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Market News: Is This a Golden Age of Retail?

Posted On August 23, 2018 2:53 pm
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Spending Shift

More people under 35 are entering the job market than any time since 1982. With or without a recession and despite student loans about $1 trillion US consumer spending is going to shift from brick and mortar to ecommerce in the next 10–15yrs. Every smartphone is a potential store that’s fully in stock and never closed. Retailers who consider that to be a bad thing are insane.

This year Amazon will do about $80 billion in online sales; roughly 120% more than the next 10 biggest players combined.

Online is still only 10% of US retail sales. There hasn’t been a bigger opportunity for merchants since suburbs were invented. Other companies are going to figure out how to sell to Millennials. It’s not about competing on price alone. It’s about meeting expectations then giving a little more. Do that consistently and you gain customer loyalty, online or off. This has been true since the invention of commerce.

Smart phones in the hands of Millennials who know how to use them disrupt retail in the best possible way. Good merchants can grow right here in the US by taking share. Prices drop but margins stabilize, as happens in all new mediums. Amazon will keep their lead but not their current 30% share of the US e-commerce market. In 10 years Walmart (I’m long) will be doing more than 20% of their US sales online. Amazon will have stores (they might be called distribution centers but in an obvious sense all stores are just locations from which to distribute goods). Stores aren’t disappearing. They are becoming ubiquitous.

Walmart has thousands of stores. They were all built as cheaply as possible in locations near metropolitan areas. Take out the shelving and displays and an underperforming big box store can become a distribution center able to process 10x more product (and without all the shoplifting and other headaches of running a store). Those who don’t see this installed base as an

Walmart has thousands of stores. They were all built as cheaply as possible in locations near metropolitan areas. Take out the shelving and displays and an underperforming big box store can become a distribution center able to process 10x more product (and without all the shoplifting and other headaches of running a store). Those who don’t see this installed base as an opportunity just don’t get it.

ECommerce isn’t a problem for US retailers. It’s the greatest opportunity for domestic growth in decades. It’s a land grab for market share. Winners will make billions. Losers will die hideous deaths. It’s all going to be wonderful theater and at least potentially very profitable for investors.

This isn’t a theory. It’s already happened. DPZ crushed estimates yesterday, driven largely by apps accounting for almost 1/3 of orders. That wasn’t an accident. It was an investment. Here’s a chart of some companies’ capex/ revenue over the last 10 years. It’s a crude measure of how much of their cash they plowed back into their businesses.

Wall Street is telling retailers it values growth over earnings. That’s not mania. It’s early recognition of the size of the opportunity. It’s never been less important for a retailer to hit a quarterly EPS estimate. Ecommerce is akin to the opening of the Oklahoma Territory. Would you have wanted to invest in the pioneers with the fastest horses who were going to stake out the best land or the family concerned about not taking too many chances on their way into the new world?

I’m looking for the old school merchants with the smartest digital strategy and liquidity to put initiatives in place. The Millennials are coming 75 million strong and about to start breeding like rabbits. Merchants tapping that market with a holistic approach to customer satisfaction are going to win huge over the next decade. This shouldn’t be a shock. It’s just history repeating. The fact so few people see it coming is exactly what makes it a great investment opportunity.

 Related: This Bullish Alibaba Play Can Net You Huge Gains!

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