices, TJX is likely to be one of the few retail companies that still attracts a steady stream of visitors when its competitors start to falter.
The post 3 Winner of the Retail Apocalypse appeared first on The Motley Fool Germany.
Jeremy Bowman owns shares in Stitch Fix, Target and Walt Disney. The Motley Fool owns shares of and recommends Stitch Fix and Walt Disney. The Motley Fool recommends shares of TJX Companies and recommends the following options: Long January 2021 $ 60 calls on Walt Disney and Short October 2020 $ 125 calls on Walt Disney.
This article was written by and was written by Jeremy Bowman on July 26th, 2020 on Fool.com released. It has been translated so that our German readers can take part in the discussion.
Motley Fool Deutschland 2020